KeyBank 2014 Annual Report Download

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Focused Forward
Delivering on Commitments
KeyCorp
|
2014 Annual Report

Table of contents

  • Page 1
    KeyCorp | 2014 Annual Report Focused Forward Delivering on Commitments

  • Page 2
    1 Letter to shareholders 2 Five-year financial highlights 6 Corporate governance 8 Investor connection 9 2014 Form 10-K

  • Page 3
    ... Securities and enhancements to our product offering. 2014 was a record year for investment banking and debt placement, with fees up 19% from the prior year. Cards and payments income also grew due to strength in credit and debit card sales as well as solid growth of purchase and prepaid commercial...

  • Page 4
    ... managing hedge fund investments for institutional customers. In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. In February 2013, we decided to sell Victory to a private equity...

  • Page 5
    ... businesses. Our plans include acquiring and expanding targeted client relationships, investing in our businesses, and becoming more efficient. 13 CONSECUTIVE QUARTERS of total average loan growth. 12 PERCENT increase in 2014 earnings per common share. 82 PERCENT of 2014 net income returned...

  • Page 6
    .... 2014 Total shareholder payout Dividends and share repurchases as a % of net income. * 100% Corporate responsibility At Key, our purpose is to help our clients and communities thrive. Through lending, investing, grants, volunteerism, and environmental stewardship, we balance mission and margin...

  • Page 7
    ... School District. CONSECUTIVE YEARS of recognition from DiversityInc, which sets the national benchmark for corporate diversity management and advocacy. What sets Key apart as a responsible bank and a responsible citizen is how we align our business strategies with community development. We have...

  • Page 8
    ...ve years. Retired Executive Vice President and Chief Administrative Officer Exelon Corporation KeyCorp Management Committee Beth E. Mooney Chairman and Chief Executive Officer Dennis A. Devine Co-President Key Community Bank 12 of13 DIRECTORS are independent. Amy G. Brady Chief Information Of...

  • Page 9
    ... of our strategies and in holding management accountable, both for the current year and long-term performance of our company. They are focused on and dedicated to ensuring we execute in a manner consistent with maximizing shareholder value. For more information on our strong corporate governance...

  • Page 10
    ... paper proxy card. Key's Investor Relations website, key.com/IR, provides quick access to useful information and shareholder services, including live webcasts of management's quarterly earnings discussions. Annual meeting of shareholders Thursday, May 21, 2015 • 8:30 a.m. One Cleveland Center 1375...

  • Page 11
    ... 2014, closing price of KeyCorp common shares of $14.33 as reported on the New York Stock Exchange). As of February 26, 2015, there were 855,324,689 common shares outstanding. Certain specifically designated portions of KeyCorp's definitive Proxy Statement for its 2015 Annual Meeting of Shareholders...

  • Page 12
    ... interest rate changes and manage interest rate risk; / deterioration of economic conditions in the geographic regions where we operate; / the soundness of other financial institutions; / our ability to attract and retain talented executives and employees and to manage our reputational risks; / our...

  • Page 13
    ... or circumstances. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our SEC filings, including this report on Form 10-K and our subsequent reports on Forms 10-Q and 8-K and our registration statements under the Securities Act of 1933, as...

  • Page 14
    ... Registered Public Accounting Firm ...Consolidated Financial Statements and Related Notes ...Consolidated Balance Sheets ...Consolidated Statements of Income ...Consolidated Statements of Comprehensive Income ...Consolidated Statements of Changes in Equity ...Consolidated Statements of Cash Flows...

  • Page 15
    ...banking services of accepting deposits and making loans, our bank and trust company subsidiaries offer personal, securities lending and custody services, personal financial services, access to mutual funds, treasury services, investment banking and capital markets products, and international banking...

  • Page 16
    ...equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance. Key Corporate Bank is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. Key Corporate...

  • Page 17
    ... for Determining Independence of Directors; our Policy for Review of Transactions Between KeyCorp and Its Directors, Executive Officers and Other Related Persons; and our Statement of Political Activity. Within the time period required by the SEC and the New York Stock Exchange, we will post on...

  • Page 18
    ...companies, commercial banks, savings associations, credit unions, mortgage banking companies, finance companies, mutual funds, insurance companies, investment management firms, investment banking firms, broker-dealers, and other local, regional, national, and global institutions that offer financial...

  • Page 19
    ... with Citizens Financial Group and PNC Bank (financial services institutions). Trina M. Evans (50) - Ms. Evans has been the Director of Corporate Center for KeyCorp since August 2012, partnering with Key's executive leadership team and Board of Directors to ensure alignment of strategy, objectives...

  • Page 20
    ...for national banks and federal savings associations; 2) the FDIC for non-member state banks and savings associations; 3) the Federal Reserve for member state banks; 4) the CFPB for consumer financial products or services; 5) the SEC and FINRA for securities broker/dealer activities; 6) the SEC, CFTC...

  • Page 21
    ... BHCs and national banks may be expected to maintain ratios well above the minimum levels, depending upon their particular condition, risk profile, or growth plans. As presented in Note 22 ("Shareholders' Equity"), at December 31, 2014, Key and KeyBank (consolidated) had regulatory capital in excess...

  • Page 22
    ... using organization-specific internal risk measures and management processes for calculating risk-based capital requirements as well as follow certain methodologies to calculate their total risk-weighted assets. Since neither KeyCorp nor KeyBank has at least $250 billion in total consolidated assets...

  • Page 23
    ...internationally active bank and nonbank financial companies (excluding KeyCorp) and a modified version of the LCR ("Modified LCR") for BHCs and other depository institution holding companies with over $50 billion in consolidated assets that are not internationally active (including KeyCorp). KeyBank...

  • Page 24
    ... be publicly released by the Federal Reserve. The Federal Reserve has announced that the results from the supervisory stress test and the 2015 CCAR will be released on March, 5, 2015, and March 11, 2015, respectively. KeyCorp and KeyBank must also conduct their own company-run stress tests to assess...

  • Page 25
    ... consolidated earnings, losses, and capital over a nine-quarter planning horizon, taking into account their current condition, risks, exposures, strategies, and activities. While KeyBank must only conduct an annual stress test, KeyCorp must conduct both an annual and a mid-cycle stress test. KeyCorp...

  • Page 26
    ... the company failed or experienced material financial distress. Insured depository institutions with at least $50 billion in total consolidated assets, like KeyBank, are also required to submit a resolution plan to the FDIC. These plans are due annually by December 31 of each year. For 2014, KeyCorp...

  • Page 27
    ... In January 2015, the Federal Reserve and FDIC made available on their websites the public sections of resolution plans for the companies, including KeyCorp and KeyBank, that submitted plans in December 2014. The public section of the joint resolution plan of KeyCorp and KeyBank is available at http...

  • Page 28
    ... the chief risk officer as well as the corporate governance requirements as they relate to liquidity risk management, including the requirements that apply to the board of directors, the risk committee, senior management, and the independent review function, and (iv) a 15-to-1 debt-to-equity limit...

  • Page 29
    ... total consolidated assets for the Federal Reserve's examination, supervision, and regulation of such companies. The OCC has changed its semi-annual assessment upon large national banks, like KeyBank, to reflect its Dodd-Frank Act authority to do so. ITEM 1A. RISK FACTORS As a financial services...

  • Page 30
    ... to make debt service payments on loans. A portion of our commercial real estate loans are construction loans. Typically these properties are not fully leased at loan origination; the borrower may require additional leasing through the life of the loan to provide cash flow to support debt service...

  • Page 31
    ... substantial and unpredictable ways. These changes may subject us to additional costs and increase our litigation risk should we fail to appropriately comply. Such changes may also limit the types of financial services and products we may offer, affect the investments we make, and change the manner...

  • Page 32
    ... secure processing, storage and transmission of personal and confidential information, such as the personal information of our customers and clients. These risks may increase in the future as we continue to increase mobile payments and other internet-based product offerings and expand our internal...

  • Page 33
    ...in 2013 related to how banks select, engage and manage their outside vendors may affect the circumstances and conditions under which we work with third parties and the cost of managing such relationships. We are subject to claims and litigation. From time to time, customers, vendors or other parties...

  • Page 34
    ... business relationships with certain customers. They could reduce our ability to invest in longer-term assets even if more desirable from a balance sheet management perspective. In addition, the Federal Reserve requires bank holding companies to obtain approval before making a "capital distribution...

  • Page 35
    ... under certain secured wholesale facilities, using relationships developed with a variety of fixed income investors, and further managing loan growth and investment opportunities. These alternative means of funding may not be available under stressed conditions. Our credit ratings affect our...

  • Page 36
    ... of the United States or other governments whose securities we hold; and / An increase in limitations on or the regulation of financial services companies like Key. We are subject to interest rate risk, which could adversely affect net interest income. Our earnings are largely dependent...

  • Page 37
    ... routinely execute transactions with such counterparties, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Financial services institutions are interrelated as a result of trading, clearing, counterparty or other relationships...

  • Page 38
    ..., mutual funds, insurance companies, investment management firms, investment banking firms, broker-dealers and other local, regional, national, and global financial services firms. In addition, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services...

  • Page 39
    ... estimating probable loan losses, measuring the fair value of financial instruments when reliable market prices are unavailable, estimating the effects of changing interest rates and other market measures on our financial condition and results of operations, managing risk, and for capital planning...

  • Page 40
    ... latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly...

  • Page 41
    ... in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements contained in Item 8 of this report, are incorporated herein by reference: Page(s) Discussion of our common shares, shareholder information and...

  • Page 42
    ITEM 6. SELECTED FINANCIAL DATA The information included under the caption "Selected Financial Data" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations beginning on page 32 is incorporated herein by reference. 31

  • Page 43
    ... expense Income taxes Line of Business Results Key Community Bank summary of operations Key Corporate Bank summary of operations Other Segments Financial Condition Loans and loans held for sale Securities Other investments Deposits and other sources of funds Capital Off-Balance Sheet Arrangements...

  • Page 44
    ...Key Corporate Bank segment. These activities encompass a variety of products and services. Among other things, we trade securities as a dealer, enter into derivative contracts (both to accommodate clients' financing needs and to mitigate certain risks), and conduct transactions in foreign currencies...

  • Page 45
    ...in managing hedge fund investments for institutional customers. In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. In February 2013, we decided to sell Victory to a private equity...

  • Page 46
    ..., keeping the federal funds target rate near zero, expanding its balance sheet further, and making significant changes to its communications. Janet Yellen replaced Ben Bernanke as the Federal Reserve Chairman in February 2014. The Federal Reserve started tapering the pace of asset purchases by $10...

  • Page 47
    ...and twelve months ended December 31, 2014. Figure 2. Evaluation of Our Long-Term Financial Goals KEY Business Model Balance sheet efficiency Moderate risk profile High quality, diverse revenue streams Positive operating leverage Execution of strategy Key Metrics (a) Loan-to-deposit ratio (b) NCOs to...

  • Page 48
    ...-opening tools to include more products and services. During the second quarter of 2014, we introduced the new KeyBank Hassle-Free Account for banking customers who want straightforward ways to make deposits, track money, obtain cash, and make payments without worrying about potential overdraft fees...

  • Page 49
    ...in managing hedge fund investments for institutional customers. In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. In February 2013, we decided to sell Victory to a private equity...

  • Page 50
    ...in 2013. Commercial, financial and agricultural loan growth of $2.7 billion from the prior year was broad-based across our commercial lines of business. Consumer loans remained relatively stable, as modest increases across our core consumer loan portfolio, primarily home equity loans and direct term...

  • Page 51
    ...Capital planning and stress testing" under "Supervision and Regulation" in Item 1 of this report. Figure 4 presents certain non-GAAP financial measures related to "tangible common equity," "return on tangible common equity," "Tier 1 common equity," "pre-provision net revenue," "cash efficiency ratio...

  • Page 52
    [THIS PAGE LEFT INTENTIONALLY BLANK.]

  • Page 53
    ...Other assets (e) Total Tier 1 capital (regulatory) Less: Qualifying capital securities Series B Preferred Stock Series A Preferred Stock (c) Total Tier 1 common equity (non-GAAP) Net risk-weighted assets (regulatory) Tier 1 common equity ratio (non-GAAP) Pre-provision net revenue Net interest income...

  • Page 54
    ... period-end purchased credit card receivables. (c) Net of capital surplus for the years ended December 31, 2014, and December 31, 2013. (d) Includes net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities), net gains or losses...

  • Page 55
    ...in 2013. Commercial, financial and agricultural loan growth of $2.7 billion from the prior year was broad-based across our commercial lines of business. Consumer loans remained relatively stable, as modest increases across our core consumer loan portfolio, primarily home equity loans and direct term...

  • Page 56
    [THIS PAGE LEFT INTENTIONALLY BLANK.]

  • Page 57
    ... money market deposit accounts Savings deposits Certificates of deposit ($100,000 or more) (f) Other time deposits Deposits in foreign office Total interest-bearing deposits Federal funds purchased and securities sold under repurchase agreements Bank notes and other short-term borrowings Long-term...

  • Page 58
    ...(e) Yield is calculated on the basis of amortized cost. (f) Rate calculation excludes basis adjustments related to fair value hedges. (g) A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying our matched funds transfer pricing...

  • Page 59
    ... account assets Short-term investments Other investments Total interest income (TE) INTEREST EXPENSE NOW and money market deposit accounts Certificates of deposit ($100,000 or more) Other time deposits Deposits in foreign office Total interest-bearing deposits Federal funds purchased and securities...

  • Page 60
    ... on deposit accounts Operating lease income and other leasing gains Corporate services income Cards and payments income Corporate-owned life insurance income Consumer mortgage income Mortgage servicing fees Net gains (losses) from principal investing Other income (a) Total noninterest income $ 2014...

  • Page 61
    ... Assets Under Management December 31, dollars in millions Assets under management by investment type: Equity Securities lending Fixed income Money market Total 2014 $ 21,393 4,835 10,023 2,906 39,157 2013 $20,971 3,422 9,767 2,745 $36,905 2012 $18,013 3,147 10,872 2,712 $34,744 Change 2014 vs. 2013...

  • Page 62
    ... fees Equipment Operating lease expense Marketing FDIC assessment Intangible asset amortization Provision (credit) for losses on lending-related commitments OREO expense, net Other expense Total noninterest expense Average full-time equivalent employees (a) Change 2014 vs. 2013 $ 2014 2013...

  • Page 63
    ...amortization for the core deposit and PCCR intangibles. Intangible asset amortization increased $21 million, or 91.3%, in 2013 compared to 2012 due to the 2012 acquisitions of the credit card portfolio and Western New York branches. Additional information regarding our intangible assets can be found...

  • Page 64
    ...calculated using the federal statutory tax rate, primarily because we generate income from investments in tax-advantaged assets, such as corporate-owned life insurance, earn credits associated with investments in low-income housing projects, and make periodic adjustments to our tax reserves. In 2014...

  • Page 65
    ...employee benefits. Nonpersonnel expense declined $39 million, primarily due to decreases in outside loan servicing fees, computer processing, intangible asset amortization, and other support costs. In 2013, Key Community Bank's net income attributable to Key increased $43 million from the prior year...

  • Page 66
    ... income AVERAGE DEPOSITS OUTSTANDING NOW and money market deposit accounts Savings deposits Certificates of deposits ($100,000 or more) Other time deposits Deposits in foreign office Noninterest-bearing deposits Total deposits HOME EQUITY LOANS Average balance Weighted-average loan-to-value ratio...

  • Page 67
    ...Net income (loss) attributable to Key AVERAGE BALANCES Loans and leases Loans held for sale Total assets Deposits Assets under management at year end 2014 $ 830 $ 800 1,630 (2) 848 784 285 499 2 497 $ 2013 785 $ 751 1,536 (3) 799 740 265 475 - 475 $ 2012 781 718 1,499 30 793 676 248 428 3 425 Change...

  • Page 68
    ... from the prior year. These improvements were partially offset by an increase in the provision for loan and lease losses of $10 million. In 2013, Other Segments' net income attributable to Key increased $16 million from the prior year. Taxableequivalent net interest income increased $68 million. The...

  • Page 69
    ... Total commercial loans CONSUMER Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other: Marine Other Total consumer other Total consumer loans Total loans (e), (f) $ $ Amount 27,982 8,047 1,100...

  • Page 70
    ... 31, 2014, and 2013. Figure 16. Commercial, Financial and Agricultural Loans December 31, 2014 dollars in millions Industry classification: Services Manufacturing Public utilities Financial services Wholesale trade Retail trade Mining Dealer floor plan Property management Transportation Building...

  • Page 71
    ... 17 includes commercial mortgage and construction loans in both Key Community Bank and Key Corporate Bank. As shown in Figure 17, this loan portfolio is diversified by both property type and geographic location of the underlying collateral. As presented in Figure 17, at December 31, 2014, our CRE...

  • Page 72
    ... National - Accounts in three or more regions During 2014, nonperforming loans related to our nonowner-occupied properties decreased by $2 million from $23 million at December 31, 2013, to $21 million at December 31, 2014, as a result of continued improvement in asset quality and market conditions...

  • Page 73
    ... to a level that is supported by cash flow available to service debt at current market terms and consistent with our customary underwriting standards. This note structure typically will include a debt coverage ratio of 1.2 or better of cash flow to monthly payments of market interest, and principal...

  • Page 74
    ... and guarantor financial statements are required at least annually within 90-120 days of the calendar/ fiscal year end. Income statements and rent rolls for project collateral are required quarterly. We may require certain information, such as liquidity, certifications, status of asset sales or debt...

  • Page 75
    ... mode since the fourth quarter of 2007, was originated from the Consumer Finance line of business and is now included in Other Segments. Home equity loans in Key Community Bank increased by $26 million, or .3%, over the past 12 months as a result of stabilized home values, improved employment, and...

  • Page 76
    ...our relationship banking strategy; our A/LM needs; the cost of alternative funding sources; the level of credit risk; capital requirements; and market conditions and pricing. Figure 20 summarizes our loan sales for 2014 and 2013. Figure 20. Loans Sold (Including Loans Held for Sale) Commercial $ 29...

  • Page 77
    ...recorded on the balance sheet. The table includes loans that have been sold. Figure 21. Loans Administered or Serviced December 31, in millions Commercial real estate loans Education loans (a) Commercial lease financing Commercial loans Total $ 2014 191,407 1,589 722 344 194,062 $ 2013 177,731 - 717...

  • Page 78
    ... favorable risk profiles. Throughout 2013 and 2014, our investing activities continued to complement other balance sheet developments and provide for our ongoing liquidity management needs. Our actions to not reinvest the monthly security cash flows at various times during this time period served...

  • Page 79
    ... marketable equity securities. (c) Weighted-average yields are calculated based on amortized cost. Such yields have been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%. (d) Excludes $22 million of securities at December 31, 2014, that have no stated yield...

  • Page 80
    ... to commercial client inflows as well as increases related to the commercial mortgage servicing business. This growth was partially offset by run-off in certificates of deposit. Wholesale funds, consisting of deposits in our foreign office and short-term borrowings, averaged $2.4 billion during 2014...

  • Page 81
    ... reported, our 2014 capital plan also proposed an increase in our quarterly common share dividend from $.055 to $.065 per share, which was approved by our Board of Directors in May 2014. Other changes to future dividends may be evaluated by the Board based upon our earnings, financial condition...

  • Page 82
    ... section entitled "Fourth Quarter Results" shows the market price ranges of our common shares, per common share earnings, and dividends paid by quarter for each of the last two years. Figure 27 compares the price performance of our common shares (based on an initial investment of $100 on December 31...

  • Page 83
    ... 1 of this report under the heading "Capital planning and stress testing," we are required to annually submit a capital plan to the Federal Reserve setting forth planned capital actions, including any share repurchases our Board of Directors and management intend to make during the year (subject to...

  • Page 84
    ... income for the year, or (ii) 10% of the amount of an institution's Tier 1 capital. At December 31, 2014, and December 31, 2013, we had no net deferred tax assets deducted from Tier 1 capital and risk-weighted assets. At December 31, 2014, for Key's consolidated operations, we had a federal net...

  • Page 85
    ...comprehensive income (a) Other assets (b) Total Tier 1 capital TIER 2 CAPITAL Allowance for losses on loans and liability for losses on lending-related commitments (c) Net unrealized gains on equity securities available for sale Qualifying long-term debt Total Tier 2 capital Total risk-based capital...

  • Page 86
    ... carried at cost. Investments held by our registered broker-dealer and investment company subsidiaries (primarily principal investments) are carried at fair value. Commitments to extend credit or funding Loan commitments provide for financing on predetermined terms as long as the client continues to...

  • Page 87
    ... of $100,000 or more Other time deposits Federal funds purchased and securities sold under repurchase agreements Bank notes and other short-term borrowings Long-term debt Noncancelable operating leases Liability for unrecognized tax benefits Purchase obligations: Banking and financial data services...

  • Page 88
    ... the entire company. The ERM Committee reports to the Board's Risk Committee. Annually, the Board reviews and approves the ERM Policy, as well as the risk appetite, including corporate risk tolerances for major risk categories. We use a risk-adjusted capital framework to manage risks. This framework...

  • Page 89
    ...interest rates. Trading market risk Key incurs market risk as a result of trading, investing, and client facilitation activities, principally within our investment banking and capital markets business. Key has exposures to a wide range of interest rates, equity prices, foreign exchange rates, credit...

  • Page 90
    ... to appropriate management. VaR and stressed VaR results are also provided to our regulators and utilized in regulatory capital calculations. We use a historical VaR model to measure the potential adverse effect of changes in interest rates, foreign exchange rates, equity prices, and credit spreads...

  • Page 91
    ... regularly review and enhance the modeling techniques, inputs and assumptions used. Our market risk policy includes the independent validation of our VaR model by Key's Risk Management Group on an annual basis. The Model Risk Management Committee oversees the Model Validation Program, and results of...

  • Page 92
    ... the balance sheet positioning that arises out of consumer preferences for loan and deposit products, economic conditions, the competitive environment within our markets, and changes in market interest rates that affect client activity and our hedging, investing, funding and capital positions...

  • Page 93
    ..., 2013. At December 31, 2014, our simulated exposure to changes in interest rates was moderately asset sensitive, and net interest income would benefit over time from either an increase in short-term or intermediate-term interest rates. Tolerance levels for risk management require the development of...

  • Page 94
    ... base simulation results presented in Figure 33. Net interest income is highly dependent on the timing, magnitude, frequency, and path of interest rate increases and the associated assumptions for deposit repricing relationships, lending spreads, and the balance behavior of transaction accounts. The...

  • Page 95
    ... Chief Risk Officer. The Asset Liability Management Policy provides the framework for the oversight and management of liquidity risk and is administered by the ALCO. The Market Risk Management group, as the second line of defense, provides additional oversight. Our current liquidity risk management...

  • Page 96
    ... funding sources. Our credit ratings at December 31, 2014, are shown in Figure 35. We believe these credit ratings, under normal conditions in the capital markets, will enable the parent company or KeyBank to issue fixed income securities to investors. Figure 35. Credit Ratings Short-Term Borrowings...

  • Page 97
    ...long-term liquidity strategy is to be predominantly funded by core deposits. However, we may use wholesale funds to sustain an adequate liquid asset portfolio, meet daily cash demands, and allow management flexibility to execute business initiatives. Key's client-based relationship strategy provides...

  • Page 98
    ...time to develop and execute a longer-term solution. From time to time, KeyCorp or KeyBank may seek to retire, repurchase or exchange outstanding debt, capital securities, preferred shares or common shares through cash purchase, privately negotiated transactions or other means. Additional information...

  • Page 99
    ... meet contractual payment or performance terms. Like other financial services institutions, we make loans, extend credit, purchase securities, and enter into financial derivative contracts, all of which have related credit risk. Credit policy, approval, and evaluation We manage credit risk exposure...

  • Page 100
    ... such as changes in economic conditions, lending policies including underwriting standards, and the level of credit risk associated with specific industries and markets. For all commercial and consumer loan TDRs, regardless of size, as well as impaired commercial loans with an outstanding balance of...

  • Page 101
    ...estate loans Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other: Marine Other Total consumer other Total consumer loans Total (a) $ $ Total...

  • Page 102
    ...dollars in millions Commercial, financial and agricultural Real estate - commercial mortgage Real estate - construction Commercial lease financing Total commercial loans Home equity - Key Community Bank Home equity - Other Credit cards Marine Other Total consumer loans Total net loan charge-offs Net...

  • Page 103
    ... mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other: Marine Other Total consumer other Total consumer loans Total recoveries Net loans charged off Provision (credit) for loan and lease losses Foreign currency...

  • Page 104
    ... commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other: Marine Other Total consumer other Total consumer loans Total nonperforming loans (c) Nonperforming loans held for sale...

  • Page 105
    ... lease financing portfolios; and (4) all remaining balances related to lease in, lease out; sale in, lease out; service contract leases; and qualified technological equipment leases. (b) December 31, 2013, balance includes loans in Key's consolidated education loan securitization trusts. (c) Credit...

  • Page 106
    ... the last four quarters and the years ended December 31, 2014, and 2013. Figure 43. Summary of Changes in Nonperforming Loans Held for Sale from Continuing Operations 2014 Quarters in millions Balance at beginning of period Net advances / (payments) Loans sold Valuation adjustments Balance at end of...

  • Page 107
    ...could adversely affect our financial condition or results of operations. Recent high-profile cyberattacks have targeted retailers and other businesses for the purpose of acquiring the confidential information (including personal, financial, and credit card information) of customers, some of whom are...

  • Page 108
    ..., benefiting from our business model. Trust and investment services income increased $14 million, mostly due to a full-quarter impact of the recently-acquired Pacific Crest Securities. Corporate services income also increased $13 million, driven by higher derivatives income and non-yield loan fees...

  • Page 109
    ...in managing hedge fund investments for institutional customers. In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. In February 2013, we decided to sell Victory to a private equity...

  • Page 110
    ... for period-to-period comparisons. (e) Represents period-end consolidated total loans and loans held for sale (excluding education loans in securitizations trusts for periods prior to September 30, 2014) divided by period-end consolidated total deposits (excluding deposits in foreign office). 97

  • Page 111
    ... gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities), net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans. 98

  • Page 112
    ... the use of judgment, assumptions and estimates to make a number of core decisions. We have reviewed these critical accounting estimates and related disclosures with the Audit Committee. Allowance for loan and lease losses The loan portfolio is the largest category of assets on our balance sheet. We...

  • Page 113
    ... Sale." Our principal investments include direct and indirect investments, predominantly in privately-held companies. The fair values of these investments are determined by considering a number of factors, including the target company's financial condition and results of operations, values of public...

  • Page 114
    ... are our two major business segments: Key Community Bank and Key Corporate Bank. Fair values are estimated using comparable external market data (market approach) and discounted cash flow modeling that incorporates an appropriate risk premium and earnings forecast information (income approach). We...

  • Page 115
    ..., 2014. It is not always clear how the Internal Revenue Code and various state tax laws apply to transactions that we undertake. In the normal course of business, we may record tax benefits and then have those benefits contested by the IRS or state tax authorities. We have provided tax reserves that...

  • Page 116
    ... to hedge our balance sheet asset and liability needs, and to accommodate our clients' trading and/or hedging needs. Our derivative mark-to-market exposures are calculated and reported on a daily basis. These exposures are largely covered by cash or highly marketable securities collateral with daily...

  • Page 117
    ... in developed countries with emerging market exposure essentially limited to commercial facilities; these exposures are actively monitored by management. We do not have at-risk exposures in the rest of the world. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information...

  • Page 118
    ... Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Note 2. Earnings Per Common Share Note 3. Restrictions on Cash, Dividends and Lending Activities Note 4. Loans and Loans Held for Sale Note 5. Asset...

  • Page 119
    ... 2014. Our independent registered public accounting firm has issued an attestation report, dated March 2, 2015, on our internal control over financial reporting, which is included in this annual report. Beth E. Mooney Chairman, Chief Executive Officer and President Donald R. Kimble Chief Financial...

  • Page 120
    ... of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of KeyCorp as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period...

  • Page 121
    ... sheets of KeyCorp as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2014. These financial statements are the responsibility of KeyCorp's management...

  • Page 122
    Consolidated Balance Sheets December 31, in millions, except per share data ASSETS Cash and due from banks Short-term investments Trading account assets Securities available for sale Held-to-maturity securities (fair value: $4,974 and $4,617) Other investments Loans, net of unearned income of $682 ...

  • Page 123
    ... Loans Loans held for sale Securities available for sale Held-to-maturity securities Trading account assets Short-term investments Other investments Total interest income INTEREST EXPENSE Deposits Federal funds purchased and securities sold under repurchase agreements Bank notes and other short-term...

  • Page 124
    ...for sale, net of income taxes of $35, ($173), and ($58) Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $2, ($17), and $12 Foreign currency translation adjustments, net of income taxes of ($8), ($3), and ($3) Net pension and postretirement benefit costs, net...

  • Page 125
    ... Cash dividends declared on Noncumulative Series A Preferred Stock ($7.75 per share) Common shares repurchased Common shares reissued (returned) for stock options and other employee benefit plans Net contribution from (distribution to) noncontrolling interests BALANCE AT DECEMBER 31, 2013 Net income...

  • Page 126
    ... Cash received (used) in acquisitions, net of cash acquired Proceeds from sale of residual interests Proceeds from sale of Victory Net decrease (increase) in short-term investments, excluding acquisitions Purchases of securities available for sale Proceeds from sales of securities available for sale...

  • Page 127
    ... of the nation's largest bank-based financial services companies, with consolidated total assets of $93.8 billion at December 31, 2014. We provide deposit, lending, cash management, and investment services to individuals and small and medium-sized businesses through our subsidiary, KeyBank. We also...

  • Page 128
    ... ("Line of Business Results"). Use of Estimates Our accounting policies conform to GAAP and prevailing practices within the financial services industry. We must make certain estimates and judgments when determining the amounts presented in our consolidated financial statements and the related notes...

  • Page 129
    .... Relationships with a number of equipment vendors give the asset management team insight into the life cycle of the leased equipment, pending product upgrades and competing products. In accordance with applicable accounting guidance for leases, residual values are reviewed at least annually to...

  • Page 130
    ...-off policy for most consumer loans takes effect when payments are 120 days past due. Home equity and residential mortgage loans generally are charged down to the fair value of the underlying collateral when payment is 180 days past due. Credit card loans and similar unsecured products continue...

  • Page 131
    ... of the individual impairment for commercial loans and TDRs by comparing the recorded investment of the loan with the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan's observable market price. Secured consumer loan balances of TDRs that are...

  • Page 132
    ...the best and most current information available on the measurement date. All inputs, whether observable or unobservable, are ranked in accordance with a prescribed fair value hierarchy that gives the highest ranking to quoted prices in active markets for identical assets or liabilities (Level 1) and...

  • Page 133
    ... as commercial loans that we purchase and hold but intend to sell in the near term. These assets are reported at fair value. Realized and unrealized gains and losses on trading account assets are reported in "other income" on the income statement. Securities Securities available for sale. Securities...

  • Page 134
    ... changes in the carrying value of investments as a result of changes in the related foreign exchange rates. The effective portion of a gain or loss on a net investment hedge is recorded as a component of AOCI on the balance sheet when the terms of the derivative match the notional and currency risk...

  • Page 135
    ... real estate loan servicing totaled $323 million at December 31, 2014, and $332 million at December 31, 2013, and are included in "accrued income and other assets" on the balance sheet. Servicing assets and liabilities purchased or retained initially are measured at fair value. When no ready market...

  • Page 136
    ... which the cost of net assets acquired in a business combination exceeds their fair value. Other intangible assets primarily are the net present value of future economic benefits to be derived from the purchase of credit card receivable assets and core deposits. Other intangible assets are amortized...

  • Page 137
    ... systems applications that support corporate and administrative operations. Software development costs, such as those related to program coding, testing, configuration, and installation, are capitalized and included in "accrued income and other assets" on the balance sheet. The resulting asset, net...

  • Page 138
    .... Shares issued under the discounted stock purchase plan are purchased on the open market. We estimate the fair value of options granted using the Black-Scholes option-pricing model, as further described in Note 15 ("Stock-Based Compensation"). Marketing Costs We expense all marketing-related costs...

  • Page 139
    ... a material effect on our financial condition or results of operations. We provide additional information regarding the presentation of our unrecognized tax benefits in Note 12 ("Income Taxes"). Investment companies. In June 2013, the FASB issued new accounting guidance that modifies the criteria...

  • Page 140
    ... our financial condition or results of operations. Stock-based compensation. In June 2014, the FASB issued new accounting guidance that clarifies how to account for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period...

  • Page 141
    ... creditor reclassification of residential real estate collateralized consumer mortgage loans by derecognizing the loan and recognizing the collateral asset. This accounting guidance will be effective for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us) and can...

  • Page 142
    ...in managing hedge fund investments for institutional customers. In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. In February 2013, we decided to sell Victory to a private equity...

  • Page 143
    .... At December 31, 2014, KeyCorp held $2.2 billion in short-term investments, which can be used to pay dividends to shareholders, service debt, and finance corporate operations. As indicated in the "Supervision and Regulation" section of Item 1 of this report under the heading "Bank transactions with...

  • Page 144
    ...: Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Total residential - prime loans Consumer other - Key Community Bank Credit cards Consumer other: Marine Other Total consumer other Total consumer loans Total loans (c) (d) $ $ 2014 27,982 8,047 1,100...

  • Page 145
    ... 31, in millions Direct financing lease receivables Unearned income Unguaranteed residual value Deferred fees and costs Net investment in direct financing leases $ 2014 3,009 (205) 220 18 3,042 $ 2013 3,176 (219) 231 21 3,209 $ $ At December 31, 2014, minimum future lease payments to be received...

  • Page 146
    ... from the purchased loans is accreted to interest income over the remaining term of the loans. At December 31, 2014, the outstanding unpaid principal balance and carrying value of all PCI loans was $20 million and $13 million, respectively. Changes in the accretable yield during 2014 included...

  • Page 147
    ... Commercial, financial and agricultural Commercial real estate: Commercial mortgage Construction Total commercial real estate loans Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards...

  • Page 148
    ... Commercial, financial and agricultural Commercial real estate: Commercial mortgage Construction Total commercial real estate loans Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards...

  • Page 149
    ...Commercial, financial and agricultural Commercial real estate: Real estate - commercial mortgage Total commercial real estate loans Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards...

  • Page 150
    ... Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other: Marine Other Total consumer other Total consumer loans Total prior-year accruing TDRs Total TDRs Number of loans...

  • Page 151
    ... the year ended December 31, 2014, there were no significant commercial loan TDRs, and 84 consumer loan TDRs with a combined recorded investment of $4 million that experienced payment defaults from modifications resulting in TDR status during 2013. During the year ended December 31, 2013, there...

  • Page 152
    ... real estate loans Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other: Marine Other Total consumer other Total consumer loans Total loans...

  • Page 153
    ..., and payment activity as of December 31, 2014, and December 31, 2013, are as follows: Commercial Credit Exposure Credit Risk Profile by Creditworthiness Category (a) December 31, in millions Commercial, financial and agricultural RATING (b), (c) AAA - AA A BBB - BB B CCC - C Total $ 2014 311...

  • Page 154
    ...120 days past due. Home equity and residential mortgage loans generally are charged down to the fair value of the underlying collateral when payment is 180 days past due. Credit card loans, and similar unsecured products, are charged off when payments are 180 days past due. At December 31, 2014, the...

  • Page 155
    ..., financial and agricultural Real estate - commercial mortgage Real estate - construction Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other...

  • Page 156
    ..., financial and agricultural Real estate - commercial mortgage Real estate - construction Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer other...

  • Page 157
    ... 31, 2014 in millions Commercial, financial and agricultural Commercial real estate: Commercial mortgage Construction Total commercial real estate loans Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans...

  • Page 158
    ... Commercial real estate: Commercial mortgage Construction Total commercial real estate loans Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity: Key Community Bank Other Total home equity loans Consumer other - Key Community Bank Credit cards Consumer...

  • Page 159
    ... securities. Level 1 instruments include exchange-traded equity securities. / Securities are classified as Level 2 if quoted prices for identical securities are not available, and fair value is determined using pricing models (either by a third-party pricing service or internally) or quoted prices...

  • Page 160
    ...reported trades, issuer spreads, benchmark securities, bids, offers, and reference data obtained from market research publications. Inputs used by the third-party pricing service in valuing CMOs and other mortgage-backed securities also include new issue data, monthly payment information, whole loan...

  • Page 161
    ... rates. Asset Management validates these inputs on a quarterly basis through the use of industry publications, third-party broker opinions, and comparable property sales, where applicable. Changes in the significant inputs (rental/leasing rates, vacancy rates, valuation capitalization rate, discount...

  • Page 162
    ... include investments in debt and equity instruments of both private and public companies. When quoted prices are available in an active market for the identical direct investment, we use the quoted prices in the valuation process, and the related investments are classified as Level 1 assets. However...

  • Page 163
    ... consisting of available market data, such as bond spreads and asset values, as well as unobservable internally derived assumptions, such as loss probabilities and internal risk ratings of customers. These derivatives are priced monthly by our Market Risk Management group using a credit valuation...

  • Page 164
    ... calculation, which includes transmitting customer exposures and reserve reports to trading management, derivative traders and marketers, derivatives middle office, and corporate accounting personnel. On a quarterly basis, Market Risk Management prepares the credit valuation adjustment calculation...

  • Page 165
    ...account securities Commercial loans Total trading account assets Securities available for sale: States and political subdivisions Collateralized mortgage obligations Other mortgage-backed securities Other securities Total securities available for sale Other investments: Principal investments: Direct...

  • Page 166
    ...account securities Commercial loans Total trading account assets Securities available for sale: States and political subdivisions Collateralized mortgage obligations Other mortgage-backed securities Other securities Total securities available for sale Other investments: Principal investments: Direct...

  • Page 167
    ...Earnings in millions Year ended December 31, 2014 Securities available for sale Other securities Other investments Principal investments Direct Indirect Equity and mezzanine investments Direct Indirect Derivative instruments (a) Interest rate Commodity Credit Beginning of Period Balance Purchases...

  • Page 168
    ... quarterly basis based on current borrower developments, market conditions, and collateral values. The following two internal methods are used to value impaired loans: / Cash flow analysis considers internally developed inputs, such as discount rates, default rates, costs of foreclosure, and changes...

  • Page 169
    ...related to these assets. The Managing Director of the KEF Capital Markets group reports to the President of the KEF line of business. A weekly report is distributed to both groups that lists all equipment finance deals booked in the warehouse portfolio. On a quarterly basis, the KEF Accounting group...

  • Page 170
    ... the current balance of the particular OREO asset. The fair value of OREO property is re-evaluated every 90 days and the OREO asset is adjusted as necessary. / Consumer Real Estate Valuation Process: The Asset Management team within our Risk Operations group is responsible for valuation policies and...

  • Page 171
    ... short-term investments (a) Trading account assets (b) Securities available for sale (b) Held-to-maturity securities (c) Other investments (b) Loans, net of allowance (d) Loans held for sale (b) Mortgage servicing assets (e) Derivative assets (b) LIABILITIES Deposits with no stated maturity (a) Time...

  • Page 172
    ... short-term investments (a) Trading account assets (b) Securities available for sale (b) Held-to-maturity securities (c) Other investments (b) Loans, net of allowance (d) Loans held for sale (b) Mortgage servicing assets (e) Derivative assets (b) LIABILITIES Deposits with no stated maturity (a) Time...

  • Page 173
    ...value of securities on the balance sheet as of the dates indicated. Accordingly, the amount of these gains and losses may change in the future as market conditions change. For more information about our securities available for sale and held-to-maturity securities and the related accounting policies...

  • Page 174
    ... losses related to 67 fixed-rate CMOs that we invested in as part of our overall A/LM strategy. These securities had a weighted-average maturity of 4.6 years at December 31, 2014. Since these securities have a fixed interest rate, their fair value is sensitive to movements in market interest rates...

  • Page 175
    ... for the year ended December 31, 2013. At December 31, 2014, securities available for sale and held-to-maturity securities totaling $7.8 billion were pledged to secure securities sold under repurchase agreements, to secure public and trust deposits, to facilitate access to secured funding, and for...

  • Page 176
    ... to meet contractual payment or performance terms; and / foreign exchange risk is the risk that an exchange rate will adversely affect the fair value of a financial instrument. Derivative assets and liabilities are recorded at fair value on the balance sheet, after taking into account the effects of...

  • Page 177
    ... fixed-rate lease cash flows and the floating-rate payments on the debt. These hedge relationships were terminated during the quarter ended March 31, 2014. We use foreign currency forward transactions to hedge the foreign currency exposure of our net investment in various foreign equipment finance...

  • Page 178
    ..."derivative assets" or "derivative liabilities" on the balance sheet. The effective portion of a change in the fair value of an instrument designated as a fair value hedge is recorded in earnings at the same time as a change in fair value of the hedged item, resulting in no effect on net income. The...

  • Page 179
    ...31, 2014, the maximum length of time over which we hedge forecasted transactions is 14 years. Net investment hedges. We enter into foreign currency forward contracts to hedge our exposure to changes in the carrying value of our investments as a result of changes in the related foreign exchange rates...

  • Page 180
    ...rate Interest rate Interest rate Net Investment Hedges Foreign exchange contracts Total (19) Interest income - Loans 20 Interest expense - Long-term debt - Investment banking and debt placement fees 9 $ 10 Other Income $ (3) 56 Other income - - The after-tax change in AOCI resulting from cash...

  • Page 181
    ... the form of cash and highly rated securities issued by the U.S. Treasury, government-sponsored enterprises, or GNMA. The cash collateral netted against derivative assets on the balance sheet totaled $518 million at December 31, 2014, and $308 million at December 31, 2013. The cash collateral netted...

  • Page 182
    ... rate Foreign exchange Commodity Credit Derivative assets before collateral Less: Related collateral Total derivative assets $ $ 2014 607 41 478 1 1,127 518 609 $ $ 2013 633 23 58 1 715 308 407 We enter into derivative transactions with two primary groups: broker-dealers and banks, and clients...

  • Page 183
    ... of two ways if the underlying reference entity experiences a predefined credit event. We may be required to pay the purchaser the difference between the par value and the market price of the debt obligation (cash settlement) or receive the specified referenced asset in exchange for payment of the...

  • Page 184
    ... have to make a payment under the credit derivative contracts. 2014 Average Term (Years) .72 2.89 - 2013 Average Term (Years) .77 5.03 - December 31, dollars in millions Single-name credit default swaps Other Total credit derivatives sold Notional Amount $ $ 5 6 11 Payment / Performance Risk .87...

  • Page 185
    ... regarding this acquisition. The fair value of mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted-average...

  • Page 186
    ... carrying amounts of the Key Community Bank and Key Corporate Bank units represent the average equity based on risk-weighted regulatory capital for goodwill impairment testing and management reporting purposes. Based on our quarterly review of impairment indicators during 2014 and 2013, it was not...

  • Page 187
    ... 3, 2014, intangible assets were recognized at their acquisition date fair value of $13 million. These intangible assets are being amortized on a straight line basis over an average useful life of five years. As a result of the Western New York branches acquisition on July 13, 2012, a core deposit...

  • Page 188
    ..., 2014. These investments are recorded in "accrued income and other assets" on the balance sheet and serve as collateral for the guaranteed funds' limited obligations. We have not formed new guaranteed funds or added LIHTC partnerships since October 2003. However, we continue to act as asset manager...

  • Page 189
    ...October 2003. LIHTC investments. Through Key Community Bank, we have made investments directly in LIHTC operating partnerships formed by third parties. As a limited partner in these operating partnerships, we are allocated tax credits and deductions associated with the underlying properties. We have...

  • Page 190
    ... statement are summarized below. We file a consolidated federal income tax return. Year ended December 31, in millions Currently payable: Federal State Total currently payable Deferred: Federal State Total deferred Total income tax (benefit) expense (a) $ $ 2014 288 33 321 16 (11) 5 326 $ $ 2013...

  • Page 191
    ... investments Foreign tax adjustments Reduced tax rate on lease financing income Tax-exempt interest income Corporate-owned life insurance income Interest refund (net of federal tax benefit) State income tax, net of federal tax benefit Tax credits Other Total income tax expense (benefit) $ 2014...

  • Page 192
    ...On June 24, 2013, in the first of multiple closings, we acquired substantially all third-party commercial loan servicing rights consisting of CMBS Master, Primary, and Special Servicing as well as other servicing from Bank of America's Global Mortgages & Securitized Products business. Simultaneously...

  • Page 193
    ... assets and liabilities of our education lending business included on the balance sheet are as follows: December 31, in millions Held-to-maturity securities Trust loans at fair value Portfolio loans at fair value Loans, net of unearned income (a) Less: Allowance for loan and lease losses Net loans...

  • Page 194
    .... On June 27, 2014, we purchased the private loans from one of the education loan securitization trusts through the execution of a clean-up call option. The trust used the cash proceeds from the sale of these loans to retire the outstanding securities related to these private loans, and there are no...

  • Page 195
    ... loans and asset-backed securities and were developed by the consultant using market-based data. On a quarterly basis, the Working Group reviewed the discount rate inputs used in the valuation process for reasonableness. A quarterly variance analysis reconciles valuation changes in the model used...

  • Page 196
    ... trust loans and securities and the portfolio loans accounted for at fair value as of December 31, 2014, and December 31, 2013: December 31, 2014 dollars in millions Portfolio loans accounted for at fair value Fair Value of Level 3 Assets and Liabilities $ 191 Valuation Technique Discounted cash...

  • Page 197
    ...3 for the year ended December 31, 2013. There were no issuances or transfers into Level 3 for the year ended December 31, 2014. Victory Capital Management and Victory Capital Advisors. On July 31, 2013, we completed the sale of Victory to a private equity fund. As a result of this sale, we recorded...

  • Page 198
    ...Income taxes Income (loss) from discontinued operations, net of taxes $ $ 2014 12 10 1 21 8 13 $ $ 2013 - 212 66 146 54 92 $ $ 2012 - 111 89 22 8 14 The discontinued assets and liabilities of Victory included on the balance sheet are as follows: December 31, in millions Seller note (a) Total assets...

  • Page 199
    ... 3 for the year ended December 31, 2014. Austin Capital Management, Ltd. In April 2009, we decided to wind down the operations of Austin, a subsidiary that specialized in managing hedge fund investments for institutional customers. As a result, we have accounted for this business as a discontinued...

  • Page 200
    ... are included in "Short-term investments" on the balance sheet; reverse repurchase agreements are included in "Federal funds purchased and securities sold under repurchase agreements." During the third quarter of 2014, our broker-dealer subsidiary, KeyBanc Capital Markets, Inc. ("KBCM"), moved...

  • Page 201
    ... securities financing agreements at December 31, 2014, and December 31, 2013: December 31, 2014 Gross Amount Presented in Balance Sheet $ - $ 3 $ 3 Netting Adjustments $ (1) - (1) Net Amounts - - - in millions Offsetting of financial assets: Reverse repurchase agreements Securities borrowed Total...

  • Page 202
    ... table. Year ended December 31, Average option life Future dividend yield Historical share price volatility Weighted-average risk-free interest rate 2014 6.2 years 1.70 % .497 1.9 % 2013 6.3 years 2.14 % .495 1.1 % 2012 6.3 years 1.50 % .489 1.2 % Under KeyCorp's 2013 Equity Compensation Plan, the...

  • Page 203
    ...-Term Incentive Compensation Program (the "Program") rewards senior executives critical to our longterm financial success. Awards are granted annually in a variety of forms: / / / / deferred cash payments that generally vest and are payable at the rate of 25% per year; time-lapsed (service condition...

  • Page 204
    ... pay any stock-based liabilities during 2014, 2013, or 2012. The following table summarizes activity and pricing information for the nonvested shares in our deferred compensation plans for the year ended December 31, 2014. Number of Nonvested Shares Outstanding at December 31, 2013 Granted Dividend...

  • Page 205
    ... common shares at a 10% discount through payroll deductions or cash payments. Purchases are limited to $10,000 in any month and $50,000 in any calendar year, and are immediately vested. To accommodate employee purchases, we either issue treasury shares or acquire common shares on the open market on...

  • Page 206
    ... presented in the following tables is based on current actuarial reports using measurement dates of December 31, 2014, and December 31, 2013. The following table summarizes changes in the PBO related to our pension plans. Year ended December 31, in millions PBO at beginning of year Interest cost...

  • Page 207
    ... to the smaller settlement loss in 2014. We determine the expected return on plan assets using a calculated market-related value of plan assets that smoothes what might otherwise be significant year-to-year volatility in net pension cost. Changes in the value of plan assets are not recognized in the...

  • Page 208
    ... by the pension funds' investment policies based on the plan's funded status at December 31, 2014. Asset Class Equity securities: U.S. International Fixed income securities Convertible securities Real assets Other assets Total Target Allocation 2014 20 % 16 40 5 13 6 100 % Equity securities include...

  • Page 209
    ... Fixed income - U.S. Fixed income - International Collective investment funds: U.S. equity International equity Convertible securities Fixed income securities Short-term investments Real assets Insurance investment contracts and pooled separate accounts Other assets Total net assets at fair value...

  • Page 210
    ...- U.S. Fixed Income - International Collective investment funds: U.S. equity International equity Convertible securities Fixed income securities Short-term investments Emerging markets Real assets Insurance investment contracts and pooled separate accounts Other assets Total net assets at fair value...

  • Page 211
    ...benefit plans presented in the following tables is based on current actuarial reports using measurement dates of December 31, 2014, and December 31, 2013. The following table summarizes changes in the APBO. Year ended December 31, in millions APBO at beginning of year Service cost Interest cost Plan...

  • Page 212
    ... benefit cost, we assumed the following weighted-average rates. Year ended December 31, Discount rate Expected return on plan assets 2014 4.50% 5.25 2013 3.50% 5.25 2012 4.00% 5.58 The realized net investment income for the postretirement healthcare plan VEBA trust is subject to federal income...

  • Page 213
    ..., 2014, and December 31, 2013. December 31, 2014 in millions ASSET CLASS Mutual funds: U.S. equity International equity U.S. fixed income International fixed income Common investment funds: U.S. equity International equity Convertible securities Short-term investments Total net assets at fair value...

  • Page 214
    ...in 2013, and $77 million in 2012. 17. Short-Term Borrowings Selected financial information pertaining to the components of our short-term borrowings is as follows: December 31, dollars in millions FEDERAL FUNDS PURCHASED Balance at year end Average during the year Maximum month-end balance Weighted...

  • Page 215
    ... Reserve Bank of Cleveland and $3.5 billion at the Federal Home Loan Bank of Cincinnati. 18. Long-Term Debt The following table presents the components of our long-term debt, net of unamortized discounts and adjustments related to hedging with derivative financial instruments. We use interest rate...

  • Page 216
    ... Global Bank Note Program. KeyCorp shelf registration, including Medium-Term Note Program. KeyCorp has a shelf registration statement on file with the SEC under rules that allow companies to register various types of debt and equity securities without limitations on the aggregate amounts available...

  • Page 217
    ... 31, 2014, and $44 million at December 31, 2013. See Note 8 for an explanation of fair value hedges. The principal amount of debentures, net of discounts, is included in "long-term debt" on the balance sheet. (c) The interest rates for the trust preferred securities issued by KeyCorp Capital II and...

  • Page 218
    ... without resulting in a loan, our aggregate outstanding commitments may significantly exceed our eventual cash outlay. Loan commitments involve credit risk not reflected on our balance sheet. We mitigate exposure to credit risk with internal controls that guide how we review and approve applications...

  • Page 219
    ... financial liability, based on information presently known to us, we do not believe there is any other matter to which we are a party, or involving any of our properties that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on our financial condition...

  • Page 220
    ... formed by KAHC invested in low-income residential rental properties that qualify for federal low-income housing tax credits under Section 42 of the Internal Revenue Code. In certain partnerships, investors paid a fee to KAHC for a guaranteed return that is based on the financial performance...

  • Page 221
    ... 31, 2014, our written put options had an average life of 2.1 years. These instruments are considered to be guarantees, as we are required to make payments to the counterparty (the client) based on changes in an underlying variable that is related to an asset, a liability, or an equity security that...

  • Page 222
    ... Our changes in AOCI for the years ended December 31, 2014, and December 31, 2013, are as follows: Unrealized gains (losses) on available for sale securities $ 229 (291) Unrealized gains (losses) on derivative financial instruments $ 18 6 Foreign currency translation adjustment $ 55 (9) Net pension...

  • Page 223
    ... operations Foreign currency translation adjustment $ 7 7 3 $ Net pension and postretirement benefit costs Amortization of losses Settlement loss Amortization of prior service credit 4 $ (19) (27) 1 (45) (17) $ (28) 22. Shareholders' Equity Comprehensive Capital Plan As previously reported and...

  • Page 224
    ... market risk) and leverage ratio requirements as shown in the following table. Actual dollars in millions December 31, 2014 TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS Key KeyBank (consolidated) TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS Key KeyBank (consolidated) TIER 1 CAPITAL TO AVERAGE QUARTERLY...

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    ... 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. On April 8, 2014, we announced a new leadership structure for Key Community Bank...

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    ... Accounting Policies") under the heading "Allowance for Loan and Lease Losses." / Income taxes are allocated based on the statutory federal income tax rate of 35% and a blended state income tax rate (net of the federal income tax benefit) of 2.2%. / Capital is assigned to each line of business...

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    ... BALANCES (b) Loans and leases Total assets (a) Deposits OTHER FINANCIAL DATA Expenditures for additions to long-lived assets (a), (b) Net loan charge-offs (b) Return on average allocated equity (b) Return on average allocated equity Average full-time equivalent employees (c) $ $ Key Community Bank...

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    ...167 (41) 208 - 208 4 204 $ $ 2014 2,312 1,806 4,118 58 108 2,595 1,357 393 964 - 964 7 957 Total Segments 2013 $ 2,347 1,768 4,115 128 119 2,617 ...152) (4) (48) 44 23 67 - 67 $ $ 2014 2,317 1,797 4,114 59 260 2,499 1,296 350 946 (39) 907 7 900 $ $ Key 2013 2,348 1,766 4,114 130 260 2,560 1,164 294 ...

  • Page 229
    24. Condensed Financial Information of the Parent Company CONDENSED BALANCE SHEETS December 31, in millions ASSETS Cash and due from banks Short-term investments Securities available for sale Other investments Loans to: Banks Nonbank subsidiaries Total loans Investment in subsidiaries: Banks Nonbank...

  • Page 230
    ...ACTIVITIES Net (increase) decrease in short-term investments Purchases of securities available for sale Cash used in acquisitions Proceeds from sales, prepayments and maturities of securities available for sale Net (increase) decrease in loans to subsidiaries NET CASH PROVIDED BY (USED IN) INVESTING...

  • Page 231
    ...KeyCorp in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to KeyCorp's management, including its Chief Executive Officer...

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    ...OFFICERS AND CORPORATE GOVERNANCE The names of our executive officers, and biographical information for each, is set forth in Item 1. Business, of this report. The other information required by this item will be set forth in the following sections of KeyCorp's Definitive Proxy Statement for the 2015...

  • Page 233
    ... are filed as part of this report under Item 8. Financial Statements and Supplementary Data: Page Report of Independent Registered Public Accounting Firm Consolidated Financial Statements Consolidated Balance Sheets at December 31, 2014, and 2013 Consolidated Statements of Income for the Years Ended...

  • Page 234
    ...13, 2014), filed as Appendix A to Schedule 14A filed on March 29, 2013. * KeyCorp Deferred Savings Plan (effective January 1, 2015). KeyCorp Deferred Equity Allocation Plan (effective May 22, 2003). Computation of Consolidated Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends...

  • Page 235
    ... by reference are filed with this report. Shareholders may obtain a copy of any exhibit, upon payment of reproduction costs, by writing KeyCorp Investor Relations, 127 Public Square, Mail Code OH-0127-0737, Cleveland, OH 44114-1306. KeyCorp hereby agrees to furnish the SEC upon request, copies...

  • Page 236
    ... Financial Officer (Principal Financial Officer) March 2, 2015 /s/ Robert L. Morris Robert L. Morris Chief Accounting Officer (Principal Accounting Officer) March 2, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

  • Page 237
    ... 12 KEYCORP COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (dollars in millions) (unaudited) 2014 Year ended December 31, 2013 2012 2011 2010 (a) Computation of Earnings Net income (loss) attributable to Key Add: Provision for income taxes...

  • Page 238
    ... SUBSIDIARIES OF THE REGISTRANT AT DECEMBER 31, 2014 Jurisdiction of Incorporation or Organization United States Subsidiaries (a) KeyBank National Association Parent Company KeyCorp (a) Subsidiaries of KeyCorp other than KeyBank National Association are not listed above since, in the aggregate...

  • Page 239
    ... 2, 2015, with respect to the consolidated financial statements of KeyCorp and the effectiveness of internal control over financial reporting of KeyCorp included in this Annual Report (Form 10-K) of KeyCorp for the year ended December 31, 2014. /s/ Ernst & Young LLP Cleveland, Ohio March 2, 2015

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    ... and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b) Date: March 2, 2015 Beth E. Mooney Chairman, Chief Executive Officer and President

  • Page 242
    ..., process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b) Date: March 2, 2015 Donald R. Kimble Chief Financial Officer

  • Page 243
    ... of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 2, 2015 Beth E. Mooney Chairman, Chief Executive Officer and President A signed original...

  • Page 244
    ...the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: March 2, 2015 Donald R. Kimble Chief Financial Officer A signed original of this written statement...

  • Page 245

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    ... small to mid-sized businesses through a footprint of approximately 1,000 branches, more than 1,200 ATMs, a telephone banking center, and robust online and mobile capabilities. Our strategy: Key grows by building enduring relationships through client-focused solutions and great service. Our values...

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    KeyCorp 127 Public Square Cleveland, OH 44114-1306 key.com Twitter: @KeyBank @KeyBank_News @KeyBank_Help @Key4Women Facebook: facebook.com/KeyBank facebook.com/Key4Women ©2015 KeyCorp KeyBank is Member FDIC ADP1361 001CSN1AD5 Form No. 77-7700KC