EX-99.1 2 l27040aexv99w1.htm EX-99.1 EX-99.1
 

Exhibit 99.1
         
CONTACTS:
  Vernon L. Patterson   William C. Murschel
 
  Analyst   Media
 
  216.689.0520    216.828.7416 
 
  Vernon_Patterson@KeyBank.com   William_C_Murschel@KeyBank.com
     
INVESTOR
  KEY MEDIA
RELATIONS: www.Key.com/ir
  NEWSROOM: www.Key.com/newsroom
FOR IMMEDIATE RELEASE
KEYCORP REPORTS SECOND QUARTER 2007 EARNINGS
•   Second quarter EPS from continuing operations of $0.85, up from $0.74 for the year-ago quarter
 
•   Return on average equity from continuing operations of 17.66%, compared to 15.85% one year ago
          CLEVELAND, July 17, 2007 – KeyCorp (NYSE: KEY) today announced second quarter income from continuing operations of $337 million, or $0.85 per diluted common share. This compares to income from continuing operations of $303 million, or $0.74 per share, for the second quarter of 2006, and $358 million, or $0.89 per share, for the first quarter of 2007. Key’s income from continuing operations for the first six months of 2007 was $695 million, or $1.74 per diluted common share. This compares to income from continuing operations – before the cumulative effect of an accounting change – of $577 million, or $1.40 per share, for the first half of 2006.
          Net income totaled $334 million, or $0.84 per diluted common share, for the second quarter of 2007, compared to net income of $308 million, or $0.75 per share, for the second quarter of 2006 and $350 million, or $0.87 per share, for the first quarter of 2007. Key’s net income for the first half of 2007 was $684 million, or $1.71 per diluted common share, compared to $597 million, or $1.45 per share, for the same period last year.
          The following table shows Key’s continuing and discontinued operating results for comparative quarters and for the six months ended June 30, 2007 and 2006.
Results of Operations
                                         
    Three months ended     Six months ended  
in millions, except per share amounts   6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Summary of operations
                                        
Income from continuing operations before cumulative effect of accounting change
   $ 337     $ 358     $ 303     $ 695     $ 577  
Income (loss) from discontinued operations, net of taxes
     (3 )     (8 )     5       (11 )     15  
Cumulative effect of accounting change, net of taxes
     —       —       —       —       5  
 
Net income
   $ 334     $ 350     $ 308     $ 684     $ 597  
 
                              
 
                                        
Per common share — assuming dilution
                                        
Income from continuing operations before cumulative effect of accounting change
   $ .85     $ .89     $ .74     $ 1.74     $ 1.40  
Income (loss) from discontinued operations
     (.01 )     (.02 )     .01       (.03 )     .04  
Cumulative effect of accounting change
     —       —       —       —       .01  
 
Net income
   $ .84     $ .87     $ .75     $ 1.71     $ 1.45  
 
                              
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 2
          As shown below, the comparability of Key’s income from continuing operations for comparative quarters is affected by several significant items, including the McDonald Investments branch network sold in February 2007.
Significant Items Affecting the Comparability of Earnings
                                                 
    Second Quarter 2007     First Quarter 2007     Second Quarter 2006  
    Pre-tax     After-tax     Pre-tax     After-tax     Pre-tax     After-tax  
in millions, except per share amounts   Amount     Amount     Amount     Amount     Amount     Amount  
 
Income from continuing operations — GAAP basis
   $ 467     $ 337     $ 505     $ 358     $ 428     $ 303  
Significant items:
                                                
McDonald Investments branch network
     7       4       (159 )a     (99 )a     8       5  
Gains related to MasterCard Incorporated shares
     (40 )     (25 )     —       —       (9 )     (6 )
Litigation reserve
     42       26       —       —       —       —  
Gain from settlement of automobile residual value insurance litigation
     —       —       (26 )     (17 )     —       —  
Loss from repositioning of securities portfolio
     —       —       49       31       —       —  
 
Income from continuing operations — adjusted basis
   $ 476     $ 342     $ 369     $ 273     $ 427     $ 302  
 
                                    
 
                                                
Per common share — assuming dilution
                                                
Income from continuing operations — GAAP basis
     N/M     $ .85       N/M     $ .89       N/M     $ .74  
Income from continuing operations — adjusted basis
     N/M       .86       N/M       .68       N/M       .74  
 
(a)   Includes a $171 million ($107 million after-tax) gain resulting from the February 9, 2007, sale of the McDonald Investments branch network.
 
N/M = Not Meaningful
 
GAAP = U.S. generally accepted accounting principles
          “We are extremely pleased with the company’s results in light of continued competitive pressures experienced in a challenging interest rate environment,” said Chairman and Chief Executive Officer Henry L. Meyer III. “Growth in noninterest income and effective expense control drove Key’s strong second quarter results. Noninterest income rose by $104 million from the year-ago quarter, driven by the favorable performance of several of our fee-based businesses. Principal investing gains were $90 million during the current quarter, which was up $67 million from the year-ago period. While we don’t expect this level of principal investing gains to repeat in the second half of 2007, we expect to see strength in several of our fee-based businesses, and our overall outlook for the remainder of the year is positive.
          “Beyond our financial performance for the quarter, as we previously reported, the Comptroller of the Currency and the Federal Reserve Bank of Cleveland have removed the regulatory agreements. I am extremely appreciative of the commitment and level of effort put forth by our employees, and of the support provided by our Board of Directors as we strengthened our Anti-money Laundering and Bank Secrecy Act compliance programs.”
          The company expects earnings per share to be in the range of $1.50 to $1.60 for the second half of 2007.

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 3
SUMMARY OF CONTINUING OPERATIONS
          Taxable-equivalent net interest income was $706 million for the second quarter of 2007, compared to $726 million for the year-ago quarter. Average earning assets grew by $2.6 billion, or 3%, while the net interest margin for the current quarter declined to 3.46% from 3.68% for the second quarter of 2006. The reduction in the net interest margin was due primarily to tighter interest rate spreads on both loans and deposits, reflecting the continuation of competitive pricing, and a shift from NOW and money market deposit accounts to higher-cost certificates of deposit. Additionally, as part of the February 2007 sale of the McDonald Investments branch network, Key transferred approximately $1.3 billion of NOW and money market deposit accounts to the buyer. McDonald Investments’ NOW and money market deposit accounts averaged $1.5 billion for the second quarter of 2006.
          Compared to the first quarter of 2007, taxable-equivalent net interest income grew by $6 million, and the net interest margin declined by 4 basis points. The improvement in net interest income was attributable to a $1.4 billion, or annualized 7%, increase in average earning assets.
Key’s noninterest income was $649 million for the second quarter of 2007, compared to $545 million for the year-ago quarter. The strong growth reflected increases of $67 million in net gains from principal investing, $23 million in net gains from loan securitizations and sales, and higher revenue from several other fee-based businesses. In addition, results for the current quarter include a $40 million gain related to the sale of MasterCard Incorporated shares, compared to a $9 million gain recorded in the year-ago quarter that resulted from the share redemption by MasterCard Incorporated as part of its initial public offering. Trust and investment services income decreased due to lower brokerage income resulting from the sale of the McDonald Investments branch network. The company experienced increases in both personal and institutional asset management income.
          Compared to the first quarter of 2007, noninterest income declined by $5 million. The company’s first quarter results included a $171 million gain from the sale of the McDonald Investments branch network and $19 million of fee income from the operation of that network. During the same quarter, Key recorded a $49 million loss in connection with the repositioning of the securities portfolio and a $26 million gain from the settlement of the automobile residual value insurance litigation.
          Key’s noninterest expense was $815 million for the second quarter of 2007, compared to $798 million for the same period last year. Included in results for the current quarter is a $42 million charge related to litigation. Personnel expense decreased by $16 million, due to lower incentive compensation accruals stemming from the sale of the McDonald Investments branch network. Excluding the litigation reserve, nonpersonnel expense was down $9 million, due primarily to reductions in professional fees and certain other costs associated with the McDonald Investments branch network.
          Compared to the first quarter of 2007, noninterest expense increased by $31 million as the litigation charge recorded in the second quarter more than offset reductions in both personnel and nonpersonnel expense associated with the McDonald Investments branch network. Additionally, Key recorded a $6 million provision for losses on lending-related commitments in the second quarter, compared to an $8 million credit in the first quarter.

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 4
ASSET QUALITY
          Key’s provision for loan losses from continuing operations was $53 million for the second quarter of 2007, compared to $23 million for the year-ago quarter and $44 million for the first quarter of 2007.
          Net loan charge-offs for the quarter totaled $53 million, or 0.32% of average loans from continuing operations, compared to $34 million, or 0.22%, for the same period last year and $44 million, or 0.27%, for the previous quarter.
          At June 30, 2007, Key’s nonperforming loans totaled $276 million and represented 0.41% of period-end portfolio loans, compared to 0.39% at March 31, 2007, and 0.41% at June 30, 2006. At June 30, 2007, nonperforming assets totaled $378 million and represented 0.57% of portfolio loans, other real estate owned and other nonperforming assets, compared to 0.54% at March 31, 2007, and 0.46% at June 30, 2006.
          Key’s allowance for loan losses was $945 million, or 1.42% of loans outstanding, at June 30, 2007, compared to $944 million, or 1.44%, at March 31, 2007, and $956 million, or 1.42%, at June 30, 2006.
CAPITAL
          Key’s capital ratios continued to exceed all “well-capitalized” regulatory benchmarks at June 30, 2007. Key’s tangible equity to tangible assets ratio was 6.89% at quarter end, compared to 6.97% at March 31, 2007, and 6.68% at June 30, 2006.
          Key repurchased 6.0 million of its common shares and reissued .9 million shares under employee benefit plans during the second quarter of 2007. At June 30, 2007, Key had 16.0 million common shares remaining for repurchase under the current authorization.
          Share repurchases and other activities that caused the change in Key’s outstanding common shares over the past five quarters are summarized in the table below.
Summary of Changes in Common Shares Outstanding
                                         
in thousands   2Q07     1Q07     4Q06     3Q06     2Q06  
 
Shares outstanding at beginning of period
     394,483       399,153       402,748       402,672       405,273  
Issuance of shares under employee benefit plans
     879       3,330       1,405       2,576       1,399  
Repurchase of common shares
     (6,000 )     (8,000 )     (5,000 )     (2,500 )     (4,000 )
 
Shares outstanding at end of period
     389,362       394,483       399,153       402,748       402,672  
 
                              
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 5
LINE OF BUSINESS RESULTS
          The following table shows the contribution made by each major business group to Key’s taxable-equivalent revenue and income from continuing operations for the periods presented. The specific lines of business that comprise each of the major business groups are described under the heading “Line of Business Descriptions.” For more detailed financial information pertaining to each business group and its respective lines of business, see the last two pages of this release.
Major Business Groups
                                         
                            Percent change 2Q07 vs.  
dollars in millions   2Q07     1Q07     2Q06     1Q07     2Q06  
 
Revenue from continuing operations (TE)
                                        
Community Banking
   $ 624     $ 799     $ 672       (21.9 )%     (7.1 )%
National Banking
     630       605       596       4.1       5.7  
Other Segments
     92       (20 )     21       N/M       338.1  
 
Total Segments
     1,346       1,384       1,289       (2.7 )     4.4  
Reconciling Items
     9       (30 )     (18 )     N/M       N/M  
 
Total
   $ 1,355     $ 1,354     $ 1,271       .1 %     6.6 %
 
                                  
 
                                        
Income (loss) from continuing operations
                                        
Community Banking
   $ 97     $ 197     $ 100       (50.8 )%     (3.0 )%
National Banking
     169       163       176       3.7       (4.0 )
Other Segments
     49       (9 )     19       N/M       157.9  
 
Total Segments
     315       351       295       (10.3 )     6.8  
Reconciling Items
     22       7       8       214.3       175.0  
 
Total
   $ 337     $ 358     $ 303       (5.9 )%     11.2 %
 
                                  
 
TE =   Taxable Equivalent, N/M = Not Meaningful
Community Bankinga
                                         
                            Percent change 2Q07 vs.  
dollars in millions   2Q07     1Q07     2Q06     1Q07     2Q06  
 
Summary of operations
                                        
Net interest income (TE)
   $ 420     $ 418     $ 436       .5 %     (3.7 )%
Noninterest income
     204       381       236       (46.5 )     (13.6 )
 
Total revenue (TE)
     624       799       672       (21.9 )     (7.1 )
Provision for loan losses
     21       14       21       50.0       —  
Noninterest expense
     448       470       491       (4.7 )     (8.8 )
 
Income before income taxes (TE)
     155       315       160       (50.8 )     (3.1 )
Allocated income taxes and TE adjustments
     58       118       60       (50.8 )     (3.3 )
 
Net income
   $ 97     $ 197     $ 100       (50.8 )%     (3.0 )%
 
                                  
 
                                        
Percent of consolidated income from continuing operations
     29 %     55 %     33 %     N/A       N/A  
 
                                        
Average balances
                                        
Loans and leases
   $ 26,551     $ 26,426     $ 26,830       .5 %     (1.0 )%
Total assets
     29,291       29,240       29,918       .2       (2.1 )
Deposits
     46,171       46,581       46,675       (.9 )     (1.1 )
 
(a)   See the table entitled “Significant Items Affecting the Comparability of Earnings” presented earlier in this release for the impact of the McDonald Investments branch network sold February 9, 2007.
TE =   Taxable Equivalent, N/A = Not Applicable

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 6
Additional Community Banking Data
                                         
                            Percent change 2Q07 vs.  
dollars in millions   2Q07     1Q07     2Q06     1Q07     2Q06  
 
Average deposits outstanding
                                        
NOW and money market deposit accounts
   $ 18,996     $ 19,640     $ 20,786       (3.3 )%     (8.6 )%
Savings deposits
     1,619       1,617       1,737       .1       (6.8 )
Certificates of deposit ($100,000 or more)
     4,709       4,576       4,010       2.9       17.4  
Other time deposits
     12,038       12,051       11,437       (.1 )     5.3  
Deposits in foreign office
     1,046       960       634       9.0       65.0  
Noninterest-bearing deposits
     7,763       7,737       8,071       .3       (3.8 )
 
Total deposits
   $ 46,171     $ 46,581     $ 46,675       (.9 )%     (1.1 )%
 
                                  
 
Home equity loans
                                        
Average balance
   $ 9,660     $ 9,677     $ 10,107                  
Weighted-average loan-to-value ratio
     70 %     70 %     70 %                
Percent first lien positions
     58       59       60                  
                 
Other data
                                        
On-line households / household penetration
     711,254 / 54 %     687,263 / 53 %     639,444 / 52 %                
Branches
     954       950       946                  
Automated teller machines
     1,450       1,447       2,120                  
                 
Community Banking Summary of Operations
          Net income for Community Banking was $97 million for the second quarter of 2007, compared to $100 million for the year-ago quarter. Decreases in both net interest income and noninterest income were offset in part by a decline in noninterest expense. The provision for loan losses was essentially unchanged.
          Taxable-equivalent net interest income decreased by $16 million, or 4%, from the second quarter of 2006. The decrease was attributable to a reduction in, and a tighter interest rate spread on, average earning assets, along with a shift from NOW and money market deposit accounts to higher-cost certificates of deposit. Also, as part of the February 2007 sale of the McDonald Investments branch network, Key transferred approximately $1.3 billion of NOW and money market deposit accounts to the buyer. McDonald’s NOW and money market deposit accounts averaged $1.5 billion for the second quarter of 2006.
          Noninterest income decreased by $32 million, or 14%, from the year-ago quarter, due primarily to a reduction in brokerage income caused by the McDonald Investments sale. This reduction was partially offset by an increase in service charges on deposit accounts.
          Noninterest expense declined by $43 million, or 9%. Lower personnel costs and decreases in certain other costs associated with the McDonald Investments branch network accounted for most of the improvement.

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 7
National Banking
                                         
                            Percent change 2Q07 vs.  
dollars in millions   2Q07     1Q07     2Q06     1Q07     2Q06  
 
Summary of operations
                                        
Net interest income (TE)
   $ 348     $ 340     $ 349       2.4 %     (.3 )%
Noninterest income
     282       265       247       6.4       14.2  
 
Total revenue (TE)
     630       605       596       4.1       5.7  
Provision for loan losses
     32       30       2       6.7       N/M  
Noninterest expense
     328       314       313       4.5       4.8  
 
Income from continuing operations before income taxes (TE)
     270       261       281       3.4       (3.9 )
Allocated income taxes and TE adjustments
     101       98       105       3.1       (3.8 )
 
Income from continuing operations
     169       163       176       3.7       (4.0 )
Income (loss) from discontinued operations, net of taxes
     (3 )     (8 )     5       62.5       N/M  
 
Net income
   $ 166     $ 155     $ 181       7.1 %     (8.3 )%
 
                                  
 
                                        
Percent of consolidated income from continuing operations
     50 %     45 %     58 %     N/A       N/A  
 
                                        
Average balances from continuing operations
                                        
Loans and leases
   $ 39,348     $ 38,869     $ 37,730       1.2 %     4.3 %
Loans held for sale
     4,377       3,917       3,821       11.7       14.6  
Total assets
     49,639       48,480       47,682       2.4       4.1  
Deposits
     12,036       11,231       10,633       7.2       13.2  
 
TE =   Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
National Banking Summary of Continuing Operations
          Income from continuing operations for National Banking was $169 million for the second quarter of 2007, compared to $176 million for the same period last year. Increases in the provision for loan losses and noninterest expense accounted for the reduction, and more than offset an increase in noninterest income. Net interest income was essentially unchanged from the year-ago quarter.
          Taxable-equivalent net interest income decreased by less than $1 million from the second quarter of 2006. The adverse effect of a tighter interest rate spread on average earning assets was offset by the growth in average loans and deposits.
          The provision for loan losses rose by $30 million, reflecting a higher level of net loan charge-offs.
          Noninterest income was up $35 million, or 14%. The growth was attributable to a significant increase in net gains from loan securitizations and sales, along with higher income from operating leases, and trust and investment services.
          Noninterest expense grew by $15 million, or 5%, due primarily to higher costs associated with operating leases.
Other Segments
          Other segments consist of Corporate Treasury and Key’s Principal Investing unit. These segments generated net income of $49 million for the second quarter of 2007, up from $19 million for the same period last year.

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 8
Line of Business Descriptions
Community Banking
Regional Banking provides individuals with branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans. This line of business also provides small businesses with deposit, investment and credit products, and business advisory services.
Regional Banking also offers financial, estate and retirement planning, and asset management services to assist high-net-worth clients with their banking, trust, portfolio management, insurance, charitable giving and related needs.
Commercial Banking provides midsize businesses with products and services that include commercial lending, cash management, equipment leasing, investment and employee benefit programs, succession planning, access to capital markets, derivatives and foreign exchange.
National Banking
Real Estate Capital provides construction and interim lending, permanent debt placements and servicing, and equity and investment banking services to developers, brokers and owner-investors. This line of business deals exclusively 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).
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 provides products and services to large corporations, middle-market companies, financial institutions, government entities and not-for-profit organizations. These products and services include commercial lending, treasury management, investment banking, derivatives and foreign exchange, equity and debt underwriting and trading, and syndicated finance.
Through its Victory Capital Management unit, Institutional and Capital Markets also manages or gives 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 includes Indirect Lending, Commercial Floor Plan Lending, Home Equity Services and Business Services.
Indirect Lending offers loans to consumers through dealers. This business unit also provides federal and private education loans to students and their parents, and processes payments on loans that private schools make to parents.
Commercial Floor Plan Lending finances inventory for automobile and marine dealers.

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 9
Home Equity Services works with home improvement contractors to provide home equity and home improvement financing solutions.
Business Services provides payroll processing solutions for businesses of all sizes.
          Cleveland-based KeyCorp is one of the nation’s largest bank-based financial services companies, with assets of approximately $94 billion. Key companies provide investment management, retail and commercial banking, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. The company’s businesses deliver their products and services through 954 branches and additional offices; a network of 1,450 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, https://www.key.com/,â that provides account access and financial products 24 hours a day.
Notes to Editors:
A live Internet broadcast of KeyCorp’s conference call to discuss quarterly earnings and currently anticipated earnings trends and to answer analysts’ questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Tuesday, July 17, 2007. An audio replay of the call will be available through July 24.
For up-to-date company information, media contacts and facts and figures about Key’s lines of business visit our Media Newsroom at https://www.key.com/newsroom.

This news release contains forward-looking statements, including statements about our financial condition, results of operations, earnings outlook, asset quality trends and profitability. Forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to assumptions, risks and uncertainties. Although management believes that the expectations and forecasts reflected in these forward-looking statements are reasonable, actual results could differ materially due to a variety of factors including: (1) changes in interest rates; (2) changes in trade, monetary or fiscal policy; (3) changes in general economic conditions, or in the condition of the local economies or industries in which we have significant operations or assets, which could, among other things, materially impact credit quality trends and our ability to generate loans; (4) increased competitive pressure among financial services companies; (5) the inability to successfully execute strategic initiatives designed to grow revenues and/or manage expenses; (6) consummation of significant business combinations or divestitures; (7) operational or risk management failures due to technological or other factors; (8) heightened regulatory practices, requirements or expectations; (9) new legal obligations or liabilities or unfavorable resolution of litigation; (10) adverse capital markets conditions; (11) disruption in the economy and general business climate as a result of terrorist activities or military actions; and (12) changes in accounting or tax practices or requirements. Forward-looking statements are not guarantees of future performance and should not be relied upon as representing management’s views as of any subsequent date. We do not assume any obligation to update these forward-looking statements. For further information regarding KeyCorp, please read KeyCorp’s reports that are filed with the Securities and Exchange Commission and are available at www.sec.gov.
###

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 10
Financial Highlights
(dollars in millions, except per share amounts)
                         
    Three months ended  
    6-30-07     3-31-07     6-30-06  
 
Summary of operations
                        
Net interest income (TE)
   $ 706     $ 700     $ 726  
Noninterest income
     649       654       545  
 
Total revenue (TE)
     1,355       1,354       1,271  
Provision for loan losses
     53       44       23  
Noninterest expense
     815       784       798  
Income from continuing operations before cumulative effect of accounting change
     337       358       303  
Income (loss) from discontinued operations, net of taxes
     (3 )     (8 )     5  
Net income
     334       350       308  
 
                        
Per common share
                        
Income from continuing operations before cumulative effect of accounting change
   $ .86     $ .90     $ .75  
Income from continuing operations before cumulative effect of accounting change — assuming dilution
     .85       .89       .74  
Income (loss) from discontinued operations
     (.01 )     (.02 )     .01  
Income (loss) from discontinued operations — assuming dilution
     (.01 )     (.02 )     .01  
Net income
     .85       .88       .76  
Net income — assuming dilution
     .84       .87       .75  
Cash dividends declared
     .365       .365       .345  
Book value at period end
     19.78       19.57       19.21  
Market price at period end
     34.33       37.47       35.68  
 
                        
Performance ratios — from continuing operations
                        
Return on average total assets
     1.45 %     1.58 %     1.33 %
Return on average equity
     17.66       19.06       15.85  
Net interest margin (TE)
     3.46       3.50       3.68  
 
                        
Performance ratios — from consolidated operations
                        
Return on average total assets
     1.43 %     1.54 %     1.32 %
Return on average equity
     17.50       18.63       16.11  
Net interest margin (TE)
     3.46       3.51       3.69  
 
                        
Capital ratios at period end
                        
Equity to assets
     8.19 %     8.28 %     8.16 %
Tangible equity to tangible assets
     6.89       6.97       6.68  
Tier 1 risk-based capital a
     8.10       8.15       7.90  
Total risk-based capital a
     12.08       12.20       12.08  
Leverage a
    9.12       9.17       8.82  
 
                        
Asset quality
                        
Net loan charge-offs
   $ 53     $ 44     $ 34  
Net loan charge-offs to average loans from continuing operations
     .32 %     .27 %     .22 %
Allowance for loan losses
   $ 945     $ 944     $ 956  
Allowance for loan losses to period-end loans
     1.42 %     1.44 %     1.42 %
Allowance for loan losses to nonperforming loans
     342.39       371.65       342.65  
Nonperforming loans at period end
   $ 276     $ 254     $ 279  
Nonperforming assets at period end
     378       353       308  
Nonperforming loans to period-end portfolio loans
     .41 %     .39 %     .41 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
     .57       .54       .46  
 
                        
Trust and brokerage assets
                        
Assets under management
   $ 85,592     $ 82,388     $ 80,349  
Nonmanaged and brokerage assets b
    33,485       32,838       57,682  
 
                        
Other data
                        
Average full-time equivalent employees
     18,888       19,801       19,931  
Branches
     954       950       946  
 
                        
Taxable-equivalent adjustment
   $ 20     $ 21     $ 22  
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 11
Financial Highlights (continued)
(dollars in millions, except per share amounts)
                 
    Six months ended  
    6-30-07     6-30-06  
 
Summary of operations
                
Net interest income (TE)
   $ 1,406     $ 1,448  
Noninterest income
     1,303       1,026  
 
Total revenue (TE)
     2,709       2,474  
Provision for loan losses
     97       62  
Noninterest expense
     1,599       1,550  
Income from continuing operations before cumulative effect of accounting change
     695       577  
Income (loss) from discontinued operations, net of taxes
     (11 )     15  
Net income
     684       597  
 
                
Per common share
                
Income from continuing operations before cumulative effect of accounting change
   $ 1.76     $ 1.42  
Income from continuing operations before cumulative effect of accounting change — assuming dilution
     1.74       1.40  
Income (loss) from discontinued operations
     (.03 )     .04  
Income (loss) from discontinued operations — assuming dilution
     (.03 )     .04  
Net income
     1.73       1.47  
Net income — assuming dilution
     1.71       1.45  
Cash dividends declared
     .73       .69  
 
                
Performance ratios — from continuing operations
                
Return on average total assets
     1.51 %     1.29 %
Return on average equity
     18.35       15.40  
Net interest margin (TE)
     3.48       3.70  
 
                
Performance ratios — from consolidated operations
                
Return on average total assets
     1.49 %     1.29 %
Return on average equity
     18.06       15.80  
Net interest margin (TE)
     3.49       3.73  
 
                
Asset quality
                
Net loan charge-offs
   $ 97     $ 73  
Net loan charge-offs to average loans from continuing operations
     .30 %     .23 %
 
                
Other data
                
Average full-time equivalent employees
     19,342       19,813  
 
                
Taxable-equivalent adjustment
   $ 41     $ 50  
 
(a) 6-30-07 ratio is estimated.
(b) On February 9, 2007, Key sold the McDonald Investments branch network.
TE = Taxable Equivalent

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 12
Consolidated Balance Sheets
(dollars in millions)
                         
    6-30-07     3-31-07     6-30-06  
 
Assets
                        
Loans
   $ 66,692     $ 65,711     $ 67,408  
Loans held for sale
     4,546       4,175       4,189  
Investment securities
     37       38       44  
Securities available for sale
     7,819       7,789       7,140  
Short-term investments
     1,632       2,084       1,577  
Other investments
     1,602       1,466       1,379  
 
Total earning assets
     82,328       81,263       81,737  
Allowance for loan losses
     (945 )     (944 )     (956 )
Cash and due from banks
     1,818       2,052       2,814  
Premises and equipment
     600       590       557  
Operating lease assets
     1,110       1,074       1,043  
Goodwill
     1,202       1,202       1,372  
Other intangible assets
     110       115       132  
Corporate-owned life insurance
     2,822       2,805       2,732  
Derivative assets
     1,160       1,132       1,016  
Accrued income and other assets
     3,871       3,930       4,347  
 
Total assets
   $ 94,076     $ 93,219     $ 94,794  
 
                  
 
                        
Liabilities
                        
Deposits in domestic offices:
                        
NOW and money market deposit accounts
   $ 23,315     $ 23,317     $ 25,291  
Savings deposits
     1,613       1,654       1,751  
Certificates of deposit ($100,000 or more)
     6,197       6,094       5,224  
Other time deposits
     11,832       12,086       11,542  
 
Total interest-bearing deposits
     42,957       43,151       43,808  
Noninterest-bearing deposits
     14,199       13,473       13,268  
Deposits in foreign office — interest-bearing
     3,443       3,149       3,762  
 
Total deposits
     60,599       59,773       60,838  
Federal funds purchased and securities sold under repurchase agreements
     4,362       5,770       3,654  
Bank notes and other short-term borrowings
     2,631       1,108       2,360  
Derivative liabilities
     1,119       870       1,156  
Accrued expense and other liabilities
     5,083       4,918       4,999  
Long-term debt
     12,581       13,061       14,050  
 
Total liabilities
     86,375       85,500       87,057  
 
                        
Shareholders’ equity
                        
Preferred stock
     —       —       —  
Common shares
     492       492       492  
Capital surplus
     1,652       1,614       1,577  
Retained earnings
     8,720       8,528       8,199  
Treasury stock, at cost
     (2,994 )     (2,801 )     (2,411 )
Accumulated other comprehensive loss
     (169 )     (114 )     (120 )
 
Total shareholders’ equity
     7,701       7,719       7,737  
 
 
 
                        
Total liabilities and shareholders’ equity
   $ 94,076     $ 93,219     $ 94,794  
 
                  
 
                        
Common shares outstanding (000)
     389,362       394,483       402,672  
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 13
Consolidated Statements of Income
(dollars in millions, except per share amounts)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Interest income
                                        
Loans
   $ 1,176     $ 1,161     $ 1,136     $ 2,337     $ 2,196  
Loans held for sale
     82       75       73       157       141  
Investment securities
     —       1       1       1       1  
Securities available for sale
     106       100       84       206       167  
Short-term investments
     16       18       16       34       31  
Other investments
     15       13       17       28       42  
 
Total interest income
     1,395       1,368       1,327       2,763       2,578  
 
                                        
Interest expense
                                        
Deposits
     447       433       378       880       708  
Federal funds purchased and securities sold under repurchase agreements
     59       49       20       108       40  
Bank notes and other short-term borrowings
     18       11       27       29       51  
Long-term debt
     185       196       198       381       381  
 
Total interest expense
     709       689       623       1,398       1,180  
 
 
 
                                        
Net interest income
     686       679       704       1,365       1,398  
Provision for loan losses
     53       44       23       97       62  
 
Net interest income after provision for loan losses
     633       635       681       1,268       1,336  
 
                                        
Noninterest income
                                        
Trust and investment services income
     115       125       139       240       274  
Service charges on deposit accounts
     84       75       77       159       149  
Investment banking and capital markets income
     52       44       57       96       117  
Operating lease income
     66       64       56       130       108  
Letter of credit and loan fees
     45       38       45       83       85  
Corporate-owned life insurance income
     32       25       26       57       51  
Electronic banking fees
     25       24       27       49       51  
Net gains from loan securitizations and sales
     33       9       10       42       20  
Net securities gains (losses)
     2       (47 )     4       (45 )     5  
Gain on sale of McDonald Investments branch network
     —       171       —       171       —  
Other income
     195       126       104       321       166  
 
Total noninterest income
     649       654       545       1,303       1,026  
 
                                        
Noninterest expense
                                        
Personnel
     411       428       427       839       827  
Net occupancy
     59       63       59       122       120  
Computer processing
     49       51       49       100       105  
Operating lease expense
     55       52       45       107       86  
Professional fees
     26       26       40       52       73  
Equipment
     24       25       26       49       52  
Marketing
     20       19       23       39       38  
Other expense
     171       120       129       291       249  
 
Total noninterest expense
     815       784       798       1,599       1,550  
 
Income from continuing operations before income taxes and cumulative effect of accounting change
     467       505       428       972       812  
Income taxes
     130       147       125       277       235  
 
Income from continuing operations before cumulative effect of accounting change
     337       358       303       695       577  
Income (loss) from discontinued operations, net of taxes
     (3 )     (8 )     5       (11 )     15  
 
Income before cumulative effect of accounting change
     334       350       308       684       592  
Cumulative effect of change in accounting for forfeited stock-based awards, net of taxes
     —       —       —       —       5  
 
Net income
   $ 334     $ 350     $ 308     $ 684     $ 597  
 
                              
 
                                        
Per common share:
                                        
Income from continuing operations before cumulative effect of accounting change
   $ .86     $ .90     $ .75     $ 1.76     $ 1.42  
Income before cumulative effect of accounting change
     .85       .88       .76       1.73       1.46  
Net income
     .85       .88       .76       1.73       1.47  
 
                                        
Per common share — assuming dilution:
                                        
Income from continuing operations before cumulative effect of accounting change
   $ .85     $ .89     $ .74     $ 1.74     $ 1.40  
Income before cumulative effect of accounting change
     .84       .87       .75       1.71       1.44  
Net income
     .84       .87       .75       1.71       1.45  
 
                                        
Cash dividends declared per common share
   $ .365     $ .365     $ .345     $ .73     $ .69  
 
                                        
Weighted-average common shares outstanding (000)
     392,045       397,875       404,528       394,944       405,949  
Weighted-average common shares and potential common shares outstanding (000)
     396,918       403,478       410,559       400,180       411,842  
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 14
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations
(dollars in millions)
                                                                         
    Second Quarter 2007     First Quarter 2007     Second Quarter 2006  
    Average                     Average                     Average              
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
 
Assets
                                                                        
Loans: a,b
                                                                        
Commercial, financial and agricultural
  $ 21,856     $ 401       7.36 %   $ 21,562     $ 392       7.38 %   $ 21,970     $ 390       7.12 %
Real estate — commercial mortgage
     8,565       165       7.75       8,426       163       7.83       8,071       153       7.59  
Real estate — construction
     8,243       167       8.09       8,227       166       8.20       7,570       152       8.07  
Commercial lease financing
     10,096       142       5.62       10,094       146       5.78       9,764       148       6.05  
 
Total commercial loans
     48,760       875       7.19       48,309       867       7.26       47,375       843       7.13  
Real estate — residential
     1,472       24       6.57       1,444       24       6.60       1,430       24       6.54  
Home equity
     10,752       193       7.22       10,706       191       7.22       11,003       193       7.02  
Consumer — direct
     1,370       37       10.64       1,450       36       10.15       1,685       41       9.64  
Consumer — indirect
     3,961       67       6.76       3,760       64       6.79       3,503       57       6.66  
 
Total consumer loans
     17,555       321       7.33       17,360       315       7.32       17,621       315       7.16  
 
Total loans
     66,315       1,196       7.23       65,669       1,182       7.28       64,996       1,158       7.14  
Loans held for sale
     4,415       82       7.50       3,940       75       7.70       3,844       73       7.64  
Investment securities a
     39       —       6.72       39       1       7.21       46       1       8.01  
Securities available for sale c
     7,793       106       5.45       7,548       100       5.27       7,075       84       4.71  
Short-term investments
     1,484       16       4.19       1,607       18       4.55       1,678       16       3.89  
Other investments c
     1,541       15       3.68       1,400       13       3.65       1,398       17       4.60  
 
Total earning assets
     81,587       1,415       6.95       80,203       1,389       6.99       79,037       1,349       6.83  
Allowance for loan losses
     (942 )                     (942 )                     (958 )                
Accrued income and other assets
     12,767                       12,835                       13,137                  
 
Total assets
   $ 93,412                     $ 92,096                     $ 91,216                  
 
                                                                  
 
                                                                        
Liabilities
                                                                        
NOW and money market deposit accounts
   $ 22,953       179       3.14     $ 23,424       177       3.06     $ 25,347       173       2.75  
Savings deposits
     1,633       1       .19       1,629       1       .19       1,752       1       .20  
Certificates of deposit ($100,000 or more) d
     6,237       79       5.03       6,151       76       5.03       5,382       61       4.54  
Other time deposits
     12,047       141       4.70       12,063       138       4.64       11,456       115       4.02  
Deposits in foreign office e
     3,600       47       5.20       3,258       41       5.12       2,116       28       5.22  
 
Total interest-bearing deposits
     46,470       447       3.85       46,525       433       3.77       46,053       378       3.29  
Federal funds purchased and securities sold under repurchase agreements e
     4,748       59       5.04       3,903       49       5.04       1,692       20       4.76  
Bank notes and other short-term borrowings
     1,771       18       4.14       1,113       11       3.98       2,497       27       4.17  
Long-term debt d,e
     12,909       185       5.83       13,617       196       5.90       14,088       198       5.59  
 
Total interest-bearing liabilities
     65,898       709       4.33       65,158       689       4.29       64,330       623       3.87  
 
Noninterest-bearing deposits
     13,927                       13,237                       13,014                  
Accrued expense and other liabilities
     5,933                       6,083                       6,205                  
 
Total liabilities
     85,758                       84,478                       83,549                  
 
                                                                        
Shareholders’ equity
     7,654                       7,618                       7,667                  
 
Total liabilities and shareholders’ equity
   $ 93,412                     $ 92,096                     $ 91,216                  
 
                                                                  
 
                                                                        
Interest rate spread (TE)
                     2.62 %                     2.70 %                     2.96 %
 
                                                                  
Net interest income (TE) and net interest margin (TE)
             706       3.46 %             700       3.50 %             726       3.68 %
 
                                                                  
TE adjustment a
             20                       21                       22          
 
Net interest income, GAAP basis
           $ 686                     $ 679                     $ 704          
 
                                                                  
 
(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)   Yield is calculated on the basis of amortized cost.
 
(d)   Rate calculation excludes basis adjustments related to fair value hedges.
 
(e)   Results from continuing operations exclude the dollar amount of liabilities assumed necessary to support interest-earning assets held by the discontinued Champion Mortgage finance business. The interest expense related to these liabilities, which also is excluded from continuing operations, was calculated using a matched funds transfer pricing methodology.
 
TE =   Taxable Equivalent
 
GAAP = U.S. generally accepted accounting principles

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 15
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations
(dollars in millions)
                                                 
    Six months ended June 30, 2007     Six months ended June 30, 2006  
    Average                     Average              
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
 
Assets
                                                
Loans: a,b
                                                
Commercial, financial and agricultural
  $ 21,710     $ 793       7.37 %   $ 21,846     $ 747       6.89 %
Real estate — commercial mortgage
     8,496       328       7.79       8,080       297       7.41  
Real estate — construction
     8,235       333       8.14       7,442       290       7.87  
Commercial lease financing
     10,095       288       5.70       9,672       291       6.02  
 
Total commercial loans
     48,536       1,742       7.23       47,040       1,625       6.96  
Real estate — residential
     1,458       48       6.58       1,440       47       6.43  
Home equity
     10,729       384       7.22       10,987       377       6.92  
Consumer — direct
     1,410       73       10.39       1,707       82       9.65  
Consumer — indirect
     3,861       131       6.77       3,436       114       6.66  
 
Total consumer loans
     17,458       636       7.33       17,570       620       7.09  
 
Total loans
     65,994       2,378       7.25       64,610       2,245       6.99  
Loans held for sale
     4,179       157       7.59       3,769       141       7.54  
Investment securities a
     39       1       6.96       54       2       7.11  
Securities available for sale c
     7,671       206       5.36       7,111       167       4.66  
Short-term investments
     1,545       34       4.37       1,711       31       3.65  
Other investments c
     1,471       28       3.66       1,367       42       5.84  
 
Total earning assets
     80,899       2,804       6.97       78,622       2,628       6.71  
Allowance for loan losses
     (942 )                     (958 )                
Accrued income and other assets
     12,801                       13,068                  
 
Total assets
   $ 92,758                     $ 90,732                  
 
                                            
 
                                                
Liabilities
                                                
NOW and money market deposit accounts
   $ 23,187       356       3.10     $ 24,902       318       2.58  
Savings deposits
     1,631       2       .19       1,782       2       .26  
Certificates of deposit ($100,000 or more) d
     6,194       155       5.03       5,395       119       4.44  
Other time deposits
     12,055       279       4.67       11,369       219       3.88  
Deposits in foreign office e
     3,430       88       5.16       2,073       50       4.86  
 
Total interest-bearing deposits
     46,497       880       3.81       45,521       708       3.14  
Federal funds purchased and securities sold under repurchase agreements e
     4,328       108       5.04       1,858       40       4.34  
Bank notes and other short-term borrowings
     1,444       29       4.08       2,524       51       4.03  
Long-term debt d,e
     13,261       381       5.87       14,039       381       5.44  
 
Total interest-bearing liabilities
     65,530       1,398       4.31       63,942       1,180       3.71  
 
Noninterest-bearing deposits
     13,584                       12,854                  
Accrued expense and other liabilities
     6,008                       6,316                  
 
Total liabilities
     85,122                       83,112                  
 
                                                
Shareholders’ equity
     7,636                       7,620                  
 
 
                                                
Total liabilities and shareholders’ equity
   $ 92,758                     $ 90,732                  
 
                                            
 
                                                
Interest rate spread (TE)
                     2.66 %                     3.00 %
 
                                            
Net interest income (TE) and net interest margin (TE)
             1,406       3.48 %             1,448       3.70 %
 
                                            
TE adjustment a
             41                       50          
 
Net interest income, GAAP basis
           $ 1,365                     $ 1,398          
 
                                            
 
(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)   Yield is calculated on the basis of amortized cost.
 
(d)   Rate calculation excludes basis adjustments related to fair value hedges.
 
(e)   Results from continuing operations exclude the dollar amount of liabilities assumed necessary to support interest-earning assets held by the discontinued Champion Mortgage finance business. The interest expense related to these liabilities, which also is excluded from continuing operations, was calculated using a matched funds transfer pricing methodology.
 
TE =   Taxable Equivalent
 
GAAP = U.S. generally accepted accounting principles

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 16
Noninterest Income
(in millions)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Trust and investment services income a
   $ 115     $ 125     $ 139     $ 240     $ 274  
Service charges on deposit accounts
     84       75       77       159       149  
Investment banking and capital markets income a
     52       44       57       96       117  
Operating lease income
     66       64       56       130       108  
Letter of credit and loan fees
     45       38       45       83       85  
Corporate-owned life insurance income
     32       25       26       57       51  
Electronic banking fees
     25       24       27       49       51  
Net gains from loan securitizations and sales
     33       9       10       42       20  
Net securities gains (losses)
     2       (47 )     4       (45 )     5  
Gain on sale of McDonald Investments branch network
     —       171       —       171       —  
Other income:
                                        
Insurance income
     15       14       17       29       31  
Loan securitization servicing fees
     6       5       5       11       10  
Credit card fees
     3       3       3       6       6  
Net gains from principal investing
     90       29       23       119       20  
Miscellaneous income
     81       75       56       156       99  
 
Total other income
     195       126       104       321       166  
 
Total noninterest income
   $ 649     $ 654     $ 545     $ 1,303     $ 1,026  
 
                              
 
(a)   Additional detail provided in tables below.
Trust and Investment Services Income
(in millions)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Brokerage commissions and fee income
   $ 28     $ 40     $ 59     $ 68     $ 121  
Personal asset management and custody fees
     41       40       38       81       77  
Institutional asset management and custody fees
     46       45       42       91       76  
 
Total trust and investment services income
   $ 115     $ 125     $ 139     $ 240     $ 274  
 
                              
 
Investment Banking and Capital Markets Income
(in millions)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Investment banking income
   $ 22     $ 21     $ 26     $ 43     $ 48  
Dealer trading and derivatives income
     12       8       9       20       16  
Income from other investments
     6       5       11       11       32  
Foreign exchange income
     12       10       11       22       21  
 
Total investment banking and capital markets income
   $ 52     $ 44     $ 57     $ 96     $ 117  
 
                              
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 17
Noninterest Expense
(dollars in millions)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Personnel a
   $ 411     $ 428     $ 427     $ 839     $ 827  
Net occupancy
     59       63       59       122       120  
Computer processing
     49       51       49       100       105  
Operating lease expense
     55       52       45       107       86  
Professional fees
     26       26       40       52       73  
Equipment
     24       25       26       49       52  
Marketing
     20       19       23       39       38  
Other expense:
                                        
Postage and delivery
     11       12       12       23       25  
Franchise and business taxes
     8       9       10       17       20  
Telecommunications
     7       7       7       14       14  
Provision (credit) for losses on lending-related commitments
     6       (8 )     —       (2 )     —  
Miscellaneous expense
     139       100       100       239       190  
 
Total other expense
     171       120       129       291       249  
 
Total noninterest expense
   $ 815     $ 784     $ 798     $ 1,599     $ 1,550  
 
                              
 
                                        
Average full-time equivalent employees
     18,888       19,801       19,931       19,342       19,813  
 
(a)   Additional detail provided in table below.
Personnel Expense
(in millions)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Salaries
   $ 236     $ 245     $ 234     $ 481     $ 463  
Incentive compensation
     82       75       98       157       175  
Employee benefits
     73       82       75       155       155  
Stock-based compensation
     16       24       18       40       32  
Severance
     4       2       2       6       2  
 
Total personnel expense
   $ 411     $ 428     $ 427     $ 839     $ 827  
 
                              
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 18
Loan Composition
(dollars in millions)
                                         
                            Percent change 6-30-07 vs.  
    6-30-07     3-31-07     6-30-06     3-31-07     6-30-06  
 
Commercial, financial and agricultural
   $ 21,814     $ 21,476     $ 21,598       1.6 %     1.0 %
Commercial real estate:
                                        
Commercial mortgage
     8,629       8,519       7,994       1.3       7.9  
Construction
     8,214       8,355       7,767       (1.7 )     5.8  
 
Total commercial real estate loans
     16,843       16,874       15,761       (.2 )     6.9  
Commercial lease financing
     10,138       10,036       9,909       1.0       2.3  
 
Total commercial loans
     48,795       48,386       47,268       .8       3.2  
Real estate — residential mortgage
     1,572       1,440       1,418       9.2       10.9  
Home equity a
     10,879       10,669       13,509       2.0       (19.5 )
Consumer — direct
     1,366       1,375       1,670       (.7 )     (18.2 )
Consumer — indirect:
                                        
Marine
     3,444       3,203       2,920       7.5       17.9  
Other
     636       638       623       (.3 )     2.1  
 
Total consumer — indirect loans
     4,080       3,841       3,543       6.2       15.2  
 
Total consumer loans
     17,897       17,325       20,140       3.3       (11.1 )
 
Total loans
   $ 66,692     $ 65,711     $ 67,408       1.5 %     (1.1 )%
 
                                  
 
(a)   On August 1, 2006, Key transferred $2.5 billion of home equity loans from the loan portfolio to loans held for sale in connection with the November 2006 sale of the Champion Mortgage loan portfolio. Excluding the transfer, home equity loans were down $156 million, or 1%, from the second quarter of 2006.
Loans Held for Sale Composition
(dollars in millions)
                                         
                            Percent change 6-30-07 vs.  
    6-30-07     3-31-07     6-30-06     3-31-07     6-30-06  
 
Commercial, financial and agricultural
   $ 76     $ 68     $ 45       11.8 %     68.9 %
Real estate — commercial mortgage
     1,613       1,224       1,133       31.8       42.4  
Real estate — construction
     172       163       36       5.5       377.8  
Commercial lease financing
     22       1       —       N/M       N/M  
Real estate — residential mortgage
     39       26       27       50.0       44.4  
Home equity
     —       —       1       —       (100.0 )
Education
     2,616       2,681       2,929       (2.4 )     (10.7 )
Automobile
     8       12       18       (33.3 )     (55.6 )
 
Total loans held for sale
   $ 4,546     $ 4,175     $ 4,189       8.9 %     8.5 %
 
                                  
 
N/M = Not Meaningful

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 19
Summary of Loan Loss Experience
(dollars in millions)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Average loans outstanding from continuing operations
   $ 66,315     $ 65,669     $ 64,996     $ 65,994     $ 64,610  
 
                              
 
                                        
Allowance for loan losses at beginning of period
   $ 944     $ 944     $ 966     $ 944     $ 966  
Loans charged off:
                                        
Commercial, financial and agricultural
     30       17       20       47       44  
 
Real estate — commercial mortgage
     5       6       3       11       6  
Real estate — construction
     2       1       —       3       2  
 
Total commercial real estate loans
     7       7       3       14       8  
Commercial lease financing
     9       13       8       22       14  
 
Total commercial loans
     46       37       31       83       66  
Real estate — residential mortgage
     1       1       2       2       3  
Home equity
     8       8       8       16       16  
Consumer — direct
     8       7       9       15       19  
Consumer — indirect
     9       11       9       20       20  
 
Total consumer loans
     26       27       28       53       58  
 
 
     72       64       59       136       124  
 
                                        
Recoveries:
                                        
Commercial, financial and agricultural
     6       7       7       13       19  
Real estate — commercial mortgage
     1       3       —       4       1  
Commercial lease financing
     4       3       9       7       14  
 
Total commercial loans
     11       13       16       24       34  
Real estate — residential mortgage
     1       —       1       1       1  
Home equity
     2       1       1       3       3  
Consumer — direct
     1       2       2       3       4  
Consumer — indirect
     4       4       5       8       9  
 
Total consumer loans
     8       7       9       15       17  
 
 
     19       20       25       39       51  
 
Net loan charge-offs
     (53 )     (44 )     (34 )     (97 )     (73 )
Provision for loan losses from continuing operations
     53       44       23       97       62  
Provision for loan losses from discontinued operations
     —       —       1       —       1  
Foreign currency translation adjustment
     1       —       —       1       —  
 
Allowance for loan losses at end of period
   $ 945     $ 944     $ 956     $ 945     $ 956  
 
                              
 
Net loan charge-offs to average loans from continuing operations
     .32 %     .27 %     .22 %     .30 %     .23 %
Allowance for loan losses to period-end loans
     1.42       1.44       1.42       1.42       1.42  
Allowance for loan losses to nonperforming loans
     342.39       371.65       342.65       342.39       342.65  
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 20
Changes in Liability for Credit Losses on Lending-Related Commitments
(in millions)
                                         
    Three months ended     Six months ended  
    6-30-07     3-31-07     6-30-06     6-30-07     6-30-06  
 
Balance at beginning of period
   $ 45     $ 53     $ 59     $ 53     $ 59  
Provision (credit) for losses on lending-related commitments
     6       (8 )     —       (2 )     —  
Charge-offs
     (1 )     —       —       (1 )     —  
 
Balance at end of period a
   $ 50     $ 45     $ 59     $ 50     $ 59  
 
                              
 
Summary of Nonperforming Assets and Past Due Loans
(dollars in millions)
                                         
    6-30-07     3-31-07     12-31-06     9-30-06     6-30-06  
 
Commercial, financial and agricultural
   $ 83     $ 70     $ 38     $ 42     $ 76  
 
                                        
Real estate — commercial mortgage
     41       44       48       36       35  
Real estate — construction
     23       10       10       37       4  
 
Total commercial real estate loans
     64       54       58       73       39  
Commercial lease financing
     34       31       22       20       29  
 
Total commercial loans
     181       155       118       135       144  
Real estate — residential mortgage
     27       32       34       34       36  
Home equity b
     55       52       50       46       90  
Consumer — direct
     2       2       2       2       3  
Consumer — indirect
     11       13       11       6       6  
 
Total consumer loans
     95       99       97       88       135  
 
Total nonperforming loans
     276       254       215       223       279  
 
                                        
Nonperforming loans held for sale b
     4       3       3       56       1  
 
                                        
OREO
     27       42       57       52       26  
Allowance for OREO losses
     (2 )     (2 )     (3 )     (3 )     (1 )
 
OREO, net of allowance
     25       40       54       49       25  
 
                                        
Other nonperforming assets
     73       56 c     1       1       3  
 
Total nonperforming assets
   $ 378     $ 353     $ 273     $ 329     $ 308  
 
                              
 
                                        
Accruing loans past due 90 days or more
   $ 181     $ 146     $ 120     $ 125     $ 119  
Accruing loans past due 30 through 89 days
     623       626       644       715       600  
Nonperforming loans to period-end portfolio loans
     .41 %     .39 %     .33 %     .34 %     .41 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
     .57       .54       .41       .50       .46  
 
Summary of Changes in Nonperforming Loans
(in millions)
                                         
    2Q07     1Q07     4Q06     3Q06     2Q06  
 
Balance at beginning of period
   $ 254     $ 215     $ 223     $ 279     $ 295  
Loans placed on nonaccrual status
     130       129       115       134       98  
Charge-offs
     (72 )     (61 )     (74 )     (70 )     (59 )
Loans sold
     (7 )     —       (5 )     (22 )     (6 )
Payments
     (21 )     (7 )     (23 )     (43 )     (45 )
Transfer to held-for-sale portfolio b
     —       —       —       (55 )     —  
Transfers to OREO
     —       (9 )     (12 )     —       (4 )
Loans returned to accrual status
     (8 )     (13 )     (9 )     —       —  
 
Balance at end of period
   $ 276     $ 254     $ 215     $ 223     $ 279  
 
                              
 
(a)   Included in “accrued expense and other liabilities” on the consolidated balance sheet.
 
(b)   On August 1, 2006, Key transferred approximately $55 million of home equity loans from nonperforming loans to nonperforming loans held for sale in connection with an expected sale of the Champion Mortgage finance business.
 
(c)   Primarily one investment of approximately $51 million held by the Private Equity unit within Key’s Real Estate Capital line of business.

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 21
Line of Business Results
(dollars in millions)
Community Banking
                                                         
                                            Percent change 2Q07 vs.  
    2Q07     1Q07     4Q06     3Q06     2Q06     1Q07     2Q06  
 
Summary of operations
                                                        
Total revenue (TE)
   $ 624     $ 799     $ 670     $ 679     $ 672       (21.9 )%     (7.1 )%
Provision for loan losses
     21       14       23       22       21       50.0       —  
Noninterest expense
     448       470       492       486       491       (4.7 )     (8.8 )
Net income
     97       197       97       107       100       (50.8 )     (3.0 )
Average loans and leases
     26,551       26,426       26,667       26,767       26,830       .5       (1.0 )
Average deposits
     46,171       46,581       47,383       46,976       46,675       (.9 )     (1.1 )
Net loan charge-offs
     26       19       24       22       24       36.8       8.3  
Return on average allocated equity
     15.80 %     32.46 %     15.41 %     16.93 %     16.09 %     N/A       N/A  
Average full-time equivalent employees
     8,202       8,619       8,805       8,915       8,782       (4.8 )     (6.6 )
 
                                                        
Supplementary information (lines of business)
                                                        
Regional Banking
                                                        
Total revenue (TE)
   $ 530     $ 707     $ 571     $ 578     $ 573       (25.0 )%     (7.5 )%
Provision for loan losses
     19       18       19       19       19       5.6       —  
Noninterest expense
     400       421       444       436       439       (5.0 )     (8.9 )
Net income
     69       167       68       77       72       (58.7 )     (4.2 )
Average loans and leases
     18,433       18,453       18,648       18,796       18,854       (.1 )     (2.2 )
Average deposits
     42,694       43,012       43,721       43,449       43,145       (.7 )     (1.0 )
Net loan charge-offs
     19       18       19       19       21       5.6       (9.5 )
Return on average allocated equity
     16.07 %     38.99 %     15.23 %     17.22 %     16.46 %     N/A       N/A  
Average full-time equivalent employees
     7,883       8,296       8,484       8,595       8,454       (5.0 )     (6.8 )
 
                                                        
Commercial Banking
                                                        
Total revenue (TE)
   $ 94     $ 92     $ 99     $ 101     $ 99       2.2 %     (5.1 )%
Provision for loan losses
     2       (4 )     4       3       2       N/M       —  
Noninterest expense
     48       49       48       50       52       (2.0 )     (7.7 )
Net income
     28       30       29       30       28       (6.7 )     —  
Average loans and leases
     8,118       7,973       8,019       7,971       7,976       1.8       1.8  
Average deposits
     3,477       3,569       3,662       3,527       3,530       (2.6 )     (1.5 )
Net loan charge-offs
     7       1       5       3       3       600.0       133.3  
Return on average allocated equity
     15.16 %     16.80 %     15.85 %     16.24 %     15.22 %     N/A       N/A  
Average full-time equivalent employees
     319       323       321       320       328       (1.2 )     (2.7 )
 

 

 

KeyCorp Reports Second Quarter 2007 Earnings
July 17, 2007
Page 22
Line of Business Results (continued)
(dollars in millions)
National Banking
                                                         
                                            Percent change 2Q07 vs.  
    2Q07     1Q07     4Q06     3Q06     2Q06     1Q07     2Q06  
 
Summary of operations
                                                        
Total revenue (TE)
   $ 630     $ 605     $ 678     $ 596     $ 596       4.1 %     5.7 %
Provision for loan losses
     32       30       30       13       2       6.7       N/M  
Noninterest expense
     328       314       330       305       313       4.5       4.8  
Income from continuing operations
     169       163       199       174       176       3.7       (4.0 )
Net income
     166       155       34       181       181       7.1       (8.3 )
Average loans and leases a
     39,348       38,869       38,498       37,898       37,730       1.2       4.3  
Average loans held for sale a
     4,377       3,917       4,521       4,553       3,821       11.7       14.6  
Average deposits a
     12,036       11,231       11,839       11,066       10,633       7.2       13.2  
Net loan charge-offs a
     27       25       30       21       10       8.0       170.0  
Return on average allocated equity a
     16.43 %     16.49 %     19.93 %     17.85 %     18.55 %     N/A       N/A  
Return on average allocated equity
     16.14       15.68       3.21       17.46       17.93       N/A       N/A  
Average full-time equivalent employees
     3,830       4,219       4,313       4,326       4,231       (9.2 )     (9.5 )
 
                                                        
Supplementary information (lines of business)
                                                        
Real Estate Capital
                                                        
Total revenue (TE)
   $ 188     $ 167     $ 189     $ 170     $ 176       12.6 %     6.8 %
Provision for loan losses
     8       1       18       7       —       700.0       N/M  
Noninterest expense
     78       72       70       70       72       8.3       8.3  
Net income
     64       59       63       58       65       8.5       (1.5 )
Average loans and leases
     12,827       12,755       12,931       12,854       12,719       .6       .8  
Average loans held for sale
     1,241       1,145       1,125       1,022       692       8.4       79.3  
Average deposits
     4,865       4,297       4,096       3,598       3,467       13.2       40.3  
Net loan charge-offs
     3       1       8       —       2       200.0       50.0  
Return on average allocated equity
     19.55 %     19.28 %     20.40 %     19.03 %     21.80 %     N/A       N/A  
Average full-time equivalent employees
     991       971       957       970       980       2.1       1.1  
 
                                                        
Equipment Finance
                                                        
Total revenue (TE)
   $ 155     $ 135     $ 146     $ 137     $ 136       14.8 %     14.0 %
Provision for loan losses
     16       13       7       11       2       23.1       700.0  
Noninterest expense
     93       85       77       81       76       9.4       22.4  
Net income
     29       23       39       28       36       26.1       (19.4 )
Average loans and leases
     10,609       10,479       10,222       10,100       9,871       1.2       7.5  
Average loans held for sale
     10       4       33       6       34       150.0       (70.6 )
Average deposits
     16       13       15       19       14       23.1       14.3  
Net loan charge-offs
     16       13       14       11       3       23.1       433.3  
Return on average allocated equity
     13.08 %     10.55 %     17.72 %     12.78 %     17.15 %     N/A       N/A  
Average full-time equivalent employees
     971       952       938       927       915       2.0       6.1  
 
                                                        
Institutional and Capital Markets
                                                        
Total revenue (TE)
   $ 189     $ 182     $ 223     $ 190     $ 192       3.8 %     (1.6 )%
Provision for loan losses
     —       —       (4 )     4       (4 )     —       (100.0 )
Noninterest expense
     116       115       137       111       117       .9       (.9 )
Net income
     45       41       57       48       48       9.8       (6.3 )
Average loans and leases
     7,454       7,436       7,521       7,390       7,601       .2       (1.9 )
Average loans held for sale
     468       140       387       454       139       234.3       236.7  
Average deposits
     6,728       6,491       7,285       6,933       6,676       3.7       .8  
Net loan charge-offs (recoveries)
     —       1       (2 )     4       (2 )     (100.0 )     100.0  
Return on average allocated equity
     15.15 %     14.16 %     19.18 %     16.94 %     17.57 %     N/A       N/A  
Average full-time equivalent employees
     1,302       1,350       1,375       1,385       1,296       (3.6 )     .5  
 
                                                        
Consumer Finance
                                                        
Total revenue (TE)
   $ 98     $ 121     $ 120     $ 99     $ 92       (19.0 )%     6.5 %
Provision for loan losses
     8       16       9       (9 )     4       (50.0 )     100.0  
Noninterest expense
     41       42       46       43       48       (2.4 )     (14.6 )
Income from continuing operations
     31       40       40       40       27       (22.5 )     14.8  
Net income (loss)
     28       32       (125 )     47       32       (12.5 )     (12.5 )
Average loans and leases a
     8,458       8,199       7,824       7,554       7,539       3.2       12.2  
Average loans held for sale a
     2,658       2,628       2,976       3,071       2,956       1.1       (10.1 )
Average deposits a
     427       430       443       516       476       (.7 )     (10.3 )
Net loan charge-offs a
     8       10       10       6       7       (20.0 )     14.3  
Return on average allocated equity a
     16.99 %     22.82 %     23.20 %     23.83 %     16.14 %     N/A       N/A  
Return on average allocated equity
     15.34       18.25       (53.67 )     20.47       14.04       N/A       N/A  
Average full-time equivalent employees
     566       946       1,043       1,044       1,040       (40.2 )     (45.6 )
 
(a)   From continuing operations.
 
TE =   Taxable Equivalent
 
N/A =   Not Applicable
 
N/M =   Not Meaningful