FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended March 31, 2009
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Transition Period From To
Commission File Number 1-11302
(Exact name of registrant as specified in its charter)
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Ohio
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34-6542451 |
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(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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127 Public Square, Cleveland, Ohio
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44114-1306 |
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(Address of principal executive offices)
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(Zip Code) |
(216) 689-6300
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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Common Shares with a par value of $1 each
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502,479,136 Shares |
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(Title of class)
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(Outstanding at April 30, 2009) |
KEYCORP
TABLE OF CONTENTS
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
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March 31, |
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December 31, |
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March 31, |
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in millions, except share data |
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2009 |
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2008 |
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2008 |
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(Unaudited) |
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(Unaudited) |
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ASSETS |
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Cash and due from banks |
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$ |
637 |
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$ |
1,257 |
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$ |
1,730 |
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Short-term investments |
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2,917 |
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5,221 |
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577 |
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Trading account assets |
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1,279 |
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1,280 |
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1,015 |
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Securities available for sale |
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8,530 |
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8,437 |
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8,419 |
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Held-to-maturity securities (fair value: $25, $25 and $29) |
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25 |
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25 |
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29 |
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Other investments |
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1,464 |
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1,526 |
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1,561 |
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Loans, net of unearned income of $2,143, $2,345 and $2,168 |
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73,703 |
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76,504 |
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76,444 |
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Less: Allowance for loan losses |
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2,186 |
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1,803 |
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1,298 |
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Net loans |
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71,517 |
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74,701 |
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75,146 |
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Loans held for sale |
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1,124 |
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1,027 |
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1,674 |
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Premises and equipment |
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847 |
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840 |
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712 |
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Operating lease assets |
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889 |
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990 |
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1,070 |
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Goodwill |
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917 |
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1,138 |
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1,599 |
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Other intangible assets |
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112 |
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128 |
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164 |
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Corporate-owned life insurance |
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2,994 |
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2,970 |
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2,894 |
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Derivative assets |
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1,707 |
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1,896 |
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1,508 |
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Accrued income and other assets |
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2,875 |
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3,095 |
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3,394 |
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Total assets |
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$ |
97,834 |
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$ |
104,531 |
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$ |
101,492 |
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LIABILITIES |
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Deposits in domestic offices: |
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NOW and money market deposit accounts |
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$ |
23,599 |
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$ |
24,191 |
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$ |
26,527 |
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Savings deposits |
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1,795 |
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1,712 |
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1,826 |
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Certificates of deposit ($100,000 or more) |
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13,250 |
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11,991 |
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8,330 |
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Other time deposits |
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14,791 |
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14,763 |
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12,933 |
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Total interest-bearing |
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53,435 |
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52,657 |
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49,616 |
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Noninterest-bearing |
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11,760 |
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11,485 |
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10,896 |
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Deposits in foreign office
interest-bearing |
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801 |
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1,118 |
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4,190 |
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Total deposits |
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65,996 |
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65,260 |
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64,702 |
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Federal funds purchased and securities sold under repurchase agreements |
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1,565 |
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1,557 |
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3,503 |
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Bank notes and other short-term borrowings |
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2,285 |
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8,477 |
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5,464 |
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Derivative liabilities |
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932 |
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1,038 |
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465 |
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Accrued expense and other liabilities |
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1,904 |
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2,523 |
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4,252 |
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Long-term debt |
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14,978 |
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14,995 |
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14,337 |
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Total liabilities |
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87,660 |
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93,850 |
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92,723 |
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EQUITY |
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Preferred stock, $1 par value, authorized 25,000,000 shares: |
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7.750% Noncumulative Perpetual Convertible Preferred Stock, Series A, $100
liquidation preference; authorized 7,475,000
shares; issued 6,575,000 shares |
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658 |
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658 |
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Fixed-Rate Cumulative Perpetual Preferred Stock, Series B, $100,000 liquidation
preference; authorized and issued 25,000 shares |
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2,418 |
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2,414 |
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Common shares, $1 par value; authorized 1,400,000,000 shares;
issued 584,061,120, 584,061,120 and 491,888,780 shares |
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584 |
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584 |
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492 |
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Common stock warrant |
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87 |
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87 |
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Capital surplus |
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2,464 |
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2,553 |
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1,659 |
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Retained earnings |
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6,160 |
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6,727 |
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8,737 |
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Treasury stock, at cost (85,487,810, 89,058,634, and 91,818,259 shares) |
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(2,500 |
) |
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(2,608 |
) |
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(2,689 |
) |
Accumulated other comprehensive income |
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97 |
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65 |
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393 |
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Key shareholders equity |
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9,968 |
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10,480 |
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8,592 |
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Noncontrolling interests |
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206 |
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201 |
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177 |
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Total equity |
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10,174 |
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10,681 |
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8,769 |
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Total liabilities and equity |
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$ |
97,834 |
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$ |
104,531 |
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$ |
101,492 |
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See Notes to Consolidated Financial Statements (Unaudited).
3
Consolidated Statements of Income (Unaudited)
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Three months ended March 31, |
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dollars in millions, except per share amounts |
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2009 |
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2008 |
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INTEREST INCOME |
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Loans |
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$ |
883 |
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$ |
1,123 |
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Loans held for sale |
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12 |
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87 |
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Securities available for sale |
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108 |
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109 |
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Held-to-maturity securities |
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1 |
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1 |
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Trading account assets |
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13 |
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13 |
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Short-term investments |
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3 |
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9 |
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Other investments |
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12 |
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12 |
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Total interest income |
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1,032 |
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1,354 |
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INTEREST EXPENSE |
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Deposits |
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300 |
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428 |
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Federal funds purchased and securities sold under repurchase agreements |
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1 |
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28 |
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Bank notes and other short-term borrowings |
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6 |
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39 |
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Long-term debt |
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111 |
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|
146 |
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Total interest expense |
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418 |
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641 |
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NET INTEREST INCOME |
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|
614 |
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|
713 |
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Provision for loan losses |
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875 |
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187 |
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Net interest (loss) income after provision for loan losses |
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|
(261 |
) |
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|
526 |
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|
|
|
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NONINTEREST INCOME |
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Trust and investment services income |
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|
117 |
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|
129 |
|
Service charges on deposit accounts |
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82 |
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|
88 |
|
Operating lease income |
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|
61 |
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|
69 |
|
Letter of credit and loan fees |
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|
38 |
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|
37 |
|
Corporate-owned life insurance income |
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27 |
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28 |
|
Electronic banking fees |
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24 |
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24 |
|
Insurance income |
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18 |
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15 |
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Investment banking and capital markets income |
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18 |
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8 |
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Net securities (losses) gains |
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(14 |
) |
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3 |
|
Net (losses) gains from principal investing |
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(72 |
) |
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11 |
|
Net gains (losses) from loan securitizations and sales |
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|
8 |
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(101 |
) |
Gain from sale/redemption of Visa Inc. shares |
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105 |
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165 |
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Other income |
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|
80 |
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|
54 |
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Total noninterest income |
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|
492 |
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|
530 |
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NONINTEREST EXPENSE |
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Personnel |
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362 |
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|
409 |
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Net occupancy |
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66 |
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|
66 |
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Operating lease expense |
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|
50 |
|
|
|
58 |
|
Computer processing |
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|
47 |
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|
47 |
|
Professional fees |
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|
35 |
|
|
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23 |
|
FDIC assessment |
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|
30 |
|
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|
2 |
|
Equipment |
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22 |
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|
|
24 |
|
Marketing |
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14 |
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|
14 |
|
Intangible assets impairment |
|
|
223 |
|
|
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Other expense |
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|
124 |
|
|
|
90 |
|
|
Total noninterest expense |
|
|
973 |
|
|
|
733 |
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|
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|
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(LOSS) INCOME BEFORE INCOME TAXES |
|
|
(742 |
) |
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|
323 |
|
Income taxes |
|
|
(244 |
) |
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|
104 |
|
|
NET (LOSS) INCOME |
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|
(498 |
) |
|
|
219 |
|
Less: Net (loss) income attributable
to noncontrolling interests |
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|
(10 |
) |
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|
1 |
|
|
NET (LOSS) INCOME ATTRIBUTABLE TO KEY |
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$ |
(488 |
) |
|
$ |
218 |
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|
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|
|
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|
Net (loss) income attributable to Key common shareholders |
|
$ |
(536 |
) |
|
$ |
218 |
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|
|
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Per common share: |
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Net (loss) income attributable to Key |
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$ |
(1.09 |
) |
|
$ |
.55 |
|
Net (loss) income attributable to Key assuming dilution |
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|
(1.09 |
) |
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|
.54 |
|
Cash dividends declared |
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|
.0625 |
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Weighted-average common shares outstanding (000) |
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|
492,813 |
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|
399,121 |
|
Weighted-average common shares and potential common shares outstanding (000) |
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|
492,813 |
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|
399,769 |
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|
See Notes to Consolidated Financial Statements (Unaudited).
4
Consolidated Statements of Changes in Equity (Unaudited)
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Key
Shareholders Equity |
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Accumulated |
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|
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|
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|
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|
|
Common |
|
|
|
|
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|
|
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|
|
Treasury |
|
|
Other |
|
|
|
|
|
|
|
|
|
Preferred Stock |
|
|
Common Shares |
|
|
Preferred |
|
|
Common |
|
|
Stock |
|
|
Capital |
|
|
Retained |
|
|
Stock, |
|
|
Comprehensive |
|
|
Noncontrolling |
|
|
Comprehensive |
|
dollars in millions, except per share amounts |
|
Outstanding (000) |
|
|
Outstanding (000) |
|
|
Stock |
|
|
Shares |
|
|
Warrant |
|
|
Surplus |
|
|
Earnings |
|
|
at Cost |
|
|
Income (Loss) |
|
|
Interests |
|
|
Income (Loss) |
|
|
BALANCE AT DECEMBER 31, 2007 |
|
|
|
|
|
|
388,793 |
|
|
|
|
|
|
$ |
492 |
|
|
|
|
|
|
$ |
1,623 |
|
|
$ |
8,522 |
|
|
$ |
(3,021 |
) |
|
$ |
130 |
|
|
$ |
233 |
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218 |
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
$ |
219 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
Net unrealized gains on securities available
for sale, net of income taxes of $68 (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113 |
|
|
|
|
|
|
|
113 |
|
Net unrealized gains on derivative financial instruments,
net of income taxes of $91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138 |
|
|
|
|
|
|
|
138 |
|
Net distribution to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57 |
) |
|
|
(57 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
10 |
|
Net pension and postretirement benefit costs,
net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares reissued: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of U.S.B. Holding Co., Inc. |
|
|
|
|
|
|
9,895 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and other employee benefit plans |
|
|
|
|
|
|
1,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20 |
) |
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2008 |
|
|
|
|
|
|
400,071 |
|
|
|
|
|
|
$ |
492 |
|
|
|
|
|
|
$ |
1,659 |
|
|
$ |
8,737 |
|
|
$ |
(2,689 |
) |
|
$ |
393 |
|
|
$ |
177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT DECEMBER 31, 2008 |
|
|
6,600 |
|
|
|
495,002 |
|
|
$ |
3,072 |
|
|
$ |
584 |
|
|
$ |
87 |
|
|
$ |
2,553 |
|
|
$ |
6,727 |
|
|
$ |
(2,608 |
) |
|
$ |
65 |
|
|
$ |
201 |
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(488 |
) |
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
$ |
(498 |
) |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on securities available
for sale, net of income taxes of $26 (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
44 |
|
Net unrealized losses on derivative financial
instruments,
net of income taxes of ($5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(9 |
) |
Net contribution from noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
|
|
15 |
|
Foreign currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(9 |
) |
Net pension and postretirement benefit costs,
net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on common shares ($.0625 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared on Noncumulative Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock ($1.9375 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends accrued on Cumulative Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock (5% per annum) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of discount on Series B Preferred Stock |
|
|
|
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares reissued for stock options and other
employee benefit plans |
|
|
|
|
|
|
3,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92 |
) |
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2009 |
|
|
6,600 |
|
|
|
498,573 |
|
|
$ |
3,076 |
|
|
$ |
584 |
|
|
$ |
87 |
|
|
$ |
2,464 |
|
|
$ |
6,160 |
|
|
$ |
(2,500 |
) |
|
$ |
97 |
|
|
$ |
206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net of reclassification adjustments. |
See Notes to Consolidated Financial Statements (Unaudited).
5
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(498 |
) |
|
$ |
219 |
|
Adjustments to reconcile net (loss) income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
875 |
|
|
|
187 |
|
Intangible assets impairment |
|
|
223 |
|
|
|
|
|
Depreciation and amortization expense |
|
|
102 |
|
|
|
110 |
|
Gain from sale/redemption of Visa Inc. shares |
|
|
(105 |
) |
|
|
(165 |
) |
Net losses (gains) from principal investing |
|
|
72 |
|
|
|
(11 |
) |
Net securities losses (gains) |
|
|
14 |
|
|
|
(3 |
) |
Net (gains) losses from loan securitizations and sales |
|
|
(8 |
) |
|
|
101 |
|
Liability to Visa |
|
|
|
|
|
|
(64 |
) |
Deferred income taxes |
|
|
(176 |
) |
|
|
(87 |
) |
Net increase in loans held for sale |
|
|
(181 |
) |
|
|
(222 |
) |
Net decrease in trading account assets |
|
|
1 |
|
|
|
41 |
|
Other operating activities, net |
|
|
(282 |
) |
|
|
156 |
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
37 |
|
|
|
262 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from sale/redemption of Visa Inc. shares |
|
|
105 |
|
|
|
165 |
|
Cash used in acquisitions, net of cash acquired |
|
|
|
|
|
|
(157 |
) |
Net decrease in short-term investments |
|
|
2,304 |
|
|
|
5 |
|
Purchases of securities available for sale |
|
|
(502 |
) |
|
|
(331 |
) |
Proceeds from sales of securities available for sale |
|
|
16 |
|
|
|
825 |
|
Proceeds from prepayments and maturities of securities available for sale |
|
|
458 |
|
|
|
354 |
|
Purchases of held-to-maturity securities |
|
|
(6 |
) |
|
|
(2 |
) |
Proceeds from prepayments and maturities of held-to-maturity securities |
|
|
6 |
|
|
|
|
|
Purchases of other investments |
|
|
(48 |
) |
|
|
(174 |
) |
Proceeds from sales of other investments |
|
|
3 |
|
|
|
84 |
|
Proceeds from prepayments and maturities of other investments |
|
|
28 |
|
|
|
37 |
|
Net decrease (increase) in loans, excluding acquisitions, sales and transfers |
|
|
2,379 |
|
|
|
(1,163 |
) |
Purchases of loans |
|
|
|
|
|
|
(17 |
) |
Proceeds from loan securitizations and sales |
|
|
7 |
|
|
|
144 |
|
Purchases of premises and equipment |
|
|
(33 |
) |
|
|
(46 |
) |
Proceeds from sales of premises and equipment |
|
|
1 |
|
|
|
|
|
Proceeds from sales of other real estate owned |
|
|
5 |
|
|
|
2 |
|
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
|
4,723 |
|
|
|
(274 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Net increase (decrease) in deposits |
|
|
736 |
|
|
|
(202 |
) |
Net decrease in short-term borrowings |
|
|
(6,184 |
) |
|
|
(1,610 |
) |
Net proceeds from issuance of long-term debt |
|
|
445 |
|
|
|
2,241 |
|
Payments on long-term debt |
|
|
(300 |
) |
|
|
(356 |
) |
Net proceeds from issuance of common shares |
|
|
|
|
|
|
3 |
|
Tax benefits under recognized compensation cost for stock-based awards |
|
|
(2 |
) |
|
|
|
|
Cash dividends paid |
|
|
(75 |
) |
|
|
(148 |
) |
|
NET CASH USED IN FINANCING ACTIVITIES |
|
|
(5,380 |
) |
|
|
(72 |
) |
|
NET DECREASE IN CASH AND DUE FROM BANKS |
|
|
(620 |
) |
|
|
(84 |
) |
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD |
|
|
1,257 |
|
|
|
1,814 |
|
|
CASH AND DUE FROM BANKS AT END OF PERIOD |
|
$ |
637 |
|
|
$ |
1,730 |
|
|
|
|
|
|
|
|
|
Additional disclosures relative to cash flows: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,002 |
|
|
$ |
693 |
|
Income taxes (refunded) paid |
|
|
(126 |
) |
|
|
15 |
|
Noncash items: |
|
|
|
|
|
|
|
|
Assets acquired |
|
|
|
|
|
$ |
2,810 |
|
Liabilities assumed |
|
|
|
|
|
|
2,648 |
|
Loans transferred to portfolio from held for sale |
|
$ |
84 |
|
|
|
3,284 |
|
Loans transferred to other real estate owned |
|
|
45 |
|
|
|
12 |
|
|
See Notes to Consolidated Financial Statements (Unaudited).
6
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The unaudited condensed consolidated interim financial statements include the accounts of KeyCorp
and its subsidiaries. All significant intercompany accounts and transactions have been eliminated
in consolidation.
As used in these Notes:
¨ |
|
KeyCorp refers solely to the parent holding company; |
|
¨ |
|
KeyBank refers to KeyCorps subsidiary bank, KeyBank National Association; and |
|
¨ |
|
Key refers to the consolidated entity consisting of KeyCorp and its subsidiaries. |
The consolidated financial statements include any voting rights entity in which Key has a
controlling financial interest. In accordance with Financial Accounting Standards Board (FASB)
Revised Interpretation No. 46, Consolidation of Variable Interest Entities, a variable interest
entity (VIE) is consolidated if Key has a variable interest in the entity and is exposed to the
majority of its expected losses and/or residual returns (i.e., Key is considered to be the primary
beneficiary). Variable interests can include equity interests, subordinated debt, derivative
contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and
other contracts, agreements and financial instruments. See Note 8 (Variable Interest Entities),
which begins on page 21, for information on Keys involvement with VIEs.
Management uses the equity method to account for unconsolidated investments in voting rights
entities or VIEs in which Key has significant influence over operating and financing decisions
(usually defined as a voting or economic interest of 20% to 50%, but not controlling).
Unconsolidated investments in voting rights entities or VIEs in which Key has a voting or economic
interest of less than 20% generally are carried at cost. Investments held by KeyCorps registered
broker-dealer and investment company subsidiaries (primarily principal investments) are carried at
fair value.
Qualifying special purpose entities (SPEs), including securitization trusts, established by Key
under the provisions of Statement of Financial Accounting Standards (SFAS) No. 140, Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, are not
consolidated. Information on SFAS No. 140 is included in Note 7 (Loan Securitizations and
Mortgage Servicing Assets), which begins on page 18.
Management believes that the unaudited condensed consolidated interim financial statements reflect
all adjustments of a normal recurring nature and disclosures that are necessary for a fair
presentation of the results for the interim periods presented. Some previously reported amounts
have been reclassified to conform to current reporting practices.
The results of operations for the interim period are not necessarily indicative of the results of
operations to be expected for the full year. The interim financial statements should be read in
conjunction with the audited consolidated financial statements and related notes included in Keys
2008 Annual Report to Shareholders.
Goodwill and Other Intangible Assets
Under SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and certain other intangible
assets are subject to impairment testing, which must be conducted at least annually. Key performs
the goodwill impairment testing in the fourth quarter of each year. Keys reporting units for
purposes of this testing are its major business segments, Community Banking and National Banking.
Due to the ongoing uncertainty regarding market conditions, which may continue to negatively impact
the performance of Keys reporting units, management continues to monitor the impairment indicators
for goodwill and other intangible assets and to evaluate the carrying amount of these assets, if
necessary.
7
During the first quarter of 2009, market conditions prompted management to review and evaluate the
carrying amount of the goodwill and other intangible assets assigned to Keys Community Banking and
National Banking units. This review indicated that the estimated fair value of the Community
Banking unit was greater than its carrying amount, while the estimated fair value of the National
Banking unit was less than its carrying amount, reflecting continued weakness in the financial
markets. Based on the results of additional impairment testing required for the National Banking
unit, Key recorded an after-tax noncash accounting charge of $187 million, or $.38 per common
share, during the first quarter of 2009. Keys regulatory and tangible capital ratios were not
affected by this adjustment. As a result of this charge, Key has now written off all of the
goodwill that had been assigned to the National Banking unit.
Noncontrolling Interests
Keys Principal Investing unit and the Real Estate Capital and Corporate Banking Services line of
business have noncontrolling (minority) interests. Key accounts for these interests in accordance
with SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an Amendment of
ARB No. 51. Key reports noncontrolling interests in subsidiaries as a component of equity on the
consolidated balance sheets. Net (loss) income includes the revenues, expenses, gains and losses
pertaining to both Key and the noncontrolling interests. The portion of net results attributable
to the noncontrolling interests is disclosed separately on the face of Keys consolidated income
statements to arrive at net (loss) income attributable to Key.
Offsetting Derivative Positions
In accordance with FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation 39, and
Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts, Key takes into account
the impact of master netting agreements that allow Key to settle all derivative contracts held with
a single counterparty on a net basis and to offset the net derivative position with the related
cash collateral when recognizing derivative assets and liabilities. Additional information
regarding derivative offsetting is provided in Note 15 (Derivatives and Hedging Activities),
which begins on page 30.
Accounting Pronouncements Adopted in 2009
Business combinations. In December 2007, the FASB issued SFAS No. 141(R), Business Combinations.
The new pronouncement requires the acquiring entity in a business combination to recognize only
the assets acquired and liabilities assumed in a transaction (e.g., acquisition costs must be
expensed when incurred), establishes the fair value at the date of acquisition as the initial
measurement for all assets acquired and liabilities assumed, and requires expanded disclosures.
SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 (effective January
1, 2009, for Key). Early adoption was prohibited.
Noncontrolling interests. In December 2007, the FASB issued SFAS No. 160, which requires all
entities to report noncontrolling interests in subsidiaries as a component of equity and sets forth
other presentation and disclosure requirements. This guidance is effective for fiscal years
beginning after December 15, 2008 (effective January 1, 2009, for Key). Early adoption was
prohibited. Additional information regarding this guidance is provided in this note under the
heading Noncontrolling Interests. Adoption of this guidance did not have a material effect on
Keys financial condition or results of operations.
Accounting for transfers of financial assets and repurchase financing transactions. In February
2008, the FASB issued Staff Position No. FAS 140-3, Accounting for Transfers of Financial Assets
and Repurchase Financing Transactions. This Staff Position provides guidance on accounting for a
transfer of a financial asset and a repurchase financing, and presumes that an initial transfer of
a financial asset and a repurchase financing are considered part of the same arrangement (linked
transaction) under SFAS No. 140. However, if certain criteria are met, the initial transfer and
repurchase financing shall be evaluated separately. Staff Position No. FAS 140-3 is effective for
fiscal years beginning after November 15, 2008 (effective January 1, 2009, for Key). Early
adoption was prohibited. Adoption of this guidance did not have a material effect on Keys
financial condition or results of operations.
8
Disclosures about derivative instruments and hedging activities. In March 2008, the FASB issued
SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, which amends and
expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This guidance requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures about fair value amounts, and gains and
losses on derivative instruments, and disclosures about credit risk contingent features in
derivative agreements. SFAS No. 161 is effective for fiscal years beginning after November 15,
2008 (effective January 1, 2009, for Key). The required disclosures are provided in Note 15.
Determination of the useful life of intangible assets. In April 2008, the FASB issued Staff
Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets. This guidance
amends the factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets. This Staff Position is effective for fiscal years beginning after December 15,
2008 (effective January 1, 2009, for Key). Early adoption was prohibited. Adoption of this
guidance did not have a material effect on Keys financial condition or results of operations.
Accounting for convertible debt instruments. In May 2008, the FASB issued Staff Position No. APB
14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement). This guidance requires the issuer of certain convertible
debt instruments that may be settled in cash (or other assets) on conversion to separately account
for the liability (debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuers nonconvertible debt borrowing rate. This Staff Position is effective
for fiscal years beginning after December 15, 2008 (effective January 1, 2009, for Key). Early
adoption was prohibited. Key has not issued and does not have any convertible debt instruments
outstanding that are subject to the accounting guidance in this Staff Position. Therefore,
adoption of this guidance did not have an effect on Keys financial condition or results of
operations.
Accounting Pronouncements Pending Adoption
Recognition and presentation of other-than-temporary impairments. In April 2009, the FASB issued
Staff Position No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments. This Staff Position provides new guidance on the recognition and presentation of
other-than-temporary impairments of debt securities, and requires additional disclosures that are
applicable to both debt and equity securities. This guidance will be effective for interim and
annual periods ending after June 15, 2009 (effective June 30, 2009, for Key) with early adoption
permitted. Adoption of this guidance is not expected to have a material effect on Keys financial
condition or results of operations.
Interim disclosures about fair value of financial instruments. In April 2009, the FASB issued
Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments. This guidance amends SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, and APB Opinion No. 28, Interim Financial Reporting, to require disclosures about
the fair value of financial instruments in interim financial statements of publicly traded
companies. This Staff Position will be effective for interim and annual periods ending after June
15, 2009 (effective June 30, 2009, for Key) with early adoption permitted.
Determining fair value when volume and level of activity have significantly decreased and
identifying transactions that are not orderly. In April 2009, the FASB issued Staff Position No.
FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability
Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This Staff
Position provides additional guidance for: (i) estimating fair value in accordance with SFAS No.
157, Fair Value Measurements, when the volume and level of activity for the asset or liability
have significantly decreased, and (ii) identifying circumstances that indicate that a transaction
is not orderly. This guidance emphasizes that fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date under current market conditions (i.e., not a forced liquidation or
distressed sale). Staff Position No. FAS 157-4 will be effective
9
for interim and annual periods ending after June 15, 2009 (effective June 30, 2009, for Key) with
early adoption permitted. Adoption of this accounting guidance is not expected to have a material
effect on Keys financial condition or results of operations.
Employers disclosures about postretirement benefit plan assets. In December 2008, the FASB issued
Staff Position No. FAS 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets,
which amends SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other
Postretirement Benefits. This guidance will require additional disclosures about assets held in
an employers defined benefit pension or other postretirement plan, including fair values of each
major asset category and the levels within the fair value hierarchy as set forth in SFAS No. 157.
This Staff Position will be effective for fiscal years ending after December 15, 2009 (effective
December 31, 2009, for Key).
2. Earnings Per Common Share
Keys basic and diluted earnings per common share are calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
dollars in millions, except per share amounts |
|
2009 |
|
|
2008 |
|
|
EARNINGS |
|
|
|
|
|
|
|
|
Net (loss) income attributable to Key |
|
$ |
(488 |
) |
|
$ |
218 |
|
Less: Cash dividends declared on Series A Preferred Stock |
|
|
12 |
|
|
|
|
|
Cash dividends accrued on Series B Preferred Stock |
|
|
32 |
|
|
|
|
|
Amortization of discount on Series B Preferred Stock |
|
|
4 |
|
|
|
|
|
|
Net (loss) income attributable to Key common shareholders |
|
$ |
(536 |
) |
|
$ |
218 |
|
|
|
|
|
|
|
|
|
WEIGHTED-AVERAGE COMMON SHARES |
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding (000) |
|
|
492,813 |
|
|
|
399,121 |
|
Effect of dilutive convertible preferred stock, common stock options and other stock awards (000) |
|
|
|
|
|
|
648 |
|
|
Weighted-average common shares and potential common shares outstanding (000) |
|
|
492,813 |
|
|
|
399,769 |
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
Net (loss) income attributable to Key |
|
$ |
(1.09 |
) |
|
$ |
.55 |
|
Net (loss) income attributable to Key assuming dilution |
|
|
(1.09 |
) |
|
|
.54 |
|
|
3. Acquisition
Key completed the following acquisition in 2008.
U.S.B. Holding Co., Inc.
On January 1, 2008, Key acquired U.S.B. Holding Co., Inc., the holding company for Union State
Bank, a 31-branch state-chartered commercial bank headquartered in Orangeburg, New York. U.S.B.
Holding Co. had assets of $2.840 billion and deposits of $1.804 billion at the date of acquisition.
Under the terms of the agreement, Key exchanged 9,895,000 KeyCorp common shares, with a value of
$348 million, and $194 million in cash for all of the outstanding shares of U.S.B. Holding Co. In
connection with the acquisition, Key recorded goodwill of approximately $350 million in the
Community Banking reporting unit. The acquisition expanded Keys presence in markets both within
and contiguous to its current operations in the Hudson Valley.
10
4. Line of Business Results
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 and Corporate Banking Services.
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). Real Estate
Capital emphasizes 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 served by both the Community Banking and National Banking
groups. Through its Public Sector and Financial Institutions businesses, Corporate Banking
Services also 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, 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 retail and floor-plan lending for marine and recreational vehicle products and began
to limit new education loans to those backed by government guarantee. This line of business
continues to service existing loans in these portfolios and to honor existing education loan
commitments. These actions are consistent with Keys strategy of de-emphasizing nonrelationship or
out-of-footprint businesses.
11
Other Segments
Other Segments consist of Corporate Treasury and Keys Principal Investing unit.
Reconciling Items
Total assets included under Reconciling Items primarily represent the unallocated portion of
nonearning assets of corporate support functions. Charges related to the funding of these assets
are part of net interest income and are allocated to the business segments through noninterest
expense. Reconciling Items also includes intercompany eliminations and certain items that are not
allocated to the business segments because they do not reflect their normal operations.
The table that spans pages 13 and 14 shows selected financial data for each major business group
for the three-month periods ended March 31, 2009 and 2008. This table is accompanied by
supplementary information for each of the lines of business that make up these groups. The
information was derived from the internal financial reporting system that management uses to
monitor and manage Keys financial performance. U.S. generally accepted accounting principles
(GAAP) guides financial accounting, but there is no authoritative guidance for management
accounting the way management uses its judgment and experience to make reporting decisions.
Consequently, the line of business results Key reports may not be comparable with line of business
results presented by other companies.
The selected financial data are based on internal accounting policies designed to compile results
on a consistent basis and in a manner that reflects the underlying economics of the businesses. In
accordance with Keys policies:
¨ |
|
Net interest income is determined by assigning a standard cost for
funds used or a standard credit for funds provided based on their
assumed maturity, prepayment and/or repricing characteristics.
The net effect of this funds transfer pricing is charged to the
lines of business based on the total loan and deposit balances of
each line. |
|
¨ |
|
Indirect expenses, such as computer servicing costs and corporate
overhead, are allocated based on assumptions regarding the extent
to which each line actually uses the services. |
|
¨ |
|
Keys consolidated provision for loan losses is allocated among
the lines of business primarily based on their actual net
charge-offs, adjusted periodically for loan growth and changes in
risk profile. The amount of the consolidated provision is based
on the methodology that management uses to estimate Keys
consolidated allowance for loan losses. This methodology is
described in Note 1 (Summary of Significant Accounting Policies)
under the heading Allowance for Loan Losses on page 79 of Keys
2008 Annual Report to Shareholders. |
|
¨ |
|
Income taxes are allocated based on the statutory federal income
tax rate of 35% (adjusted for tax-exempt interest income, income
from corporate-owned life insurance, and tax credits associated
with investments in low-income housing projects) and a blended
state income tax rate (net of the federal income tax benefit) of
2.5%. |
|
¨ |
|
Capital is assigned based on managements assessment of economic
risk factors (primarily credit, operating and market risk)
directly attributable to each line. |
Developing and applying the methodologies that management uses to allocate items among Keys lines
of business is a dynamic process. Accordingly, financial results may be revised periodically to
reflect accounting enhancements, changes in the risk profile of a particular business or changes in
Keys organizational structure.
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Community Banking |
|
|
National Banking |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
SUMMARY OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) (TE) |
|
$ |
415 |
|
|
$ |
422 |
|
|
$ |
286 |
|
|
$ |
338 |
(b) |
Noninterest income |
|
|
189 |
|
|
|
207 |
|
|
|
251 |
|
|
|
101 |
|
|
Total revenue (TE) (a) |
|
|
604 |
|
|
|
629 |
|
|
|
537 |
|
|
|
439 |
|
Provision for loan losses |
|
|
81 |
|
|
|
18 |
|
|
|
789 |
|
|
|
169 |
|
Depreciation and amortization expense |
|
|
36 |
|
|
|
38 |
|
|
|
66 |
|
|
|
72 |
|
Other noninterest expense |
|
|
434 |
|
|
|
387 |
|
|
|
471 |
(b) |
|
|
236 |
|
|
Income (loss) before income taxes (TE) |
|
|
53 |
|
|
|
186 |
|
|
|
(789 |
) |
|
|
(38 |
) |
Allocated income taxes and TE adjustments |
|
|
20 |
|
|
|
70 |
|
|
|
(216 |
) |
|
|
(14 |
) |
|
Net income (loss) |
|
|
33 |
|
|
|
116 |
|
|
|
(573 |
) |
|
|
(24 |
) |
Less: Net (loss) income attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
Net income (loss) attributable to Key |
|
$ |
33 |
|
|
$ |
116 |
|
|
$ |
(571 |
) |
|
$ |
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of consolidated net income attributable to Key |
|
|
N/M |
|
|
|
53 |
% |
|
|
N/M |
|
|
|
(11 |
)% |
Percent of total segments net income attributable to Key |
|
|
N/M |
|
|
|
103 |
|
|
|
N/M |
|
|
|
(21 |
) |
|
AVERAGE BALANCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases |
|
$ |
28,940 |
|
|
$ |
28,085 |
|
|
$ |
46,197 |
|
|
$ |
44,162 |
|
Total assets (a) |
|
|
31,949 |
|
|
|
31,016 |
|
|
|
54,810 |
|
|
|
56,193 |
|
Deposits |
|
|
51,560 |
|
|
|
49,777 |
|
|
|
12,214 |
|
|
|
11,877 |
|
|
OTHER FINANCIAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan charge-offs |
|
$ |
54 |
|
|
$ |
30 |
|
|
$ |
438 |
|
|
$ |
91 |
|
Return on average allocated equity |
|
|
4.13 |
% |
|
|
15.93 |
% |
|
|
(42.65 |
)% |
|
|
(1.96 |
)% |
Average full-time equivalent employees |
|
|
8,887 |
|
|
|
8,712 |
|
|
|
3,024 |
|
|
|
3,744 |
|
|
|
|
|
(a) |
|
Substantially all revenue generated by Keys major business groups is derived from clients
with residency in the United States. Substantially all long-lived assets, including premises
and equipment, capitalized software and goodwill held by Keys major business groups are
located in the United States. |
|
(b) |
|
National Bankings results for the first quarter of 2009 include a noncash charge for
goodwill and other intangible assets impairment of $223 million ($187 million after tax).
During the first quarter of 2008, National Bankings taxable-equivalent net interest income
and net results were reduced by $34 million and $21 million, respectively, as a result of its
involvement with certain leveraged lease financing transactions which were challenged by the
Internal Revenue Service (IRS). |
|
(c) |
|
Reconciling Items for the first quarter of 2009 include a $105 million ($65 million after
tax) gain from the sale of Keys remaining equity interest in Visa Inc. For the first
quarter of 2008, Reconciling Items include a $165 million ($103 million after tax) gain from
the partial redemption of Keys equity interest in Visa Inc. and a $17 million charge to
income taxes for the interest cost associated with the increase to Keys tax reserves for
certain lease in, lease out (LILO) transactions. |
|
TE |
|
= Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful |
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Segments |
|
|
Total Segments |
|
|
Reconciling Items |
|
|
Key |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(45 |
) |
|
$ |
(27 |
) |
|
$ |
656 |
|
|
$ |
733 |
|
|
$ |
(36 |
) |
|
$ |
(29 |
) |
|
$ |
620 |
|
|
$ |
704 |
|
|
(33 |
) |
|
|
55 |
|
|
|
407 |
|
|
|
363 |
|
|
|
85 |
(c) |
|
|
167 |
(c) |
|
|
492 |
|
|
|
530 |
|
|
|
(78 |
) |
|
|
28 |
|
|
|
1,063 |
|
|
|
1,096 |
|
|
|
49 |
|
|
|
138 |
|
|
|
1,112 |
|
|
|
1,234 |
|
|
|
|
|
|
|
|
|
|
870 |
|
|
|
187 |
|
|
|
5 |
|
|
|
|
|
|
|
875 |
|
|
|
187 |
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
110 |
|
|
10 |
|
|
|
11 |
|
|
|
915 |
|
|
|
634 |
|
|
|
(44 |
) |
|
|
(11 |
) |
|
|
871 |
|
|
|
623 |
|
|
|
(88 |
) |
|
|
17 |
|
|
|
(824 |
) |
|
|
165 |
|
|
|
88 |
|
|
|
149 |
|
|
|
(736 |
) |
|
|
314 |
|
|
(43 |
) |
|
|
(5 |
) |
|
|
(239 |
) |
|
|
51 |
|
|
|
1 |
|
|
|
44 |
(c) |
|
|
(238 |
) |
|
|
95 |
|
|
|
(45 |
) |
|
|
22 |
|
|
|
(585 |
) |
|
|
114 |
|
|
|
87 |
|
|
|
105 |
|
|
|
(498 |
) |
|
|
219 |
|
|
(8 |
) |
|
|
1 |
|
|
|
(10 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
1 |
|
|
$ |
(37 |
) |
|
$ |
21 |
|
|
$ |
(575 |
) |
|
$ |
113 |
|
|
$ |
87 |
|
|
$ |
105 |
|
|
$ |
(488 |
) |
|
$ |
218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M |
|
|
|
10 |
% |
|
|
N/M |
|
|
|
52 |
% |
|
|
N/M |
|
|
|
48 |
% |
|
|
N/M |
|
|
|
100 |
% |
|
N/M |
|
|
|
18 |
|
|
|
N/M |
|
|
|
100 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
156 |
|
|
$ |
238 |
|
|
$ |
75,293 |
|
|
$ |
72,485 |
|
|
$ |
36 |
|
|
$ |
203 |
|
|
$ |
75,329 |
|
|
$ |
72,688 |
|
|
16,567 |
|
|
|
14,421 |
|
|
|
103,326 |
|
|
|
101,630 |
|
|
|
489 |
|
|
|
1,726 |
|
|
|
103,815 |
|
|
|
103,356 |
|
|
1,750 |
|
|
|
4,801 |
|
|
|
65,524 |
|
|
|
66,455 |
|
|
|
(140 |
) |
|
|
(169 |
) |
|
|
65,384 |
|
|
|
66,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
492 |
|
|
$ |
121 |
|
|
|
|
|
|
|
|
|
|
$ |
492 |
|
|
$ |
121 |
|
|
N/M |
|
|
|
N/M |
|
|
|
(25.34 |
)% |
|
|
5.43 |
% |
|
|
N/M |
|
|
|
N/M |
|
|
|
(19.12 |
)% |
|
|
10.38 |
% |
|
41 |
|
|
|
43 |
|
|
|
11,952 |
|
|
|
12,499 |
|
|
|
5,516 |
|
|
|
5,927 |
|
|
|
17,468 |
|
|
|
18,426 |
|
|
Supplementary information (Community Banking lines of business)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
Regional Banking |
|
|
Commercial Banking |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Total revenue (TE) |
|
$ |
511 |
|
|
$ |
528 |
|
|
$ |
93 |
|
|
$ |
101 |
|
Provision for loan losses |
|
|
69 |
|
|
|
9 |
|
|
|
12 |
|
|
|
9 |
|
Noninterest expense |
|
|
419 |
|
|
|
383 |
|
|
|
51 |
|
|
|
42 |
|
Net income |
|
|
14 |
|
|
|
85 |
|
|
|
19 |
|
|
|
31 |
|
Average loans and leases |
|
|
20,004 |
|
|
|
19,562 |
|
|
|
8,936 |
|
|
|
8,523 |
|
Average deposits |
|
|
47,784 |
|
|
|
46,192 |
|
|
|
3,776 |
|
|
|
3,585 |
|
Net loan charge-offs |
|
|
53 |
|
|
|
29 |
|
|
|
1 |
|
|
|
1 |
|
Net loan charge-offs to average loans |
|
|
1.07 |
% |
|
|
.60 |
% |
|
|
.05 |
% |
|
|
.05 |
% |
Nonperforming assets at period end |
|
$ |
216 |
|
|
$ |
142 |
|
|
$ |
115 |
|
|
$ |
62 |
|
Return on average allocated equity |
|
|
2.50 |
% |
|
|
16.40 |
% |
|
|
7.96 |
% |
|
|
14.79 |
% |
Average full-time equivalent
employees |
|
|
8,565 |
|
|
|
8,380 |
|
|
|
322 |
|
|
|
332 |
|
|
Supplementary information (National Banking lines of business)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Capital and |
|
|
|
|
|
|
|
|
|
|
Institutional and |
|
|
|
|
Three months ended March 31, |
|
Corporate Banking Services |
|
|
Equipment Finance |
|
|
Capital Markets |
|
|
Consumer Finance |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Total revenue (TE) |
|
$ |
171 |
|
|
$ |
83 |
|
|
$ |
102 |
|
|
$ |
93 |
|
|
$ |
176 |
|
|
$ |
160 |
|
|
$ |
88 |
|
|
$ |
103 |
|
Provision for loan losses |
|
|
470 |
|
|
|
45 |
|
|
|
77 |
|
|
|
24 |
|
|
|
31 |
|
|
|
16 |
|
|
|
211 |
|
|
|
84 |
|
Noninterest expense |
|
|
113 |
|
|
|
60 |
|
|
|
86 |
|
|
|
95 |
|
|
|
236 |
|
|
|
105 |
|
|
|
102 |
|
|
|
48 |
|
Net (loss) income attributable to Key |
|
|
(270 |
) |
|
|
(14 |
) |
|
|
(38 |
) |
|
|
(16 |
) |
|
|
(101 |
) |
|
|
24 |
|
|
|
(162 |
) |
|
|
(18 |
) |
Average loans and leases |
|
|
16,567 |
|
|
|
16,497 |
|
|
|
9,091 |
|
|
|
10,596 |
|
|
|
8,948 |
|
|
|
7,632 |
|
|
|
11,591 |
|
|
|
9,437 |
|
Average loans held for sale |
|
|
269 |
|
|
|
989 |
|
|
|
28 |
|
|
|
32 |
|
|
|
267 |
|
|
|
555 |
|
|
|
514 |
|
|
|
3,356 |
|
Average deposits |
|
|
9,987 |
|
|
|
9,784 |
|
|
|
17 |
|
|
|
14 |
|
|
|
1,773 |
|
|
|
1,460 |
|
|
|
437 |
|
|
|
619 |
|
Net loan charge-offs |
|
|
218 |
|
|
|
38 |
|
|
|
44 |
|
|
|
24 |
|
|
|
45 |
|
|
|
2 |
|
|
|
131 |
|
|
|
27 |
|
Net loan charge-offs to average loans |
|
|
5.34 |
% |
|
|
.93 |
% |
|
|
1.96 |
% |
|
|
.91 |
% |
|
|
2.04 |
% |
|
|
.11 |
% |
|
|
4.58 |
% |
|
|
1.15 |
% |
Nonperforming assets at period end |
|
$ |
1,072 |
|
|
$ |
732 |
|
|
$ |
215 |
|
|
$ |
69 |
|
|
$ |
59 |
|
|
$ |
12 |
|
|
$ |
300 |
|
|
$ |
98 |
|
Return on average allocated equity |
|
|
(45.38 |
)% |
|
|
(3.00 |
)% |
|
|
(21.71 |
)% |
|
|
(6.94 |
)% |
|
|
(33.33 |
)% |
|
|
7.94 |
% |
|
|
(60.95 |
)% |
|
|
(7.94 |
)% |
Average full-time equivalent employees |
|
|
1,024 |
|
|
|
1,233 |
|
|
|
741 |
|
|
|
885 |
|
|
|
912 |
|
|
|
938 |
|
|
|
347 |
|
|
|
688 |
|
|
14
5. Securities
Securities available for sale. These are securities that Key intends to hold for an indefinite
period of time but that may be sold in response to changes in interest rates, prepayment risk,
liquidity needs or other factors. Securities available for sale are reported at fair value.
Unrealized gains and losses (net of income taxes) deemed temporary are recorded in shareholders
equity as a component of accumulated other comprehensive income on the balance sheet. Unrealized
losses on specific securities deemed to be other-than-temporary are included in net securities
(losses) gains on the income statement, as are actual gains and losses resulting from the sales of
securities using the specific identification method.
When Key retains an interest in loans it securitizes, it bears risk that the loans will be prepaid
(which would reduce expected interest income) or not paid at all. Key accounts for these retained
interests as debt securities and classifies them as available for sale.
Other securities held in the available-for-sale portfolio are primarily marketable equity
securities.
Held-to-maturity securities. These are debt securities that Key has the intent and ability to hold
until maturity. Debt securities are carried at cost, adjusted for amortization of premiums and
accretion of discounts using the interest method. This method produces a constant rate of return
on the adjusted carrying amount.
Other securities held in the held-to-maturity portfolio consist of foreign bonds, trust preferred
securities and preferred equity securities.
The amortized cost, unrealized gains and losses, and approximate fair value of Keys securities
available for sale and held-to-maturity securities are presented in the following tables. Gross
unrealized gains and losses represent the difference between the amortized cost and the fair value
of securities on the balance sheet as of the dates indicated. Accordingly, the amount of these
gains and losses may change in the future as market conditions change.
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
in millions |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
SECURITIES AVAILABLE FOR SALE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, agencies and corporations |
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
$ |
10 |
|
States and political subdivisions |
|
|
90 |
|
|
$ |
1 |
|
|
|
|
|
|
|
91 |
|
Collateralized mortgage obligations |
|
|
6,289 |
|
|
|
216 |
|
|
|
|
|
|
|
6,505 |
|
Other mortgage-backed securities |
|
|
1,624 |
|
|
|
77 |
|
|
|
|
|
|
|
1,701 |
|
Retained interests in securitizations |
|
|
166 |
|
|
|
1 |
|
|
|
|
|
|
|
167 |
|
Other securities |
|
|
61 |
|
|
|
2 |
|
|
$ |
7 |
|
|
|
56 |
|
|
Total securities available for sale |
|
$ |
8,240 |
|
|
$ |
297 |
|
|
$ |
7 |
|
|
$ |
8,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD-TO-MATURITY SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
$ |
4 |
|
Other securities |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
Total held-to-maturity securities |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
in millions |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
SECURITIES AVAILABLE FOR SALE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, agencies and corporations |
|
$ |
9 |
|
|
$ |
1 |
|
|
|
|
|
|
$ |
10 |
|
States and political subdivisions |
|
|
90 |
|
|
|
1 |
|
|
|
|
|
|
|
91 |
|
Collateralized mortgage obligations |
|
|
6,380 |
|
|
|
148 |
|
|
$ |
5 |
|
|
|
6,523 |
|
Other mortgage-backed securities |
|
|
1,505 |
|
|
|
63 |
|
|
|
1 |
|
|
|
1,567 |
|
Retained interests in securitizations |
|
|
162 |
|
|
|
29 |
|
|
|
|
|
|
|
191 |
|
Other securities |
|
|
71 |
|
|
|
1 |
|
|
|
17 |
|
|
|
55 |
|
|
Total securities available for sale |
|
$ |
8,217 |
|
|
$ |
243 |
|
|
$ |
23 |
|
|
$ |
8,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD-TO-MATURITY SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
4 |
|
|
|
|
|
|
|
|
|
|
$ |
4 |
|
Other securities |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
Total held-to-maturity securities |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
in millions |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
SECURITIES AVAILABLE FOR SALE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury, agencies and corporations |
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
$ |
18 |
|
States and political subdivisions |
|
|
92 |
|
|
$ |
1 |
|
|
|
|
|
|
|
93 |
|
Collateralized mortgage obligations |
|
|
6,355 |
|
|
|
170 |
|
|
$ |
8 |
|
|
|
6,517 |
|
Other mortgage-backed securities |
|
|
1,486 |
|
|
|
37 |
|
|
|
1 |
|
|
|
1,522 |
|
Retained interests in securitizations |
|
|
153 |
|
|
|
33 |
|
|
|
|
|
|
|
186 |
|
Other securities |
|
|
84 |
|
|
|
4 |
|
|
|
5 |
|
|
|
83 |
|
|
Total securities available for sale |
|
$ |
8,188 |
|
|
$ |
245 |
|
|
$ |
14 |
|
|
$ |
8,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HELD-TO-MATURITY SECURITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
$ |
8 |
|
Other securities |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
21 |
|
|
Total held-to-maturity securities |
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
6. Loans and Loans Held for Sale
Keys loans by category are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
Commercial, financial and agricultural |
|
$ |
25,405 |
|
|
$ |
27,260 |
|
|
$ |
25,777 |
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage |
|
|
12,057 |
(a) |
|
|
10,819 |
|
|
|
10,479 |
|
Construction |
|
|
6,208 |
(a) |
|
|
7,717 |
|
|
|
8,473 |
|
|
Total commercial real estate loans |
|
|
18,265 |
|
|
|
18,536 |
(b) |
|
|
18,952 |
|
Commercial lease financing |
|
|
8,553 |
|
|
|
9,039 |
|
|
|
10,000 |
|
|
Total commercial loans |
|
|
52,223 |
|
|
|
54,835 |
|
|
|
54,729 |
|
Real estate residential mortgage |
|
|
1,759 |
|
|
|
1,908 |
|
|
|
1,954 |
|
Home equity: |
|
|
|
|
|
|
|
|
|
|
|
|
Community Banking |
|
|
10,290 |
|
|
|
10,124 |
|
|
|
9,678 |
|
National Banking |
|
|
998 |
|
|
|
1,051 |
|
|
|
1,220 |
|
|
Total home equity loans |
|
|
11,288 |
|
|
|
11,175 |
|
|
|
10,898 |
|
Consumer other Community Banking |
|
|
1,215 |
|
|
|
1,233 |
|
|
|
1,266 |
|
Consumer other National Banking: |
|
|
|
|
|
|
|
|
|
|
|
|
Marine |
|
|
3,256 |
|
|
|
3,401 |
|
|
|
3,653 |
|
Education |
|
|
3,700 |
|
|
|
3,669 |
|
|
|
3,608 |
|
Other |
|
|
262 |
|
|
|
283 |
|
|
|
336 |
|
|
Total consumer other National Banking |
|
|
7,218 |
|
|
|
7,353 |
|
|
|
7,597 |
|
|
Total consumer loans |
|
|
21,480 |
|
|
|
21,669 |
|
|
|
21,715 |
|
|
Total loans |
|
$ |
73,703 |
|
|
$ |
76,504 |
|
|
$ |
76,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In late March 2009, Key transferred $1.474 billion of loans from the construction portfolio
to the commercial mortgage portfolio in accordance with regulatory guidelines pertaining to
the classification of loans that have reached a completed status. |
|
(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. |
Key uses interest rate swaps to manage interest rate risk; these swaps modify the repricing
characteristics of certain loans. For more information about such swaps, see Note 19 (Derivatives
and Hedging Activities), which begins on page 115 of Keys 2008 Annual Report to Shareholders.
Keys loans held for sale by category are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
Commercial, financial and agricultural |
|
$ |
24 |
|
|
$ |
102 |
|
|
$ |
291 |
|
Real estate commercial mortgage |
|
|
301 |
|
|
|
273 |
|
|
|
1,139 |
|
Real estate construction |
|
|
151 |
|
|
|
164 |
(a) |
|
|
25 |
|
Commercial lease financing |
|
|
10 |
|
|
|
7 |
|
|
|
31 |
|
Real estate residential mortgage |
|
|
183 |
|
|
|
77 |
|
|
|
58 |
|
Home equity |
|
|
|
|
|
|
|
|
|
|
1 |
|
Education |
|
|
453 |
|
|
|
401 |
|
|
|
123 |
|
Automobile |
|
|
2 |
|
|
|
3 |
|
|
|
6 |
|
|
Total loans held for sale |
|
$ |
1,124 |
|
|
$ |
1,027 |
|
|
$ |
1,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
17
Changes in the allowance for loan losses are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
Balance at beginning of period |
|
$ |
1,803 |
|
|
$ |
1,200 |
|
Charge-offs |
|
|
(520 |
) |
|
|
(148 |
) |
Recoveries |
|
|
28 |
|
|
|
27 |
|
|
Net loans charged off |
|
|
(492 |
) |
|
|
(121 |
) |
Provision for loan losses |
|
|
875 |
|
|
|
187 |
|
Allowance related to loans acquired, net |
|
|
|
|
|
|
32 |
|
|
Balance at end of period |
|
$ |
2,186 |
|
|
$ |
1,298 |
|
|
|
|
|
|
|
|
|
Changes in the liability for credit losses on lending-related commitments are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
Balance at beginning of period |
|
$ |
54 |
|
|
$ |
80 |
|
Credit for losses on lending-related commitments |
|
|
|
|
|
|
(27 |
) |
|
Balance at end of period (a) |
|
$ |
54 |
|
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in accrued expense and other liabilities on the consolidated balance sheet. |
7. Loan Securitizations and Mortgage Servicing Assets
Retained Interests in Loan Securitizations
A securitization involves the sale of a pool of loan receivables to investors through either a
public or private issuance (generally by a qualifying SPE) of asset-backed securities. Generally,
the assets are transferred to a trust that sells interests in the form of certificates of
ownership. In previous years, Key sold education loans in securitizations; however, Key has not
securitized any education loans since 2006 due to unfavorable market conditions.
When Key sells loans in securitizations, Key records a gain or loss when the net sale proceeds and
residual interests, if any, differ from the loans allocated carrying amount. Gains or losses
resulting from securitizations are recorded as one component of net gains (losses) from loan
securitizations and sales on the income statement.
A servicing asset is recorded if Key purchases or retains the right to service securitized loans,
and receives servicing fees that exceed the going market rate. Key generally retains an interest
in securitized loans in the form of an interest-only strip, residual asset, servicing asset or
security. Keys mortgage servicing assets are discussed under the heading Mortgage Servicing
Assets on page 20. All other retained interests are accounted for as debt securities and
classified as securities available for sale.
In accordance with Revised Interpretation No. 46, Consolidation of Variable Interest Entities,
qualifying SPEs, including securitization trusts, established by Key under SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,
are exempt from consolidation. Information related to Revised Interpretation No. 46 is included in
Note 1 (Basis of Presentation), which begins on page 7.
18
Management uses certain assumptions and estimates to determine the fair value to be allocated to
retained interests at the date of transfer and at subsequent measurement dates. Primary economic
assumptions used to measure the fair value of Keys retained interests in education loans and the
sensitivity of the current fair value of residual cash flows to immediate adverse changes in those
assumptions at March 31, 2009, are as follows:
|
|
|
|
|
dollars in millions |
|
|
|
|
|
Fair value of retained interests |
|
$ |
168 |
|
Weighted-average life (years) |
|
|
1.0 - 6.7 |
|
|
PREPAYMENT SPEED ASSUMPTIONS (ANNUAL RATE) |
|
|
4.00% - 30.00 |
% |
Impact on fair value of 1% CPR adverse change |
|
$ |
(7 |
) |
Impact on fair value of 2% CPR adverse change |
|
|
(10 |
) |
|
|
|
|
|
|
EXPECTED CREDIT LOSSES (STATIC RATE) |
|
|
.14% - 26.40 |
% |
Impact on fair value of .25% adverse change |
|
$ |
(4 |
) |
Impact on fair value of .50% adverse change |
|
|
(8 |
) |
|
|
|
|
|
|
RESIDUAL CASH FLOWS DISCOUNT RATE (ANNUAL RATE) |
|
|
8.50% - 14.00 |
% |
Impact on fair value of 1% adverse change |
|
$ |
(6 |
) |
Impact on fair value of 2% adverse change |
|
|
(12 |
) |
|
|
|
|
|
|
EXPECTED STATIC DEFAULT (STATIC RATE) |
|
|
3.75% - 33.00 |
% |
Impact on fair value of 1% adverse change |
|
$ |
(32 |
) |
Impact on fair value of 2% adverse change |
|
|
(64 |
) |
|
|
|
|
|
|
VARIABLE RETURNS TO TRANSFEREES |
|
|
(a |
) |
|
These sensitivities are hypothetical and should be relied upon with caution. Sensitivity analysis
is based on the nature of the
asset, the seasoning (i.e., age and payment history) of the portfolio and historical results.
Changes in fair value based
on a 1% variation in assumptions generally cannot be extrapolated because the relationship of the
change in assumption to
the change in fair value may not be linear. Also, the effect of a variation in a particular
assumption on the fair value of the
retained interest is calculated without changing any other assumption. In reality, changes in one
factor may cause changes
in another. For example, increases in market interest rates may result in lower prepayments and
increased credit losses,
which might magnify or counteract the sensitivities.
|
|
|
(a) |
|
Forward London Interbank Offered Rate (LIBOR) plus contractual spread over LIBOR ranging from .00% to 1.15%. |
|
CPR = Constant Prepayment Rate |
The fair value measurement of Keys mortgage servicing assets is described under the heading
Mortgage Servicing Assets on page 20. Management conducts a quarterly review of the fair values
of its other retained interests. The historical performance of each retained interest and the
assumptions used to project future cash flows are reviewed, assumptions are revised and present
values of cash flows are recalculated, as appropriate.
The present values of cash flows represent the fair value of the retained interests. If the
carrying amount of a retained interest classified as a security available for sale exceeds its fair
value, impairment is
indicated and recognized in earnings if considered to be other-than-temporary or recognized in
equity as accumulated other comprehensive income if deemed to be temporary. Conversely, if the
fair value of the retained interest exceeds its carrying value, the increase in fair value is
recorded in equity as accumulated other comprehensive income.
19
The table below shows the relationship between the education loans Key manages and those held in
the loan portfolio. Managed loans include those held in portfolio and those securitized and sold,
but still serviced by Key. Related delinquencies and net credit losses are also presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Past |
|
|
Net Credit |
|
March 31, 2009 |
|
Loan |
|
|
Due 60 days |
|
|
Losses During |
|
in millions |
|
Principal |
|
|
or More |
|
|
the Quarter |
|
|
Education loans managed |
|
$ |
8,299 |
|
|
$ |
247 |
|
|
$ |
60 |
|
Less: Loans securitized |
|
|
4,146 |
|
|
|
154 |
|
|
|
28 |
|
Loans held for sale or securitization |
|
|
453 |
|
|
|
7 |
|
|
|
|
|
|
Loans held in portfolio |
|
$ |
3,700 |
|
|
$ |
86 |
|
|
$ |
32 |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Servicing Assets
Key originates and periodically sells commercial mortgage loans but continues to service those
loans for the buyers. Key also may purchase the right to service commercial mortgage loans for
other lenders. Changes in the carrying amount of mortgage servicing assets are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
Balance at beginning of period |
|
$ |
242 |
|
|
$ |
313 |
|
Servicing retained from loan sales |
|
|
1 |
|
|
|
2 |
|
Amortization |
|
|
(15 |
) |
|
|
(28 |
) |
|
Balance at end of period |
|
$ |
228 |
|
|
$ |
287 |
|
|
|
|
|
|
|
|
|
Fair value at end of period |
|
$ |
384 |
|
|
$ |
425 |
|
|
|
|
|
|
|
|
|
The fair value of mortgage servicing assets is determined by calculating the present value of
future cash flows associated with servicing the loans. This calculation uses a number of
assumptions that are based on current market conditions. Primary economic assumptions used to
measure the fair value of Keys mortgage servicing assets at March 31, 2009 and 2008, are:
¨ |
|
prepayment speed generally at an annual rate of 0.00% to 25.00%; |
|
¨ |
|
expected credit losses at a static rate of 2.00%; and |
|
¨ |
|
residual cash flows discount rate of 8.50% to 15.00%. |
Changes in these assumptions could cause the fair value of mortgage servicing assets to change in
the future. The volume of loans serviced and expected credit losses are critical to the valuation
of servicing assets. A 1.00% increase in the assumed default rate of commercial mortgage loans at
March 31, 2009, would cause a $9 million decrease in the fair value of Keys mortgage servicing
assets.
Contractual fee income from servicing commercial mortgage loans totaled $16 million and $17 million
for the three-month periods ended March 31, 2009 and 2008, respectively. Key has elected to
remeasure servicing assets using the amortization method. The amortization of servicing assets is
determined in proportion to, and over the period of, the estimated net servicing income. The
amortization of servicing
assets for each period, as shown in the preceding table, is recorded as a reduction to fee income.
Both the contractual fee income and the amortization are recorded in other income on the income
statement.
20
Servicing assets are evaluated quarterly for possible impairment. This process involves
classifying the assets based on the types of loans serviced and their associated interest rates,
and determining the fair value of each class. If the evaluation indicates that the carrying amount
of the servicing assets exceeds their fair value, the carrying amount is reduced through a charge
to income in the amount of such excess. For the three-month periods ended March 31, 2009 and 2008,
no servicing asset impairment occurred.
8. Variable Interest Entities
A VIE is a partnership, limited liability company, trust or other legal entity that meets any one
of the following criteria:
¨ |
|
The entity does not have sufficient equity to conduct its
activities without additional subordinated financial support from
another party. |
|
¨ |
|
The entitys investors lack the authority to make decisions about
the activities of the entity through voting rights or similar
rights, and do not have the obligation to absorb the entitys
expected losses or the right to receive the entitys expected
residual returns. |
|
¨ |
|
The voting rights of some investors are not proportional to their
economic interest in the entity, and substantially all of the
entitys activities involve or are conducted on behalf of
investors with disproportionately few voting rights. |
Keys VIEs, including those consolidated and those in which Key holds a significant interest, are
summarized below. Key defines a significant interest in a VIE as a subordinated interest that
exposes Key to a significant portion, but not the majority, of the VIEs expected losses or
residual returns.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated VIEs |
|
|
Unconsolidated VIEs |
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
Maximum |
|
in millions |
|
Total Assets |
|
|
Total Assets |
|
|
Total Liabilities |
|
|
Exposure to Loss |
|
|
Low-income housing tax credit (LIHTC) funds |
|
$ |
236 |
|
|
$ |
202 |
|
|
|
|
|
|
|
|
|
LIHTC investments |
|
|
N/A |
|
|
|
987 |
|
|
|
|
|
|
$ |
362 |
|
|
Keys involvement with VIEs is described below.
Consolidated VIEs
LIHTC guaranteed funds. Key Affordable Housing Corporation (KAHC) formed limited partnerships
(funds) that invested in LIHTC operating partnerships. Interests in these funds were offered in
syndication to qualified investors who paid a fee to KAHC for a guaranteed return. Key also earned
syndication fees from these funds and continues to earn asset management fees. The funds assets
primarily are investments in LIHTC operating partnerships, which totaled $225 million at March 31,
2009. These investments are recorded in accrued income and other assets on the balance sheet and
serve as collateral for the funds limited obligations. Key has not formed new funds or added
LIHTC partnerships since October 2003. However, Key continues to act as asset manager and provides
occasional funding for existing funds under a guarantee obligation. As a result of this guarantee
obligation, management has determined that Key is the primary beneficiary of these funds. Key did
not record any expenses related to this guarantee obligation during the first three months of 2009.
Additional information on return guarantee agreements with LIHTC investors is presented in Note 14
(Contingent Liabilities and Guarantees) under the heading Guarantees on page 27.
The partnership agreement for each guaranteed fund requires the fund to be dissolved by a certain
date. In accordance with SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity, the third-party interests associated with these
funds are considered mandatorily
21
redeemable instruments and are recorded in accrued expense and
other liabilities on the balance sheet. The FASB has indefinitely deferred the measurement and
recognition provisions of SFAS No. 150 for mandatorily redeemable third-party interests associated
with finite-lived subsidiaries, such as Keys LIHTC guaranteed funds. Key adjusts the financial
statements each period for the third-party investors share of the funds profits and losses. At
March 31, 2009, the settlement value of these third-party interests was estimated to be between
$171 million and $178 million, while the recorded value, including reserves, totaled $229 million.
Unconsolidated VIEs
LIHTC nonguaranteed funds. Although Key holds significant interests in certain nonguaranteed funds
that Key formed and funded, management has determined that Key is not the primary beneficiary of
those funds because Key does not absorb the majority of the expected losses of the funds. At March
31, 2009, assets of these unconsolidated nonguaranteed funds totaled $202 million. Keys maximum
exposure to loss in connection with these funds is minimal, and Key does not have any liability
recorded related to the funds. Management elected to cease forming these funds in October 2003.
LIHTC investments. Through the Community Banking business group, Key has made investments directly
in LIHTC operating partnerships formed by third parties. As a limited partner in these operating
partnerships, Key is allocated tax credits and deductions associated with the underlying
properties. Management has determined that Key is not the primary beneficiary of these investments
because the general partners are more closely associated with the business activities of these
partnerships. At March 31, 2009, assets of these unconsolidated LIHTC operating partnerships
totaled approximately $987 million. Keys maximum exposure to loss in connection with these
partnerships is the unamortized investment balance of $293 million at March 31, 2009, plus $69
million of tax credits claimed but subject to recapture. Key does not have any liability recorded
related to these investments because Key believes the likelihood of any loss in connection with
these partnerships is remote. During the first three months of 2009, Key did not obtain
significant direct investments (either individually or in the aggregate) in LIHTC operating
partnerships.
Key has additional investments in unconsolidated LIHTC operating partnerships that are held by the
consolidated LIHTC guaranteed funds. Total assets of these operating partnerships were
approximately $1.527 billion at March 31, 2009. The tax credits and deductions associated with
these properties are allocated to the funds investors based on their ownership percentages.
Management has determined that Key is not the primary beneficiary of these partnerships because the
general partners are more closely associated with the business activities of these partnerships.
Information regarding Keys exposure to loss in connection with these guaranteed funds is included
in Note 14 under the heading Return guarantee agreement with LIHTC investors on page 28.
Commercial and residential real estate investments and principal investments. Keys Principal
Investing unit and the Real Estate Capital and Corporate Banking Services line of business make
equity and mezzanine investments, some of which are in VIEs. These investments are held by
nonregistered investment companies subject to the provisions of the American Institute of Certified
Public Accountants (AICPA) Audit and Accounting Guide, Audits of Investment Companies. Key is
not currently applying the accounting or disclosure provisions of Revised Interpretation No. 46 to
these investments, which remain unconsolidated; the FASB deferred the effective date of Revised
Interpretation No. 46 for such nonregistered investment companies until the AICPA clarifies the
scope of the Audit Guide.
22
9. Nonperforming Assets and Past Due Loans
Impaired loans totaled $1.472 billion at March 31, 2009, compared to $985 million at December 31,
2008, and $839 million at March 31, 2008. Impaired loans had an average balance of $1.229 billion
for the first quarter of 2009 and $679 million for the first quarter of 2008.
Keys nonperforming assets and past due loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
Impaired loans |
|
$ |
1,472 |
|
|
$ |
985 |
|
|
$ |
839 |
|
Other nonaccrual loans |
|
|
266 |
|
|
|
240 |
|
|
|
215 |
|
|
Total nonperforming loans |
|
|
1,738 |
|
|
|
1,225 |
|
|
|
1,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans held for sale |
|
|
72 |
|
|
|
90 |
(a) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned (OREO) |
|
|
147 |
|
|
|
110 |
|
|
|
29 |
|
Allowance for OREO losses |
|
|
(4 |
) |
|
|
(3 |
) |
|
|
(2 |
) |
|
OREO, net of allowance |
|
|
143 |
|
|
|
107 |
|
|
|
27 |
|
Other nonperforming assets (b) |
|
|
44 |
|
|
|
42 |
|
|
|
25 |
|
|
Total nonperforming assets |
|
$ |
1,997 |
|
|
$ |
1,464 |
|
|
$ |
1,115 |
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a specifically allocated allowance |
|
$ |
1,327 |
|
|
$ |
876 |
|
|
$ |
789 |
|
Specifically allocated allowance for impaired loans |
|
|
233 |
|
|
|
178 |
|
|
|
177 |
|
|
Accruing loans past due 90 days or more |
|
$ |
458 |
|
|
$ |
433 |
|
|
$ |
283 |
|
Accruing loans past due 30 through 89 days |
|
|
1,407 |
|
|
|
1,314 |
|
|
|
1,169 |
|
|
|
|
|
(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) |
|
Primarily investments held by the Private Equity unit within Keys Real Estate Capital and
Corporate Banking Services line of business. |
At March 31, 2009, Key did not have any significant commitments to lend additional funds to
borrowers with loans on nonperforming status.
Management evaluates the collectibility of Keys loans as described in Note 1 (Summary of
Significant Accounting Policies) under the heading Allowance for Loan Losses on page 79 of Keys
2008 Annual Report to Shareholders.
23
10. Capital Securities Issued by Unconsolidated Subsidiaries
KeyCorp owns the outstanding common stock of business trusts that issued corporation-obligated
mandatorily redeemable preferred capital securities. The trusts used the proceeds from the
issuance of their capital securities and common stock to buy debentures issued by KeyCorp. These
debentures are the trusts only assets; the interest payments from the debentures finance the
distributions paid on the capital securities.
The capital securities provide an attractive source of funds: they constitute Tier 1 capital for
regulatory reporting purposes, but have the same tax advantages as debt for federal income tax
purposes. During the first quarter of 2005, the Federal Reserve Board adopted a rule that allows
bank holding companies to continue to treat capital securities as Tier 1 capital, but imposed
stricter quantitative limits that would have taken effect March 31, 2009. On March 17, 2009, in
light of continued stress in the financial markets, the Federal Reserve Board delayed the effective
date of these new limits until March 31, 2011. Management believes the new rule will not have any
material effect on Keys financial condition.
KeyCorp unconditionally guarantees the following payments or distributions on behalf of the trusts:
¨ |
|
required distributions on the capital securities; |
|
¨ |
|
the redemption price when a capital security is redeemed; and |
|
¨ |
|
the amounts due if a trust is liquidated or terminated. |
The capital securities, common stock and related debentures are summarized as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal |
|
|
Interest Rate |
|
|
Maturity |
|
|
|
Capital |
|
|
|
|
|
|
Amount of |
|
|
of Capital |
|
|
of Capital |
|
|
|
Securities, |
|
|
Common |
|
|
Debentures, |
|
|
Securities and |
|
|
Securities and |
|
dollars in millions |
|
Net of Discount |
(a) |
|
Stock |
|
|
Net of Discount |
(b) |
|
Debentures |
(c) |
|
Debentures |
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KeyCorp Capital I |
|
$ |
197 |
|
|
$ |
8 |
|
|
$ |
201 |
|
|
|
2.175 |
% |
|
|
2028 |
|
KeyCorp Capital II |
|
|
224 |
|
|
|
8 |
|
|
|
220 |
|
|
|
6.875 |
|
|
|
2029 |
|
KeyCorp Capital III |
|
|
281 |
|
|
|
8 |
|
|
|
263 |
|
|
|
7.750 |
|
|
|
2029 |
|
KeyCorp Capital V |
|
|
175 |
|
|
|
5 |
|
|
|
194 |
|
|
|
5.875 |
|
|
|
2033 |
|
KeyCorp Capital VI |
|
|
75 |
|
|
|
2 |
|
|
|
82 |
|
|
|
6.125 |
|
|
|
2033 |
|
KeyCorp Capital VII |
|
|
306 |
|
|
|
8 |
|
|
|
284 |
|
|
|
5.700 |
|
|
|
2035 |
|
KeyCorp Capital VIII |
|
|
277 |
|
|
|
|
|
|
|
335 |
|
|
|
7.000 |
|
|
|
2066 |
|
KeyCorp Capital IX |
|
|
559 |
|
|
|
|
|
|
|
558 |
|
|
|
6.750 |
|
|
|
2066 |
|
KeyCorp Capital X |
|
|
829 |
|
|
|
|
|
|
|
827 |
|
|
|
8.000 |
|
|
|
2068 |
|
Union State Capital I |
|
|
20 |
|
|
|
1 |
|
|
|
21 |
|
|
|
9.580 |
|
|
|
2027 |
|
Union State Statutory II |
|
|
20 |
|
|
|
|
|
|
|
20 |
|
|
|
4.750 |
|
|
|
2031 |
|
Union State Statutory IV |
|
|
10 |
|
|
|
|
|
|
|
10 |
|
|
|
3.894 |
|
|
|
2034 |
|
|
Total |
|
$ |
2,973 |
|
|
$ |
40 |
|
|
$ |
3,015 |
|
|
|
6.743 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
$ |
3,042 |
|
|
$ |
40 |
|
|
$ |
3,084 |
|
|
|
6.931 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
$ |
2,753 |
|
|
$ |
40 |
|
|
$ |
2,799 |
|
|
|
6.985 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The capital securities must be redeemed when the related debentures mature, or earlier if
provided in the governing indenture. Each issue of capital securities carries an interest
rate identical to that of the related debenture. Included in certain capital securities at
March 31, 2009, December 31, 2008, and March 31, 2008, are basis adjustments of $390 million,
$459 million and $170 million, respectively, related to fair value hedges. See Note 19 (Derivatives and
Hedging Activities), which begins on page 115 of Keys 2008 Annual Report to Shareholders, for
an explanation of fair value hedges. |
|
(b) |
|
KeyCorp has the right to redeem its debentures: (i) in whole or in part, on or after July 1, 2008 (for
debentures owned by Capital I); March 18, 1999 (for debentures owned by Capital II); July 16, 1999 (for
debentures owned by Capital III); July 31, 2006 (for debentures owned by Union State Statutory II); February
1, 2007 (for debentures owned by Union State Capital I); July 21, 2008 (for debentures owned by Capital V);
December 15, 2008 (for debentures owned by Capital VI); April 7, 2009 (for debentures owned by Union State
Statutory IV); June 15, 2010 (for debentures owned by Capital VII); June 15, 2011 (for debentures owned by
Capital VIII); December 15, 2011 (for debentures owned by Capital IX); and March 15, 2013 (for debentures
owned by Capital X); and (ii) in whole at any time within 90 days after and during the continuation of a
tax event, an investment company event or a capital treatment event (as defined in the applicable
indenture). If the debentures purchased by Union State Statutory IV, Capital I, Capital V, Capital VI,
Capital VII, Capital VIII, Capital IX or Capital X are redeemed before they mature, the redemption price
will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by Union State
Capital I are redeemed before they mature, the redemption price |
24
|
|
|
|
|
will be 104.31% of the principal
amount, plus any accrued but unpaid interest. If the debentures purchased by Union State Statutory II are
redeemed before they mature, the redemption price will be 104.50% of the principal amount, plus any accrued
but unpaid interest. If the debentures purchased by Capital II or Capital III are redeemed before they mature,
the redemption price will be the greater of: (a) the principal amount, plus any accrued but unpaid interest or
(b) the sum of the present values of principal and interest payments discounted at the Treasury Rate (as defined
in the applicable indenture), plus 20 basis points (25 basis points for Capital III), plus any accrued but unpaid interest.
When debentures are redeemed in response to tax or capital treatment events, the redemption price generally is slightly more
favorable to KeyCorp. Included in the principal amount of debentures at March 31, 2009, December 31, 2008, and March 31, 2008,
are adjustments relating to hedging with financial instruments totaling $392 million, $461 million and $176 million, respectively. |
|
(c) |
|
The interest rates for Capital II, Capital III, Capital V, Capital VI, Capital VII, Capital
VIII, Capital IX, Capital X and Union State Capital I are fixed. Capital I has a floating
interest rate equal to three-month LIBOR plus 74 basis points that reprices quarterly. Union
State Statutory II has a floating interest rate equal to three-month LIBOR plus 358 basis
points that reprices quarterly. Union State Statutory IV has a floating interest rate equal
to three-month LIBOR plus 280 basis points that reprices quarterly. The rates shown as the
totals at March 31, 2009, December 31, 2008, and March 31, 2008, are weighted-average rates. |
11. Shareholders Equity
Preferred Stock Conversion to Common Shares
On April 2, 2009, KeyCorp entered into an agreement with certain institutional shareholders
pursuant to which KeyCorp and each of the institutional shareholders agreed to exchange KeyCorps
7.750% noncumulative perpetual convertible preferred stock, Series A (Series A Preferred Stock)
held by the institutional shareholders for KeyCorps common shares, $1 par value. In the
aggregate, KeyCorp exchanged 400,000 shares of the Series A Preferred Stock for 3,699,600 KeyCorp
common shares, or approximately .74% of the issued and outstanding KeyCorp common shares, on April
7, 2009, the date on which the exchange transactions settled. The common shares of KeyCorp were
issued in reliance upon the exemption set forth in Section 3(a)(9) of the Securities Act of 1933,
as amended, for securities exchanged by the issuer and an existing security holder where no
commission or other remuneration is paid or given directly or indirectly by the issuer for
soliciting such exchange. KeyCorp utilized treasury shares to complete the transactions.
Supervisory Capital Assessment Program
To implement the United States Department of the Treasurys (the U.S. Treasury) Capital
Assistance Program (CAP), the Federal Reserve, the Federal Reserve Banks, the Federal Deposit
Insurance Corporation and the Office of the Comptroller of the Currency commenced a review of the
capital of the nineteen largest U.S. banking institutions. This review, referred to as the
Supervisory Capital Assessment Program (SCAP), involved a forward-looking capital assessment, or
stress test, of all domestic bank holding companies with risk-weighted assets of more than $100
billion, including KeyCorp, at December 31, 2008. As announced on May 7, 2009, under the SCAP,
KeyCorps regulators determined that it needs to raise $1.8 billion in additional Tier 1 common
equity or contingent common equity (i.e., mandatorily convertible preferred shares). Information
regarding the CAP and KeyCorps final SCAP assessment is included in the Capital section under
the heading Financial Stability Plan on page 79.
25
12. Employee Benefits
Pension Plans
The components of net pension cost for all funded and unfunded plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
Service cost of benefits earned |
|
$ |
12 |
|
|
$ |
13 |
|
Interest cost on projected benefit obligation |
|
|
15 |
|
|
|
16 |
|
Expected return on plan assets |
|
|
(16 |
) |
|
|
(23 |
) |
Amortization of losses |
|
|
10 |
|
|
|
3 |
|
|
Net pension cost |
|
$ |
21 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
|
Other Postretirement Benefit Plans
Key sponsors a contributory postretirement healthcare plan that covers substantially all active and
retired employees hired before 2001 who meet certain eligibility criteria. Retirees contributions
are adjusted annually to reflect certain cost-sharing provisions and benefit limitations. Key also
sponsors life insurance plans covering certain grandfathered employees. These plans are
principally noncontributory. Separate Voluntary Employee Beneficiary Association trusts are used
to fund the healthcare plan and one of the life insurance plans.
The components of net postretirement benefit cost for all funded and unfunded plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
Interest cost on accumulated postretirement benefit
obligation |
|
$ |
1 |
|
|
$ |
1 |
|
Expected return on plan assets |
|
|
(1 |
) |
|
|
(1 |
) |
|
Net postretirement benefit cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13. Income Taxes
Lease Financing Transactions
On February 13, 2009, Key and the IRS entered into a closing agreement that resolves substantially
all outstanding LILO and sale in, sale out (SILO) tax issues between Key and the IRS. Key has
deposited $2.047 billion with the IRS to cover the anticipated amount of taxes and associated
interest cost due to the IRS for all tax years affected by the settlement. Key expects the
remaining LILO/SILO tax issues to be settled with the IRS in the near future with no additional tax
or interest liability to Key.
During 2009, Key will amend its state tax returns to reflect the impact of the settlement on prior
years state tax liabilities. While the settlement with the IRS provides a waiver of federal tax
penalties, management anticipates that certain statutory penalties under state tax laws will be
imposed on Key. Although Key intends to vigorously defend its position against the imposition of
any such penalties,
during the fourth quarter of 2008, management accrued $31 million for potential penalties in
accordance with current accounting guidance.
Pursuant to FASB Staff Position No. 13-2, Accounting for a Change or Projected Change in the
Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction,
management updated its assessment of the timing of the tax payments associated with the LILO/SILO
settlement. As a result, Key recognized a $5 million ($3 million after-tax) increase to earnings
during the first quarter of 2009.
26
Unrecognized Tax Benefits
As permitted under FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, it is
Keys policy to recognize interest and penalties related to unrecognized tax benefits in income tax
expense.
14. Contingent Liabilities and Guarantees
Legal Proceedings
Tax disputes. The information pertaining to lease financing transactions presented in Note 13
(Income Taxes) is incorporated herein by reference.
Taylor litigation. On August 11, 2008, a purported class action case was filed against KeyCorp,
its directors and certain employees (collectively, the Key parties), captioned Taylor v. KeyCorp
et al., in the United States District Court for the Northern District of Ohio. On September 16,
2008, a second and related case was filed in the same district court, captioned Wildes v. KeyCorp
et al. The plaintiffs in these cases seek to represent a class of all participants in Keys 401(k)
Savings Plan and allege that the Key parties breached fiduciary duties owed to them under the
Employee Retirement Income Security Act (ERISA). On November 25, 2008, the Court consolidated
the Taylor and Wildes lawsuits into a single action. Plaintiffs have since filed their
consolidated complaint, which continues to name certain employees as defendants but no longer names
any outside directors. Key strongly disagrees with the allegations contained in the complaints and
the consolidated complaint, and intends to vigorously defend against them.
Madoff-related claims. In December 2008, Austin Capital Management, Ltd. (Austin), an investment
firm owned by Key, which selects and manages hedge fund investments for its principally
institutional customer base, determined that its funds had suffered investment losses of up to
approximately $186 million resulting from the crimes perpetrated by Bernard L. Madoff and entities
that he controls. The investment losses borne by Austins clients stem from investments that
Austin made in certain Madoff-advised hedge funds. During the first quarter of 2009, three
purported class actions and one arbitration proceeding were filed against Austin seeking to recover
losses incurred as a result of Madoffs crimes. The class action lawsuits and arbitration allege
various claims, including negligence, fraud, breach of fiduciary duties and violations of federal
securities laws and the ERISA. In the event Key were to incur any liability for this matter, Key
believes such liability would be covered under the terms and conditions of its insurance policy,
subject to a $25 million self-insurance deductible and usual policy exceptions.
In April 2009, management made the strategic decision to curtail Austins operations and expects
that the related charges will not be material.
Other litigation. In the ordinary course of business, Key is subject to other legal actions that
involve claims for substantial monetary relief. Based on information presently known to
management, management does not believe there is any legal action to which KeyCorp or any of its
subsidiaries is a party, or involving any of their properties that, individually or in the
aggregate, would reasonably be expected to have a material adverse effect on Keys financial
condition.
Guarantees
Key is a guarantor in various agreements with third parties. The following table shows the types
of guarantees that Key had outstanding at March 31, 2009. Information pertaining to the basis for
determining the liabilities recorded in connection with these guarantees is included in Note 1
(Summary of Significant Accounting Policies) under the heading Guarantees on page 82 of Keys
2008 Annual Report to Shareholders.
27
|
|
|
|
|
|
|
|
|
|
|
Maximum Potential |
|
|
|
|
March 31, 2009 |
|
Undiscounted |
|
|
Liability |
|
in millions |
|
Future Payments |
|
|
Recorded |
|
|
Financial guarantees: |
|
|
|
|
|
|
|
|
Standby letters of credit |
|
$ |
13,756 |
|
|
$ |
101 |
|
Recourse agreement with FNMA |
|
|
699 |
|
|
|
6 |
|
Return guarantee agreement with LIHTC investors |
|
|
198 |
|
|
|
48 |
|
Written interest rate caps (a) |
|
|
225 |
|
|
|
31 |
|
Default guarantees |
|
|
32 |
|
|
|
1 |
|
|
Total |
|
$ |
14,910 |
|
|
$ |
187 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As of March 31, 2009, the weighted-average interest rate on written interest rate caps
was .8%, and the weighted-average strike rate was 4.6%. Maximum potential undiscounted
future payments were calculated assuming a 10% interest rate. |
Management determines the payment/performance risk associated with each type of guarantee described
below based on the probability that Key could be required to make the maximum potential
undiscounted future payments shown in the preceding table. Management uses a scale of low (0-30%
probability of payment), moderate (31-70% probability of payment) or high (71-100% probability of
payment) to assess the payment/performance risk, and has determined that the payment/performance
risk associated with each type of guarantee outstanding at March 31, 2009, is low.
Standby letters of credit. Many of Keys lines of business issue standby letters of credit to
address clients financing needs. These instruments obligate Key to pay a specified third party
when a client fails to repay an outstanding loan or debt instrument, or fails to perform some
contractual nonfinancial obligation. Any amounts drawn under standby letters of credit are treated
as loans; they bear interest (generally at variable rates) and pose the same credit risk to Key as
a loan. At March 31, 2009, Keys standby letters of credit had a remaining weighted-average life
of approximately 1.9 years, with remaining actual lives ranging from less than one year to as many
as ten years.
Recourse agreement with Federal National Mortgage Association. KeyBank participates as a lender in
the Federal National Mortgage Association (FNMA) Delegated Underwriting and Servicing program.
As a condition to FNMAs delegation of responsibility for originating, underwriting and servicing
mortgages, KeyBank has agreed to assume a limited portion of the risk of loss during the remaining
term on each commercial mortgage loan KeyBank sells to FNMA. Accordingly, KeyBank maintains a
reserve for such potential losses in an amount estimated by management to approximate the fair
value of KeyBanks liability. At March 31, 2009, the outstanding commercial mortgage loans in this
program had a weighted-average remaining term of 6.8 years, and the unpaid principal balance
outstanding of loans sold by KeyBank as a participant in this program was approximately $2.204
billion. As shown in the table above, the maximum potential amount of undiscounted future payments
that KeyBank could be required to make under this program is equal to approximately one-third of
the principal balance of loans outstanding at March 31, 2009. If KeyBank is required to make a
payment, it would have an interest in the collateral underlying the related commercial mortgage
loan.
Return guarantee agreement with LIHTC investors. KAHC, a subsidiary of KeyBank, offered limited
partnership interests to qualified investors. Partnerships formed by KAHC invested in low-income
residential rental properties that qualify for federal low income housing tax credits under Section
42 of the Internal Revenue Code. In certain partnerships, investors paid a fee to KAHC for a
guaranteed return that is based on the financial performance of the property and the propertys
confirmed LIHTC status throughout a fifteen-year compliance period. If KAHC defaults on its
obligation to provide the guaranteed return, Key is obligated to make any necessary payments to
investors. These guarantees have expiration dates that extend through 2019, but there have been no
new partnerships under this program since October 2003. Additional information regarding these
partnerships is included in Note 8 (Variable Interest Entities), which begins on page 21.
28
No recourse or collateral is available to offset Keys guarantee obligation other than the
underlying income stream from the properties. Any guaranteed returns that are not met through
distribution of tax credits and deductions associated with the specific properties from the
partnerships remain Keys obligation.
As shown in the table on page 28, KAHC maintained a reserve in the amount of $48 million at March
31, 2009, which management believes will be sufficient to cover estimated future obligations under
the guarantees. The maximum exposure to loss reflected in the table represents undiscounted future
payments due to investors for the return on and of their investments.
Written interest rate caps. In the ordinary course of business, Key writes interest rate caps
for commercial loan clients that have variable rate loans with Key and wish to limit their exposure
to interest rate increases. At March 31, 2009, outstanding caps had a weighted-average life of
approximately 1.6 years.
Key is obligated to pay the client if the applicable benchmark interest rate exceeds a specified
level (known as the strike rate). These instruments are accounted for as derivatives. Key
typically mitigates its potential future payments by entering into offsetting positions with third
parties.
Default guarantees. Some lines of business participate in guarantees that obligate Key to perform
if the debtor fails to satisfy all of its payment obligations to third parties. Key generally
undertakes these guarantees in instances where the risk profile of the debtor should provide an
investment return or to support its underlying investment. The terms of these default guarantees
range from less than one year to as many as thirteen years, while some default guarantees do not
have a contractual end date. Although no collateral is held, Key would receive a pro rata share
should the third party collect some or all of the amounts due from the debtor.
Other Off-Balance Sheet Risk
Other off-balance sheet risk stems from financial instruments that do not meet the definition of a
guarantee as specified in Interpretation No. 45 and from other relationships.
Liquidity facilities that support asset-backed commercial paper conduits. Key provides liquidity
facilities to several unconsolidated third-party commercial paper conduits. These facilities
obligate Key to provide funding if there is a credit market disruption or there are other factors
that would preclude the issuance of commercial paper by the conduits. The liquidity facilities,
all of which expire by November 10, 2010, obligate Key to provide aggregate funding of up to $845
million, with individual facilities ranging from $40 million to $125 million. The aggregate amount
available to be drawn is based on the amount of current commitments to borrowers and totaled $684
million at March 31, 2009. Management periodically evaluates Keys commitments to provide
liquidity.
Indemnifications provided in the ordinary course of business. Key provides certain
indemnifications, primarily through representations and warranties in contracts that are entered
into in the ordinary course
of business in connection with loan sales and other ongoing activities, as well as in connection
with purchases and sales of businesses. Key maintains reserves, when appropriate, with respect to
liability that reasonably could arise in connection with these indemnities.
Intercompany guarantees. KeyCorp and certain Key affiliates are parties to various guarantees that
facilitate the ongoing business activities of other Key affiliates. These business activities
encompass debt issuance, certain lease and insurance obligations, the purchase or issuance of
investments and securities, and certain leasing transactions involving clients.
Heartland Payment Systems Matter. Under an agreement between KeyBank and Heartland Payment
Systems, Inc. (Heartland), Heartland utilizes KeyBanks membership in the Visa and MasterCard
networks to register as an Independent Sales Organization for Visa and a Member Service Provider
with MasterCard to provide merchant payment processing services for Visa and MasterCard
transactions. On
29
January 20, 2009, Heartland publicly announced its discovery of an alleged
criminal breach of its credit card payment processing systems environment (the Intrusion) that
reportedly occurred during 2008 and is alleged to have involved the malicious collection of
in-transit, unencrypted payment card data that was being processed by Heartland.
In Heartlands Form 10-K filed with the Securities and Exchange Commission on March 16, 2009
(Heartlands 2008 Form 10-K), Heartland reported that it expects the major card brands, including
Visa and MasterCard, to assert claims seeking to impose fines, penalties, and/or other assessments
against Heartland and/or certain card brand members, such as KeyBank, as a result of the alleged
potential breach of the respective card brand rules and regulations and the Intrusion. Heartland
also indicated that it is likely that the overall costs associated with the Intrusion will be
material to it, and that it may need to seek financing in order to pay such costs.
KeyBank has received letters from both Visa and MasterCard assessing fines, penalties or
assessments related to the Intrusion. KeyBank is in the process of pursuing appeals of such fines,
penalties or assessments. Visa and MasterCard (as well as Heartland and KeyBank) are each still
investigating the matter, and they may revise their respective assessments. Under its agreement
with Heartland, KeyBank has certain rights of indemnification from Heartland for costs assessed
against it by Visa and MasterCard and other associated costs, and KeyBank has notified Heartland of
its indemnification rights. In the event that Heartland is unable to fulfill its indemnification
obligations to KeyBank, the charges (net of any indemnification) could be significant, although it
is not possible to quantify at this time. Accordingly, under applicable accounting rules KeyBank
has not established any reserve. For further information on Heartland and the Intrusion, please
review Heartlands 2008 Form 10-K.
15. Derivatives and Hedging Activities
Key, mainly through its subsidiary bank, KeyBank, is party to various derivative instruments that
are used for interest rate risk management, credit risk management and trading purposes.
Derivative instruments are contracts between two or more parties that have a notional amount and
underlying variable, require no net investment and allow for the net settlement of positions. The
notional amount serves as the basis for the payment provision of the contract and takes the form of
units, such as shares or dollars. The underlying variable represents a specified interest rate,
index or other component. The interaction between the notional amount and the underlying variable
determines the number of units to be exchanged between the parties and influences the market value
of the derivative contract.
The primary derivatives that Key uses are interest rate swaps, caps, floors and futures, foreign
exchange contracts, energy derivatives, credit derivatives and equity derivatives. Generally,
these instruments help Key manage exposure to interest rate risk, mitigate the credit risk inherent
in the loan portfolio, and meet client financing and hedging needs. Interest rate risk represents
the possibility that economic value or net interest income will be adversely affected by
fluctuations in interest rates. Credit risk is defined as the risk of loss arising from an
obligors inability or failure to meet contractual payment or performance terms.
Derivative assets and liabilities are recorded at fair value on the balance sheet, after taking
into account the effects of master netting agreements. These master netting agreements allow Key
to settle all derivative contracts held with a single counterparty on a net basis, and to offset
net derivative positions with related cash collateral, where applicable. As a result, Key could
have derivative contracts with negative fair values included in derivative assets on the balance
sheet and contracts with positive fair values included in derivative liabilities.
At March 31, 2009, after taking into account the effects of bilateral collateral and master netting
agreements, Key had $319 million of derivative assets and $149 million of derivative liabilities
that relate to contracts entered into for hedging purposes. As of the same date, after taking into
account the effects of such agreements, Key had trading derivative assets of $1.388 billion and
trading derivative liabilities of $783 million.
30
The following table summarizes the volume of Keys derivative transaction activity during the first
quarter of 2009. Volume is represented by the notional amounts of Keys gross derivatives by type
at March 31, 2009, and December 31, 2008, which are not affected by bilateral collateral and master
netting agreements. Also presented are the average notional amounts of these derivatives for the
first quarter of 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average for the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
March 31, 2009 |
|
in millions |
|
Purchased |
|
|
Sold |
|
|
Purchased |
|
|
Sold |
|
|
Purchased |
|
|
Sold |
|
|
Interest rate (a) |
|
$ |
52,258 |
|
|
$ |
55,336 |
|
|
$ |
47,066 |
|
|
$ |
55,573 |
|
|
$ |
48,877 |
|
|
$ |
54,464 |
|
Foreign exchange |
|
|
11,235 |
|
|
|
587 |
|
|
|
14,281 |
|
|
|
612 |
|
|
|
13,733 |
|
|
|
596 |
|
Energy and commodity (b) |
|
|
273 |
|
|
|
1,623 |
|
|
|
320 |
|
|
|
1,632 |
|
|
|
262 |
|
|
|
1,593 |
|
Credit |
|
|
3,840 |
|
|
|
3,302 |
|
|
|
3,892 |
|
|
|
3,294 |
|
|
|
3,937 |
|
|
|
4,677 |
|
Equity |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
Total derivatives |
|
$ |
67,606 |
|
|
$ |
60,848 |
|
|
$ |
65,561 |
|
|
$ |
61,113 |
|
|
$ |
66,810 |
|
|
$ |
61,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Interest rate contracts purchased are defined as receive fixed/pay variable contracts, and
interest rate contracts sold are defined as receive variable/pay fixed contracts. |
|
(b) |
|
A portion of the energy and commodity contracts purchased are defined as receive fixed/pay
variable contracts, and a portion of the energy contracts sold are defined as receive
variable/pay fixed contracts. |
Interest Rate Risk Management
Fluctuations in net interest income and the economic value of equity may result from changes in
interest rates, and differences in the repricing and maturity characteristics of interest-earning
assets and interest-bearing liabilities. To minimize the volatility of net interest income and the
economic value of equity, Key manages exposure to interest rate risk in accordance with guidelines
established by the Asset/Liability Management Committee. The primary derivative instruments used
to manage interest rate risk are interest rate swaps, which modify the interest rate
characteristics of certain assets and liabilities. These instruments are used to convert the
contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional
amounts) to another interest rate index.
Key has designated certain receive fixed/pay variable interest rate swaps as fair value hedges,
primarily to modify its exposure to interest rate risk. These contracts convert certain fixed-rate
long-term debt into variable-rate obligations. As a result, Key receives fixed-rate interest
payments in exchange for making variable-rate payments over the lives of the contracts without
exchanging the underlying notional amounts.
Additionally, Key has designated certain receive fixed/pay variable interest rate swaps as cash
flow hedges. These contracts effectively convert certain floating-rate loans into fixed-rate loans
to reduce the potential adverse impact from interest rate decreases on future interest income.
These contracts allow Key to receive fixed-rate interest payments in exchange for making
variable-rate payments over the lives of the contracts without exchanging the underlying notional
amounts. Similarly, Key has designated certain pay fixed/receive variable interest rate swaps as
cash flow hedges to convert certain floating-rate debt into fixed-rate debt.
Key also uses interest rate swaps to hedge the floating-rate debt that funds fixed-rate leases
entered into by Keys Equipment Finance line of business. These swaps are designated as cash flow
hedges to mitigate the interest rate mismatch between the fixed-rate lease cash flows and the
floating-rate payments on the debt.
Key has used pay fixed/receive variable interest rate swaps as cash flow hedges to manage the
interest rate risk associated with anticipated sales of certain commercial real estate loans.
These swaps protected against a possible short-term decline in the value of the loans that could
result from changes in interest rates between the time they were originated and the time they were
sold. During the first quarter of 2009, these hedges were terminated. Therefore, Key did not have
any of these hedges outstanding at March 31, 2009.
31
Foreign Currency Exchange Risk Management
The derivatives used for managing foreign currency exchange risk are cross currency swaps. Key has
several outstanding issues of medium-term notes that are denominated in a foreign currency. The
notes are subject to translation risk, which represents the possibility that changes in the fair
value of the foreign-denominated debt will occur based on movement of the underlying foreign
currency spot rate. It is Keys practice to hedge against potential fair value changes caused by
changes in foreign currency exchange rates and interest rates. The hedge converts the notes to a
variable-rate functional currency-denominated debt, which is designated as a fair value hedge of
foreign currency exchange risk.
Credit Risk Management
Credit risk is the risk of loss arising from an obligors inability or failure to meet contractual
payment or performance terms. Like other financial services institutions, Key originates loans and
extends credit, both of which expose Key to credit risk. Key actively manages its overall loan
portfolio, and the associated credit risk, in a manner consistent with asset quality objectives.
This process entails the use of credit derivatives ¾ primarily credit default swaps ¾
to mitigate Keys credit risk. Credit default swaps enable Key to transfer a portion of the credit
risk associated with a particular extension of credit to a third party, and to manage portfolio
concentration and correlation risks. Occasionally, Key also provides credit protection to other
lenders through the sale of credit default swaps. In most instances, this objective is
accomplished through the use of an investment-grade diversified dealer-traded basket of credit
default swaps. These transactions may generate fee income, and diversify and reduce overall
portfolio credit risk volatility. Although Key uses these instruments for risk management
purposes, they are not treated as hedging instruments as defined by SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities.
Trading Portfolio
Keys trading portfolio consists of the following instruments:
¨ |
|
interest rate swap, cap, floor and futures contracts entered into generally to accommodate
the needs of commercial loan clients; |
|
¨ |
|
energy swap and options contracts entered into to accommodate the needs of clients; |
|
¨ |
|
foreign exchange forward contracts entered into to accommodate the needs of clients; |
|
¨ |
|
positions with third parties that are intended to offset or mitigate the interest rate or
market risk related to client positions discussed above; and |
|
¨ |
|
interest rate swaps, foreign exchange forward contracts and credit default swaps used for
proprietary trading purposes. |
Key does not apply hedge accounting to any of these contracts.
32
Fair Values and Gain/Loss Information Related to Derivative Instruments
The following table summarizes the fair values of Keys derivative instruments on a gross basis as
of March 31, 2009, and where they are recorded on the balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets |
|
|
Derivative Liabilities |
|
March 31, 2009 |
|
Balance Sheet |
|
Fair |
|
|
Balance Sheet |
|
Fair |
|
in millions |
|
Location |
|
Value |
|
|
Location |
|
Value |
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
Derivative assets |
|
$ |
876 |
|
|
Derivative liabilities |
|
$ |
14 |
|
Foreign exchange |
|
Derivative assets |
|
|
46 |
|
|
Derivative liabilities |
|
|
434 |
|
|
Total |
|
|
|
|
922 |
|
|
|
|
|
448 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
Derivative assets |
|
|
2,284 |
|
|
Derivative liabilities |
|
|
2,075 |
|
Foreign exchange |
|
Derivative assets |
|
|
422 |
|
|
Derivative liabilities |
|
|
380 |
|
Energy and commodity |
|
Derivative assets |
|
|
721 |
|
|
Derivative liabilities |
|
|
751 |
|
Credit |
|
Derivative assets |
|
|
171 |
|
|
Derivative liabilities |
|
|
173 |
|
Equity |
|
Derivative assets |
|
|
1 |
|
|
Derivative liabilities |
|
|
|
|
|
Total |
|
|
|
|
3,599 |
|
|
|
|
|
3,379 |
|
|
Netting adjustments (a) |
|
|
|
|
(2,814 |
) |
|
|
|
|
(2,895 |
) |
|
Total derivatives |
|
|
|
$ |
1,707 |
|
|
|
|
$ |
932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Netting adjustments represent the amounts recorded to convert Keys derivative assets and
liabilities from a gross basis to a net basis in accordance with Keys January 1, 2008,
adoption of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts,
and FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation 39. The net basis
takes into account the impact of master netting agreements that allow Key to settle all
derivative contracts with a single counterparty
on a net basis and to offset the net derivative position with the related cash collateral. |
Fair value hedges. These hedging instruments are recorded at fair value and included in
derivative assets or derivative liabilities on the balance sheet. The effective portion of a
change in the fair value of a hedging instrument designated as a fair value hedge is recorded in
earnings at the same time as a change in fair value of the hedged item, resulting in no effect on
net income. The ineffective portion of a change in the fair value of such a hedging instrument is
recognized in other income on the income statement with no corresponding offset. During the
three-month period ended March 31, 2009, Key did not exclude any portion of hedging instruments
from the assessment of hedge effectiveness. While some ineffectiveness is present in Keys hedging
relationships, all of Keys fair value hedges remained highly effective during the first quarter.
The following table summarizes the net gains (losses) on Keys fair value hedges during the
three-month period ended March 31, 2009, and where they are recorded on the income statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gains |
|
|
|
|
|
|
|
|
Net Gains |
|
Three months ended March 31, 2009 |
|
Income Statement Location |
|
|
(Losses) |
|
|
|
|
Income Statement Location |
|
|
(Losses) |
|
in millions |
|
of Net Gains (Losses) on Derivative |
|
|
on Derivative |
|
|
Hedged Item |
|
of Net Gains (Losses) on Hedged Item |
|
|
on Hedged Item |
|
|
Interest rate |
|
Other income |
|
|
$ |
(84 |
) |
|
Long-term debt |
|
Other income |
|
|
$ |
97 |
(a) |
Interest rate |
|
Interest expense Long-term debt |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
|
Other income |
|
|
|
(67 |
) |
|
Long-term debt |
|
Other income |
|
|
|
65 |
(a) |
Foreign exchange |
|
Interest expense Long-term debt |
|
|
|
8 |
|
|
Long-term debt |
|
Interest expense Long-term debt |
|
|
|
(20 |
) (b) |
|
Total |
|
|
|
|
|
$ |
(90 |
) |
|
|
|
|
|
|
|
$ |
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net gains on hedged items represent the change in fair value caused by fluctuations in
interest rates. |
|
(b) |
|
Net losses on hedged items represent the change in fair value caused by fluctuations in foreign
currency exchange rates. |
Cash flow hedges. These hedging instruments are recorded at fair value and included in derivative
assets or derivative liabilities on the balance sheet. The effective portion of a gain or loss
on a cash flow hedge is recorded as a component of accumulated other comprehensive income on the
balance sheet. The amounts are reclassified into earnings in the same period in which the hedged
transaction impacts earnings, such as when Key pays variable-rate interest on debt, receives
variable-rate interest on commercial loans or sells commercial real estate loans. The ineffective
portion of cash flow hedging transactions is included in other income on the income statement.
During the three-month period ended March 31, 2009, Key did not exclude any portion of its hedging
instruments from the assessment of hedge effectiveness. While some
33
ineffectiveness is present in
Keys hedging relationships, all of Keys cash flow hedges remained highly effective during the
first quarter.
The following table summarizes the net gains (losses) on Keys cash flow hedges during the
three-month period ended March 31, 2009, and where they are recorded on the income statement. The
table includes the effective portion of net gains (losses) recognized in other comprehensive
income (loss) (OCI) during the period, the effective portion of net gains (losses) reclassified
from OCI into income during the current period, and the portion of net gains (losses) recorded
directly in income, representing the amount of hedge ineffectiveness.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Gains |
|
|
Income Statement Location |
|
|
Net Gains |
|
|
|
Net Gains (Losses) |
|
|
|
|
|
|
(Losses) Reclassified |
|
|
of Net Gains (Losses) |
|
|
(Losses) Recognized |
|
Three months ended March 31, 2009 |
|
Recognized in OCI |
|
|
Income Statement Location of Net Gains (Losses) |
|
|
From OCI Into Income |
|
|
Recognized in Income |
|
|
in Income |
|
in millions |
|
(Effective Portion) |
|
|
Reclassified From OCI Into Income (Effective Portion) |
|
|
(Effective Portion) |
|
|
(Ineffective Portion) |
|
|
(Ineffective Portion) |
|
|
Interest rate |
|
$ |
64 |
|
|
Interest income Loans |
|
|
$ |
89 |
|
|
Other income |
|
|
$ |
(1 |
) |
Interest rate |
|
|
8 |
|
|
Interest expense Long-term debt |
|
|
|
(4 |
) |
|
Other income |
|
|
|
1 |
|
Interest rate |
|
|
4 |
|
|
Net (losses) gains from loan securitizations and sales |
|
|
|
5 |
|
|
Other income |
|
|
|
|
|
|
Total |
|
$ |
76 |
|
|
|
|
|
|
$ |
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The change in accumulated other comprehensive income resulting from cash flow hedges is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification |
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
|
of Gains to |
|
|
March 31, |
|
in millions |
|
2008 |
|
|
Hedging Activity |
|
|
Net Income |
|
|
2009 |
|
|
Accumulated other comprehensive income
resulting from cash flow hedges |
|
$ |
238 |
|
|
$ |
47 |
|
|
$ |
(56 |
) |
|
$ |
229 |
|
|
Given the interest rates, yield curves and notional amounts as of March 31, 2009, management would
expect to reclassify an estimated $31 million of net losses on derivative instruments from
accumulated other comprehensive income to earnings during the next twelve months. The maximum
length of time over which forecasted transactions are hedged is nineteen years.
Nonhedging instruments. Keys derivatives that are not used in hedging relationships are recorded
at fair value in derivative assets and derivative liabilities on the balance sheet.
Adjustments to the fair values of these instruments, as well as any premium paid or received, are
included in investment banking and capital markets income on the income statement.
The following table summarizes the net gains (losses) on Keys derivative instruments that are not
used in hedging relationships for the three-month period ended March 31, 2009, and where they are
recorded on the income statement.
|
|
|
|
|
|
|
Three months ended March 31, 2009 |
|
Income Statement Location of |
|
Net Gains |
|
in millions |
|
Net Gains (Losses) |
|
(Losses) |
|
|
Interest rate |
|
Investment banking and capital markets income |
|
$ |
13 |
|
Foreign exchange |
|
Investment banking and capital markets income |
|
|
10 |
|
Energy and commodity |
|
Investment banking and capital markets income |
|
|
3 |
|
Credit |
|
Investment banking and capital markets income |
|
|
(19 |
) |
Equity (a) |
|
Investment banking and capital markets income |
|
|
|
|
|
Total |
|
|
|
$ |
7 |
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Key enters into equity contracts to accommodate the needs of clients and offsets these
positions with third parties. Key did not enter into any new equity contracts during the
three months ended March 31, 2009. |
34
Counterparty Credit Risk
Like other financial instruments, derivatives contain an element of credit risk. This risk is
measured as the expected positive replacement value of the contracts. Key uses several means to
mitigate and manage exposure to credit risk on derivative contracts. Key generally enters into
bilateral collateral and master netting agreements using standard forms published by the
International Swaps and Derivatives Association (ISDA). These agreements provide for the net
settlement of all contracts with a single counterparty in the event of default. Additionally,
management monitors credit risk exposure to the counterparty on each contract to determine
appropriate limits on Keys total credit exposure across all product types. Management reviews
Keys collateral positions on a daily basis and exchanges collateral with its counterparties in
accordance with ISDA and other related agreements. Key generally holds collateral in the form of
cash and highly rated securities issued by the U.S. Treasury, government-sponsored enterprises or
the Government National Mortgage Association. The cash collateral netted against derivative assets
on the balance sheet totaled $810 million at March 31, 2009, $974 million at December 31, 2008, and
$486 million at March 31, 2008. The cash collateral netted against derivative liabilities totaled
$892 million at March 31, 2009, $586 million at December 31, 2008, and $309 million at March 31,
2008.
At March 31, 2009, the largest gross exposure to an individual counterparty was $468 million, which
was secured with $82 million in collateral. Additionally, Key had a derivative liability of $409
million with this counterparty whereby Key pledged $39 million in collateral. After taking into
account the effects of a master netting agreement and collateral, Key had a net exposure of $16
million.
The following table summarizes the fair value of Keys derivative assets by type. These assets
represent Keys gross exposure to potential loss after taking into account the effects of master
netting agreements and other means used to mitigate risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
in millions |
|
2009 |
|
|
2008 |
|
|
2008 |
|
|
Interest rate |
|
$ |
1,985 |
|
|
$ |
2,333 |
|
|
$ |
1,513 |
|
Foreign exchange |
|
|
180 |
|
|
|
279 |
|
|
|
255 |
|
Energy and commodity |
|
|
331 |
|
|
|
214 |
|
|
|
196 |
|
Credit |
|
|
20 |
|
|
|
42 |
|
|
|
5 |
|
Equity |
|
|
1 |
|
|
|
2 |
|
|
|
25 |
|
|
Derivative assets before cash collateral |
|
|
2,517 |
|
|
|
2,870 |
|
|
|
1,994 |
|
Less: Related cash collateral |
|
|
810 |
|
|
|
974 |
|
|
|
486 |
|
|
Total derivative assets |
|
$ |
1,707 |
|
|
$ |
1,896 |
|
|
$ |
1,508 |
|
|
|
|
|
|
|
|
|
|
|
|
Key enters into derivative transactions with two primary groups: broker-dealers and banks, and
clients. Since these groups have different economic characteristics, Key manages counterparty
credit exposure and credit risk in a different manner for each group.
Key enters into transactions with broker-dealers and banks for purposes of asset/liability
management, risk management and proprietary trading purposes. These types of transactions
generally are high dollar volume. Key generally enters into bilateral collateral and master
netting agreements with these counterparties. At March 31, 2009, after taking into account the
effects of master netting agreements, Key had gross exposure of $1.839 billion to broker-dealers
and banks. Key had net exposure of $446 million after the application of master netting agreements
and cash collateral. Keys net exposure to broker-dealers and banks at March 31, 2009, was reduced
to $238 million by $208 million of additional collateral held in the form of securities.
Additionally, Key enters into transactions with clients to accommodate their business needs. These
types of transactions generally are low dollar volume. Key generally enters into master netting
agreements with these counterparties. In addition, Key mitigates its overall portfolio exposure
and market risk by entering into offsetting positions with other banks. Due to the smaller size
and magnitude of the individual contracts with clients, collateral is generally not exchanged on
these derivative transactions. In order to address the risk of default associated with the
uncollateralized contracts, Key has established a reserve (included in
35
derivative assets) in the
amount of $30 million at March 31, 2009, which management estimates to be the potential future
losses on amounts due from client counterparties in the event of default. At March 31, 2009, after
taking into account the effects of master netting agreements, Key had gross exposure of $1.330
billion to these counterparties. Key had net exposure of $1.261 billion on its derivatives with
clients after the application of master netting agreements, cash collateral and the related
reserve.
Credit Derivatives
Key is both buyer and seller of credit protection through the credit derivative market. Key
purchases credit derivatives to manage the credit risk associated with specific commercial lending
obligations. Key also sells credit derivatives, mainly index credit default swaps, to diversify
the concentration risk within its loan portfolio. In addition, Key has entered into derivatives
for proprietary trading purposes. The following table summarizes the fair value of Keys credit
derivatives purchased and sold by type as of March 31, 2009, and December 31, 2008. The fair value
of credit derivatives presented below does not take into account the effects of bilateral
collateral or master netting agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
in millions |
|
Purchased |
|
|
Sold |
|
|
Net |
|
|
Purchased |
|
|
Sold |
|
|
Net |
|
|
Single name credit default swaps |
|
$ |
132 |
|
|
$ |
(103 |
) |
|
$ |
29 |
|
|
$ |
155 |
|
|
$ |
(104 |
) |
|
$ |
51 |
|
Traded credit default swap indices |
|
|
30 |
|
|
|
(48 |
) |
|
|
(18 |
) |
|
|
34 |
|
|
|
(47 |
) |
|
|
(13 |
) |
Other |
|
|
|
|
|
|
(13 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
(8 |
) |
|
Total credit derivatives |
|
$ |
162 |
|
|
$ |
(164 |
) |
|
$ |
(2 |
) |
|
$ |
189 |
|
|
$ |
(159 |
) |
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single name credit default swaps are bilateral contracts between a buyer and seller, whereby
protection against the credit risk of a reference entity is sold. The protected credit risk is
related to adverse credit events, such as bankruptcy, failure to make payments, and acceleration or
restructuring of obligations specified in the credit derivative contract using standard
documentation terms governed by the ISDA. The credit default swap contract will reference a
specific debt obligation of the reference entity. As the seller of a single name credit
derivative, Key would be required to pay the purchaser the difference between par value and the
market price of the debt obligation (cash settlement) or receive the specified referenced asset in
exchange for payment of the par value (physical settlement) if the underlying reference entity
experiences a certain, predefined credit event. For a single name credit derivative, the notional
amount represents the maximum amount that a seller could be required to pay under the credit
derivative. In the event that physical settlement occurs and Key receives its portion of the
related debt obligation, Key will join other creditors in the liquidation process, which may result
in the recovery of a portion of the amount paid under the credit default swap contract. Key also
may purchase offsetting credit derivatives for the same reference entity from third parties that
will permit Key to recover the amount it pays should a credit event occur.
A traded credit default swap index represents a position on a basket or portfolio of reference
entities. As a seller of protection on a credit default swap index, Key would be required to pay
the purchaser if one or more of the entities in the index have a credit event. For a credit
default swap index, the notional amount represents the maximum amount that a seller could be
required to pay under the credit derivative. Upon a credit event, the amount payable is based on
the percentage of the notional amount allocated to the specific defaulting entity.
The following table provides information on the types of credit derivatives sold by Key and held on
the balance sheet at March 31, 2009, and December 31, 2008. This table includes derivatives sold
both to diversify Keys credit exposure and for proprietary trading purposes. The
payment/performance risk assessment is based on the default probabilities for the underlying
reference entities debt obligations using the credit ratings matrix provided by Moodys,
specifically Moodys Idealized Cumulative Default Rates, except as noted below. The
payment/performance risk shown below represents a weighted-average of the default probabilities for
all reference entities in the respective portfolios. These default probabilities are directly
correlated to the probability of Key having to make a payment under the credit derivative
contracts.
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Average |
|
|
Payment / |
|
|
|
|
|
|
Average |
|
|
Payment / |
|
|
|
Notional |
|
|
Term |
|
|
Performance |
|
|
Notional |
|
|
Term |
|
|
Performance |
|
dollars in millions |
|
Amount |
|
|
(Years) |
|
|
Risk |
|
|
Amount |
|
|
(Years) |
|
|
Risk |
|
|
Single name credit default swaps |
|
$ |
1,537 |
|
|
|
1.72 |
|
|
|
8.09 |
% |
|
$ |
1,476 |
|
|
|
2.44 |
|
|
|
4.75 |
% |
Traded credit default swap indices |
|
|
1,706 |
|
|
|
.96 |
|
|
|
6.52 |
|
|
|
1,759 |
|
|
|
1.51 |
|
|
|
4.67 |
|
Other |
|
|
59 |
|
|
|
1.50 |
|
|
Low |
(a) |
|
|
59 |
|
|
|
1.50 |
|
|
Low |
(a) |
|
Total credit derivatives sold |
|
$ |
3,302 |
|
|
|
|
|
|
|
|
|
|
$ |
3,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The other credit derivatives are not referenced to an entitys debt obligation. Management
determined the payment/performance risk based on the probability that Key could be required to
pay the maximum amount under the credit derivatives. Key has determined that the
payment/performance risk associated with the other credit derivatives is low (i.e., less than
or equal to 30% probability of payment). |
Credit Risk Contingent Features
Key has entered into certain derivative contracts that require Key to post collateral to the
counterparties when these contracts are in a net liability position. The amount of collateral to
be posted is generally based on thresholds related to Keys long-term senior unsecured credit
ratings with Moodys Investors Service, Inc. (Moodys) and Standard and Poors Ratings Services,
a Division of The McGraw-Hill Companies, Inc. (S&P). The collateral to be posted is also based
on minimum transfer amounts, which are specific to each Credit Support Annex (a component of the
ISDA Master Agreement) that Key has signed with the counterparties. In a limited number of
instances, counterparties also have the right to terminate their ISDA Master Agreements with Key if
Keys ratings fall below a certain level, usually investment-grade level (i.e., Baa3 for Moodys
and BBB- for S&P). At March 31, 2009, KeyBanks ratings with Moodys and S&P were A1 and A,
respectively, and KeyCorps ratings with Moodys and S&P were A2 and A-, respectively. Upon a
downgrade of Keys ratings, Key could be required to post additional collateral under those ISDA
Master Agreements where Key is in a net liability position. As of March 31, 2009, the aggregate
fair value of all derivative contracts with credit risk contingent features (i.e., those containing
collateral posting or termination provisions based on Keys ratings) that were in a net liability
position totaled $1.218 billion, which includes $1.262 billion in derivative assets and $2.480
billion in derivative liabilities. Key had $1.076 billion in cash and securities collateral posted
to cover those positions as of March 31, 2009.
The following table summarizes the additional cash and securities collateral that KeyBank would
have been required to deliver had the credit risk contingent features been triggered for the
derivative contracts in a net liability position as of March 31, 2009. The additional collateral
amounts were calculated based on scenarios under which KeyBanks ratings are downgraded one, two or
three ratings as of March 31, 2009, and take into account all collateral already posted. At March
31, 2009, KeyCorp did not have any derivatives in a net liability position that contained credit
risk contingent features.
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
in millions |
|
Moodys |
|
|
S&P |
|
|
KeyBanks long-term senior
unsecured credit ratings |
|
|
A1 |
|
|
|
A |
|
|
One rating downgrade |
|
|
|
|
|
$ |
25 |
|
Two rating downgrades |
|
$ |
25 |
|
|
|
44 |
|
Three rating downgrades |
|
|
49 |
|
|
|
51 |
|
|
If KeyBanks ratings had been downgraded below investment-grade as of March 31, 2009, payments of
up to $88 million would have been required to either terminate the contracts or post additional
collateral for those contracts in a net liability position, taking into account all collateral
already posted. To be downgraded below investment-grade, KeyBanks long-term senior unsecured
credit rating would need to be downgraded six ratings by Moodys and five ratings by S&P.
On April 30, 2009, KeyBank received a one rating downgrade on its long-term senior unsecured credit
rating from Moodys (from A1 to A2), and KeyCorp received a two rating downgrade on its
long-term senior unsecured credit rating (from A2 to Baa1). As shown in the table above,
KeyBank was not required to post additional collateral as a result of the one rating downgrade. As
of the date of this filing, the S&P long-term senior unsecured credit ratings for both KeyBank and
KeyCorp remain unchanged from March 31, 2009.
37
16. Fair Value Measurements
Fair Value Determination
As defined in SFAS No. 157, Fair Value Measurements, fair value is the price to sell an asset or
transfer a liability in an orderly transaction between market participants in Keys principal
market. Key has established and documented its process for determining the fair values of its
assets and liabilities, where applicable. Fair value is based on quoted market prices, when
available, for identical or similar assets or liabilities. In the absence of quoted market prices,
management determines the fair value of Keys assets and liabilities using valuation models or
third-party pricing services. Both of these approaches rely on market-based parameters when
available, such as interest rate yield curves, option volatilities and credit spreads, or
unobservable inputs. Unobservable inputs may be based on managements judgment, assumptions and
estimates related to credit quality, liquidity, interest rates and other relevant inputs.
Additional information pertaining to Keys valuation techniques is summarized in Note 20 (Fair
Value Measurements), which begins on page 118 of Keys 2008 Annual Report to Shareholders.
Fair Value Hierarchy
SFAS No. 157 establishes a three-level valuation hierarchy for determining fair value that is based
on the transparency of the inputs used in the valuation process. The inputs used in determining
fair value in each of the three levels of the hierarchy, from highest ranking to lowest, are as
follows:
¨ |
|
Level 1. Quoted prices in active markets for identical assets or liabilities. |
|
¨ |
|
Level 2. Either: (i) quoted market prices for similar assets or liabilities; (ii) observable inputs, such as interest
rates or yield curves; or (iii) inputs derived principally from or corroborated by observable market data. |
|
¨ |
|
Level 3. Unobservable inputs. |
The level in the fair value hierarchy ascribed to a fair value measurement in its entirety is based
on the lowest level input that is significant to the overall fair value measurement.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Assets and liabilities are considered to be fair valued on a recurring basis if fair value is
measured regularly (i.e., daily, weekly, monthly or quarterly). The following table shows Keys
assets and liabilities measured at fair value on a recurring basis at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Netting |
|
|
|
|
in millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Adjustments |
(a) |
|
Total |
|
|
ASSETS MEASURED ON A RECURRING BASIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments |
|
|
|
|
|
$ |
158 |
|
|
|
|
|
|
|
|
|
|
$ |
158 |
|
Trading account assets |
|
$ |
8 |
|
|
|
501 |
|
|
$ |
770 |
|
|
|
|
|
|
|
1,279 |
|
Securities available for sale |
|
|
46 |
|
|
|
8,316 |
|
|
|
|
|
|
|
|
|
|
|
8,362 |
|
Other investments |
|
|
|
|
|
|
5 |
|
|
|
1,074 |
|
|
|
|
|
|
|
1,079 |
|
Derivative assets |
|
|
381 |
|
|
|
4,131 |
|
|
|
9 |
|
|
$ |
(2,814 |
) |
|
|
1,707 |
|
Accrued income and other assets |
|
|
18 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
59 |
|
|
Total assets on a recurring basis at fair value |
|
$ |
453 |
|
|
$ |
13,152 |
|
|
$ |
1,853 |
|
|
$ |
(2,814 |
) |
|
$ |
12,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES MEASURED ON A RECURRING BASIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold
under repurchase agreements |
|
|
|
|
|
$ |
310 |
|
|
|
|
|
|
|
|
|
|
$ |
310 |
|
Bank notes and other short-term borrowings |
|
$ |
39 |
|
|
|
156 |
|
|
|
|
|
|
|
|
|
|
|
195 |
|
Derivative liabilities |
|
|
347 |
|
|
|
3,468 |
|
|
$ |
12 |
|
|
$ |
(2,895 |
) |
|
|
932 |
|
|
Total liabilities on a recurring basis at fair value |
|
$ |
386 |
|
|
$ |
3,934 |
|
|
$ |
12 |
|
|
$ |
(2,895 |
) |
|
$ |
1,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Netting adjustments represent the amounts recorded to convert Keys derivative assets and
liabilities from a gross basis to a net
basis in accordance with Keys January 1, 2008, adoption of FASB Interpretation No. 39,
Offsetting of Amounts Related to
Certain Contracts, and FASB Staff Position No. FIN 39-1, Amendment of FASB Interpretation
39. The net basis takes into
account the impact of master netting agreements that allow Key to settle all derivative
contracts with a single counterparty on a
net basis and to offset the net derivative position with the related cash collateral. |
38
Changes in Level 3 Fair Value Measurements
The following table shows the change in the fair values of Keys Level 3 financial instruments for
the three months ended March 31, 2009. An instrument is classified as Level 3 if unobservable
inputs are significant relative to the overall fair value measurement of the instrument. In
addition to unobservable inputs, Level 3 instruments also may have inputs that are observable
within the market. Management mitigates the credit risk, interest rate risk and risk of loss
related to many of these Level 3 instruments through the use of securities and derivative positions
classified as Level 1 or Level 2. Level 1 or Level 2 instruments are not included in the following
table. Therefore, the gains or losses shown do not include the impact of Keys risk management
activities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading |
|
|
|
|
|
|
|
|
|
Account |
|
|
Other |
|
|
Derivative |
|
in millions |
|
Assets |
|
|
Investments |
|
|
Instruments |
(a) |
|
Balance at December 31, 2008 |
|
$ |
856 |
|
|
$ |
1,134 |
|
|
$ |
15 |
|
(Losses) gains: |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(1 |
) (b) |
|
|
(81 |
) (c) |
|
|
(3 |
) (b) |
Included in other comprehensive income (loss) |
|
|
(84 |
) |
|
|
|
|
|
|
|
|
Purchases, sales, issuances and settlements |
|
|
(1 |
) |
|
|
21 |
|
|
|
|
|
Net transfers out of Level 3 |
|
|
|
|
|
|
|
|
|
|
(15 |
) |
|
Balance at March 31, 2009 |
|
$ |
770 |
|
|
$ |
1,074 |
|
|
$ |
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Unrealized losses included in earnings |
|
$ |
(2 |
) (b) |
|
$ |
(78 |
) (c) |
|
$ |
(1 |
) (b) |
|
|
|
|
(a) |
|
Amount represents Level 3 derivative assets less Level 3 derivative liabilities. |
|
(b) |
|
Realized and unrealized gains and losses on trading account assets and derivative
instruments are reported in investment banking and capital markets income on the income
statement. |
|
(c) |
|
Other investments consist of principal investments, and private equity and mezzanine
investments. Realized and unrealized gains and losses on principal investments are reported
in net (losses) gains from principal investments on the income statement. Realized and
unrealized gains and losses on private equity and mezzanine investments are reported in
investment banking and capital markets income on the income statement. |
Assets Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities are considered to be fair valued on a nonrecurring basis if the fair value
measurement of the instrument does not necessarily result in a change in the amount recorded on the
balance sheet. Generally, nonrecurring valuation is the result of applying other accounting
pronouncements that require assets or liabilities to be assessed for impairment, or recorded at the
lower of cost or fair value. The following table presents Keys assets measured at fair value on a
nonrecurring basis at March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
in millions |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
ASSETS MEASURED ON A NONRECURRING BASIS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
|
|
|
|
|
|
|
$ |
23 |
|
|
$ |
23 |
|
Loans held for sale |
|
|
|
|
|
|
|
|
|
|
244 |
|
|
|
244 |
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other intangible assets |
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
2 |
|
Accrued income and other assets |
|
|
|
|
|
$ |
5 |
|
|
|
58 |
|
|
|
63 |
|
|
Total assets on a nonrecurring basis at fair value |
|
|
|
|
|
$ |
5 |
|
|
$ |
327 |
|
|
$ |
332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through a quarterly analysis of Keys commercial and construction loan portfolios held for sale,
management determined that certain adjustments were necessary to record the portfolios at the lower
of cost or fair value in accordance with GAAP. After adjustments, these loans totaled $244 million
at March 31, 2009. Because the valuation of these loans is performed using an internal model that
relies on market data from sales of similar assets, including credit spreads, interest rate curves
and risk profiles, as well as managements own assumptions about the exit market for the loans, Key
has classified these loans as Level 3. Keys loans held for sale, which are measured at fair value
on a nonrecurring basis, include the remaining $70 million of commercial real estate loans
transferred from the loan portfolio to held-for-sale status in June 2008. The fair value of these
loans was measured using letters of intent, where available, or third-party appraisals.
Additionally, during the first quarter of 2009, Key transferred $78 million of commercial loans
from held for sale to the loan portfolio at their current fair value.
39
During the first quarter of 2009, market conditions prompted management to review and evaluate the
carrying amount of the goodwill and other intangible assets assigned to Keys Community Banking and
National Banking reporting units. This review indicated that the estimated fair value of the
Community Banking unit was greater than its carrying amount, while the estimated fair value of the
National Banking unit was less than its carrying amount, reflecting continued weakness in the
financial markets. Based on the results of additional impairment testing required for the National
Banking unit, Key recorded an after-tax noncash accounting charge of $187 million, or $.38 per
common share, during the first quarter of 2009. Consequently, Key has now written off all of the
goodwill that had been assigned to the National Banking unit. No additional impairment testing was
required for the Community Banking unit. The goodwill assigned to the Community Banking unit is
recorded at cost on Keys balance sheet and, therefore, not included in the table above.
Other real estate owned and other repossessed properties are valued based on appraisals and
third-party price opinions, less estimated selling costs. Assets that are acquired through, or in
lieu of, loan foreclosures are recorded as held for sale initially at the lower of the loan balance
or fair value upon the date of foreclosure. Subsequent to foreclosure, valuations are updated
periodically, and the assets may be marked down further, reflecting a new cost basis. These
adjusted assets, which totaled $49 million at March 31, 2009, are considered to be nonrecurring
items in the fair value hierarchy.
Current market conditions, including lower prepayments, interest rates and expected recovery rates
have impacted Keys modeling assumptions pertaining to education lending-related servicing rights
and residual interests, and consequently resulted in write-downs of these instruments. These
instruments are included in accrued income and other assets and securities available for sale,
respectively, in the preceding table.
40
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
KeyCorp
We have reviewed the condensed consolidated balance sheets of KeyCorp and subsidiaries (Key) as
of March 31, 2009 and 2008, and the related condensed consolidated statements of income, changes in
equity and cash flows for the three-month periods ended March 31, 2009 and 2008. These financial
statements are the responsibility of Keys management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight
Board (United States). A review of interim financial information consists principally of applying
analytical procedures, and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the
condensed consolidated interim financial statements referred to above for them to be in conformity
with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheet of Key as of December 31, 2008, and
the related consolidated statements of income, changes in equity and cash flows for the year then
ended not presented herein, and in our report dated February 25, 2009, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2008, is fairly stated, in
all material respects, in relation to the consolidated balance sheet from which it has been
derived.
/s/ Ernst & Young LLP
Cleveland, Ohio
May 7, 2009
41
Item 2. Managements Discussion & Analysis of Financial Condition & Results of Operations
Introduction
This section generally reviews the financial condition and results of operations of KeyCorp and its
subsidiaries for the first three months of 2009 and 2008. Some tables may include additional
periods to comply with disclosure requirements or to illustrate trends in greater depth. When you
read this discussion, you should also refer to the consolidated financial statements and related
notes that appear on pages 3 through 40. A description of Keys business is included under the
heading Description of Business on page 16 of Keys 2008 Annual Report to Shareholders.
Terminology
This report contains some shortened names and industry-specific terms. We want to explain some of
these terms at the outset so you can better understand the discussion that follows.
¨ |
|
KeyCorp refers solely to the parent holding company. |
|
¨ |
|
KeyBank refers to KeyCorps subsidiary bank, KeyBank National Association. |
|
¨ |
|
Key refers to the consolidated entity consisting of KeyCorp and its subsidiaries. |
|
¨ |
|
Key engages in capital markets activities primarily through business conducted by the National Banking group. These
activities encompass a variety of products and services. Among other things, Key trades securities as a dealer, enters
into derivative contracts (both to accommodate clients financing needs and for proprietary trading purposes), and
conducts transactions in foreign currencies (both to accommodate clients needs and to benefit from fluctuations in
exchange rates). |
|
¨ |
|
For regulatory purposes, capital is divided into two classes. Federal regulations prescribe that at least one-half of
a bank or bank holding companys total risk-based capital must qualify as Tier 1. Both total and Tier 1 capital serve
as bases for several measures of capital adequacy, which is an important indicator of financial stability and
condition. You will find a more detailed explanation of total and Tier 1 capital and how they are calculated in the
section entitled Capital, which begins on page 74. |
Forward-looking statements
This report and other reports filed by Key under the Securities Exchange Act of 1934, as amended,
or registration statements filed by Key under the Securities Act of 1933, as amended, contain
statements that are considered forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, including statements about Keys long-term goals,
financial condition, results of operations, earnings, levels of net loan charge-offs and
nonperforming assets, interest rate exposure and profitability. These statements usually can be
identified by the use of forward-looking language such as our goal, our objective, our plan,
will likely result, expects, plans, anticipates, intends, projects, believes,
estimates or other similar words, expressions or conditional verbs such as will, would,
could and should.
Forward-looking statements express managements current expectations, forecasts of future events or
long-term goals and, by their nature, are subject to assumptions, risks and uncertainties.
Although management believes that the expectations, forecasts and goals reflected in these
forward-looking statements are reasonable, actual results could differ materially for a variety of
reasons, including the following factors:
¨ |
|
In conjunction with the Supervisory Capital Assessment Program (SCAP), a component of the
United States Department of the Treasurys (the U.S. Treasury) Capital Assistance Program
(CAP), the regulators determined that KeyCorp needs to raise $1.8 billion in additional Tier
1 common equity. KeyCorps capital raising and augmentation efforts will likely be highly
dilutive to |
42
|
|
its common shareholders and may reduce the market price of KeyCorps common shares. If
KeyCorp is unable to increase common equity capital through the capital markets, it will be
required to obtain such capital from the U.S. Treasury by converting a portion of its
fixed-rate cumulative perpetual preferred stock, Series B (Series B Preferred Stock) issued
under the CPP to mandatorily convertible preferred shares under the CAP by November 9, 2009. |
|
¨ |
|
KeyCorp may be unable to raise any or all of the private capital in the amount required
to augment Tier 1 common equity as required by the regulators. |
|
¨ |
|
Converting KeyCorps Series B Preferred Stock under the CAP will impose additional restrictions on operations and may
affect liquidity. |
|
¨ |
|
The credit ratings of KeyCorp and KeyBank are essential to maintaining liquidity. Further downgrades from the major
credit ratings agencies in 2009 could mean that Keys debt ratings fall below investment-grade, which, in turn, could
have an adverse effect on access to liquidity sources, cost of funds, access to investors, and collateral or funding
requirements. |
|
¨ |
|
KeyCorps requirement to raise additional Tier 1 common equity could potentially require it to obtain a significant
amount of additional capital from the U.S. Treasury or an individual private investor, both of which could result in a
change of control for Key under applicable regulatory standards and contractual terms. |
|
¨ |
|
Potential misinterpretation of the SCAP assessment results could adversely affect Keys ability to attract and retain
customers and compete for new business opportunities. |
|
¨ |
|
Unprecedented volatility in the stock markets, public debt markets and other capital markets, including continued
disruption in the fixed income markets, has affected and could continue to affect Keys ability to raise capital or
other funding for liquidity and business purposes, as well as revenue from client-based underwriting, investment
banking and other capital markets-driven businesses. |
|
¨ |
|
Interest rates could change more quickly or more significantly than management expects, which may have an adverse
effect on Keys financial results. |
|
¨ |
|
Trade, monetary and fiscal policies of various governmental bodies may affect the economic environment in which Key
operates, as well as its financial condition and results of operations. |
|
¨ |
|
Changes in foreign exchange rates, equity markets, and the financial soundness of bond insurers, sureties and even
other unrelated financial companies have the potential to affect current market values of financial instruments which,
in turn, could have a material adverse effect on Key. |
|
¨ |
|
Asset price deterioration has had (and may continue to have) a negative effect on the valuation of many of the asset
categories represented on Keys balance sheet. |
|
¨ |
|
The Emergency Economic Stabilization Act of 2008 (EESA), the American Recovery and Reinvestment Act of 2009, the
Financial Stability Plan announced on February 10, 2009, by the Secretary of the U.S. Treasury, in coordination with
other financial institution regulators, and other initiatives undertaken by the U.S. government may not have the
intended effect on the financial markets; the current extreme volatility and limited credit availability may persist.
If these actions fail to help stabilize the financial markets and the current financial market and economic conditions
continue or deteriorate further, Keys business, financial condition, results of operations, access to credit and the
trading price of Keys common shares could all suffer a material decline. |
|
¨ |
|
The terms of the Capital Purchase Program (CPP), pursuant to which KeyCorp issued securities to the U.S. Treasury,
may limit Keys ability to return capital to shareholders and could be dilutive to Keys common shares. If Key is
unable to redeem such preferred shares within five years, the dividend rate will increase substantially. |
43
¨ |
|
Keys ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. |
|
¨ |
|
The problems in the housing markets, including issues related to the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation, and related conditions in the financial markets, or other issues, such as the
price volatility of oil or other commodities, could cause general economic conditions to deteriorate further. In
addition, these problems may inflict further damage on the local economies or industries in which Key has significant
operations or assets, and, among other things, may materially impact credit quality in existing portfolios and/or Keys
ability to generate loans in the future. |
|
¨ |
|
Increases in interest rates or further weakening economic conditions could constrain borrowers ability to repay
outstanding loans or diminish the value of the collateral securing those loans. Additionally, Keys allowance for loan
losses may be insufficient if the estimates and judgments management used to establish the allowance prove to be
inaccurate. |
|
¨ |
|
Key may face increased competitive pressure due to the recent consolidation of certain competing financial institutions
and the conversion of certain investment banks to bank holding companies. |
|
¨ |
|
Key may become subject to new or heightened legal standards and regulatory requirements, practices or expectations,
which may impede profitability or affect Keys financial condition, including new regulations imposed in connection
with the Troubled Asset Relief Program (TARP) provisions of the EESA, such as the Financial Stability Plan and the
CPP, being implemented and administered by the U.S. Treasury in coordination with other federal regulatory agencies,
further laws enacted by the U.S. Congress in an effort to strengthen the fundamentals of the economy, or other
regulations promulgated by federal regulators to mitigate the systemic risk presented by the current financial crisis,
such as the Federal Deposit Insurance Corporations (FDIC) Temporary Liquidity Guarantee Program (TLGP). |
|
¨ |
|
It could take Key longer than anticipated to implement strategic initiatives, including those designed to grow revenue
or manage expenses; Key may be unable to implement certain initiatives; or the initiatives Key employs may be
unsuccessful. |
|
¨ |
|
Increases in deposit insurance premiums imposed on KeyBank due to the FDICs restoration plan for the Deposit Insurance
Fund established on October 7, 2008, and continued difficulties experienced by other financial institutions may have an
adverse effect on Keys results of operations. |
|
¨ |
|
Acquisitions and dispositions of assets, business units or affiliates could adversely affect Key in ways that
management has not anticipated. |
|
¨ |
|
Key is subject to voluminous and complex rules, regulations and guidelines imposed by a number of government
authorities; regulatory requirements appear to be expanding in the current environment. Implementing and monitoring
compliance with these requirements is a significant task, and failure to effectively do so may result in penalties or
related costs that could have an adverse effect on Keys results of operations. |
|
¨ |
|
Key may have difficulty attracting and/or retaining key executives and/or relationship managers at compensation levels
necessary to maintain a competitive market position. |
|
¨ |
|
Key may experience operational or risk management failures due to technological or other factors. |
|
¨ |
|
Changes in accounting principles or in tax laws, rules and regulations could have an adverse effect on Keys financial
results or capital. |
|
¨ |
|
Key may become subject to new legal obligations or liabilities, or the unfavorable resolution of pending litigation may
have an adverse effect on our financial results or capital. |
44
¨ |
|
Terrorist activities or military actions could disrupt the economy and the general business climate, which may have an
adverse effect on Keys financial results or condition and that of its borrowers. |
|
¨ |
|
Key has leasing offices and clients throughout the world. Economic and political uncertainties resulting from
terrorist attacks, military actions or other events that affect countries in which Key operates may have an adverse
effect on those leasing clients and their ability to make timely payments. |
Forward-looking statements are not historical facts but instead represent only managements current
expectations and forecasts regarding future events, many of which, by their nature, are inherently
uncertain and outside of Keys control. The factors discussed above are not intended to be a
complete summary of all risks and uncertainties that may affect Keys business, the financial
services industry and financial markets. Though management strives to monitor and mitigate risk,
management cannot anticipate all potential economic, operational and financial developments that
may have an adverse impact on Keys operations and financial results. Forward-looking statements
speak only as of the date they are made, and Key does not undertake any obligation to revise any
forward-looking statement to reflect subsequent events.
Before making an investment decision, you should carefully consider all risks and uncertainties
disclosed in Keys Securities and Exchange Commission (SEC) filings, including this and Keys
other reports on Forms 8-K, 10-K and 10-Q and Keys registration statements under the Securities
Act of 1933, as amended, all of which are accessible on the
SECs website at www.sec.gov.
Long-term goals
Keys long-term financial goals are to grow its earnings per common share and achieve a return on
average common equity at rates at or above the respective median of our peer group. The strategy
for achieving these goals is described under the heading Corporate strategy on page 18 of Keys
2008 Annual Report to Shareholders.
Economic overview
During the first quarter of 2009, the United States economy continued to contract as 2.1 million
Americans lost their jobs and the unemployment rate reached 8.5%, its highest level in 26 years.
Job losses spread to all major industries and geographic areas, and resulted in the most severe
quarter for job losses since 1945. During the current quarter, the average unemployment rate rose
to 8.1%, substantially higher than the average rate of 6.9% for the fourth quarter of 2008 and the
average rate of 5.8% for all of 2008. Since the recession began in December 2007, 5.2 million jobs
have been lost.
Consumer confidence remained at a very low level, although the consumer did begin to show some
resiliency during the quarter. Consumer spending rose at an average monthly rate of .4% for the
quarter, compared to an average monthly decline of 1.0% in the fourth quarter of 2008 and an
average monthly decline of .1% for all of 2008. Price discounts offered by retailers were believed
to be a catalyst for the renewed spending. Consumer prices in March 2009 fell .4% from March 2008,
compared to an annual increase of 4% in March 2008 compared to March 2007. This was the first
annual decline in consumer prices since 1955.
Deterioration in the housing sector slowed as lower mortgage rates and home prices drew buyers back
into the real estate market. Existing and new home sales fell by 4% during the first quarter of
2009. Although the pace of home sale declines slowed during the quarter, home building activity
remained near record low levels. March 2009 housing starts declined 48% from the same month last
year and 9% from December 2008. During the first quarter, home values also continued to decline.
By March 2009, the median price of existing and new homes had fallen by more than 12% from the
levels reported for the same month last year. Existing home values showed some signs of
stabilization during the quarter, as median prices fell only .3% from December 2008. Lower prices
continue to reflect the elevated levels of foreclosures, which rose by 46% from March 2008.
45
Market interest rates were mixed over the quarter. The benchmark two-year Treasury yield began the
quarter at .77% and increased to .80% at March 31, 2009, and the ten-year Treasury yield, which
began the quarter at 2.21%, closed the quarter at 2.67%. Additionally, short-term interbank
lending rates decreased by 23 basis points as credit concerns eased somewhat. Regional banking
institutions, such as Key, continued to utilize the FDICs TLGP as their only source of unsecured
term funding.
The Federal Reserve held the federal funds target rate near zero during the first quarter of 2009
as the downside risks to the global economy remained elevated. In further efforts to promote
market liquidity and decrease lending rates, the Federal Reserve also increased its purchases of
agency debt, agency mortgage-backed securities and U.S. Treasury securities. Additionally, in
February 2009, the Secretary of the U.S. Treasury, in conjunction with other financial institution
regulators, announced the Financial Stability Plan, a summary of which is provided in the following
section.
Financial Stability Plan
On February 10, 2009, the U.S. Treasury announced its Financial Stability Plan to alleviate
uncertainty, restore confidence, and address liquidity and capital constraints. The key components
of the Financial Stability Plan are the CAP, the Term Asset-Backed Securities Loan Facility
(TALF), the Public-Private Investment Program (PPIP), the Affordable Housing and Foreclosure
Mitigation Efforts Initiative, and the Small Business and Community Lending Initiative designed to
increase lending to small businesses. Additional information regarding certain key aspects of the
TALF and PPIP is provided below. Information regarding the CAP is included in the Capital
section under the heading Financial Stability Plan on page 79.
The Term Asset-Backed Securities Loan Facility. The TALF is a joint program of the Federal Reserve
and the U.S. Treasury to improve credit markets by addressing the securitization markets. Prior to
the market disruption, securitization market demand enabled banks to sell loans in the form of
asset-backed securities at relatively low yields. This, in turn, allowed lenders to increase the
availability of credit and extend credit to consumers and businesses at lower rates. The continued
disruption of the securitization markets has resulted in a severe reduction in the availability of
credit and an increase in the cost of credit for consumers and businesses. Under the first phase of
TALF, which commenced in February 2009, the Federal Reserve Bank of New York will lend up to $200
billion on a collateralized, nonrecourse basis to holders of eligible asset-backed securities in
order to stimulate investor demand for these securities, and increase the availability of new
credit to consumers and businesses.
Public-Private Investment Program. On March 23, 2009, the FDIC, the Federal Reserve, and the U. S.
Treasury announced the PPIP for legacy assets. The program is designed to provide liquidity for
the purchase, by third parties, of these so-called troubled assets on the balance sheets of
financial institutions. The legacy assets consist of both real estate loans held directly and
securities backed by loan portfolios (Legacy Assets).
Earlier in the decade, the combination of lower interest rates and strong demand in the
securitization markets for loans sold in the form of asset-backed securities resulted in increased
credit availability for real estate loans. The increase in the availability of credit kept demand
for housing strong, and, in turn allowed housing prices to continue to rise causing the resulting
housing bubble, which eventually burst in 2007 and generated losses for investors and banks. The
resulting need by investors and banks to reduce risk, as the housing bubble burst, triggered a
wide-scale deleveraging of balance sheets, which led to fire sales of these distressed assets.
As prices declined, many traditional investors exited these markets, causing declines in market
liquidity. As a result, a negative cycle developed where declining asset prices triggered further
deleveraging, which in turn led to further price declines.
The excessive discounts embedded in some Legacy Asset prices are now straining the capital of U.S.
financial institutions, limiting their ability to lend and increasing the cost of credit throughout
the financial system. The resulting lack of clarity about the value of these Legacy Assets has
made it difficult for some financial institutions to raise new private capital on their own.
46
The PPIP is still in the process of being implemented by the agencies, but, if successful, could
generate demand for the purchase of Legacy Assets from financial institutions and restore the
source of capital provided by an active securitization market.
Demographics
The extent to which Keys business has been affected by continued volatility and weakness in the
housing market is directly related to the state of the economy in the regions in which its two
major business groups, Community Banking and National Banking, operate.
Keys Community Banking group serves consumers and small to mid-sized businesses by offering a
variety of deposit, investment, lending and wealth management products and services. These
products and services are provided through a 14-state branch network organized into three
geographic regions defined by management: Rocky Mountains and Northwest, Great Lakes and
Northeast. Keys National Banking group includes those corporate and consumer business units that
operate nationally, within and beyond our 14-state branch network, as well as internationally. The
specific products and services offered by the Community and National Banking groups are described
in Note 4 (Line of Business Results), which begins on page 11.
Figure 1 shows the geographic diversity of the Community Banking groups average core deposits,
commercial loans and home equity loans.
Figure 1. Community Banking Geographic Diversity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Region |
|
|
|
|
|
|
|
|
|
Rocky |
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2009 |
|
Mountains and |
|
|
|
|
|
|
|
|
|
|
|
|
|
dollars in millions |
|
Northwest |
|
|
Great Lakes |
|
|
Northeast |
|
|
Nonregion (a) |
|
|
Total |
|
|
Average core deposits |
|
$ |
13,429 |
|
|
$ |
14,124 |
|
|
$ |
13,172 |
|
|
$ |
1,631 |
|
|
$ |
42,356 |
|
Percent of total |
|
|
31.7 |
% |
|
|
33.3 |
% |
|
|
31.1 |
% |
|
|
3.9 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average commercial loans |
|
$ |
6,610 |
|
|
$ |
4,553 |
|
|
$ |
3,298 |
|
|
$ |
1,366 |
|
|
$ |
15,827 |
|
Percent of total |
|
|
41.8 |
% |
|
|
28.8 |
% |
|
|
20.8 |
% |
|
|
8.6 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average home equity loans |
|
$ |
4,519 |
|
|
$ |
2,947 |
|
|
$ |
2,663 |
|
|
$ |
144 |
|
|
$ |
10,273 |
|
Percent of total |
|
|
44.0 |
% |
|
|
28.7 |
% |
|
|
25.9 |
% |
|
|
1.4 |
% |
|
|
100.0 |
% |
|
|
|
|
(a) |
|
Represents core deposit, commercial loan and home equity loan products centrally managed
outside of the three Community Banking regions. |
Figure 17 on page 67 shows the diversity of Keys commercial real estate lending business based on
industry type and location. The homebuilder loan portfolio within the National Banking group has
been
adversely affected by the downturn in the U.S. housing market. The deteriorating market conditions
in the residential properties segment of Keys commercial real estate construction portfolio,
principally in Florida and southern California, have caused Key to experience a significant
increase in the levels of nonperforming loans and net charge-offs since mid-2007. Management has
taken aggressive steps to reduce Keys exposure in this segment of the loan portfolio. As
previously reported, during the fourth quarter of 2007, Key announced its decision to cease
conducting business with nonrelationship homebuilders outside of its 14-state Community Banking
footprint. During the second quarter of 2008, Key initiated a process to further reduce exposure
through the sale of certain loans. As a result of these actions, Key has reduced the outstanding
balances in the residential properties segment of the commercial real estate loan portfolio by
$1.729 billion, or 48%, over the past twelve months. Additional information about the loan sales
is included in the Credit risk management section, which begins on page 88.
Results for the National Banking group have also been affected adversely by increasing credit costs
and volatility in the capital markets, leading to declines in the market values of assets under
management and the market values at which Key records certain assets (primarily commercial real
estate loans and securities held for sale or trading).
47
Additionally, during the first quarter of 2009 management determined that the estimated fair value
of the National Banking reporting unit was less than the carrying amount, reflecting the impact of
continued weakness in the financial markets. As a result, Key recorded an after-tax noncash
accounting charge of $187 million. As a result of this charge and a similar after-tax charge of
$420 million recorded during the fourth quarter of 2008, Key has now written off all of the
goodwill that had been assigned to its National Banking reporting unit.
Critical accounting policies and estimates
Keys business is dynamic and complex. Consequently, management must exercise judgment in choosing
and applying accounting policies and methodologies. These choices are critical; not only are they
necessary to comply with U.S. generally accepted accounting principles (GAAP), they also reflect
managements view of the appropriate way to record and report Keys overall financial performance.
All accounting policies are important, and all policies described in Note 1 (Summary of
Significant Accounting Policies), which begins on page 77 of Keys 2008 Annual Report to
Shareholders, should be reviewed for a greater understanding of how Keys financial performance is
recorded and reported.
In managements opinion, some accounting policies are more likely than others to have a significant
effect on Keys financial results and to expose those results to potentially greater volatility.
These policies apply to areas of relatively greater business importance, or require management to
exercise judgment and to make assumptions and estimates that affect amounts reported in the
financial statements. Because these assumptions and estimates are based on current circumstances,
they may change over time or prove to be inaccurate.
Management relies heavily on the use of judgment, assumptions and estimates to make a number of
core decisions, including accounting for the allowance for loan losses; contingent liabilities,
guarantees and income taxes; derivatives and related hedging activities; and assets and liabilities
that involve valuation methodologies. A brief discussion of each of these areas appears on pages
20 through 23 of Keys 2008 Annual Report to Shareholders. Information about Keys review of
goodwill and other intangible assets for impairment as of March 31, 2009, is included in Note 1
(Basis of Presentation) under the heading Goodwill and Other Intangible Assets on page 7.
Effective January 1, 2008, Key adopted SFAS No. 157, Fair Value Measurements, which defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. In the absence of quoted market prices, management determines the fair value of
Keys assets and liabilities using internally developed models, which are based on managements
judgment, assumptions and estimates regarding credit quality, liquidity, interest rates and other
relevant inputs. Keys adoption of this accounting guidance and the process used to determine fair
values are more fully described in Note 1 under the heading Fair Value Measurements on page 82 of
Keys 2008 Annual Report to Shareholders and in Note 20 (Fair Value Measurements), which begins
on page 118 of that report.
At March 31, 2009, $12.644 billion, or 13%, of Keys total assets were measured at fair value on a
recurring basis. More than 88% of these assets were classified as Level 1 or Level 2 within the
fair value hierarchy. At March 31, 2009, $1.437 billion, or 2%, of Keys total liabilities were
measured at fair value on a recurring basis. Substantially all of these liabilities were
classified as Level 1 or Level 2.
At March 31, 2009, $332 million, or less than 1%, of Keys total assets were measured at fair value
on a nonrecurring basis. Less than 1% of these assets were classified as Level 1 or Level 2. At
March 31, 2009, there were no liabilities measured at fair value on a nonrecurring basis.
During the first quarter of 2009, management did not significantly alter the manner in which it
applied Keys critical accounting policies or developed related assumptions and estimates.
48
Highlights of Keys Performance
Financial performance
For the first quarter of 2009, the net loss attributable to Key was $488 million, or $1.09 per
common share. This compares to net income attributable to Key of $218 million, or $.54 per diluted
common share, for the first quarter of 2008. The loss for the current quarter was primarily the
result of an increase in the provision for loan losses and a noncash accounting charge for goodwill
and other intangible assets impairment.
In light of the prevailing economic environment during the first quarter of 2009, Key continued to
build its loan loss reserves by recording an $875 million provision for loan losses, which exceeded
net loan charge-offs by $383 million. As a result, Keys March 31, 2009, allowance for loan losses
rose to $2.186 billion, or 2.97% of period-end loans, from $1.803 billion, or 2.36% at December 31,
2008, and $1.298 billion, or 1.70% one year ago.
Additionally, the company determined that the estimated fair value of its National Banking
reporting unit was less than the carrying amount, reflecting continued weakness in the financial
markets. Based on the results of additional impairment testing for this reporting unit, Key
recorded an after-tax noncash accounting charge of $187 million for the impairment of goodwill and
other intangible assets. Importantly, this adjustment did not affect Keys regulatory and tangible
capital ratios. With this charge, Key has now written off all of the goodwill that had been
assigned to its National Banking reporting unit.
Through this difficult credit cycle, management has maintained their focus on sustaining Keys
strong capital position, preserving Keys relationship business model and carefully managing
expenses to ensure Keys readiness to respond to business opportunities when conditions improve.
In April 2009, Keys Board of Directors expressed its intention to reduce Keys quarterly dividend
on common shares to $.01 per share from $.0625 per share, commencing in the second quarter of 2009,
an action that will retain approximately $100 million of capital on an annual basis. At March 31,
2009, Keys risk-based capital ratios continued to significantly exceed the well-capitalized
standard for banks established by the banking regulators. Key had a Tier 1 capital ratio of
11.22%, a total capital ratio of 15.18% and a tangible common equity ratio of 6.06%.
Despite the challenging economic environment, Keys Community Banking group continues to benefit
from its relationship banking strategy as evidenced by solid loan and deposit growth. Compared to
the first quarter of 2008, average loans grew by $855 million, or 3%, and average deposits rose by
$1.783 billion, or 4%. Although Key continues to move forward in exiting low-return,
nonrelationship businesses, progress has been slower than anticipated due to general weakness in
the economy and restricted liquidity. Additional information pertaining to Keys exit loan
portfolio and the progress made in reducing total residential property exposure in commercial real
estate is presented in the section entitled Credit risk management, which begins on page 88.
While all financial institutions are experiencing higher costs associated with collection efforts
and an increase in deposit insurance premiums, Key has taken a proactive approach to managing its
expenses. Excluding the goodwill and other intangible assets impairment charge recorded during the
first quarter of 2009, Keys noninterest expense was up 2% from the year-ago quarter. Over the
past twelve months, Key has reduced the number of its average full-time equivalent employees by
more than 5%, due in large part to actions taken to exit or de-emphasize certain businesses,
including private student lending and lending to homebuilders. Additionally, Key continues to look
for opportunities to streamline operations and to achieve cost efficiency by deploying new
technology.
Key is also working to meet the funding needs of its clients while carefully managing the
associated risk. During the first quarter of 2009, Key originated approximately $7.8 billion in
new or renewed loans and commitments to consumers and businesses.
49
Significant items that affect the comparability of Keys financial performance for the current,
prior and year-ago quarters are shown in Figure 2. Events leading to the recognition of these
items, as well as other factors that contributed to the changes in Keys revenue and expense
components, are reviewed in detail throughout the remainder of the Managements Discussion &
Analysis section.
Figure 2. Significant Items Affecting the Comparability of Earnings
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Three months ended |
|
|
Three months ended |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
March 31, 2008 |
|
|
|
Pre-tax |
|
|
After-tax |
|
|
Impact on |
|
|
Pre-tax |
|
|
After-tax |
|
|
Impact on |
|
|
Pre-tax |
|
|
After-tax |
|
|
Impact on |
|
in millions, except per share amounts |
|
Amount |
|
|
Amount |
|
|
EPS |
|
|
Amount |
|
|
Amount |
|
|
EPS |
|
|
Amount |
|
|
Amount |
|
|
EPS |
|
|
Provision for loan losses in excess of net charge-offs |
|
$ |
(383 |
) |
|
$ |
(239 |
) |
|
$ |
(.49 |
) |
|
$ |
(252 |
) |
|
$ |
(158 |
) |
|
$ |
(.32 |
) |
|
$ |
(66 |
) |
|
$ |
(42 |
) |
|
$ |
(.10 |
) |
Noncash charge for intangible assets impairment |
|
|
(223 |
) |
|
|
(187 |
) |
|
|
(.38 |
) |
|
|
(465 |
) |
|
|
(420 |
) |
|
|
(.85 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net (losses) gains from principal investing |
|
|
(72 |
) |
|
|
(45 |
) |
|
|
(.09 |
) |
|
|
(37 |
) |
|
|
(23 |
) |
|
|
(.05 |
) |
|
|
11 |
|
|
|
7 |
|
|
|
.02 |
|
Severance and other exit costs |
|
|
(8 |
) |
|
|
(5 |
) |
|
|
(.01 |
) |
|
|
(31 |
) |
|
|
(20 |
) |
|
|
(.04 |
) |
|
|
(6 |
) |
|
|
(4 |
) |
|
|
(.01 |
) |
Gain from sale/redemption of Visa Inc. shares |
|
|
105 |
|
|
|
65 |
|
|
|
.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165 |
|
|
|
103 |
|
|
|
.26 |
|
Realized and unrealized gains (losses) on loan and
securities portfolios held for sale or trading |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
(18 |
) |
|
|
(11 |
) |
|
|
(.02 |
) |
|
|
(128 |
) |
|
|
(80 |
) |
|
|
(.20 |
) |
U.S. taxes on accumulated earnings of Canadian
leasing operation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
(.14 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(Charges) credits related to leveraged lease tax litigation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
120 |
(a) |
|
|
.24 |
|
|
|
(3 |
) |
|
|
(38 |
) |
|
|
(.10 |
) |
|
|
|
|
(a) |
|
Represents $120 million of previously accrued interest recovered in connection with Keys
opt-in to the Internal Revenue Service (IRS) global tax settlement. |
|
EPS |
|
= Earnings per common share |
Keys financial performance for each of the past five quarters is summarized in Figure 3.
50
Figure 3. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
dollars in millions, except per share amounts |
|
First |
|
|
Fourth |
|
|
Third |
|
|
Second |
|
|
First |
|
|
FOR THE PERIOD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
1,032 |
|
|
$ |
1,163 |
|
|
$ |
1,232 |
|
|
$ |
880 |
|
|
$ |
1,354 |
|
Interest expense |
|
|
418 |
|
|
|
524 |
|
|
|
533 |
|
|
|
522 |
|
|
|
641 |
|
Net interest income |
|
|
614 |
(a) |
|
|
639 |
(a) |
|
|
699 |
|
|
|
358 |
|
|
|
713 |
(a) |
Provision for loan losses |
|
|
875 |
|
|
|
594 |
|
|
|
407 |
|
|
|
647 |
|
|
|
187 |
|
Noninterest income |
|
|
492 |
|
|
|
395 |
|
|
|
398 |
|
|
|
555 |
|
|
|
530 |
|
Noninterest expense |
|
|
973 |
|
|
|
1,302 |
|
|
|
761 |
|
|
|
782 |
|
|
|
733 |
|
(Loss) income before income taxes |
|
|
(742 |
) |
|
|
(862 |
) |
|
|
(71 |
) |
|
|
(516 |
) |
|
|
323 |
|
Net (loss) income attributable to Key |
|
|
(488 |
) (a) |
|
|
(524 |
) (a) |
|
|
(36 |
) |
|
|
(1,126 |
) |
|
|
218 |
(a) |
Net (loss) income attributable to Key common shareholders |
|
|
(536 |
) (a) |
|
|
(554 |
) (a) |
|
|
(48 |
) |
|
|
(1,126 |
) |
|
|
218 |
(a) |
|
PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Key |
|
$ |
(1.09 |
) |
|
$ |
(1.13 |
) |
|
$ |
(.10 |
) |
|
$ |
(2.70 |
) |
|
$ |
.55 |
|
Net (loss) income attributable to Key assuming dilution |
|
|
(1.09 |
) (a) |
|
|
(1.13 |
) (a) |
|
|
(.10 |
) |
|
|
(2.70 |
) |
|
|
.54 |
(a) |
|
Cash dividends paid |
|
|
.0625 |
|
|
|
.0625 |
|
|
|
.1875 |
|
|
|
.375 |
|
|
|
.375 |
|
Book value at period end |
|
|
13.82 |
|
|
|
14.97 |
|
|
|
16.16 |
|
|
|
16.59 |
|
|
|
21.48 |
|
Tangible book value at period end |
|
|
11.76 |
|
|
|
12.41 |
|
|
|
12.66 |
|
|
|
13.00 |
|
|
|
17.07 |
|
Market price: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
9.35 |
|
|
|
15.20 |
|
|
|
15.25 |
|
|
|
26.12 |
|
|
|
27.23 |
|
Low |
|
|
4.83 |
|
|
|
4.99 |
|
|
|
7.93 |
|
|
|
10.00 |
|
|
|
19.00 |
|
Close |
|
|
7.87 |
|
|
|
8.52 |
|
|
|
11.94 |
|
|
|
10.98 |
|
|
|
21.95 |
|
Weighted-average common shares outstanding (000) |
|
|
492,813 |
|
|
|
492,311 |
|
|
|
491,179 |
|
|
|
416,629 |
|
|
|
399,121 |
|
Weighted-average common shares and potential
common shares outstanding (000) |
|
|
492,813 |
|
|
|
492,311 |
|
|
|
491,179 |
|
|
|
416,629 |
|
|
|
399,769 |
|
|
AT PERIOD END |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
73,703 |
|
|
$ |
76,504 |
|
|
$ |
76,705 |
|
|
$ |
75,855 |
|
|
$ |
76,444 |
|
Earning assets |
|
|
89,042 |
|
|
|
94,020 |
|
|
|
90,257 |
|
|
|
89,893 |
|
|
|
89,719 |
|
Total assets |
|
|
97,834 |
|
|
|
104,531 |
|
|
|
101,290 |
|
|
|
101,544 |
|
|
|
101,492 |
|
Deposits |
|
|
65,996 |
|
|
|
65,260 |
|
|
|
64,678 |
|
|
|
64,396 |
|
|
|
64,702 |
|
Long-term debt |
|
|
14,978 |
|
|
|
14,995 |
|
|
|
15,597 |
|
|
|
15,106 |
|
|
|
14,337 |
|
Key common shareholders equity |
|
|
6,892 |
|
|
|
7,408 |
|
|
|
7,993 |
|
|
|
8,056 |
|
|
|
8,592 |
|
Key shareholders equity |
|
|
9,968 |
|
|
|
10,480 |
|
|
|
8,651 |
|
|
|
8,706 |
|
|
|
8,592 |
|
|
PERFORMANCE RATIOS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets |
|
|
(1.91 |
)% (a) |
|
|
(1.93 |
)% (a) |
|
|
(.14 |
)% |
|
|
(4.38) |
% |
|
|
.85 |
% (a) |
Return on average common equity |
|
|
(29.87 |
) (a) |
|
|
(27.65 |
) (a) |
|
|
(2.36 |
) |
|
|
(53.35 |
) |
|
|
10.38 |
(a) |
Net interest margin (taxable equivalent) |
|
|
2.77 |
|
|
|
2.76 |
(a) |
|
|
3.13 |
|
|
|
(.44 |
) |
|
|
3.14 |
(a) |
|
CAPITAL RATIOS AT PERIOD END |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key shareholders equity to assets |
|
|
10.19 |
% |
|
|
10.03 |
% |
|
|
8.54 |
% |
|
|
8.57 |
% |
|
|
8.47 |
% |
Tangible Key shareholders equity to tangible assets |
|
|
9.23 |
|
|
|
8.92 |
|
|
|
6.95 |
|
|
|
6.98 |
|
|
|
6.85 |
|
Tangible common equity to tangible assets |
|
|
6.06 |
|
|
|
5.95 |
|
|
|
6.29 |
|
|
|
6.32 |
|
|
|
6.85 |
|
Tier 1 risk-based capital |
|
|
11.22 |
|
|
|
10.92 |
|
|
|
8.55 |
|
|
|
8.53 |
|
|
|
8.33 |
|
Total risk-based capital |
|
|
15.18 |
|
|
|
14.82 |
|
|
|
12.40 |
|
|
|
12.41 |
|
|
|
12.34 |
|
Leverage |
|
|
11.19 |
|
|
|
11.05 |
|
|
|
9.28 |
|
|
|
9.34 |
|
|
|
9.15 |
|
|
TRUST AND BROKERAGE ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management |
|
$ |
60,164 |
|
|
$ |
64,717 |
|
|
$ |
76,676 |
|
|
$ |
80,998 |
|
|
$ |
80,453 |
|
Nonmanaged and brokerage assets |
|
|
21,786 |
|
|
|
22,728 |
|
|
|
27,187 |
|
|
|
29,905 |
|
|
|
30,532 |
|
|
OTHER DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average full-time-equivalent employees |
|
|
17,468 |
|
|
|
17,697 |
|
|
|
18,098 |
|
|
|
18,164 |
|
|
|
18,426 |
|
Branches |
|
|
989 |
|
|
|
986 |
|
|
|
986 |
|
|
|
985 |
|
|
|
985 |
|
|
|
|
|
(a) |
|
See Figure 4 on page 52, which presents certain earnings data and performance ratios,
excluding charges (credits) related to goodwill and other intangible assets impairment, and
the tax treatment of certain leveraged lease financing transactions disallowed by the IRS.
Figure 4 reconciles certain GAAP performance measures to the corresponding non-GAAP measures,
which provides a basis for period-to-period comparisons. |
51
Figure 4 presents certain earnings data and performance ratios, excluding charges (credits) related
to goodwill and other intangible assets impairment, and the tax treatment of certain leveraged
lease financing transactions disallowed by the IRS (non-GAAP). Eliminating the effects of
significant items that are generally nonrecurring facilitates the analysis of results by presenting
them on a more comparable basis.
Figure 4 also reconciles the GAAP performance measures to the corresponding non-GAAP measures.
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and
are not audited. They should not be considered in isolation, or as a substitute for analyses of
results as reported under GAAP.
Figure 4. GAAP to Non-GAAP Reconciliations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
dollars in millions, except per share amounts |
|
3-31-09 |
|
|
12-31-08 |
|
|
3-31-08 |
|
|
NET (LOSS) INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Key (GAAP) |
|
$ |
(488 |
) |
|
$ |
(524 |
) |
|
$ |
218 |
|
Charges related to intangible assets impairment, after tax |
|
|
187 |
|
|
|
420 |
|
|
|
|
|
(Credits) charges related to leveraged lease tax litigation, after tax |
|
|
|
|
|
|
(120 |
) |
|
|
38 |
|
|
Net (loss) income attributable to Key, excluding charges (credits) related to intangible assets
impairment and leveraged lease tax litigation (non-GAAP) |
|
$ |
(301 |
) |
|
$ |
(224 |
) |
|
$ |
256 |
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends and amortization of discount on Series B Preferred Stock |
|
$ |
48 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Key common shareholders (GAAP) |
|
$ |
(536 |
) |
|
$ |
(554 |
) |
|
$ |
218 |
|
Net (loss) income attributable to Key common shareholders, excluding charges (credits) related to
intangible assets impairment and leveraged lease tax litigation (non-GAAP) |
|
|
(349 |
) |
|
|
(254 |
) |
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Key assuming dilution (GAAP) |
|
$ |
(1.09 |
) |
|
$ |
(1.13 |
) |
|
$ |
.54 |
|
Net (loss) income attributable to Key, excluding charges (credits) related to intangible assets
impairment and leveraged lease tax litigation assuming dilution (non-GAAP) |
|
|
(.71 |
) |
|
|
(.52 |
) |
|
|
.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERFORMANCE RATIOS |
|
|
|
|
|
|
|
|
|
|
|
|
Return on average total assets: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Average total assets |
|
$ |
103,815 |
|
|
$ |
107,735 |
|
|
$ |
103,356 |
|
Return on average total assets (GAAP) |
|
|
(1.91 |
)% |
|
|
(1.93 |
)% |
|
|
.85 |
% |
Return on average total assets, excluding charges (credits) related to intangible assets impairment
and leveraged lease tax litigation (non-GAAP) |
|
|
(1.18 |
) |
|
|
(.83 |
) |
|
|
1.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average common equity: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
Average common equity |
|
$ |
7,277 |
|
|
$ |
7,971 |
|
|
$ |
8,445 |
|
Return on average common equity (GAAP) |
|
|
(29.87 |
)% |
|
|
(27.65 |
)% |
|
|
10.38 |
% |
Return on average common equity, excluding charges (credits) related to intangible assets
impairment and leveraged lease tax litigation (non-GAAP) |
|
|
(19.45 |
) |
|
|
(12.68 |
) |
|
|
12.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INTEREST INCOME AND MARGIN |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (GAAP) |
|
$ |
614 |
|
|
$ |
639 |
|
|
$ |
713 |
|
Charges related to leveraged lease tax litigation, pre-tax |
|
|
|
|
|
|
18 |
|
|
|
3 |
|
|
Net interest
income, excluding charges related to leveraged lease tax
litigation (non-GAAP) |
|
$ |
614 |
|
|
$ |
657 |
|
|
$ |
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/margin (TE): |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) (TE) (as reported) |
|
$ |
620 |
|
|
$ |
646 |
|
|
$ |
704 |
|
Charges related to leveraged lease tax litigation, pre-tax (TE) |
|
|
|
|
|
|
18 |
|
|
|
34 |
|
|
Net interest income, excluding charges related to leveraged lease tax
litigation (TE) (adjusted basis) |
|
$ |
620 |
|
|
$ |
664 |
|
|
$ |
738 |
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (TE) (as reported) (a) |
|
|
2.77 |
% |
|
|
2.76 |
% |
|
|
3.14 |
% |
Impact of
charges related to leveraged lease tax litigation, pre-tax (TE) (a) |
|
|
|
|
|
|
.08 |
|
|
|
.15 |
|
|
Net interest
margin, excluding charges related to leveraged lease tax
litigation (TE) (adjusted basis) (a) |
|
|
2.77 |
% |
|
|
2.84 |
% |
|
|
3.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Income statement amount has been annualized in calculation of percentage. |
|
TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles |
52
As shown in Figure 4, during the first quarter of 2009, Key recorded an after-tax charge of $187
million, or $.38 per common share, for the impairment of goodwill and other intangible assets
related to the National Banking reporting unit. In the prior quarter, Key recorded an after-tax
charge of $420 million, or $.85 per common share, as a result of its annual goodwill impairment
testing for the same reporting unit. Key has now written off all of the goodwill that had been
assigned to its National Banking reporting unit.
Additionally, 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. 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.
Strategic developments
Management initiated the following actions during 2008 to support Keys corporate strategy, which
is described under the heading Corporate Strategy on page 18 of Keys 2008 Annual Report to
Shareholders.
¨ |
|
During the third quarter of 2008, Key decided to exit retail and
floor-plan lending for marine and recreational vehicle products,
and to limit new education loans to those backed by government
guarantee. Key also determined that it will cease lending to
homebuilders within its 14-state Community Banking footprint.
This came after Key began to reduce its business with
nonrelationship homebuilders outside that footprint in December
2007. |
|
¨ |
|
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 Keys branch presence in the attractive Lower
Hudson Valley area. |
53
Line of Business Results
This section summarizes the financial performance and related strategic developments of Keys two
major business groups, Community Banking and National Banking. To better understand this
discussion, see Note 4 (Line of Business Results), which begins on page 11. Note 4 describes the
products and services offered by each of these business groups, provides more detailed financial
information pertaining to the groups and their respective lines of business, and explains Other
Segments and Reconciling Items.
Figure 5 summarizes the contribution made by each major business group to Keys taxable-equivalent
revenue and net (loss) income attributable to Key for the three-month periods ended March 31, 2009
and 2008.
Figure 5. Major Business Groups Taxable-Equivalent Revenue and Net (Loss)
Income Attributable to Key
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
REVENUE (TE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Banking |
|
$ |
604 |
|
|
$ |
629 |
|
|
$ |
(25 |
) |
|
|
(4.0 |
)% |
National Banking (a) |
|
|
537 |
|
|
|
439 |
|
|
|
98 |
|
|
|
22.3 |
|
Other Segments |
|
|
(78 |
) |
|
|
28 |
|
|
|
(106 |
) |
|
|
N/M |
|
|
Total Segments |
|
|
1,063 |
|
|
|
1,096 |
|
|
|
(33 |
) |
|
|
(3.0 |
) |
Reconciling Items (b) |
|
|
49 |
|
|
|
138 |
|
|
|
(89 |
) |
|
|
(64.5 |
) |
|
Total |
|
$ |
1,112 |
|
|
$ |
1,234 |
|
|
$ |
(122 |
) |
|
|
(9.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME ATTRIBUTABLE TO KEY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Banking |
|
$ |
33 |
|
|
$ |
116 |
|
|
$ |
(83 |
) |
|
|
(71.6) |
% |
National Banking (a) |
|
|
(571 |
) |
|
|
(24 |
) |
|
|
(547 |
) |
|
|
N/M |
|
Other Segments |
|
|
(37 |
) |
|
|
21 |
|
|
|
(58 |
) |
|
|
N/M |
|
|
Total Segments |
|
|
(575 |
) |
|
|
113 |
|
|
|
(688 |
) |
|
|
N/M |
|
Reconciling Items (b) |
|
|
87 |
|
|
|
105 |
|
|
|
(18 |
) |
|
|
(17.1 |
) |
|
Total |
|
$ |
(488 |
) |
|
$ |
218 |
|
|
$ |
(706 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
National Bankings results for the first quarter of 2009 include a noncash charge
for goodwill and other intangible assets impairment of $223 million ($187 million
after tax). During the first quarter of 2008, National Bankings taxable-equivalent
revenue and net results were reduced by $34 million and $21 million, respectively, as
a result of its involvement with certain leveraged lease financing transactions which
were challenged by the IRS. |
|
(b) |
|
Reconciling Items for the first quarter of 2009 include a $105 million ($65 million
after tax) gain from the sale of Keys remaining equity interest in Visa Inc. For
the first quarter of 2008, Reconciling Items include a $165 million ($103 million
after tax) gain from the partial redemption of Keys equity interest in Visa Inc. and
a $17 million charge to income taxes for the interest cost associated with the
increase to Keys tax reserves for certain lease in, lease out transactions. |
|
TE = Taxable Equivalent, N/M = Not Meaningful |
Community Banking summary of operations
As shown in Figure 6, Community Banking recorded net income of $33 million for the first quarter of
2009, compared to $116 million for the year-ago quarter. Increases in the provision for loan
losses and noninterest expense, coupled with decreases in net interest income and noninterest
income caused the decline.
Taxable-equivalent net interest income declined by $7 million, or 2%, from the first quarter of
2008, due primarily to tighter loan spreads. Average earning assets rose by $911 million, or 3%,
from the year-ago quarter, due to growth in both the commercial and consumer loan portfolios.
Average deposits increased
by $1.783 billion, or 4%, reflecting growth in certificates of deposit and noninterest-bearing
deposits. A decline in money market deposit accounts partially offset this growth.
Noninterest income decreased by $18 million, or 9%, from the year-ago quarter, largely as a result
of lower income from trust and investment services caused by declines in the financial markets, and
a reduction in service charges on deposit accounts. Also contributing to the decrease was a
reduction in investment banking and capital markets income, due primarily to lower income from
derivatives. These reductions were partially offset by growth in bank channel investment product
sales income.
54
The provision for loan losses rose by $63 million compared to the first quarter of 2008, reflecting
a $24 million increase in net loan charge-offs, primarily from the home equity and commercial loan
portfolios. Community Bankings provision for loan losses for the first quarter of 2009 exceeded
its net loan charge-offs by $27 million as the company continued to build reserves in a weak
economy.
Noninterest expense grew by $45 million, or 11%, from the year-ago quarter as a result of an
increase in the FDIC deposit insurance assessment, a rise in internally allocated overhead and a
reduction in the credit for losses on lending-related commitments. This expense growth was
partially offset by a decline in personnel expense, due primarily to reductions in incentive
compensation accruals and severance expense.
Figure 6. Community Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
SUMMARY OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (TE) |
|
$ |
415 |
|
|
$ |
422 |
|
|
$ |
(7 |
) |
|
|
(1.7 |
)% |
Noninterest income |
|
|
189 |
|
|
|
207 |
|
|
|
(18 |
) |
|
|
(8.7 |
) |
|
Total revenue (TE) |
|
|
604 |
|
|
|
629 |
|
|
|
(25 |
) |
|
|
(4.0 |
) |
Provision for loan losses |
|
|
81 |
|
|
|
18 |
|
|
|
63 |
|
|
|
350.0 |
|
Noninterest expense |
|
|
470 |
|
|
|
425 |
|
|
|
45 |
|
|
|
10.6 |
|
|
Income before income taxes (TE) |
|
|
53 |
|
|
|
186 |
|
|
|
(133 |
) |
|
|
(71.5 |
) |
Allocated income taxes and TE adjustments |
|
|
20 |
|
|
|
70 |
|
|
|
(50 |
) |
|
|
(71.4 |
) |
|
Net income |
|
$ |
33 |
|
|
$ |
116 |
|
|
$ |
(83 |
) |
|
|
(71.6) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE BALANCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases |
|
$ |
28,940 |
|
|
$ |
28,085 |
|
|
$ |
855 |
|
|
|
3.0 |
% |
Total assets |
|
|
31,949 |
|
|
|
31,016 |
|
|
|
933 |
|
|
|
3.0 |
|
Deposits |
|
|
51,560 |
|
|
|
49,777 |
|
|
|
1,783 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management at period end |
|
$ |
14,205 |
|
|
$ |
20,049 |
|
|
$ |
(5,844 |
) |
|
|
(29.1) |
% |
|
TE = Taxable Equivalent
ADDITIONAL COMMUNITY BANKING DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
AVERAGE DEPOSITS OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market deposit accounts |
|
$ |
17,368 |
|
|
$ |
19,865 |
|
|
$ |
(2,497 |
) |
|
|
(12.6 |
)% |
Savings deposits |
|
|
1,721 |
|
|
|
1,754 |
|
|
|
(33 |
) |
|
|
(1.9 |
) |
Certificates of deposits ($100,000 or more) |
|
|
8,490 |
|
|
|
6,450 |
|
|
|
2,040 |
|
|
|
31.6 |
|
Other time deposits |
|
|
14,723 |
|
|
|
12,764 |
|
|
|
1,959 |
|
|
|
15.3 |
|
Deposits in foreign office |
|
|
713 |
|
|
|
1,263 |
|
|
|
(550 |
) |
|
|
(43.5 |
) |
Noninterest-bearing deposits |
|
|
8,545 |
|
|
|
7,681 |
|
|
|
864 |
|
|
|
11.2 |
|
|
Total deposits |
|
$ |
51,560 |
|
|
$ |
49,777 |
|
|
$ |
1,783 |
|
|
|
3.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HOME EQUITY LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance |
|
$ |
10,273 |
|
|
$ |
9,693 |
|
|
|
|
|
|
|
|
|
Weighted-average loan-to-value ratio (at date of origination) |
|
|
70 |
% |
|
|
70 |
% |
|
|
|
|
|
|
|
|
Percent first lien positions |
|
|
53 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
989 |
|
|
|
985 |
|
|
|
|
|
|
|
|
|
Automated teller machines |
|
|
1,479 |
|
|
|
1,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
National Banking summary of operations
As shown in Figure 7, National Banking recorded a net loss attributable to Key of $571 million for
the first quarter of 2009, compared to $24 million for the same period one year ago. During the
first quarter of 2009, results were adversely affected by a goodwill and other intangible assets
impairment charge of $223 million ($187 million after tax). This impairment charge was triggered
by a reduction in the estimated fair value of the National Banking reporting unit caused by
continued weakness in the financial markets. As of March 31, 2009, there was no goodwill remaining
in the National Banking reporting unit. Also contributing to the decline in performance was a
substantially higher provision for loan losses, lower net interest income and an increase in
noninterest expense, offset in part by growth in noninterest income.
55
Taxable-equivalent net interest income decreased by $52 million, or 15%, from the first quarter of
2008, due primarily to tighter loan and deposit spreads, and higher levels of nonperforming loans
and net loan charge-offs. Average earning assets decreased by $1.537 billion, or 3%, from the
year-ago quarter, reflecting reductions in the commercial, home equity and held-for-sale loan
portfolios. Average deposits rose by $337 million, or 3%, as growth in certificates of deposit
more than offset declines in money market deposit accounts and noninterest-bearing deposits.
Noninterest income rose by $150 million, or 149%, from the first quarter of 2008. The improvement
reflects net loan sale gains of $3 million in the current quarter, compared to net losses of $105
million in the year-ago quarter. Additionally, results from investment banking and capital markets
activities improved by $30 million as National Banking recorded dealer trading and derivatives
income of $9 million in the first quarter of 2009, compared to losses of $32 million one year ago
when a $53 million write-down of certain trading instruments was recorded. This improvement was
offset in part by a $12 million reduction in investment banking income. Also contributing to the
growth in noninterest income was a $19 million increase in gains on leased equipment.
The provision for loan losses rose by $620 million, due primarily to higher levels of net loan
charge-offs from the commercial and financial, commercial real estate, education and marine loan
portfolios. National Bankings provision for loan losses for the first quarter of 2009 exceeded
its net loan charge-offs by $351 million as the company continued to build reserves in a weak
economy.
Excluding the goodwill and other intangible assets impairment charge recorded during the first
quarter of 2009, noninterest expense increased by $6 million, or 2%, from the first quarter of
2008, reflecting a decrease in the credit for losses on lending-related commitments, an increase in
the FDIC deposit insurance assessment and higher internally allocated support costs. The adverse
effect of these factors was offset in part by lower personnel expense, due primarily to a reduction
in incentive compensation accruals and a 19% reduction in the number of average full-time
equivalent employees.
Figure 7. National Banking
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
SUMMARY OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (TE) |
|
$ |
286 |
|
|
$ |
338 |
(a) |
|
$ |
(52 |
) |
|
|
(15.4 |
)% |
Noninterest income |
|
|
251 |
|
|
|
101 |
|
|
|
150 |
|
|
|
148.5 |
|
|
Total revenue (TE) |
|
|
537 |
|
|
|
439 |
|
|
|
98 |
|
|
|
22.3 |
|
Provision for loan losses |
|
|
789 |
|
|
|
169 |
|
|
|
620 |
|
|
|
366.9 |
|
Noninterest expense |
|
|
537 |
(a) |
|
|
308 |
|
|
|
229 |
|
|
|
74.4 |
|
|
Net loss before income taxes (TE) |
|
|
(789 |
) |
|
|
(38 |
) |
|
|
(751 |
) |
|
|
N/M |
|
Allocated income taxes and TE adjustments |
|
|
(216 |
) |
|
|
(14 |
) |
|
|
(202 |
) |
|
|
N/M |
|
|
Net loss |
|
|
(573 |
) |
|
|
(24 |
) |
|
|
(549 |
) |
|
|
N/M |
|
Less: Net loss attributable to noncontrolling interests |
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(100.0 |
) |
|
Net loss attributable to Key |
|
$ |
(571 |
) |
|
$ |
(24 |
) |
|
$ |
(547 |
) |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE BALANCES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases |
|
$ |
46,197 |
|
|
$ |
44,162 |
|
|
$ |
2,035 |
|
|
|
4.6 |
% |
Loans held for sale |
|
|
1,078 |
|
|
|
4,932 |
|
|
|
(3,854 |
) |
|
|
(78.1 |
) |
Total assets |
|
|
54,810 |
|
|
|
56,193 |
|
|
|
(1,383 |
) |
|
|
(2.5 |
) |
Deposits |
|
|
12,214 |
|
|
|
11,877 |
|
|
|
337 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under management at period end |
|
$ |
45,959 |
|
|
$ |
60,404 |
|
|
$ |
(14,445 |
) |
|
|
(23.9) |
% |
|
|
|
|
(a) |
|
National Bankings results for the first quarter of 2009 include a noncash charge for
goodwill and other intangible assets impairment of $223 million ($187 million after tax).
During the first quarter of 2008, National Bankings taxable-equivalent
net interest income and net income were reduced by $34 million and $21 million, respectively,
as a result of its involvement
with with certain leveraged lease financing transactions which were challenged by the IRS. |
|
TE = Taxable Equivalent, N/M = Not Meaningful |
Other Segments
Other Segments consist of Corporate Treasury and Keys Principal Investing unit. These segments
generated a net loss attributable to Key of $37 million for the first quarter of 2009, compared to
net income attributable to Key of $21 million for the same period last year. These results reflect
net losses of $72 million from principal investing in the first quarter of 2009, compared to net
gains of $11 million for the same period last year.
56
Results of Operations
Net interest income
One of Keys principal sources of revenue is net interest income. Net interest income is the
difference between interest income received on earning assets (such as loans and securities) and
loan-related fee income, and interest expense paid on deposits and borrowings. There are several
factors that affect net interest income, including:
¨ |
|
the volume, pricing, mix and maturity of earning assets and interest-bearing liabilities; |
|
¨ |
|
the volume and value of net free funds, such as noninterest-bearing deposits and equity
capital; |
|
¨ |
|
the use of derivative instruments to manage interest rate risk; |
|
¨ |
|
interest rate fluctuations and competitive conditions within the marketplace; and |
|
¨ |
|
asset quality. |
To make it easier to compare results among several periods and the yields on various types of
earning assets (some taxable, some not), we present net interest income in this discussion on a
taxable-equivalent basis (i.e., as if it were all taxable and at the same rate). For example,
$100 of tax-exempt income would be presented as $154, an amount that if taxed at the statutory
federal income tax rate of 35% would yield $100.
Figure 8, which spans pages 59 and 60, shows the various components of Keys balance sheet that
affect interest income and expense, and their respective yields or rates over the past five
quarters. This figure also presents a reconciliation of taxable-equivalent net interest income for
each of those quarters to net interest income reported in accordance with GAAP. The net interest
margin, which is an indicator of the profitability of the earning assets portfolio, is calculated
by dividing net interest income by average earning assets.
Keys taxable-equivalent net interest income was $620 million for the first quarter of 2009,
compared to $704 million for the year-ago quarter. The net interest margin for the current quarter
declined to 2.77% from 3.14% for the first quarter of 2008. During the past year, the net interest
margin has remained under pressure as the fall in the federal funds target rate has caused interest
rates on earning assets to decline more rapidly than the rates paid for interest-bearing
liabilities. Competition for deposits and a shift in deposit mix to higher costing certificates of
deposit have contributed to a lower net interest margin. In addition, earning asset yields have
been compressed as a result of the higher levels of nonperforming loans.
Compared to the fourth quarter of 2008, taxable-equivalent net interest income decreased by $26
million, and the net interest margin was essentially unchanged. During the first quarter, the net
interest margin began to stabilize as deposits repriced and the volume of lower-yielding assets
decreased as liquidity improved in the commercial paper market for certain customer segments. These
positive developments were moderated by a higher level of nonperforming loans. Average earning
assets decreased by $3.242 billion, or 3%, reflecting improved liquidity for commercial customers
in the commercial paper market and a reduction in the demand for standby credit. Runoff in Keys
exit portfolio, net charge-offs and a lower federal funds sold position also contributed to the
decrease in earning assets compared to the fourth quarter of last year.
57
Since January 1, 2008, the growth and composition of Keys earning assets have been affected
by the following actions:
¨ |
|
During the first quarter of 2008, Key increased its loan portfolio (primarily commercial real
estate and consumer loans) through the acquisition of 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. |
|
¨ |
|
Key sold $192 million of commercial real estate loans during the first quarter of 2009 and
$2.244
billion during all of 2008. Since some of these loans have been sold with limited recourse
(i.e., there is a risk that Key will be held accountable for certain events or representations
made in the sales agreements), Key established and has maintained a loss reserve in an amount
that management believes is appropriate. More information about the related recourse agreement
is provided in Note 14 (Contingent Liabilities and Guarantees) under the heading Recourse
agreement with Federal National Mortgage Association on page 28. In late March 2009, Key
transferred $1,474 billion of loans from the construction portfolio to the commercial mortgage
portfolio in accordance with regulatory guidelines for the classification of loans that have
reached a completed status. In June 2008, 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 as part of a process undertaken to aggressively reduce Keys
exposure in the residential properties segment of the construction loan portfolio through the
sale of certain loans. Additional information about the status of this process is included in
the section entitled Loans and loans held for sale under the heading Commercial real estate
loans on page 67. |
|
¨ |
|
Key sold $109 million of education loans during the first quarter of 2009 and $121 million during
all of 2008. In March 2008, Key transferred $3.284 billion of education loans from
held-for-sale status to the held-to-maturity loan portfolio in recognition of the fact that
the secondary markets for these loans have been adversely affected by market liquidity issues. |
|
¨ |
|
Key sold $311 million of other loans (including $302 million of residential mortgage loans)
during the first quarter of 2009 and $932 million during all of 2008. |
58
Figure 8. Average Balance Sheets, Net Interest Income and Yields/Rates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2009 |
|
|
Fourth Quarter 2008 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
dollars in millions |
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (a),(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial and agricultural |
|
$ |
26,427 |
|
|
$ |
278 |
|
|
|
4.26 |
% |
|
$ |
27,662 |
|
|
$ |
346 |
|
|
|
4.98 |
% |
Real estate commercial mortgage |
|
|
10,965 |
(c) |
|
|
140 |
|
|
|
5.20 |
|
|
|
10,707 |
|
|
|
151 |
|
|
|
5.63 |
|
Real estate construction |
|
|
7,511 |
(c) |
|
|
84 |
|
|
|
4.54 |
|
|
|
7,686 |
|
|
|
100 |
|
|
|
5.16 |
|
Commercial lease financing |
|
|
8,790 |
|
|
|
94 |
|
|
|
4.28 |
|
|
|
9,186 |
|
|
|
78 |
|
|
|
3.38 |
(d) |
|
Total commercial loans |
|
|
53,693 |
|
|
|
596 |
|
|
|
4.50 |
|
|
|
55,241 |
|
|
|
675 |
|
|
|
4.87 |
|
Real estate residential |
|
|
1,776 |
|
|
|
27 |
|
|
|
6.00 |
|
|
|
1,903 |
|
|
|
29 |
|
|
|
6.00 |
|
Home equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Banking |
|
|
10,273 |
|
|
|
114 |
|
|
|
4.49 |
|
|
|
10,037 |
|
|
|
129 |
|
|
|
5.13 |
|
National Banking |
|
|
1,040 |
|
|
|
19 |
|
|
|
7.52 |
|
|
|
1,088 |
|
|
|
21 |
|
|
|
7.62 |
|
|
Total home equity loans |
|
|
11,313 |
|
|
|
133 |
|
|
|
4.77 |
|
|
|
11,125 |
|
|
|
150 |
|
|
|
5.37 |
|
Consumer other Community Banking |
|
|
1,225 |
|
|
|
32 |
|
|
|
10.56 |
|
|
|
1,260 |
|
|
|
30 |
|
|
|
9.57 |
|
Consumer other National Banking: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marine |
|
|
3,331 |
|
|
|
52 |
|
|
|
6.24 |
|
|
|
3,467 |
|
|
|
55 |
|
|
|
6.32 |
|
Education |
|
|
3,717 |
|
|
|
43 |
|
|
|
4.59 |
|
|
|
3,661 |
|
|
|
56 |
|
|
|
6.19 |
|
Other |
|
|
274 |
|
|
|
5 |
|
|
|
7.97 |
|
|
|
288 |
|
|
|
6 |
|
|
|
8.22 |
|
|
Total consumer other National
Banking |
|
|
7,322 |
|
|
|
100 |
|
|
|
5.47 |
|
|
|
7,416 |
|
|
|
117 |
|
|
|
6.33 |
|
|
Total consumer loans |
|
|
21,636 |
|
|
|
292 |
|
|
|
5.43 |
|
|
|
21,704 |
|
|
|
326 |
|
|
|
6.00 |
|
|
Total loans |
|
|
75,329 |
|
|
|
888 |
|
|
|
4.77 |
|
|
|
76,945 |
|
|
|
1,001 |
|
|
|
5.19 |
|
Loans held for sale |
|
|
1,197 |
|
|
|
12 |
|
|
|
4.07 |
|
|
|
1,495 |
|
|
|
18 |
|
|
|
4.84 |
|
Securities
available for sale (a),(e) |
|
|
8,310 |
|
|
|
109 |
|
|
|
5.33 |
|
|
|
8,269 |
|
|
|
111 |
|
|
|
5.39 |
|
Held-to-maturity securities (a) |
|
|
25 |
|
|
|
1 |
|
|
|
9.84 |
|
|
|
27 |
|
|
|
2 |
|
|
|
10.74 |
|
Trading account assets |
|
|
1,348 |
|
|
|
13 |
|
|
|
3.97 |
|
|
|
1,416 |
|
|
|
17 |
|
|
|
4.81 |
|
Short-term investments |
|
|
2,450 |
|
|
|
3 |
|
|
|
.47 |
|
|
|
3,715 |
|
|
|
8 |
|
|
|
.88 |
|
Other investments (e) |
|
|
1,523 |
|
|
|
12 |
|
|
|
2.80 |
|
|
|
1,557 |
|
|
|
13 |
|
|
|
3.06 |
|
|
Total earning assets |
|
|
90,182 |
|
|
|
1,038 |
|
|
|
4.64 |
|
|
|
93,424 |
|
|
|
1,170 |
|
|
|
4.98 |
|
Allowance for loan losses |
|
|
(2,067 |
) |
|
|
|
|
|
|
|
|
|
|
(1,676 |
) |
|
|
|
|
|
|
|
|
Accrued income and other assets |
|
|
15,700 |
|
|
|
|
|
|
|
|
|
|
|
15,987 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
103,815 |
|
|
|
|
|
|
|
|
|
|
$ |
107,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market deposit accounts |
|
$ |
23,957 |
|
|
|
38 |
|
|
|
.65 |
|
|
$ |
24,919 |
|
|
|
78 |
|
|
|
1.24 |
|
Savings deposits |
|
|
1,744 |
|
|
|
|
|
|
|
.09 |
|
|
|
1,722 |
|
|
|
1 |
|
|
|
.16 |
|
Certificates of deposit ($100,000 or more) (f) |
|
|
12,455 |
|
|
|
121 |
|
|
|
3.93 |
|
|
|
11,270 |
|
|
|
118 |
|
|
|
4.20 |
|
Other time deposits |
|
|
14,737 |
|
|
|
140 |
|
|
|
3.85 |
|
|
|
14,560 |
|
|
|
146 |
|
|
|
3.98 |
|
Deposits in foreign office |
|
|
1,259 |
|
|
|
1 |
|
|
|
.21 |
|
|
|
1,300 |
|
|
|
3 |
|
|
|
.90 |
|
|
Total interest-bearing deposits |
|
|
54,152 |
|
|
|
300 |
|
|
|
2.24 |
|
|
|
53,771 |
|
|
|
346 |
|
|
|
2.56 |
|
Federal funds purchased and securities
sold under repurchase agreements |
|
|
1,545 |
|
|
|
1 |
|
|
|
.31 |
|
|
|
1,727 |
|
|
|
4 |
|
|
|
.86 |
|
Bank notes and other short-term borrowings |
|
|
4,405 |
|
|
|
6 |
|
|
|
.58 |
|
|
|
9,205 |
|
|
|
31 |
|
|
|
1.36 |
|
Long-term debt (f) |
|
|
14,760 |
|
|
|
111 |
|
|
|
3.20 |
|
|
|
14,557 |
|
|
|
143 |
|
|
|
4.08 |
|
|
Total interest-bearing liabilities |
|
|
74,862 |
|
|
|
418 |
|
|
|
2.29 |
|
|
|
79,260 |
|
|
|
524 |
|
|
|
2.65 |
|
Noninterest-bearing deposits |
|
|
11,232 |
|
|
|
|
|
|
|
|
|
|
|
10,860 |
|
|
|
|
|
|
|
|
|
Accrued expense and other liabilities |
|
|
7,163 |
|
|
|
|
|
|
|
|
|
|
|
7,524 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
93,257 |
|
|
|
|
|
|
|
|
|
|
|
97,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key shareholders equity |
|
|
10,352 |
|
|
|
|
|
|
|
|
|
|
|
9,888 |
|
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
|
206 |
|
|
|
|
|
|
|
|
|
|
|
203 |
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
10,558 |
|
|
|
|
|
|
|
|
|
|
|
10,091 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity |
|
$ |
103,815 |
|
|
|
|
|
|
|
|
|
|
$ |
107,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (TE) |
|
|
|
|
|
|
|
|
|
|
2.35 |
% |
|
|
|
|
|
|
|
|
|
|
2.33 |
% |
|
Net interest income (TE) and net
interest margin (TE) |
|
|
|
|
|
|
620 |
|
|
|
2.77 |
% |
|
|
|
|
|
|
646 |
(c) |
|
|
2.76 |
% (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TE adjustment (a) |
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
|
|
|
Net interest income, GAAP basis |
|
|
|
|
|
$ |
614 |
|
|
|
|
|
|
|
|
|
|
$ |
639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
balances have not been restated to reflect Keys January 1, 2008, adoption of Financial
Accounting Standards Board (FASB) Interpretation
No. 39, Offsetting of Amounts Related to
Certain Contracts, and FASB Staff Position No. 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) |
|
In late March 2009, Key transferred $1.474 billion of loans from the construction
portfolio to the commercial mortgage portfolio in accordance with
regulatory guidelines
for the classification of loans that have reached a completed status. |
|
(d) |
|
During the fourth quarter of 2008, Keys 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 Keys commercial lease
financing portfolio would have been 4.17% for the fourth quarter of
2008, and Keys
taxable-equivalent net interest margin would have been 2.84%. During the second quarter of
2008, Keys taxable-equivalent net interest income was reduced by $838 million following an
adverse federal court decision on Keys tax treatment of a leveraged sale-leaseback
transaction. Excluding this reduction, the taxable-equivalent yield on Keys commercial lease
financing portfolio would have been 5.25% for the second quarter of 2008, and Keys
taxable-equivalent net interest margin would have been 3.32%. 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. These
actions reduced Keys first quarter 2008 taxable-equivalent net interest income by $34
million. Excluding this reduction, the taxable-equivalent yield on Keys commercial lease
financing portfolio would have been 5.27% for the first quarter of
2008, and Keys
taxable-equivalent net interest margin would have been 3.29%. |
59
Figure 8. Average Balance Sheets, Net Interest Income and Yields/Rates (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Quarter 2008 |
|
|
|
Second Quarter 2008 |
|
First Quarter 2008 |
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
Balance |
|
|
Interest |
|
|
Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,345 |
|
|
$ |
356 |
|
|
|
5.38 |
% |
|
|
|
$ |
26,057 |
|
|
$ |
352 |
|
|
|
5.42 |
% |
|
$ |
25,411 |
|
|
$ |
392 |
|
|
|
6.21 |
% |
|
10,718 |
|
|
|
158 |
|
|
|
5.87 |
|
|
|
|
|
10,593 |
|
|
|
156 |
|
|
|
5.91 |
|
|
|
10,283 |
|
|
|
175 |
|
|
|
6.84 |
|
|
7,806 |
|
|
|
109 |
|
|
|
5.53 |
|
|
|
|
|
8,484 |
|
|
|
118 |
|
|
|
5.61 |
|
|
|
8,468 |
|
|
|
134 |
|
|
|
6.36 |
|
|
9,585 |
|
|
|
108 |
|
|
|
4.52 |
|
|
|
|
|
9,798 |
|
|
|
(709 |
) |
|
|
(28.94 |
) (d) |
|
|
10,004 |
|
|
|
98 |
|
|
|
3.91 |
(d) |
|
|
54,454 |
|
|
|
731 |
|
|
|
5.35 |
|
|
|
|
|
54,932 |
|
|
|
(83 |
) |
|
|
(.58 |
) |
|
|
54,166 |
|
|
|
799 |
|
|
|
5.93 |
|
|
1,899 |
|
|
|
28 |
|
|
|
6.04 |
|
|
|
|
|
1,918 |
|
|
|
30 |
|
|
|
6.12 |
|
|
|
1,916 |
|
|
|
30 |
|
|
|
6.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,887 |
|
|
|
141 |
|
|
|
5.64 |
|
|
|
|
|
9,765 |
|
|
|
140 |
|
|
|
5.78 |
|
|
|
9,693 |
|
|
|
154 |
|
|
|
6.38 |
|
|
1,138 |
|
|
|
22 |
|
|
|
7.65 |
|
|
|
|
|
1,200 |
|
|
|
23 |
|
|
|
7.68 |
|
|
|
1,260 |
|
|
|
24 |
|
|
|
7.74 |
|
|
|
11,025 |
|
|
|
163 |
|
|
|
5.85 |
|
|
|
|
|
10,965 |
|
|
|
163 |
|
|
|
5.99 |
|
|
|
10,953 |
|
|
|
178 |
|
|
|
6.54 |
|
|
1,264 |
|
|
|
33 |
|
|
|
10.37 |
|
|
|
|
|
1,271 |
|
|
|
33 |
|
|
|
10.34 |
|
|
|
1,305 |
|
|
|
34 |
|
|
|
10.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,586 |
|
|
|
57 |
|
|
|
6.33 |
|
|
|
|
|
3,646 |
|
|
|
56 |
|
|
|
6.26 |
|
|
|
3,646 |
|
|
|
58 |
|
|
|
6.31 |
|
|
3,635 |
|
|
|
54 |
|
|
|
5.90 |
|
|
|
|
|
3,595 |
|
|
|
53 |
|
|
|
5.88 |
|
|
|
363 |
|
|
|
7 |
|
|
|
8.04 |
|
|
308 |
|
|
|
6 |
|
|
|
8.22 |
|
|
|
|
|
325 |
|
|
|
7 |
|
|
|
8.21 |
|
|
|
339 |
|
|
|
7 |
|
|
|
8.32 |
|
|
|
7,529 |
|
|
|
117 |
|
|
|
6.20 |
|
|
|
|
|
7,566 |
|
|
|
116 |
|
|
|
6.16 |
|
|
|
4,348 |
|
|
|
72 |
|
|
|
6.61 |
|
|
|
21,717 |
|
|
|
341 |
|
|
|
6.25 |
|
|
|
|
|
21,720 |
|
|
|
342 |
|
|
|
6.32 |
|
|
|
18,522 |
|
|
|
314 |
|
|
|
6.81 |
|
|
|
76,171 |
|
|
|
1,072 |
|
|
|
5.60 |
|
|
|
|
|
76,652 |
|
|
|
259 |
|
|
|
1.37 |
|
|
|
72,688 |
|
|
|
1,113 |
|
|
|
6.15 |
|
|
1,723 |
|
|
|
21 |
|
|
|
4.76 |
|
|
|
|
|
1,356 |
|
|
|
20 |
|
|
|
5.94 |
|
|
|
4,984 |
|
|
|
87 |
|
|
|
7.01 |
|
|
8,266 |
|
|
|
110 |
|
|
|
5.38 |
|
|
|
|
|
8,315 |
|
|
|
111 |
|
|
|
5.40 |
|
|
|
8,419 |
|
|
|
110 |
|
|
|
5.28 |
|
|
27 |
|
|
|
1 |
|
|
|
13.81 |
|
|
|
|
|
25 |
|
|
|
|
|
|
|
11.47 |
|
|
|
29 |
|
|
|
1 |
|
|
|
11.02 |
|
|
1,579 |
|
|
|
16 |
|
|
|
4.02 |
|
|
|
|
|
1,041 |
|
|
|
10 |
|
|
|
3.88 |
|
|
|
1,075 |
|
|
|
13 |
|
|
|
4.84 |
|
|
794 |
|
|
|
6 |
|
|
|
3.44 |
|
|
|
|
|
773 |
|
|
|
8 |
|
|
|
3.83 |
|
|
|
1,165 |
|
|
|
9 |
|
|
|
3.18 |
|
|
1,563 |
|
|
|
12 |
|
|
|
2.87 |
|
|
|
|
|
1,580 |
|
|
|
14 |
|
|
|
3.09 |
|
|
|
1,552 |
|
|
|
12 |
|
|
|
3.05 |
|
|
|
90,123 |
|
|
|
1,238 |
|
|
|
5.47 |
|
|
|
|
|
89,742 |
|
|
|
422 |
|
|
|
1.89 |
|
|
|
89,912 |
|
|
|
1,345 |
|
|
|
6.01 |
|
|
(1,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1,338 |
) |
|
|
|
|
|
|
|
|
|
|
(1,236 |
) |
|
|
|
|
|
|
|
|
|
14,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
14,886 |
|
|
|
|
|
|
|
|
|
|
|
14,680 |
|
|
|
|
|
|
|
|
|
|
$ |
103,156 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
103,290 |
|
|
|
|
|
|
|
|
|
|
$ |
103,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
26,657 |
|
|
|
108 |
|
|
|
1.61 |
|
|
|
|
$ |
27,158 |
|
|
|
102 |
|
|
|
1.51 |
|
|
$ |
26,996 |
|
|
|
139 |
|
|
|
2.07 |
|
|
1,783 |
|
|
|
1 |
|
|
|
.21 |
|
|
|
|
|
1,815 |
|
|
|
1 |
|
|
|
.27 |
|
|
|
1,865 |
|
|
|
3 |
|
|
|
.62 |
|
|
9,506 |
|
|
|
97 |
|
|
|
4.05 |
|
|
|
|
|
8,670 |
|
|
|
88 |
|
|
|
4.09 |
|
|
|
8,072 |
|
|
|
95 |
|
|
|
4.72 |
|
|
13,118 |
|
|
|
129 |
|
|
|
3.92 |
|
|
|
|
|
12,751 |
|
|
|
135 |
|
|
|
4.27 |
|
|
|
12,759 |
|
|
|
146 |
|
|
|
4.59 |
|
|
2,762 |
|
|
|
12 |
|
|
|
1.77 |
|
|
|
|
|
4,121 |
|
|
|
21 |
|
|
|
1.95 |
|
|
|
5,853 |
|
|
|
45 |
|
|
|
3.13 |
|
|
|
53,826 |
|
|
|
347 |
|
|
|
2.57 |
|
|
|
|
|
54,515 |
|
|
|
347 |
|
|
|
2.56 |
|
|
|
55,545 |
|
|
|
428 |
|
|
|
3.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,546 |
|
|
|
10 |
|
|
|
1.58 |
|
|
|
|
|
3,267 |
|
|
|
15 |
|
|
|
1.86 |
|
|
|
3,863 |
|
|
|
28 |
|
|
|
2.91 |
|
|
4,843 |
|
|
|
34 |
|
|
|
2.72 |
|
|
|
|
|
4,770 |
|
|
|
27 |
|
|
|
2.26 |
|
|
|
4,934 |
|
|
|
39 |
|
|
|
3.22 |
|
|
15,123 |
|
|
|
142 |
|
|
|
3.91 |
|
|
|
|
|
14,620 |
|
|
|
133 |
|
|
|
3.87 |
|
|
|
13,238 |
|
|
|
146 |
|
|
|
4.71 |
|
|
|
76,338 |
|
|
|
533 |
|
|
|
2.80 |
|
|
|
|
|
77,172 |
|
|
|
522 |
|
|
|
2.75 |
|
|
|
77,580 |
|
|
|
641 |
|
|
|
3.36 |
|
|
10,756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10,617 |
|
|
|
|
|
|
|
|
|
|
|
10,741 |
|
|
|
|
|
|
|
|
|
|
7,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,706 |
|
|
|
|
|
|
|
|
|
|
|
6,389 |
|
|
|
|
|
|
|
|
|
|
|
94,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
94,495 |
|
|
|
|
|
|
|
|
|
|
|
94,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,617 |
|
|
|
|
|
|
|
|
|
|
|
8,445 |
|
|
|
|
|
|
|
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
178 |
|
|
|
|
|
|
|
|
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
8,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,795 |
|
|
|
|
|
|
|
|
|
|
|
8,646 |
|
|
|
|
|
|
|
|
|
|
$ |
103,156 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
103,290 |
|
|
|
|
|
|
|
|
|
|
$ |
103,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.67 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(.86 |
)% |
|
|
|
|
|
|
|
|
|
|
2.65 |
% |
|
|
|
|
|
|
705 |
|
|
|
3.13 |
% |
|
|
|
|
|
|
|
|
(100 |
) (c) |
|
|
(.44 |
)% (c) |
|
|
|
|
|
|
704 |
(c) |
|
|
3.14 |
% (c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(458 |
) |
|
|
|
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
$ |
699 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
358 |
|
|
|
|
|
|
|
|
|
|
$ |
713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) |
|
Yield is calculated on the basis of amortized cost. |
|
(f) |
|
Rate calculation excludes basis adjustments related to fair value hedges. |
|
TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles |
60
Figure 9 shows how the changes in yields or rates and average balances from the prior year affected
net interest income. The section entitled Financial Condition, which begins on page 67, contains
more discussion about changes in earning assets and funding sources.
Figure 9. Components of Net Interest Income Changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From three months ended March 31, 2008 |
|
|
|
to three months ended March 31, 2009 |
|
|
|
Average |
|
|
Yield/ |
|
|
Net |
|
in millions |
|
Volume |
|
|
Rate |
|
|
Change |
|
|
INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
39 |
|
|
$ |
(264 |
) |
|
$ |
(225 |
) |
Loans held for sale |
|
|
(48 |
) |
|
|
(27 |
) |
|
|
(75 |
) |
Securities available for sale |
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Trading account assets |
|
|
3 |
|
|
|
(3 |
) |
|
|
|
|
Short-term investments |
|
|
5 |
|
|
|
(11 |
) |
|
|
(6 |
) |
|
Total interest income (TE) |
|
|
(2 |
) |
|
|
(305 |
) |
|
|
(307 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
NOW and money market deposit
accounts |
|
|
(14 |
) |
|
|
(87 |
) |
|
|
(101 |
) |
Savings deposits |
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
Certificates of deposit
($100,000 or more) |
|
|
45 |
|
|
|
(19 |
) |
|
|
26 |
|
Other time deposits |
|
|
21 |
|
|
|
(27 |
) |
|
|
(6 |
) |
Deposits in foreign office |
|
|
(21 |
) |
|
|
(23 |
) |
|
|
(44 |
) |
|
Total interest-bearing deposits |
|
|
31 |
|
|
|
(159 |
) |
|
|
(128 |
) |
Federal funds purchased and
securities sold
under repurchase agreements |
|
|
(11 |
) |
|
|
(16 |
) |
|
|
(27 |
) |
Bank notes and other
short-term borrowings |
|
|
(4 |
) |
|
|
(29 |
) |
|
|
(33 |
) |
Long-term debt |
|
|
15 |
|
|
|
(50 |
) |
|
|
(35 |
) |
|
Total interest expense |
|
|
31 |
|
|
|
(254 |
) |
|
|
(223 |
) |
|
Net interest income (TE) |
|
$ |
(33 |
) |
|
$ |
(51 |
) |
|
$ |
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
The change
in interest not due solely to volume or rate has been allocated in
proportion to the absolute dollar amounts of the change in each.
TE = Taxable Equivalent
Noninterest income
Keys
noninterest income was $492 million for the first quarter of 2009, compared to $530 million
for the year-ago quarter. As shown in Figure 11, the decrease was attributable to two primary
factors. Key recorded net losses of $72 million from principal investing in the first quarter of
2009, compared to net gains of $11 million for the same period last year. In addition, Key recorded
a $105 million gain from the sale of Visa Inc. shares during the first quarter of 2009, compared to
a $165 million gain from the partial redemption of shares one year ago. Excluding principal
investing activities and the gains associated with the Visa shares, Keys noninterest income was up
$105 million from the first quarter of 2008. Contributing to this improvement was a $19 million
increase in gains on leased equipment (included in miscellaneous income) and a $10 million
increase in income from investment banking and capital markets activities. In addition, Key had net
gains of $8 million from loan sales in the current quarter, compared to net losses of $101 million
for the same period last year. The increase attributable to these factors was offset in part by net
losses of $14 million from securities in the current year and a $12 million reduction in income
from trust and investment services.
The trend in the major components of Keys fee-based income over the past five quarters is
shown in Figure 10.
61
Figure 10. Fee-Based Income Major Components
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
in millions |
|
First |
|
|
Fourth |
|
|
Third |
|
|
Second |
|
|
First |
|
|
Trust and investment services income |
|
$ |
117 |
|
|
$ |
138 |
|
|
$ |
133 |
|
|
$ |
138 |
|
|
$ |
129 |
|
Service charges on deposit accounts |
|
|
82 |
|
|
|
90 |
|
|
|
94 |
|
|
|
93 |
|
|
|
88 |
|
Operating lease income |
|
|
61 |
|
|
|
64 |
|
|
|
69 |
|
|
|
68 |
|
|
|
69 |
|
Letter of credit and loan fees |
|
|
38 |
|
|
|
42 |
|
|
|
53 |
|
|
|
51 |
|
|
|
37 |
|
Corporate-owned life insurance income |
|
|
27 |
|
|
|
33 |
|
|
|
28 |
|
|
|
28 |
|
|
|
28 |
|
Electronic banking fees |
|
|
24 |
|
|
|
25 |
|
|
|
27 |
|
|
|
27 |
|
|
|
24 |
|
Insurance income |
|
|
18 |
|
|
|
15 |
|
|
|
15 |
|
|
|
20 |
|
|
|
15 |
|
Investment banking and capital markets
income (loss) |
|
|
18 |
|
|
|
6 |
|
|
|
(31 |
) |
|
|
80 |
|
|
|
8 |
|
Net (losses) gains from principal investing |
|
|
(72 |
) |
|
|
(37 |
) |
|
|
(14 |
) |
|
|
(14 |
) |
|
|
11 |
|
|
The following discussion explains the composition of certain elements of Keys noninterest income shown in Figure 11 and the factors that caused those elements to change.
Figure 11. Noninterest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
Trust and investment services income |
|
$ |
117 |
|
|
$ |
129 |
|
|
$ |
(12 |
) |
|
|
(9.3 |
)% |
Service charges on deposit accounts |
|
|
82 |
|
|
|
88 |
|
|
|
(6 |
) |
|
|
(6.8 |
) |
Operating lease income |
|
|
61 |
|
|
|
69 |
|
|
|
(8 |
) |
|
|
(11.6 |
) |
Letter of credit and loan fees |
|
|
38 |
|
|
|
37 |
|
|
|
1 |
|
|
|
2.7 |
|
Corporate-owned life insurance income |
|
|
27 |
|
|
|
28 |
|
|
|
(1 |
) |
|
|
(3.6 |
) |
Electronic banking fees |
|
|
24 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
Insurance income |
|
|
18 |
|
|
|
15 |
|
|
|
3 |
|
|
|
20.0 |
|
Investment banking and capital markets income |
|
|
18 |
|
|
|
8 |
|
|
|
10 |
|
|
|
125.0 |
|
Net securities (losses) gains |
|
|
(14 |
) |
|
|
3 |
|
|
|
(17 |
) |
|
|
N/M |
|
Net (losses) gains from principal investing |
|
|
(72 |
) |
|
|
11 |
|
|
|
(83 |
) |
|
|
N/M |
|
Net gains (losses) from loan securitizations and sales |
|
|
8 |
|
|
|
(101 |
) |
|
|
109 |
|
|
|
N/M |
|
Gain from sale/redemption of Visa Inc. shares |
|
|
105 |
|
|
|
165 |
|
|
|
(60 |
) |
|
|
(36.4 |
) |
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan securitization servicing fees |
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
Credit card fees |
|
|
3 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
(25.0 |
) |
Miscellaneous income |
|
|
73 |
|
|
|
46 |
|
|
|
27 |
|
|
|
58.7 |
|
|
Total other income |
|
|
80 |
|
|
|
54 |
|
|
|
26 |
|
|
|
48.1 |
|
|
Total noninterest income |
|
$ |
492 |
|
|
$ |
530 |
|
|
$ |
(38 |
) |
|
|
(7.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/M = Not Meaningful
Trust and investment services income. Trust and investment services are Keys largest source of
noninterest income. The primary components of revenue generated by these services are shown in
Figure 12. The reduction from the first quarter of 2008 is attributable to decreases in both
personal and institutional asset management income, offset in part by higher income from brokerage
commissions and fees.
Figure 12. Trust and Investment Services Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
Brokerage commissions and fee income |
|
$ |
38 |
|
|
$ |
33 |
|
|
$ |
5 |
|
|
|
15.2 |
% |
Personal asset management and custody fees |
|
|
33 |
|
|
|
41 |
|
|
|
(8 |
) |
|
|
(19.5 |
) |
Institutional asset management and custody fees |
|
|
46 |
|
|
|
55 |
|
|
|
(9 |
) |
|
|
(16.4 |
) |
|
Total trust and investment services income |
|
$ |
117 |
|
|
$ |
129 |
|
|
$ |
(12 |
) |
|
|
(9.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
A significant portion of Keys trust and investment services income depends on the value and mix of
assets under management. At March 31, 2009, Keys bank, trust and registered investment advisory
subsidiaries had assets under management of $60.164 billion, compared to $80.453 billion at March
31, 2008. As shown in Figure 13, most of the decrease was attributable to the equity and securities
lending portfolios. The value of the equity portfolio declined because of weakness in the equity
markets. The decline in the securities lending portfolio was due in part to increased volatility in
the fixed income markets and actions taken by management to maintain sufficient liquidity within
the portfolio. When clients securities are lent out, the
borrower must provide Key with cash
collateral, which is invested during the term of the loan. The difference between the revenue
generated from the investment and the cost of the collateral is shared with the lending client.
This business, although profitable, generates a significantly lower rate of return (commensurate
with the lower level of risk) than other types of assets under management. Keys portfolio of hedge
funds, which grew by 21% over the past twelve months, generates a substantially higher rate of
return and served to moderate the overall decrease in trust and investment services income.
Figure 13. Assets Under Management
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
dollars in millions |
|
First |
|
|
Fourth |
|
|
Third |
|
|
Second |
|
|
First |
|
|
Assets under management by investment type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
$ |
26,508 |
|
|
$ |
29,384 |
|
|
$ |
37,131 |
|
|
$ |
40,446 |
|
|
$ |
39,800 |
|
Securities lending |
|
|
12,275 |
|
|
|
12,454 |
|
|
|
16,538 |
|
|
|
17,756 |
|
|
|
18,476 |
|
Fixed income |
|
|
9,892 |
|
|
|
9,819 |
|
|
|
10,461 |
|
|
|
10,823 |
|
|
|
10,598 |
|
Money market |
|
|
9,269 |
|
|
|
10,520 |
|
|
|
9,679 |
|
|
|
9,604 |
|
|
|
9,746 |
|
Hedge funds |
|
|
2,220 |
|
|
|
2,540 |
|
|
|
2,867 |
|
|
|
2,369 |
|
|
|
1,833 |
|
|
Total |
|
$ |
60,164 |
|
|
$ |
64,717 |
|
|
$ |
76,676 |
|
|
$ |
80,998 |
|
|
$ |
80,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proprietary mutual funds included in assets under management: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market |
|
$ |
6,439 |
|
|
$ |
7,458 |
|
|
$ |
6,871 |
|
|
$ |
7,178 |
|
|
$ |
7,131 |
|
Equity |
|
|
5,149 |
|
|
|
5,572 |
|
|
|
6,771 |
|
|
|
7,202 |
|
|
|
6,556 |
|
Fixed income |
|
|
674 |
|
|
|
640 |
|
|
|
633 |
|
|
|
617 |
|
|
|
631 |
|
|
Total |
|
$ |
12,262 |
|
|
$ |
13,670 |
|
|
$ |
14,275 |
|
|
$ |
14,997 |
|
|
$ |
14,318 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
charges on deposit accounts. Service charges on deposit accounts decreased from the first
quarter of 2008, due primarily to a reduction in overdraft fees resulting from lower transaction
volume. Keys corporate clients have been focusing on reducing their transaction service charges by
maintaining higher balances in their noninterest-bearing deposit accounts.
Operating
lease income. The decrease in operating lease income compared to the year-ago quarter is
attributable to a lower volume of activity in the Equipment Finance line of business. Depreciation
expense related to the leased equipment is presented in Figure 15 as operating lease expense.
Investment
banking and capital markets income.As shown in Figure 14, investment banking and
capital markets income increased from the first three months of 2008 as Key recorded dealer trading and
derivatives income of $2 million in the first quarter of 2009,
compared to losses of $21 million
one year ago when the National Banking group recorded a $53 million write-down of certain trading
instruments. This improvement was offset in part by an $11 million reduction in investment banking
income.
Figure 14. Investment Banking and Capital Markets Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
Investment banking income |
|
$ |
11 |
|
|
$ |
22 |
|
|
$ |
(11 |
) |
|
|
(50.0 |
)% |
Losses from other investments |
|
|
(8 |
) |
|
|
(6 |
) |
|
|
(2 |
) |
|
|
(33.3 |
) |
Dealer trading and derivatives income (loss) |
|
|
2 |
|
|
|
(21 |
) |
|
|
23 |
|
|
|
N/M |
|
Foreign exchange income |
|
|
13 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
Total investment banking and capital markets income |
|
$ |
18 |
|
|
$ |
8 |
|
|
$ |
10 |
|
|
|
125.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(losses) gains from principal investing. Principal investments consist of direct and indirect
investments in predominantly privately held companies. Keys principal investing income is
susceptible to
63
volatility since most of it is derived from mezzanine debt and equity investments in small to
medium-sized businesses. These investments are carried on the balance sheet at fair value ($932
million at March 31, 2009, $990 million at December 31, 2008, and $1.020 billion at March 31,
2008). The net (losses) gains presented in Figure 11 derive from changes in fair values as well as
sales of principal investments.
Net gains (losses) from loan securitizations and sales. Key sells or securitizes loans to achieve
desired interest rate and credit risk profiles, to improve the profitability of the overall loan
portfolio or to diversify funding sources. During the first quarter of 2009, Key recorded $8
million of net gains from loan sales, compared to net losses of $101 million from loan sales and
write-downs during the first quarter of 2008. The losses recorded for the year-ago quarter were due
primarily to volatility in the fixed income markets and the related housing correction.
Approximately $84 million of these losses pertained to commercial real estate loans held for sale.
The types of loans sold during 2009 and 2008 are presented in Figure 19 on page 70. In March 2008,
Key transferred $3.284 billion of education loans from held-for-sale status to the loan portfolio.
The secondary markets for these loans have been adversely affected by market liquidity issues,
making securitizations impractical and prompting the companys decision to move these loans to a
held-to-maturity classification.
Noninterest expense
Keys noninterest expense was $973 million for the first quarter of 2009, compared to $733 million
for the same period last year. Excluding a goodwill and other intangible assets impairment charge
of $223 million recorded in the current quarter, noninterest expense was up $17 million, or 2%. As
shown in Figure 15, personnel expense decreased by $47 million, primarily as a result of lower
incentive compensation accruals and a reduction in salaries expense. The reduction in personnel
expense was more than offset by a $64 million increase in nonpersonnel expense (excluding the
goodwill and other intangible assets impairment charge), due primarily to a $27 million credit for
losses on lending-related commitments recorded in the first quarter of 2008 and a $28 million
increase in the FDIC deposit insurance assessment. The higher deposit insurance assessment is a
result of actions recently taken by the FDIC to restore the Deposit Insurance Fund to the minimum
level acceptable under current law. More specific information regarding the FDICs actions is
included in the section entitled Deposits and other sources of
funds, which begins on page 73.
Additionally, professional fees rose by $12 million.
Figure 15. Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
Personnel |
|
$ |
362 |
|
|
$ |
409 |
|
|
$ |
(47 |
) |
|
|
(11.5 |
)% |
Net occupancy |
|
|
66 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
Operating lease expense |
|
|
50 |
|
|
|
58 |
|
|
|
(8 |
) |
|
|
(13.8 |
) |
Computer processing |
|
|
47 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
Professional fees |
|
|
35 |
|
|
|
23 |
|
|
|
12 |
|
|
|
52.2 |
|
FDIC assessment |
|
|
30 |
|
|
|
2 |
|
|
|
28 |
|
|
|
N/M |
|
Equipment |
|
|
22 |
|
|
|
24 |
|
|
|
(2 |
) |
|
|
(8.3 |
) |
Marketing |
|
|
14 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
Intangible assets impairment |
|
|
223 |
|
|
|
|
|
|
|
223 |
|
|
|
N/M |
|
Other expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postage and delivery |
|
|
8 |
|
|
|
11 |
|
|
|
(3 |
) |
|
|
(27.3 |
) |
Franchise and business taxes |
|
|
9 |
|
|
|
8 |
|
|
|
1 |
|
|
|
12.5 |
|
Telecommunications |
|
|
7 |
|
|
|
8 |
|
|
|
(1 |
) |
|
|
(12.5 |
) |
Credit for losses on lending-related commitments |
|
|
|
|
|
|
(27 |
) |
|
|
27 |
|
|
|
(100.0 |
) |
Miscellaneous expense |
|
|
100 |
|
|
|
90 |
|
|
|
10 |
|
|
|
11.1 |
|
|
Total other expense |
|
|
124 |
|
|
|
90 |
|
|
|
34 |
|
|
|
37.8 |
|
|
Total noninterest expense |
|
$ |
973 |
|
|
$ |
733 |
|
|
$ |
240 |
|
|
|
32.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average full-time equivalent employees |
|
|
17,468 |
|
|
|
18,426 |
|
|
|
(958 |
) |
|
|
(5.2 |
)% |
|
The following discussion explains the composition of certain elements of Keys noninterest expense
and the factors that caused those elements to change.
64
Personnel. As shown in Figure 16, personnel expense, the largest category of Keys noninterest
expense, decreased by $47 million, or 12%, from the first
quarter of 2008. The decrease was due
primarily to lower accruals for incentive compensation and a reduction in salaries expense stemming
from a 5% decline in the number of average full-time equivalent employees. These reductions were
offset in part by higher costs associated with employee benefits. As previously reported, Key
expects to experience a substantial increase in pension expense in 2009. The increase is due
primarily to an anticipated rise in the amortization of losses associated with the 2008 decrease in
the value of pension plan assets caused by steep declines in the capital markets.
Figure 16. Personnel Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
Change |
|
dollars in millions |
|
2009 |
|
|
2008 |
|
|
Amount |
|
|
Percent |
|
|
Salaries |
|
$ |
225 |
|
|
$ |
239 |
|
|
$ |
(14 |
) |
|
|
(5.9 |
)% |
Incentive compensation |
|
|
37 |
|
|
|
74 |
|
|
|
(37 |
) |
|
|
(50.0 |
) |
Employee benefits |
|
|
83 |
|
|
|
76 |
|
|
|
7 |
|
|
|
9.2 |
|
Stock-based compensation |
|
|
9 |
|
|
|
14 |
|
|
|
(5 |
) |
|
|
(35.7 |
) |
Severance |
|
|
8 |
|
|
|
6 |
|
|
|
2 |
|
|
|
33.3 |
|
|
Total personnel expense |
|
$ |
362 |
|
|
$ |
409 |
|
|
$ |
(47 |
) |
|
|
(11.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average number of full-time equivalent employees was 17,468 for the first quarter of 2009,
compared to 18,426 for the same period last year.
Operating
lease expense. The decrease in operating lease expense compared to the year-ago quarter
is attributable to a lower volume of activity in the Equipment Finance line of business. Income
related to the rental of leased equipment is presented in Figure 11 as operating lease income.
Professional fees. The increase in professional fees compared to the first three months of 2008 is
due to increased collection efforts on loans, the outsourcing of certain services and other
corporate initiatives.
Intangible assets impairment. During the first quarter of 2009, Key determined that the estimated
fair value of its National Banking reporting unit was less than the carrying amount, reflecting
continued weakness in the financial markets. As a result, Key recorded a pre-tax noncash accounting
charge of $223 million. As a result of this charge, Key has now written off all of the goodwill
that had been assigned to its National Banking reporting unit.
Income taxes
Key recorded a tax benefit of $244 million for the first quarter of 2009, compared to a provision
of $104 million for the comparable period in 2008. The tax benefit was largely attributable to the
continuation of a difficult economic environment and the resulting increase in Keys provision for
loan losses, which contributed to the loss recorded for the current quarter.
During the first quarter of 2009, Key recorded a $223 million charge for intangible assets
impairment of which $127 million is not deductible for tax purposes. Excluding this charge and the
related tax benefit. Keys effective tax rate was 40.1% for the first quarter of 2009, compared to
32.2% for the first three months of 2008. The higher effective tax rate in 2009 reflects the
combined effects of the loss recorded in the
current year and the permanent tax differences described on page 66.
65
On an
adjusted basis, the effective tax rates for both the current and prior year differ from
Keys combined federal and state statutory tax rate of 37.5%, primarily because Key generates
income from investments in tax-advantaged assets such as corporate-owned life insurance, earns
credits associated with investments in low-income housing projects, and records tax deductions
associated with dividends paid to Keys common shares held in the 401 (k) savings plan.
In the ordinary course of business, Key enters into certain types of lease financing transactions
that result in tax deductions. The IRS has completed audits of Keys income tax returns for a
number of prior years and has disallowed the tax deductions taken in connection with these
transactions. On February 13, 2009, Key and the IRS entered into a closing agreement that resolves
substantially all outstanding leveraged lease financing tax issues. Key expects the remaining
issues to be settled with the IRS in the near future with no additional tax or interest liability
to Key. Additional information pertaining to the contested lease financing transactions, the
related charges and the settlement is included in Note 17 (Income Taxes), which begins on page
110 of Keys 2008 Annual Report to Shareholders.
66
Financial Condition
Loans and loans held for sale
At March 31, 2009, total loans outstanding were $73.703 billion, compared to $76.504 billion at
December 31, 2008, and $76.444 billion at March 31, 2008. The decrease in the current quarter
reflects reductions in most of Keys loan portfolios, with the largest decline experienced in the
commercial portfolio.
Commercial loan portfolio
Commercial loans outstanding decreased by $2.506 billion, or 5%, from the year ago quarter.
Virtually all of the decrease occurred during the current quarter as a result of improved liquidity
for clients in the commercial paper market, a reduction in the demand for standby credit, runoff in
Keys exit loan portfolio and net loan charge-offs.
Commercial real estate loans. Commercial real estate loans for both owner- and nonowner-occupied
properties constitute one of the largest segments of Keys commercial loan portfolio. At March 31,
2009, Keys commercial real estate portfolio included mortgage loans of $12.057 billion and
construction loans of $6.208 billion. The average mortgage loan originated during the first
quarter of 2009 was $2 million, and the largest mortgage loan at March 31, 2009, had a balance of
$123 million. At March 31, 2009, the average construction loan commitment was $5 million. The
largest construction loan commitment was $65 million, all of which was outstanding.
Keys commercial real estate lending business is conducted through two primary sources: a 14-state
banking franchise, and Real Estate Capital and Corporate Banking Services, a national line of
business that cultivates relationships both within and beyond the branch system. This line of
business deals exclusively with nonowner-occupied properties (generally properties for which at
least 50% of the debt service is provided by rental income from nonaffiliated third parties) and
accounted for approximately 62% of Keys average commercial real estate loans during the first
quarter of 2009. Keys commercial real estate business generally focuses on larger real estate
developers and, as shown in Figure 17, is diversified by both industry type and geographic location
of the underlying collateral.
Figure 17. Commercial Real Estate Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
Geographic Region |
|
|
|
|
|
|
Percent of |
|
|
|
Commercial |
|
|
|
|
dollars in millions |
|
Northeast |
|
|
Southeast |
|
|
Southwest |
|
|
Midwest |
|
|
Central |
|
|
West |
|
|
Total |
|
|
Total |
|
|
|
Mortgage |
|
|
Construction |
|
|
|
|
|
Nonowner-occupied: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail properties |
|
$ |
213 |
|
|
$ |
793 |
|
|
$ |
234 |
|
|
$ |
762 |
|
|
$ |
381 |
|
|
$ |
478 |
|
|
$ |
2,861 |
|
|
|
15.7 |
% |
|
|
$ |
1,496 |
|
|
$ |
1,365 |
|
Multifamily properties |
|
|
318 |
|
|
|
658 |
|
|
|
453 |
|
|
|
268 |
|
|
|
508 |
|
|
|
457 |
|
|
|
2,662 |
|
|
|
14.6 |
|
|
|
|
1,570 |
|
|
|
1,092 |
|
Residential properties |
|
|
343 |
|
|
|
469 |
|
|
|
73 |
|
|
|
145 |
|
|
|
233 |
|
|
|
576 |
|
|
|
1,839 |
|
|
|
10.1 |
|
|
|
|
295 |
|
|
|
1,544 |
|
Office buildings |
|
|
362 |
|
|
|
137 |
|
|
|
101 |
|
|
|
162 |
|
|
|
209 |
|
|
|
427 |
|
|
|
1,398 |
|
|
|
7.6 |
|
|
|
|
851 |
|
|
|
547 |
|
Health facilities |
|
|
240 |
|
|
|
156 |
|
|
|
39 |
|
|
|
231 |
|
|
|
158 |
|
|
|
301 |
|
|
|
1,125 |
|
|
|
6.1 |
|
|
|
|
995 |
|
|
|
130 |
|
Land and development |
|
|
127 |
|
|
|
196 |
|
|
|
203 |
|
|
|
55 |
|
|
|
176 |
|
|
|
188 |
|
|
|
945 |
|
|
|
5.2 |
|
|
|
|
403 |
|
|
|
542 |
|
Warehouses |
|
|
115 |
|
|
|
223 |
|
|
|
24 |
|
|
|
85 |
|
|
|
62 |
|
|
|
171 |
|
|
|
680 |
|
|
|
3.7 |
|
|
|
|
479 |
|
|
|
201 |
|
Hotels/Motels |
|
|
55 |
|
|
|
96 |
|
|
|
|
|
|
|
15 |
|
|
|
23 |
|
|
|
62 |
|
|
|
251 |
|
|
|
1.4 |
|
|
|
|
185 |
|
|
|
66 |
|
Manufacturing facilities |
|
|
35 |
|
|
|
|
|
|
|
17 |
|
|
|
28 |
|
|
|
|
|
|
|
29 |
|
|
|
109 |
|
|
|
.6 |
|
|
|
|
66 |
|
|
|
43 |
|
Other |
|
|
306 |
|
|
|
203 |
|
|
|
4 |
|
|
|
105 |
|
|
|
177 |
|
|
|
140 |
|
|
|
935 |
|
|
|
5.1 |
|
|
|
|
792 |
|
|
|
143 |
|
|
|
|
|
|
|
|
2,114 |
|
|
|
2,931 |
|
|
|
1,148 |
|
|
|
1,856 |
|
|
|
1,927 |
|
|
|
2,829 |
|
|
|
12,805 |
|
|
|
70.1 |
|
|
|
|
7,132 |
|
|
|
5,673 |
|
Owner-occupied |
|
|
1,159 |
|
|
|
251 |
|
|
|
92 |
|
|
|
1,501 |
|
|
|
469 |
|
|
|
1,988 |
|
|
|
5,460 |
|
|
|
29.9 |
|
|
|
|
4,925 |
|
|
|
535 |
|
|
|
|
|
Total |
|
$ |
3,273 |
|
|
$ |
3,182 |
|
|
$ |
1,240 |
|
|
$ |
3,357 |
|
|
$ |
2,396 |
|
|
$ |
4,817 |
|
|
$ |
18,265 |
|
|
|
100.0 |
% |
|
|
$ |
12,057 |
|
|
$ |
6,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonowner-occupied: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans |
|
$ |
65 |
|
|
$ |
217 |
|
|
$ |
115 |
|
|
$ |
57 |
|
|
$ |
43 |
|
|
$ |
207 |
|
|
$ |
704 |
|
|
|
N/M |
|
|
|
$ |
167 |
|
|
$ |
537 |
|
Accruing loans past due 90 days or more |
|
|
42 |
|
|
|
36 |
|
|
|
23 |
|
|
|
5 |
|
|
|
36 |
|
|
|
85 |
|
|
|
227 |
|
|
|
N/M |
|
|
|
|
125 |
|
|
|
102 |
|
Accruing loans past due 30 through 89
days |
|
|
93 |
|
|
|
195 |
|
|
|
94 |
|
|
|
15 |
|
|
|
71 |
|
|
|
66 |
|
|
|
534 |
|
|
|
N/M |
|
|
|
|
169 |
|
|
|
365 |
|
|
|
|
|
|
|
|
Northeast |
|
Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island and Vermont |
Southeast |
|
Alabama, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North
Carolina,
South Carolina, Tennessee, Virginia, Washington D.C. and West Virginia |
Southwest |
|
Arizona, Nevada and New Mexico |
Midwest |
|
Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North
Dakota, Ohio, South Dakota
and Wisconsin |
Central |
|
Arkansas, Colorado, Oklahoma, Texas and Utah
|
West |
|
Alaska, California, Hawaii, Idaho, Montana, Oregon, Washington and Wyoming |
|
N/M = Not Meaningful |
67
In the first quarter of 2009, nonperforming loans related to Keys nonowner-occupied properties
rose by $221 million, due in part to the continuation of deteriorating market conditions in both
the income properties and residential properties segments of Keys commercial real estate
construction portfolio. As previously reported, Key has undertaken a process to reduce its
exposure in the residential properties segment of its construction loan portfolio through the 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 2008. Keys 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. The balance of this portfolio has been
reduced to $70 million at March 31, 2009, 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.
During the last half of 2008, Key ceased lending to homebuilders within its 14-state Community
Banking footprint.
Commercial lease financing. Management believes Key has both the scale and array of products to
compete in the specialty of equipment lease financing. Key conducts these financing arrangements
through the Equipment Finance line of business. Commercial lease financing receivables represented
16% of commercial loans at March 31, 2009, compared to 18% at March 31, 2008.
Consumer loan portfolio
Consumer loans outstanding decreased by $235 million, or 1%, from one year ago. As shown in Figure
35 on page 94, $193 million, or 82%, of the reduction came from Keys exit loan portfolio
(primarily the marine segment) during the first quarter of 2009.
The home equity portfolio is by far the largest segment of Keys consumer loan portfolio. A
significant amount of this portfolio (91% at March 31, 2009) is derived primarily from the Regional
Banking line of business within the Community Banking group; the remainder originated from the
Consumer Finance line of business within the National Banking group and has been in a runoff mode
since the fourth quarter of 2007.
Figure 18 summarizes Keys home equity loan portfolio by source at the end of each of the last five
quarters, as well as certain asset quality statistics and yields on the portfolio as a whole.
Figure 18. Home Equity Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
dollars in millions |
|
First |
|
|
Fourth |
|
|
Third |
|
|
Second |
|
|
First |
|
|
SOURCES OF PERIOD-END LOANS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Community Banking |
|
$ |
10,290 |
|
|
$ |
10,124 |
|
|
$ |
9,970 |
|
|
$ |
9,851 |
|
|
$ |
9,678 |
|
National Banking |
|
|
998 |
|
|
|
1,051 |
|
|
|
1,101 |
|
|
|
1,153 |
|
|
|
1,220 |
|
|
Total |
|
$ |
11,288 |
|
|
$ |
11,175 |
|
|
$ |
11,071 |
|
|
$ |
11,004 |
|
|
$ |
10,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans at period end |
|
$ |
110 |
|
|
$ |
91 |
|
|
$ |
86 |
|
|
$ |
75 |
|
|
$ |
74 |
|
Net loan charge-offs for the period |
|
|
32 |
|
|
|
31 |
|
|
|
21 |
|
|
|
19 |
|
|
|
15 |
|
Yield for the period |
|
|
4.77 |
% |
|
|
5.37 |
% |
|
|
5.85 |
% |
|
|
5.99 |
% |
|
|
6.54 |
% |
|
Management expects the level of Keys consumer loan portfolio to decrease in the future as a result
of actions taken to exit low-return, indirect businesses. In December 2007, Key decided to exit
dealer-originated home improvement lending activities, which are largely out-of-footprint. During
the last half of 2008, Key exited retail and floor-plan lending for marine and recreational vehicle products, and
began to limit new education loans to those backed by government guarantee.
68
Loans held for sale
As shown in Note 6 (Loans and Loans Held for Sale), which begins on page 17, Keys loans held for
sale were $1.124 billion at March 31, 2009, compared to $1.027 billion at December 31, 2008, and
$1.674 billion at March 31, 2008.
At March 31, 2009, Keys loans held for sale included $301 million of commercial mortgage loans.
In the absence of quoted market prices, management uses valuation models to measure the fair value
of these loans and adjusts the amount recorded on the balance sheet if fair value falls below
recorded cost. The models are based on assumptions related to prepayment speeds, default rates,
funding cost and discount rates. In light of the volatility in the financial markets, management
has reviewed Keys assumptions and determined that they reflect current market conditions. As a
result, no significant adjustments to the assumptions were required during the first quarter of
2009.
During the first quarter of 2009, Key recorded net unrealized losses of $18 million and net
realized losses of $14 million on its loans held for sale portfolio. Key records these
transactions in net gains (losses) from loan securitizations and sales on the income statement.
Key has not been significantly impacted by market volatility in the subprime mortgage lending
industry, having exited this business in the fourth quarter of 2006.
Sales and securitizations
As market conditions allow, Key continues to utilize alternative funding sources like loan sales
and securitizations to support its loan origination capabilities. In addition, certain
acquisitions completed over the past several years have improved Keys ability under favorable
market conditions to originate and sell new loans, and to securitize and service loans originated
by others, especially in the area of commercial real estate.
During the first quarter of 2009, Key sold $302 million of residential real estate loans, $192
million of commercial real estate loans, $109 million of education loans and $9 million of
commercial loans and leases. Most of these sales came from the held-for-sale portfolio. Due to
unfavorable market conditions, Key has not securitized any of its education loans since 2006 and
does not anticipate entering into any securitizations of this type in the foreseeable future.
Among the factors that Key considers in determining which loans to sell or securitize are:
¨ |
|
whether particular lending businesses meet established performance standards or fit with Keys relationship banking
strategy; |
|
¨ |
|
Keys asset/liability management needs; |
|
¨ |
|
whether the characteristics of a specific loan portfolio make it conducive to securitization; |
|
¨ |
|
the cost of alternative funding sources; |
|
¨ |
|
the level of credit risk; |
|
¨ |
|
capital requirements; and |
|
¨ |
|
market conditions and pricing. |
69
Figure 19 summarizes Keys loan sales for the first three months of 2009 and all of 2008.
Figure 19. Loans Sold (Including Loans Held for Sale)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial |
|
|
Commercial |
|
|
Residential |
|
|
|
|
|
|
Consumer |
|
|
|
|
in millions |
|
Commercial |
|
|
Real Estate |
|
|
Lease Financing |
|
|
Real Estate |
|
|
Education |
|
|
Direct |
|
|
Total |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter |
|
$ |
9 |
|
|
$ |
192 |
|
|
|
|
|
|
$ |
302 |
|
|
$ |
109 |
|
|
|
|
|
|
$ |
612 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth quarter |
|
$ |
10 |
|
|
$ |
580 |
|
|
|
|
|
|
$ |
222 |
|
|
$ |
1 |
|
|
|
|
|
|
$ |
813 |
|
Third quarter |
|
|
11 |
|
|
|
699 |
|
|
|
|
|
|
|
197 |
|
|
|
10 |
|
|
$ |
9 |
|
|
|
926 |
|
Second quarter |
|
|
19 |
|
|
|
761 |
|
|
$ |
38 |
|
|
|
213 |
|
|
|
38 |
|
|
|
|
|
|
|
1,069 |
|
First quarter |
|
|
14 |
|
|
|
204 |
|
|
|
29 |
|
|
|
170 |
|
|
|
72 |
|
|
|
|
|
|
|
489 |
|
|
Total |
|
$ |
54 |
|
|