KeyBank 2007 Annual Report Download - page 40

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
Among the factors that Key considers in determining which loans to sell
or securitize are:
• whether particular lending businesses meet established performance
standards or fit with Key’s relationship banking strategy;
• Key’s asset/liability management needs;
• whether the characteristics of a specific loan portfolio make it
conducive to securitization;
• the cost of alternative funding sources;
• the level of credit risk;
• capital requirements; and
• market conditions and pricing.
Figure 19 summarizes Key’s loan sales (including securitizations) for 2007
and 2006.
Commercial Commercial Residential Home Consumer
in millions Commercial Real Estate Lease Financing Real Estate Equity — Indirect Education Total
2007
Fourth quarter $ 38 $ 965 $130 $118 — — $ 24 $1,275
Third quarter 17 1,059 35 127 — — 44 1,282
Second quarter 36 1,079 98 118 — — 118 1,449
First quarter 15 688 5 100 $233 $90 61 1,192
Total $106 $3,791 $268 $463 $233 $90 $247 $5,198
2006
Fourth quarter $ 80 $1,070 $ 13 $100 $2,474 — $ 983 $4,720
Third quarter 37 679 16 109 2 — 143 986
Second quarter 64 483 — 97 — — 110 754
First quarter 40 406 105 54 — — 172 777
Total $221 $2,638 $134 $360 $2,476 — $1,408 $7,237
FIGURE 19. LOANS SOLD (INCLUDING LOANS HELD FOR SALE)
Figure 20 shows loans that are either administered or serviced by Key, but not recorded on the balance sheet. The table includes loans that have been
both securitized and sold, or simply sold outright.
December 31,
in millions 2007 2006 2005 2004 2003
Commercial real estate loans
a
$134,982 $ 93,611 $72,902 $33,252 $25,376
Education loans 4,722 5,475 5,083 4,916 4,610
Home equity loans
b
—2,360 59 130 215
Commercial lease financing 790 479 354 188 120
Commercial loans 229 268 242 210 167
Total $140,723 $102,193 $78,640 $38,696 $30,488
a
During 2007 and 2006, Key acquired the servicing for commercial mortgage loan portfolios with aggregate principal balances of $45.5 billion and $16.4 billion, respectively. During 2005, the
acquisitions of Malone Mortgage Company and the commercial mortgage-backed securities servicing business of ORIX Capital Markets, LLC added more than $28 billion to Key’s commercial
mortgage servicing portfolio.
b
In November 2006, Key sold the $2.5 billion subprime mortgage loan portfolio held by the Champion Mortgage finance business but continued to provide servicing through various dates
in March 2007.
FIGURE 20. LOANS ADMINISTERED OR SERVICED
In the event of default by a borrower, Key is subject to recourse with
respect to approximately $575 million of the $140.7 billion of loans
administered or serviced at December 31, 2007. Additional information
about this recourse arrangement is included in Note 18 (“Commitments,
Contingent Liabilities and Guarantees”) under the heading “Recourse
agreement with Federal National Mortgage Association” on page 98.
Key derives income from several sources when retaining the right to
administer or service loans that are securitized or sold. Key earns
noninterest income (recorded as “other income”) from fees for servicing
or administering loans. This fee income is reduced by the amortization
of related servicing assets. In addition, Key earns interest income from
securitized assets retained and from investing funds generated by escrow
deposits collected in connection with the servicing of commercial real
estate loans. These deposits have contributed to the growth in Key’s
average deposits over the past twelve months, thereby moderating
Key’s overall cost of funds.