EX-99.1 2 l30834aexv99w1.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 FIRST QUARTER 2008 EARNINGS
•   EPS of $0.54 for the first quarter
 
•   $165 million pre-tax gain recorded on partial redemption of equity interest in Visa
 
•   Results impacted by continued disruption in financial markets
 
•   Costs remain well controlled
          CLEVELAND, April 17, 2008 — KeyCorp (NYSE: KEY) today announced first quarter income from continuing operations of $218 million, or $0.54 per diluted common share. This compares to income from continuing operations of $358 million, or $0.89 per share, for the first quarter of 2007, and $22 million, or $0.06 per share, for the fourth quarter of 2007.
          Net income totaled $218 million, or $0.54 per diluted common share, for the first quarter of 2008, compared to net income of $350 million, or $0.87 per share, for the first quarter of 2007 and $25 million, or $0.06 per share, for the fourth quarter of 2007.
          The table below shows Key’s continuing and discontinued operating results for the three-month periods ended March 31, 2008, December 31, 2007, and March 31, 2007.
                         
    Three months ended  
in millions, except per share amounts   3-31-08     12-31-07     3-31-07  
Summary of operations
                        
Income from continuing operations
   $ 218     $ 22     $ 358  
Income (loss) from discontinued operations, net of taxes a
     —       3       (8 )
 
Net income
   $ 218     $ 25     $ 350  
 
                  
 
                        
Per common share — assuming dilution b
                        
Income from continuing operations
   $ .54     $ .06     $ .89  
Income (loss) from discontinued operations a
     —       .01       (.02 )
 
Net income
   $ .54     $ .06     $ .87  
 
                  
 
 
(a)   Key sold the subprime mortgage loan portfolio held by the Champion Mortgage finance business in November 2006, and completed the sale of Champion’s origination platform in February 2007. As a result of these actions, Key has accounted for this business as a discontinued operation.
 
(b)   Earnings per share may not foot due to rounding.
          “While Key’s first quarter earnings reflect the market volatility and rising credit costs facing the financial services industry as a whole, overall we are pleased that we achieved these financial results at the same time that we have taken steps to significantly reduce the company’s exposure to future market volatility and have continued to bolster our loan loss reserves,” said Chairman and Chief Executive Officer Henry L. Meyer III.

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 2
          “During the first quarter, we continued to take actions to mitigate the effects of future market volatility on our held-for-sale and trading portfolios. These actions include the placement of hedges on our remaining previously unhedged commercial real estate mortgage loans held for sale to protect against declines in market values that may result from changes in credit spreads and other market-driven factors, and the transfer of $3.3 billion of education loans held for sale to the held-to-maturity loan portfolio in response to the continued disruption in the student loan securitization market.
          “With nonperforming assets continuing to rise in this challenging credit environment, we continue to add to our loan loss reserve, which represented 1.70% of total loans and 123% of Key’s nonperforming loans at quarter end. The current quarter’s increase to the reserve, along with the actions we took in the fourth quarter of 2007 to bolster our reserves, reduce expenses and curtail certain higher risk or nonrelationship businesses, should help us better weather the current softness in the economy.
          “While current market conditions remain challenging, we believe by continuing to focus on our relationship business model, managing our expenses and upgrading our delivery platforms, we will keep Key positioned to respond to business opportunities as they emerge.”
     As shown in the following table, the comparability of Key’s earnings for the current, prior and year-ago quarters is affected by several significant items.
                                                                         
    First Quarter 2008     Fourth Quarter 2007     First Quarter 2007  
    Pre-tax     After-tax     Impact     Pre-tax     After-tax     Impact     Pre-tax     After-tax     Impact  
in millions, except per share amounts   Amount     Amount     on EPS     Amount     Amount     on EPS     Amount     Amount     on EPS  
Gain from redemption of Visa Inc. shares
   $ 165     $ 103     $ .26       —       —       —       —       —       —  
Liability to Visa
     —       —       —     $(64 )   $(40 )   $(.10 )     —       —       —  
Realized and unrealized gains (losses) on loan and securities portfolios held for sale or trading
     (128 )     (80 )     (.20 )     (30 )     (19 )     (.05 )   $ 22     $ 14     $ .03  
Additional reserve for LILO transactions
     (3 )     (38 )     (.10 )     —       —       —       —       —       —  
McDonald Investments branch network a
     —       —       —       —       —       —       159       99       .25  
Gain from settlement of automobile residual value
insurance litigation
     —       —       —       —       —       —       26       17       .04  
Loss from repositioning of securities portfolio
     —       —       —       —       —       —       (49 )     (31 )     (.08 )
 
 
(a)   Represents the financial effect of the McDonald Investments branch network, including a gain of $171 million ($107 million after tax) from the February 9, 2007, sale of that network.
 
LILO   = Lease in, lease out transactions
 
EPS   = Earnings per diluted common share
          Key’s provision for loan losses was $187 million for the first quarter of 2008, up from $44 million for the same period one year ago. The increase was due primarily to continued weakness in the housing market and an additional provision recorded in connection with the March 2008 transfer of $3.3 billion of education loans from held-for-sale status to the loan portfolio. Also, during the first quarter of 2008, credit spreads continued to widen, causing the market values of Key’s loan and securities portfolios held for sale or trading to decrease. During the first quarter, Key recorded net losses of $101 million from loan sales and write-downs, $21 million from dealer trading and derivatives, and $6 million from certain real estate-related investments, for a total of $128 million in net losses. This compares to net gains of $22 million from these activities for the first quarter of 2007 and net losses of $30 million for the fourth quarter of 2007.

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 3
SUMMARY OF CONTINUING OPERATIONS
          Taxable-equivalent net interest income was $704 million for the first quarter of 2008, compared to $700 million for the year-ago quarter. Average earning assets rose by $9.7 billion, or 12%, due primarily to strong growth in commercial lending and the January 1 acquisition of U.S.B. Holding Co., Inc., which added approximately $1.5 billion to Key’s loan portfolio. The net interest margin for the current quarter declined to 3.14% from 3.50% for the first quarter of 2007. The reduction was attributable largely to tighter loan and deposit spreads, reflecting the effects of competitive pricing, and a lease accounting adjustment related to certain leveraged lease transactions.
          During the first quarter of 2008, Key increased its tax reserves for certain lease in, lease out (“LILO”) transactions, the deductions for which have been disallowed by the Internal Revenue Service. The change in the level of LILO reserves also necessitated a recalculation of lease income under 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.” These actions reduced Key’s taxable-equivalent net interest income and net interest margin for the first quarter of 2008 by $34 million and 15 basis points, respectively, and reduced Key’s earnings by $38 million, or $0.10 per diluted common share. As previously reported, the LILO transactions represent a portion of Key’s overall leveraged lease financing portfolio, the tax deductions for which are under challenge by the Internal Revenue Service.
          Compared to the fourth quarter of 2007, taxable-equivalent net interest income decreased by $46 million, and the net interest margin declined by 34 basis points. These reductions were due primarily to the charges recorded during the current period in connection with the additional reserves recorded for the above-mentioned LILO transactions, and a favorable lease accounting adjustment of $18 million recorded during the fourth quarter of 2007 that contributed approximately 9 basis points to Key’s taxable-equivalent net interest margin for that period. Average earning assets grew by $3.7 billion from the fourth quarter as a result of strong demand for commercial loans in Key’s National Banking group and the January 1, 2008, acquisition of U.S.B. Holding Co., Inc., which added approximately $1.7 billion to Key’s average earning assets in the first quarter.
          Key’s noninterest income was $528 million for the first quarter of 2008, compared to $654 million for the year-ago quarter. Included in current year results is a $165 million gain from the partial redemption of Visa Inc. shares, and both realized and unrealized losses associated with several of Key’s capital markets-driven businesses. Noninterest income for the first quarter of 2007 included a $171 million gain associated with the sale of the McDonald Investments branch network, a $26 million gain from the settlement of the automobile residual value insurance litigation and a $49 million loss recorded in connection with the repositioning of the securities portfolio.
          During the first quarter of 2008, Key recorded $101 million in net losses from loan sales and write-downs, related primarily to commercial real estate loans held for sale. This compares to net gains of $9 million for the same period last year. Additionally, income from investment banking and capital markets activities decreased by $36 million, due primarily to a $29 million reduction from dealer trading and derivatives, and net gains from principal investing were down $20 million from the year-ago quarter.

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 4
          Trust and investment services income increased by $4 million from the same period one year ago. Last year’s first quarter results included $16 million from the McDonald Investments operation. Adjusting for this revenue, trust and investment services income rose by $20 million, or 18%, driven by growth in institutional asset management income. The company also experienced a $13 million increase in income from deposit service charges.
          Compared to the fourth quarter of 2007, noninterest income grew by $40 million. The gain from the redemption of Visa shares more than offset a $95 million increase in net losses from loan sales and write-downs, and a $21 million reduction in letter of credit and loan fees.
          Key’s noninterest expense was $732 million for the first quarter of 2008, compared to $784 million for the same period last year. Personnel expense decreased by $19 million, due to lower stock-based compensation and decreases in costs associated with salaries and employee benefits. Approximately $13 million of the reduction in total personnel expense was attributable to the sale of the McDonald Investments branch network. Nonpersonnel expense decreased by $33 million from the year-ago quarter, reflecting a $27 million reduction to the liability for credit losses on lending-related commitments in the current quarter, compared to a reduction of $8 million recorded in the first quarter of 2007. Also contributing to the decrease were declines in marketing and computer processing expense of $5 million and $4 million, respectively. The McDonald Investments sale reduced Key’s total nonpersonnel expense by approximately $14 million.
          Compared to the fourth quarter of 2007, noninterest expense decreased by $164 million. Personnel expense rose by $10 million as a result of higher incentive compensation accruals and increases in costs associated with employee benefits (employment taxes) and stock-based compensation. These increases were offset in part by lower costs related to salaries and severance. Nonpersonnel expense decreased by $174 million, reflecting the $27 million reduction to the liability for credit losses on lending-related commitments, compared to a $25 million increase recorded in the prior quarter; a $15 million decrease in professional fees and a $5 million decline in computer processing expense. Additionally, noninterest expense for the fourth quarter of 2007 included a $64 million charge, representing the estimated fair value of Key’s liability to Visa Inc. This liability was satisfied in the first quarter of 2008 with proceeds resulting from Visa’s initial public offering.
ASSET QUALITY
          Key’s provision for loan losses from continuing operations was $187 million for the first quarter of 2008, compared to $44 million for the year-ago quarter and $363 million for the fourth quarter of 2007. During the first quarter of 2008, Key’s provision exceeded its net loan charge-offs by $66 million. The additional provision was a result of continued weakness in the housing market, which adversely affected Key’s commercial real estate portfolio, and an additional provision recorded in connection with the March 2008 transfer of $3.3 billion of education loans from held-for-sale status to the held-to-maturity loan portfolio. The secondary markets for these loans have been adversely affected by market liquidity issues, prompting the company’s decision to move them to a held-to-maturity classification.
          Net loan charge-offs for the quarter totaled $121 million, or 0.67% of average loans from continuing operations, compared to $44 million, or 0.27%, for the same period last year and $119 million, or 0.67%, for the previous quarter.

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 5
          At March 31, 2008, Key’s nonperforming loans totaled $1.054 billion and represented 1.38% of period-end portfolio loans, compared to 0.97% at December 31, 2007, and 0.39% at March 31, 2007. At March 31, 2008, nonperforming assets totaled $1.115 billion and represented 1.46% of portfolio loans, other real estate owned and other nonperforming assets, compared to 1.08% at December 31, 2007, and 0.54% at March 31, 2007. The increase in nonperforming assets during the first quarter of 2008 was attributable primarily to the continued deterioration of market conditions in the residential properties segment of Key’s commercial real estate construction portfolio, principally in Florida and southern California.
          Key’s allowance for loan losses was $1.298 billion, or 1.70% of loans outstanding, at March 31, 2008, compared to $1.200 billion, or 1.69%, at December 31, 2007, and $944 million, or 1.44%, at March 31, 2007. The January 1, 2008, acquisition of U.S.B. Holding Co., Inc. added approximately $32 million to Key’s allowance for loan losses.
CAPITAL
          Key’s capital ratios, as presented in the following table, continued to exceed all “well-capitalized” regulatory benchmarks at March 31, 2008.
Capital Ratios
                         
    3-31-08     12-31-07     3-31-07  
 
Tier 1 risk-based capital a
     8.09 %     7.44 %     8.15 %
Total risk-based capital a
     11.90       11.38       12.20  
Tangible equity to tangible assets
     6.85       6.58       7.04  
 
 
(a)   3-31-08 ratio is estimated.
          During the first quarter of 2008, Key issued 9.9 million of its common shares in connection with the acquisition of U.S.B. Holding Co., Inc. and reissued 1.4 million shares under employee benefit plans. There was no repurchase activity by Key during the first quarter and the company currently does not anticipate any share repurchase activity in the second quarter of 2008. At March 31, 2008, Key had 14.0 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   1Q08     4Q07     3Q07     2Q07     1Q07  
 
Shares outstanding at beginning of period
     388,793       388,708       389,362       394,483       399,153  
Shares issued to acquire U.S.B. Holding Co., Inc.
     9,895       —       —       —       —  
Issuance of shares under employee benefit plans
     1,383       85       1,346       879       3,330  
Repurchase of common shares
     —       —       (2,000 )     (6,000 )     (8,000 )
 
Shares outstanding at end of period
     400,071       388,793       388,708       389,362       394,483  
 
                              
 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 6
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 tables at the end of this release. Key’s line of business results for all periods presented reflect a new organizational structure that took effect January 1, 2008.
Major Business Groups
                                         
                            Percent change 1Q08 vs.  
dollars in millions   1Q08     4Q07     1Q07     4Q07     1Q07  
 
Revenue from continuing operations (TE)
                                        
Community Banking
   $ 629     $ 652     $ 805       (3.5 )%     (21.9 )%
National Banking
     441       612       599       (27.9 )     (26.4 )
Other Segments
     27       17       (20 )     58.8       N/M  
 
Total Segments
     1,097       1,281       1,384       (14.4 )     (20.7 )
Reconciling Items a
     135       (43 )     (30 )     N/M       N/M  
 
Total
   $ 1,232     $ 1,238     $ 1,354       (.5 )%     (9.0 )%
 
                                  
 
                                        
Income (loss) from continuing operations
                                        
Community Banking
   $ 113     $ 111     $ 203       1.8 %     (44.3 )%
National Banking
     (23 )     (67 )     157       65.7       N/M  
Other Segments
     22       21       (8 )     4.8       N/M  
 
Total Segments
     112       65       352       72.3       (68.2 )
Reconciling Items a
     106       (43 )     6       N/M       N/M  
 
Total
   $ 218     $ 22     $ 358       890.9 %     (39.1 )%
 
                                  
 
(a)   For the first quarter of 2008, reconciling items include a $165 million ($103 million after tax) gain from the partial redemption of Key’s equity interest in Visa Inc. For the fourth quarter of 2007, reconciling items include a $64 million ($40 million after tax) charge, representing the fair value of Key’s potential liability to Visa Inc. This liability was satisfied in the first quarter of 2008 with proceeds resulting from Visa’s initial public offering.
 
TE   = Taxable Equivalent, N/M = Not Meaningful
Community Banking
                                         
                            Percent change 1Q08 vs.  
dollars in millions   1Q08     4Q07     1Q07     4Q07     1Q07  
 
Summary of operations
                                        
Net interest income (TE)
   $ 423     $ 434     $ 418       (2.5 )%     1.2 %
Noninterest income
     206       218       387       (5.5 )     (46.8 )
 
Total revenue (TE)
     629       652       805       (3.5 )     (21.9 )
Provision for loan losses
     18       36       14       (50.0 )     28.6  
Noninterest expense
     430       438       466       (1.8 )     (7.7 )
 
Income before income taxes (TE)
     181       178       325       1.7       (44.3 )
Allocated income taxes and TE adjustments
     68       67       122       1.5       (44.3 )
 
Net income
   $ 113     $ 111     $ 203       1.8 %     (44.3 )%
 
                                  
 
                                        
Percent of consolidated income from continuing operations
     52 %     505 %     57 %     N/A       N/A  
 
                                        
Average balances
                                        
Loans and leases
   $ 28,255     $ 27,237     $ 26,456       3.7 %     6.8 %
Total assets
     31,404       29,912       29,293       5.0       7.2  
Deposits
     50,089       47,255       46,524       6.0       7.7  
 
                                        
Assets under management at period end
   $ 20,049     $ 21,592     $ 20,634       (7.1 )%     (2.8 )%
 
TE   = Taxable Equivalent, N/A = Not Applicable

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 7
                                         
Additional Community Banking Data                           Percent change 1Q08 vs.  
dollars in millions   1Q08     4Q07     1Q07     4Q07     1Q07  
 
Average deposits outstanding
                                        
NOW and money market deposit accounts
   $ 19,886     $ 20,471     $ 19,616       (2.9 )%     1.4 %
Savings deposits
     2,042       1,514       1,618       34.9       26.2  
Certificates of deposit ($100,000 or more)
     6,452       4,918       4,551       31.2       41.8  
Other time deposits
     12,765       11,454       12,051       11.4       5.9  
Deposits in foreign office
     1,257       1,249       960       .6       30.9  
Noninterest-bearing deposits
     7,687       7,649       7,728       .5       (.5 )
         
Total deposits
   $ 50,089     $ 47,255     $ 46,524       6.0 %     7.7 %
 
                                  
 
Home equity loans
                        
Average balance
   $ 9,693     $ 9,658     $ 9,677  
Weighted-average loan-to-value ratio
     70 %     70 %     70 %
Percent first lien positions
     56       57       59  
 
Other data
                        
On-line households / household penetration
     749,512/45 %     737,393/45 %     719,736/43 %
Branches
     985       955       950  
Automated teller machines
     1,479       1,443       1,447  
 
Community Banking Summary of Operations
          Community Banking recorded net income of $113 million for the first quarter of 2008, compared to $203 million for the year-ago quarter. Excluding the impact of the sale of the McDonald Investments branch network during the first quarter of 2007, net income for Community Banking was up $9 million, or 9%, from the comparable quarter last year. Increases in both net interest income and noninterest income, and a reduction in noninterest expense drove the improvement and more than offset a higher provision for loan losses.
          Taxable-equivalent net interest income rose by $5 million, or 1%, from the first quarter of 2007. The increase was attributable to a $2.0 billion, or 7%, rise in average earning assets, due largely to growth in the commercial loan portfolio, and a $3.6 billion, or 8%, increase in average deposits. Both loan and deposit growth benefited from the January 1 acquisition of U.S.B. Holding Co., Inc. described below. The positive effect of this growth was offset in part by the impact of tighter loan and deposit spreads.
          Excluding the impact of the McDonald Investments sale, noninterest income rose by $9 million, or 5%, from the same period one year ago, due to growth in deposit service charge income, higher income from derivatives and growth in bank channel investment product sales commission income.
          The provision for loan losses increased by $4 million, or 29%, compared to the first quarter of 2007.
          Excluding the impact of the McDonald Investments sale, noninterest expense declined by $9 million, or 2%, from the year-ago quarter, reflecting a decrease in personnel expense, due primarily to reduced headcount. Additionally, Community Banking results for the current quarter benefited from a reduction to the liability for credit losses on lending-related commitments.
          On January 1, 2008, Key acquired U.S.B. Holding Co., Inc., the holding company for Union State Bank, a 31-branch state-chartered commercial bank headquartered in Orangeburg, New York. The acquisition doubles Key’s branch penetration in the attractive Lower Hudson Valley area. Assets and deposits acquired in this transaction were assigned to both the Community Banking and National Banking groups.

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 8
National Banking
                                         
                            Percent change 1Q08 vs.  
dollars in millions   1Q08     4Q07     1Q07     4Q07     1Q07  
 
Summary of operations
                                        
Net interest income (TE)
   $ 340     $ 389     $ 340       (12.6 )%     —
Noninterest income
     101       223       259       (54.7 )     (61.0 )%
 
Total revenue (TE)
     441       612       599       (27.9 )     (26.4 )
Provision for loan losses
     169       327       30       (48.3 )     463.3  
Noninterest expense
     309       389       317       (20.6 )     (2.5 )
 
(Loss) income from continuing operations before income taxes (TE)
     (37 )     (104 )     252       64.4       N/M  
Allocated income taxes and TE adjustments
     (14 )     (37 )     95       62.2       N/M  
 
(Loss) income from continuing operations
     (23 )     (67 )     157       65.7       N/M  
Income (loss) from discontinued operations, net of taxes
     —       3       (8 )     (100.0 )     100.0 %
 
Net (loss) income
   $ (23 )   $ (64 )   $ 149       64.1 %     N/M
 
                                  
 
                                        
Percent of consolidated income from continuing operations
     N/M     N/M     44 %     N/A       N/A  
 
                                        
Average balances from continuing operations
                                        
Loans and leases
   $ 44,021     $ 42,037     $ 38,839       4.7 %     13.3 %
Loans held for sale
     4,932       4,709       3,917       4.7       25.9  
Total assets
     56,079       53,323       48,411       5.2       15.8  
Deposits
     11,849       12,628       11,291       (6.2 )     4.9  
 
                                        
Assets under management at period end
   $ 60,404     $ 63,850     $ 61,754       (5.4 )%     (2.2 )%
 
TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
National Banking Summary of Continuing Operations
          National Banking recorded a net loss of $23 million from continuing operations for the first quarter of 2008, compared to net income of $157 million from continuing operations for the same period last year. Lower noninterest income and an increase in the provision for loan losses accounted for the reduction and more than offset a decrease in noninterest expense. Net interest income was essentially unchanged from the year-ago quarter.
          During the first quarter of 2008, National Banking increased its tax reserves for certain lease in, lease out transactions and, as a result, recalculated its lease income in accordance with 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.” Excluding the additional charges associated with these actions, taxable-equivalent net interest income grew by $34 million, or 10%, from the first quarter of 2007 as a result of increases in average earning assets and deposits, offset in part by tighter interest rate spreads. Average loans and leases grew by $5.2 billion, or 13%, while average deposits rose by $558 million, or 5%, from the year-ago quarter.
          Noninterest income declined by $158 million, or 61%, as several capital markets-driven businesses were adversely affected by continued volatility in the financial markets. Results for the current quarter include $105 million in net losses from loan sales and write-downs, related primarily to commercial real estate loans held for sale. This compares to net gains of $5 million for the same period last year. Income from investment banking and capital markets activities decreased by $47 million, due primarily to a $38 million reduction from dealer trading and derivatives. These decreases were offset in part by a $19 million increase in trust and investment services income. Additionally, results for the first quarter of 2007 included a $26 million gain from the settlement of the automobile residual value insurance litigation.

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 9
          The provision for loan losses rose by $139 million, reflecting continued deterioration of market conditions in the residential properties segment of Key’s commercial real estate construction portfolio, principally in Florida and southern California, and an additional provision recorded in the Consumer Finance line of business in connection with the March 2008 transfer of $3.3 billion of education loans from held-for-sale status to the loan portfolio.
          Noninterest expense decreased by $8 million, or 3%, from the year-ago quarter. Contributing to the improvement was a $22 million reduction to the liability for credit losses on lending-related commitments in the current quarter, compared to a reduction of $7 million recorded in the first quarter of 2007. This positive effect of this change was offset in part by a $6 million increase in 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 $22 million for the first quarter of 2008, compared to a net loss of $8 million for the same period last year. The improvement was due primarily to a $49 million loss recorded in the first quarter of 2007 in connection with the repositioning of the securities portfolio, offset in part by a decrease in net gains from principal investing.

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 10
Line of Business Descriptions
Community Banking
Regional Banking provides individuals with branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans. This line of business also provides small businesses with deposit, investment and credit products, and business advisory services.
Regional Banking also offers financial, estate and retirement planning, and asset management services to assist high-net-worth clients with their banking, trust, portfolio management, insurance, charitable giving and related needs.
Commercial Banking provides midsize businesses with products and services that include commercial lending, cash management, equipment leasing, investment and employee benefit programs, succession planning, access to capital markets, derivatives and foreign exchange.
National Banking
Real Estate Capital and Corporate Banking Services consists of two business units. Real Estate Capital is a national business that provides construction and interim lending, permanent debt placements and servicing, equity and investment banking, and other commercial banking products and services to developers, brokers and owner-investors. This unit deals primarily with nonowner-occupied properties (i.e., generally properties in which at least 50% of the debt service is provided by rental income from nonaffiliated third parties). Particular emphasis has been placed on providing clients with finance solutions through access to the capital markets.
Corporate Banking Services provides cash management, interest rate derivatives, and foreign exchange products and services to clients throughout the Community Banking and National Banking groups. Through its Public Sector and Financial Institutions businesses, Corporate Banking Services provides a full array of commercial banking products and services to government and not-for-profit entities, and to community banks.
Equipment Finance meets the equipment leasing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with financing options for their clients. Lease financing receivables and related revenues are assigned to other lines of business (primarily Institutional and Capital Markets, and Commercial Banking) if those businesses are principally responsible for maintaining the relationship with the client.
Institutional and Capital Markets provides commercial lending, treasury management, investment banking, derivatives and foreign exchange, equity and debt underwriting and trading, and syndicated finance products and services to large corporations and middle-market companies through the KeyBanc Capital Markets subsidiary.
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 and Commercial Floor Plan Lending.

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 11
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 tuition payments for private schools.
Commercial Floor Plan Lending finances inventory for automobile, recreation and marine dealers.
          Cleveland-based KeyCorp is one of the nation’s largest bank-based financial services companies, with assets of approximately $101 billion. Key companies provide investment management, retail and commercial banking, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. The company’s businesses deliver their products and services through 985 branches and additional offices; a network of 1,479 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 Thursday, April 17, 2008. An audio replay of the call will be available through April 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) continued disruption in the fixed income markets; (4) adverse capital markets conditions; (5) changes in general economic conditions, or in the condition of the local economies or industries in which we have significant operations or assets, which could, among other things, materially impact credit quality trends and our ability to generate loans; (6) increased competitive pressure among financial services companies; (7) the inability to successfully execute strategic initiatives designed to grow revenues and/or manage expenses; (8) consummation of significant business combinations or divestitures; (9) operational or risk management failures due to technological or other factors; (10) changes in accounting or tax practices or requirements; (11) new legal obligations or liabilities or unfavorable resolution of litigation; (12) heightened regulatory practices, requirements or expectations; and (13) disruption in the economy and general business climate as a result of terrorist activities or military actions. 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 First Quarter 2008 Earnings
April 17, 2008
Page 12
Financial Highlights
(dollars in millions, except per share amounts)
                         
    Three months ended  
    3-31-08     12-31-07     3-31-07  
 
Summary of operations
                        
Net interest income (TE)
   $ 704     $ 750     $ 700  
Noninterest income
     528       488       654  
                         
Total revenue (TE)
     1,232       1,238       1,354  
Provision for loan losses
     187       363       44  
Noninterest expense
     732       896       784  
Income from continuing operations
     218       22       358  
Income (loss) from discontinued operations, net of taxes a
     —       3       (8 )
Net income
     218       25       350  
 
                        
Per common share
                        
Income from continuing operations
   $ .55     $ .06     $ .90  
Income from continuing operations — assuming dilution
     .54       .06       .89  
Income (loss) from discontinued operations a
     —       .01       (.02 )
Income (loss) from discontinued operations — assuming dilution a
     —       .01       (.02 )
Net income
     .55       .06       .88  
Net income — assuming dilution
     .54       .06       .87  
Cash dividends paid
     .375       .365       .365  
Book value at period end
     21.48       19.92       19.57  
Market price at period end
     21.95       23.45       37.47  
 
                        
Performance ratios — from continuing operations
                        
Return on average total assets
     .85 %     .09 %     1.58 %
Return on average equity
     10.38       1.11       19.06  
Net interest margin (TE)
     3.14       3.48       3.50  
 
                        
Performance ratios — from consolidated operations
                        
Return on average total assets
     .85 %     .10 %     1.54 %
Return on average equity
     10.38       1.26       18.63  
Net interest margin (TE)
     3.14       3.48       3.51  
 
                        
Capital ratios at period end
                        
Equity to assets
     8.47 %     7.89 %     8.37 %
Tangible equity to tangible assets
     6.85       6.58       7.04  
Tier 1 risk-based capital b
     8.09       7.44       8.15  
Total risk-based capital b
     11.90       11.38       12.20  
Leverage b
     8.96       8.39       9.17  
 
                        
Asset quality
                        
Net loan charge-offs
   $ 121     $ 119     $ 44  
Net loan charge-offs to average loans from continuing operations
     .67 %     .67 %     .27 %
Allowance for loan losses
   $ 1,298     $ 1,200     $ 944  
Allowance for loan losses to period-end loans
     1.70 %     1.69 %     1.44 %
Allowance for loan losses to nonperforming loans
     123.15       174.67       371.65  
Nonperforming loans at period end
   $ 1,054     $ 687     $ 254  
Nonperforming assets at period end
     1,115       764       353  
Nonperforming loans to period-end portfolio loans
     1.38 %     .97 %     .39 %
Nonperforming assets to period-end portfolio loans plus
OREO and other nonperforming assets
     1.46       1.08       .54  
 
                        
Trust and brokerage assets
                        
Assets under management
   $ 80,453     $ 85,442     $ 82,388  
Nonmanaged and brokerage assets
     30,532       33,918       32,838  
 
                        
Other data
                        
Average full-time equivalent employees
     18,426       18,500       19,801  
Branches
     985       955       950  
 
                        
Taxable-equivalent adjustment
   $ (9 )   $ 40     $ 21  
 
(a)   Key sold the subprime mortgage loan portfolio held by the Champion Mortgage finance business in November 2006, and completed the sale of Champion’s origination platform in February 2007. As a result of these actions, Key has accounted for this business as a discontinued operation.
 
(b)   3-31-08 ratio is estimated.
 
TE   = Taxable Equivalent

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 13
Consolidated Balance Sheets
(dollars in millions)
                         
    3-31-08     12-31-07     3-31-07  
 
Assets
                        
Loans
   $ 76,444     $ 70,823     $ 65,711  
Loans held for sale
     1,674       4,736       4,175  
Securities available for sale
     8,419       7,860       7,789  
Held-to-maturity securities
     29       28       38  
Trading account assets
     1,015       1,056       671  
Short-term investments
     577       516       1,313  
Other investments
     1,561       1,538       1,466  
                         
Total earning assets
     89,719       86,557       81,163  
Allowance for loan losses
     (1,298 )     (1,200 )     (944 )
Cash and due from banks
     1,730       1,814       2,052  
Premises and equipment
     712       681       590  
Operating lease assets
     1,070       1,128       1,074  
Goodwill
     1,599       1,252       1,202  
Other intangible assets
     164       123       115  
Corporate-owned life insurance
     2,894       2,872       2,805  
Derivative assets
     1,508       879       413  
Accrued income and other assets
     3,394       4,122       3,786  
                         
Total assets
   $ 101,492     $ 98,228     $ 92,256  
 
                        
 
                        
Liabilities
                        
Deposits in domestic offices:
                        
NOW and money market deposit accounts
   $ 26,527     $ 27,635     $ 23,317  
Savings deposits
     1,826       1,513       1,654  
Certificates of deposit ($100,000 or more)
     8,330       6,982       6,094  
Other time deposits
     12,933       11,615       12,086  
                         
Total interest-bearing deposits
     49,616       47,745       43,151  
Noninterest-bearing deposits
     10,896       11,028       13,473  
Deposits in foreign office — interest-bearing
     4,190       4,326       3,149  
                         
Total deposits
     64,702       63,099       59,773  
Federal funds purchased and securities sold under repurchase agreements
     3,503       3,927       5,770  
Bank notes and other short-term borrowings
     5,464       5,861       922  
Derivative liabilities
     465       252       173  
Accrued expense and other liabilities
     4,429       5,386       4,838  
Long-term debt
     14,337       11,957       13,061  
                         
Total liabilities
     92,900       90,482       84,537  
 
                        
Shareholders’ equity
                        
Preferred stock
     —       —       —  
Common shares
     492       492       492  
Capital surplus
     1,659       1,623       1,614  
Retained earnings
     8,737       8,522       8,528  
Treasury stock, at cost
     (2,689 )     (3,021 )     (2,801 )
Accumulated other comprehensive income (loss)
     393       130       (114 )
                         
Total shareholders’ equity
     8,592       7,746       7,719  
 
                        
                         
Total liabilities and shareholders’ equity
   $ 101,492     $ 98,228     $ 92,256  
 
                        
 
                        
Common shares outstanding (000)
     400,071       388,793       394,483  
 

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 14
Consolidated Statements of Income
(dollars in millions, except per share amounts)
                         
    Three months ended
    3-31-08     12-31-07     3-31-07  
 
Interest income
                        
Loans
   $ 1,123     $ 1,205     $ 1,161  
Loans held for sale
     87       89       75  
Securities available for sale
     109       115       100  
Held-to-maturity securities
     1       1       1  
Trading account assets
     13       12       7  
Short-term investments
     9       13       11  
Other investments
     12       12       13  
 
Total interest income
     1,354       1,447       1,368  
 
                        
Interest expense
                        
Deposits
     428       483       433  
Federal funds purchased and securities sold under repurchase agreements
     28       45       49  
Bank notes and other short-term borrowings
     39       45       11  
Long-term debt
     146       164       196  
 
Total interest expense
     641       737       689  
 
                        
 
Net interest income
     713       710       679  
Provision for loan losses
     187       363       44  
 
Net interest income after provision for loan losses
     526       347       635  
 
                        
Noninterest income
                        
Trust and investment services income
     129       131       125  
Service charges on deposit accounts
     88       90       75  
Investment banking and capital markets income
     8       12       44  
Operating lease income
     69       72       64  
Letter of credit and loan fees
     37       58       38  
Corporate-owned life insurance income
     28       37       25  
Electronic banking fees
     24       25       24  
Net (losses) gains from loan securitizations and sales
     (101 )     (6 )     9  
Net securities gains (losses)
     3       6       (47 )
Net gains from principal investing
     9       6       29  
Gain from redemption of Visa Inc. shares
     165       —       —  
Gain from sale of McDonald Investments branch network
     —       —       171  
Other income
     69       57       97  
 
Total noninterest income
     528       488       654  
 
                        
Noninterest expense
                        
Personnel
     409       399       428  
Net occupancy
     66       64       63  
Computer processing
     47       52       51  
Operating lease expense
     58       59       52  
Professional fees
     23       38       26  
Equipment
     24       25       25  
Marketing
     14       16       19  
Other expense
     91       243       120  
 
Total noninterest expense
     732       896       784  
 
Income (loss) from continuing operations before income taxes
     322       (61 )     505  
Income taxes
     104       (83 )     147  
 
Income from continuing operations
     218       22       358  
Income (loss) from discontinued operations, net of taxes
     —       3       (8 )
 
Net income
   $ 218     $ 25     $ 350  
 
                  
 
                        
Per common share:
                        
Income from continuing operations
   $ .55     $ .06     $ .90  
Net income
     .55       .06       .88  
 
                        
Per common share — assuming dilution:
                        
Income from continuing operations
   $ .54     $ .06     $ .89  
Net income
     .54       .06       .87  
 
                        
Cash dividends declared per common share
     —     $ .74     $ .365  
 
                        
Weighted-average common shares outstanding (000)
     399,121       388,841       397,875  
Weighted-average common shares and potential common shares outstanding (000)
     399,769       389,911       403,478  
 

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 15
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations
(dollars in millions)
                                                                           
    First Quarter 2008     Fourth Quarter 2007     First Quarter 2007  
    Average                     Average                     Average            
    Balance     Interest     Yield / Rate     Balance     Interest     Yield / Rate     Balance     Interest     Yield / Rate  
 
Assets
                                                                          
Loans: a,b
                                                                        
Commercial, financial and agricultural
  $ 25,411     $ 392       6.21 %   $ 23,825     $ 419       6.98 %   $ 21,562     $ 392       7.38 %  
Real estate — commercial mortgage
     10,283       175       6.84       9,351       175       7.42       8,426       163       7.83    
Real estate — construction
     8,468       134       6.36       8,192       153       7.42       8,227       166       8.20    
Commercial lease financing
     10,004       98       3.91       10,252       171       6.65       10,094       146       5.78    
                 
Total commercial loans
     54,166       799       5.93       51,620       918       7.06       48,309       867       7.26    
Real estate — residential
     1,916       30       6.29       1,596       27       6.72       1,444       24       6.60    
Home equity
     10,953       178       6.54       10,917       192       7.02       10,706       191       7.22    
Consumer — direct
     1,305       34       10.59       1,308       35       10.73       1,450       36       10.15    
Consumer — indirect
     4,348       72       6.61       4,276       73       6.76       3,760       64       6.79    
                 
Total consumer loans
     18,522       314       6.81       18,097       327       7.20       17,360       315       7.32    
               
Total loans
     72,688       1,113       6.15       69,717       1,245       7.10       65,669       1,182       7.28    
Loans held for sale
     4,984       87       7.01       4,748       89       7.53       3,940       75       7.70    
Securities available for sale a,c
     8,419       110       5.28       7,858       115       5.89       7,548       100       5.27    
Held-to-maturity securities a
     29       1       11.02       30       1       6.24       39       1       7.21    
Trading account assets
     1,075       13       4.84       1,042       12       4.40       754       7       3.78    
Short-term investments
     1,165       9       3.18       1,226       13       3.94       853       11       5.22    
Other investments c
     1,552       12       3.05       1,589       12       3.02       1,400       13       3.65    
                   
Total earning assets
     89,912       1,345       6.01       86,210       1,487       6.86       80,203       1,389       6.99    
Allowance for loan losses
     (1,236 )                     (966 )                     (942 )                  
Accrued income and other assets
     14,680                       13,547                       12,835                    
 
Total assets
   $ 103,356                     $ 98,791                     $ 92,096                    
 
                                                                    
Liabilities
                                                                          
NOW and money market deposit accounts
   $ 26,996       139       2.07     $ 25,687       197       3.05     $ 23,424       177       3.06    
Savings deposits
     1,865       3       .62       1,523       1       .19       1,629       1       .19    
Certificates of deposit ($100,000 or more) d
     8,072       95       4.72       6,887       86       4.98       6,151       76       5.03    
Other time deposits
     12,759       146       4.59       11,455       135       4.68       12,063       138       4.64    
Deposits in foreign office
    5,853       45       3.13       5,720       64       4.42       3,258       41       5.12    
                   
Total interest-bearing deposits
     55,545       428       3.10       51,272       483       3.74       46,525       433       3.77    
Federal funds purchased and securities sold under repurchase agreements
    3,863       28       2.91       4,194       45       4.23       3,903       49       5.04    
Bank notes and other short-term borrowings
     4,934       39       3.22       4,233       45       4.15       1,113       11       3.98    
Long-term debt d,e
     13,238       146       4.71       11,851       164       5.72       13,617       196       5.90    
                   
Total interest-bearing liabilities
     77,580       641       3.36       71,550       737       4.11       65,158       689       4.29    
                   
Noninterest-bearing deposits
     10,741                       12,948                       13,237                    
Accrued expense and other liabilities
     6,590                       6,405                       6,083                    
 
Total liabilities
     94,911                       90,903                       84,478                    
 
                                                                          
Shareholders’ equity
     8,445                       7,888                       7,618                    
 
                                                                          
 
Total liabilities and shareholders’ equity
   $ 103,356                     $ 98,791                     $ 92,096                    
 
                                                                    
Interest rate spread (TE)
                     2.65 %                     2.75 %                     2.70 %
 
                                                                    
Net interest income (TE) and net interest margin (TE)
             704       3.14 %             750       3.48 %             700       3.50 %  
 
                                                                  
TE adjustment a
             (9 )                     40                       21            
 
Net interest income, GAAP basis
           $ 713                     $ 710                     $ 679            
 
                                                                    
 
 
(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 First Quarter 2008 Earnings
April 17, 2008
Page 16
Noninterest Income
(in millions)
                         
    Three months ended
    3-31-08     12-31-07     3-31-07  
 
Trust and investment services income a
   $  129     $ 131     $ 125  
Service charges on deposit accounts
     88       90       75  
Investment banking and capital markets income a
     8       12       44  
Operating lease income
     69       72       64  
Letter of credit and loan fees
     37       58       38  
Corporate-owned life insurance income
     28       37       25  
Electronic banking fees
     24       25       24  
Net (losses) gains from loan securitizations and sales
     (101 )     (6 )     9  
Net securities gains (losses)
     3       6       (47 )
Net gains from principal investing
     9       6       29  
Gain from redemption of Visa Inc. shares
     165       —       —  
Gain from sale of McDonald Investments branch network
     —       —       171  
Other income:
                        
Insurance income
     15       10       14  
Loan securitization servicing fees
     4       5       5  
Credit card fees
     4       3       3  
Litigation settlement — automobile residual value insurance
     —       —       26  
Miscellaneous income
     46       39       49  
 
Total other income
     69       57       97  
 
Total noninterest income
   $  528     $ 488     $ 654  
 
                  
 
(a)   Additional detail provided in tables below.
Trust and Investment Services Income
(in millions)
                         
    Three months ended
    3-31-08     12-31-07     3-31-07  
 
Brokerage commissions and fee income
   $   33     $   31     $   40  
Personal asset management and custody fees
     41       43       40  
Institutional asset management and custody fees
     55       57       45  
 
Total trust and investment services income
   $ 129     $ 131     $ 125  
 
                  
 
Investment Banking and Capital Markets Income
(in millions)
                         
    Three months ended
    3-31-08     12-31-07     3-31-07  
 
Investment banking income
   $   22     $   21     $ 21  
(Loss) income from other investments
     (6 )     (23 )     5  
Dealer trading and derivatives (loss) income
     (21 )     (1 )     8  
Foreign exchange income
     13       15       10  
 
Total investment banking and capital markets income
   $    8     $   12     $ 44  
 
                  
 

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 17
Noninterest Expense
(dollars in millions)
                         
    Three months ended
    3-31-08     12-31-07     3-31-07  
 
Personnel a
   $ 409     $ 399     $ 428  
Net occupancy
     66       64       63  
Computer processing
     47       52       51  
Operating lease expense
     58       59       52  
Professional fees
     23       38       26  
Equipment
     24       25       25  
Marketing
     14       16       19  
Other expense:
                        
Postage and delivery
     11       13       12  
Franchise and business taxes
     8       7       9  
Telecommunications
     8       7       7  
(Credit) provision for losses on lending-related commitments
     (27 )     25       (8 )
Liability to Visa Inc.
     —       64       —  
Miscellaneous expense
     91       127       100  
 
Total other expense
     91       243       120  
 
Total noninterest expense
   $ 732     $ 896     $ 784  
 
                  
 
                        
Average full-time equivalent employees
     18,426       18,500  b     19,801  b
 
(a)   Additional detail provided in table below.
 
(b)   The number of average full-time equivalent employees has not been adjusted for discontinued operations.
Personnel Expense
(in millions)
                         
    Three months ended
    3-31-08     12-31-07     3-31-07  
 
Salaries
   $ 239     $ 255     $ 245  
Incentive compensation
     74       52       75  
Employee benefits
     76       65       82  
Stock-based compensation
     14       3       24  
Severance
     6       24       2  
 
Total personnel expense
   $ 409     $ 399     $ 428  
 
                  
 

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 18
Loan Composition
(dollars in millions)
                                         
                            Percent change 3-31-08 vs.  
    3-31-08     12-31-07     3-31-07     12-31-07     3-31-07
 
Commercial, financial and agricultural
   $ 25,777     $ 24,797     $ 21,476       4.0 %   20.0 %
Commercial real estate:
                                        
Commercial mortgage
     10,479       9,630       8,519       8.8       23.0  
Construction
     8,473       8,102       8,355       4.6       1.4  
 
Total commercial real estate loans
     18,952       17,732       16,874       6.9       12.3  
Commercial lease financing
     10,000       10,176       10,036       (1.7 )     (.4 )
 
Total commercial loans
     54,729       52,705       48,386       3.8       13.1  
Real estate — residential mortgage
     1,954       1,594       1,440       22.6       35.7  
Home equity
    10,898       10,917       10,669       (.2 )     2.1  
Consumer — direct
     1,266       1,298       1,375       (2.5 )     (7.9 )
Consumer — indirect:
                                        
Marine
     3,653       3,637       3,203       .4       14.0  
Education a
     3,608       331       336       990.0       973.8  
Other
     336       341       302       (1.5 )     11.3  
 
Total consumer — indirect loans
     7,597       4,309       3,841       76.3       97.8  
 
Total consumer loans
     21,715       18,118       17,325       19.9       25.3  
 
Total loans
   $ 76,444     $ 70,823     $ 65,711       7.9 %   16.3 %
 
                                  
 
Loans Held for Sale Composition
(dollars in millions)
                                         
                            Percent change 3-31-08 vs.
    3-31-08     12-31-07     3-31-07     12-31-07     3-31-07
 
Commercial, financial and agricultural
   $ 291     $ 250     $ 68       16.4 %     327.9 %
Real estate — commercial mortgage
     1,139       1,219       1,224       (6.6 )     (6.9 )
Real estate — construction
     25       35       163       (28.6 )     (84.7 )
Commercial lease financing
     31       1       1       N/M       N/M  
Real estate — residential mortgage
     58       47       26       23.4       123.1  
Home equity
     1       1       —       —       N/M  
Education a
     123       3,176       2,681       (96.1 )     (95.4 )
Automobile
     6       7       12       (14.3 )     (50.0 )
 
Total loans held for sale
   $ 1,674     $ 4,736     $ 4,175       (64.7 )%     (59.9 )%
 
                                  
 
(a)   On March 31, 2008, Key transferred $3.3 billion of education loans from loans held for sale to the loan portfolio.
 
N/M   = Not Meaningful

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 19
Summary of Loan Loss Experience
(dollars in millions)
                           
    Three months ended
    3-31-08     12-31-07     3-31-07
 
Average loans outstanding from continuing operations
   $ 72,688     $ 69,717     $ 65,669  
 
                  
 
                        
Allowance for loan losses at beginning of period
   $ 1,200     $ 955     $ 944  
Loans charged off:
                        
Commercial, financial and agricultural
     50       48       17  
 
                        
Real estate — commercial mortgage
     4       3       6  
Real estate — construction
     25       44       1  
 
Total commercial real estate loans
     29       47       7  
Commercial lease financing
     15       18       13  
 
Total commercial loans
     94       113       37  
Real estate — residential mortgage
     4       3       1  
Home equity
     16       12       8  
Consumer — direct
     9       8       7  
Consumer — indirect
     25       16       11  
 
Total consumer loans
     54       39       27  
 
 
     148       152       64  
Recoveries:
                        
Commercial, financial and agricultural
     14       13       7  
 
                        
Real estate — commercial mortgage
     —       2       3  
Commercial lease financing
     6       12       3  
 
Total commercial loans
     20       27       13  
Home equity
     1       —       1  
Consumer — direct
     2       2       2  
Consumer — indirect
     4       4       4  
 
Total consumer loans
     7       6       7  
 
 
     27       33       20  
 
Net loan charge-offs
     (121 )     (119 )     (44 )
Provision for loan losses from continuing operations
     187       363       44  
Allowance related to loans acquired, net
     32       —       —  
Foreign currency translation adjustment
     —       1       —  
 
Allowance for loan losses at end of period
   $ 1,298     $ 1,200     $ 944  
 
                  
 
                        
Net loan charge-offs to average loans from continuing operations
     .67 %     .67 %     .27 %
Allowance for loan losses to period-end loans
     1.70       1.69       1.44  
Allowance for loan losses to nonperforming loans
     123.15       174.67       371.65  
 

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 20
Changes in Liability for Credit Losses on Lending-Related Commitments
(in millions)
                         
    Three months ended
    3-31-08     12-31-07     3-31-07  
 
Balance at beginning of period
   $ 80     $ 55     $ 53  
(Credit) provision for losses on lending- related commitments
     (27 )     25       (8 )
 
Balance at end of period a
   $  53     $ 80     $ 45  
 
                  
 
(a)   Included in “accrued expense and other liabilities” on the consolidated balance sheet.
Summary of Nonperforming Assets and Past Due Loans
(dollars in millions)
                                         
    3-31-08     12-31-07     9-30-07     6-30-07     3-31-07
 
Commercial, financial and agricultural
   $   147     $  84     $  94     $  83     $ 70  
 
                                        
Real estate — commercial mortgage
     113       41       41       41       44  
Real estate — construction
     610       415       228       23       10  
 
Total commercial real estate loans
     723       456       269       64       54  
Commercial lease financing
     38       28       30       34       31  
 
Total commercial loans
     908       568       393       181       155  
Real estate — residential mortgage
     34       28       29       27       32  
Home equity
     74       66       61       55       52  
Consumer — direct
     2       2       2       2       2  
Consumer — indirect
     36       23       13       11       13  
 
Total consumer loans
     146       119       105       95       99  
 
Total nonperforming loans
     1,054       687       498       276       254  
 
                                        
Nonperforming loans held for sale
     9       25       6       4       3  
 
                                        
OREO
     29       21       21       27       42  
Allowance for OREO losses
     (2 )     (2 )     (1 )     (2 )     (2 )
 
OREO, net of allowance
     27       19       20       25       40  
 
                                        
Other nonperforming assets a
     25       33       46       73       56  
 
Total nonperforming assets
   $ 1,115     $ 764     $ 570     $ 378     $ 353  
 
                              
 
                                        
Accruing loans past due 90 days or more
   $   283     $ 231     $ 190     $ 181     $ 146  
Accruing loans past due 30 through 89 days
     1,169       843       717       623       626  
Nonperforming loans to period-end portfolio loans
     1.38 %     .97 %     .72 %     .41 %     .39 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
     1.46       1.08       .83       .57       .54  
 
(a)   Primarily investments held by the Private Equity unit within Key’s Real Estate Capital and Corporate Banking Services line of business.
Summary of Changes in Nonperforming Loans
(in millions)
                                         
    1Q08     4Q07     3Q07     2Q07     1Q07  
 
Balance at beginning of period
   $   687     $ 498     $ 276     $ 254     $ 215  
Loans placed on nonaccrual status
     566       378       337       130       129  
Charge-offs
     (144 )     (147 )     (81 )     (72 )     (61 )
Loans sold
     —       (13 )     (6 )     (7 )     —  
Payments
     (22 )     (17 )     (13 )     (21 )     (7 )
Transfers to OREO
     (20 )     (5 )     (12 )     —       (9 )
Transfer to nonperforming loans held for sale
     (8 )     —       —       —       —  
Loans returned to accrual status
     (5 )     (7 )     (3 )     (8 )     (13 )
 
Balance at end of period
   $ 1,054     $ 687     $ 498     $ 276     $ 254  
 
                              
 

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 21
Line of Business Results
(dollars in millions)
Community Banking
                                                         
                                            Percent change 1Q08 vs.
    1Q08     4Q07     3Q07     2Q07     1Q07     4Q07     1Q07  
Summary of operations
                                                        
Total revenue (TE)
   $ 629     $ 652     $ 626     $ 629     $ 805       (3.5 )%     (21.9 )%
Provision for loan losses
     18       36       —       21       14       (50.0 )     28.6  
Noninterest expense
     430       438       415       446       466       (1.8 )     (7.7 )
Net income
     113       111       132       101       203       1.8       (44.3 )
Average loans and leases
     28,255       27,237       26,948       26,578       26,456       3.7       6.8  
Average deposits
     50,089       47,255       46,729       46,127       46,524       6.0       7.7  
Net loan charge-offs
     30       31       19       26       19       (3.2 )     57.9  
Return on average allocated equity
     15.15 %     17.43 %     20.88 %     16.41 %     33.36 %     N/A       N/A  
Average full-time equivalent employees
     8,779       8,515       8,683       9,080       9,529       3.1       (7.9 )
 
                                                        
Supplementary information (lines of business)
                                                        
Regional Banking
                                                        
Total revenue (TE)
   $ 530     $ 555     $ 532     $ 536     $ 713       (4.5 )%     (25.7 )%
Provision for loan losses
     11       25       8       22       16       (56.0 )     (31.3 )
Noninterest expense
     386       385       369       397       417       .3       (7.4 )
Net income
     83       90       97       73       175       (7.8 )     (52.6 )
Average loans and leases
     19,653       18,771       18,667       18,471       18,499       4.7       6.2  
Average deposits
     46,499       43,696       43,236       42,723       43,056       6.4       8.0  
Net loan charge-offs
     29       26       17       20       18       11.5       61.1  
Return on average allocated equity
     15.28 %     20.51 %     22.03 %     16.92 %     40.63 %     N/A       N/A  
Average full-time equivalent employees
     8,430       8,162       8,322       8,709       9,156       3.3       (7.9 )
 
                                                        
Commercial Banking
                                                        
Total revenue (TE)
   $ 99     $ 97     $ 94     $ 93     $ 92       2.1 %     7.6 %
Provision for loan losses
     7       11       (8 )     (1 )     (2 )     (36.4 )     N/M  
Noninterest expense
     44       53       46       49       49       (17.0 )     (10.2 )
Net income
     30       21       35       28       28       42.9       7.1  
Average loans and leases
     8,602       8,466       8,281       8,107       7,957       1.6       8.1  
Average deposits
     3,590       3,559       3,493       3,404       3,468       .9       3.5  
Net loan charge-offs
     1       5       2       6       1       (80.0 )     —  
Return on average allocated equity
     14.80 %     10.61 %     18.25 %     15.22 %     15.75 %     N/A       N/A  
Average full-time equivalent employees
     349       353       361       371       373       (1.1 )     (6.4 )
 

 

 

KeyCorp Reports First Quarter 2008 Earnings
April 17, 2008
Page 22
Line of Business Results (continued)
(dollars in millions)
National Banking
                                                         
                                            Percent change 1Q08 vs.
    1Q08     4Q07     3Q07     2Q07     1Q07     4Q07     1Q07  
 
Summary of operations
                                                        
Total revenue (TE)
   $ 441     $ 612     $ 509     $ 616     $ 599       (27.9 )%     (26.4 )%
Provision for loan losses
     169       327       69       32       30       (48.3 )     463.3  
Noninterest expense
     309       389       327       330       317       (20.6 )     (2.5 )
(Loss) income from continuing operations
     (23 )     (67 )     71       159       157       65.7       N/M  
Net (loss) income
     (23 )     (64 )     57       156       149       64.1       N/M  
Average loans and leases a
     44,021       42,037       40,276       39,322       38,839       4.7       13.3  
Average loans held for sale a
     4,932       4,709       4,692       4,377       3,917       4.7       25.9  
Average deposits a
     11,849       12,628       12,631       12,082       11,291       (6.2 )     4.9  
Net loan charge-offs a
     91       88       40       27       25       3.4       264.0  
Return on average allocated equity a
     (1.89 )%     (5.86 )%     6.54 %     14.86 %     15.22 %     N/A       N/A  
Return on average allocated equity
     (1.89 )     (5.59 )     5.25       14.58       14.44       N/A       N/A  
Average full-time equivalent employees
     3,727       3,945       3,791       3,768       4,157       (5.5 )     (10.3 )
 
                                                        
Supplementary information (lines of business)
                                                        
Real Estate Capital and Corporate Banking Services
                                                        
Total revenue (TE)
   $ 79     $ 159     $ 129     $ 214     $ 191       (50.3 )%     (58.6 )%
Provision for loan losses
     45       270       43       8       1       (83.3 )     N/M  
Noninterest expense
     61       117       88       91       85       (47.9 )     (28.2 )
Net (loss) income
     (17 )     (143 )     (1 )     72       66       88.1       N/M  
Average loans and leases
     16,358       15,003       14,160       13,713       13,636       9.0       20.0  
Average loans held for sale
     989       1,257       1,584       1,246       1,146       (21.3 )     (13.7 )
Average deposits
     9,749       10,396       10,243       9,446       8,538       (6.2 )     14.2  
Net loan charge-offs
     38       45       7       3       1       (15.6 )     N/M  
Return on average allocated equity
     (3.74 )%     (36.46 )%     (.27 )%     19.61 %     19.04 %     N/A       N/A  
Average full-time equivalent employees
     1,235       1,313       1,311       1,295       1,278       (5.9 )     (3.4 )
 
                                                        
Equipment Finance
                                                        
Total revenue (TE)
   $ 100     $ 185     $ 139     $ 153     $ 134       (45.9 )%     (25.4 )%
Provision for loan losses
     24       23       16       16       13       4.3       84.6  
Noninterest expense
     97       98       94       94       86       (1.0 )     12.8  
Net (loss) income
     (13 )     40       18       27       22       N/M       N/M  
Average loans and leases
     10,595       10,729       10,681       10,609       10,479       (1.2 )     1.1  
Average loans held for sale
     32       15       6       10       4       113.3       700.0  
Average deposits
     14       17       16       16       13       (17.6 )     7.7  
Net loan charge-offs
     24       18       16       16       13       33.3       84.6  
Return on average allocated equity
     (5.49 )%     16.55 %     7.59 %     11.72 %     9.75 %     N/A       N/A  
Average full-time equivalent employees
     872       930       906       901       891       (6.2 )     (2.1 )
 
                                                        
Institutional and Capital Markets
                                                        
Total revenue (TE)
   $ 158     $ 169     $ 155     $ 160     $ 158       (6.5 )%     —  
Provision for loan losses
     16       15       (2 )     —       —       6.7       N/M  
Noninterest expense
     102       115       104       101       102       (11.3 )     —  
Net income
     25       25       33       37       34       —       (26.5 )%
Average loans and leases
     7,631       7,216       6,713       6,563       6,550       5.8       16.5  
Average loans held for sale
     555       394       373       463       139       40.9       299.3  
Average deposits
     1,459       1,560       1,844       2,073       2,168       (6.5 )     (32.7 )
Net loan charge-offs
     2       6       6       —       1       (66.7 )     100.0  
Return on average allocated equity
     8.37 %     8.54 %     12.20 %     13.53 %     12.76 %     N/A       N/A  
Average full-time equivalent employees
     905       911       939       902       925       (.7 )     (2.2 )
 
                                                        
Consumer Finance
                                                        
Total revenue (TE)
   $ 104     $ 99     $ 86     $ 89     $ 116       5.1 %     (10.3 )%
Provision for loan losses
     84       19       12       8       16       342.1       425.0  
Noninterest expense
     49       59       41       44       44       (16.9 )     11.4  
(Loss) income from continuing operations
     (18 )     11       21       23       35       N/M       N/M  
Net (loss) income
     (18 )     14       7       20       27       N/M       N/M  
Average loans and leases a
     9,437       9,089       8,722       8,437       8,174       3.8       15.5  
Average loans held for sale a
     3,356       3,043       2,729       2,658       2,628       10.3       27.7  
Average deposits a
     627       655       528       547       572       (4.3 )     9.6  
Net loan charge-offs a
     27       19       11       8       10       42.1       170.0  
Return on average allocated equity a
     (7.87 )%     5.06 %     10.38 %     11.57 %     18.15 %     N/A       N/A  
Return on average allocated equity
     (7.87 )     6.44       3.46       10.07       14.00       N/A       N/A  
Average full-time equivalent employees
     715       791       635       670       1,063       (9.6 )     (32.7 )
 
(a)   From continuing operations.
 
TE   = Taxable Equivalent
 
N/A   = Not Applicable
 
N/M   = Not Meaningful