KeyBank 2004 Annual Report Download - page 77

75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
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To Qualify as
To Meet Minimum Well Capitalized
Capital Adequacy Under Federal Deposit
Actual Requirements Insurance Act
dollars in millions Amount Ratio Amount Ratio Amount Ratio
December 31, 2004
TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS
Key $11,032 11.47% $7,692 8.00% N/A N/A
KBNA 10,244 10.96 7,467 8.00 $9,334 10.00%
TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS
Key $6,944 7.22% $3,846 4.00% N/A N/A
KBNA 6,294 6.74 3,734 4.00 $5,600 6.00%
TIER 1 CAPITAL TO AVERAGE ASSETS
Key $6,944 7.96% $2,617 3.00% N/A N/A
KBNA 6,294 7.56 3,327 4.00 $4,158 5.00%
December 31, 2003
TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS
Key $10,615 12.57% $6,756 8.00% N/A N/A
KBNA 8,412 11.28 5,964 8.00 $7,456 10.00%
Key Bank USA 987 11.75 672 8.00 841 10.00
TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS
Key $7,056 8.35% $3,378 4.00% N/A N/A
KBNA 5,324 7.14 2,982 4.00 $4,473 6.00%
Key Bank USA 850 10.11 336 4.00 504 6.00
TIER 1 CAPITAL TO AVERAGE ASSETS
Key $7,056 8.55% $2,475 3.00% N/A N/A
KBNA 5,324 7.27 2,930 4.00 $3,663 5.00%
Key Bank USA 850 8.52 399 4.00 499 5.00
N/A = Not Applicable
DEFERRED COMPENSATION OBLIGATION
Effective December 31, 2002, Key reclassified a $68 million obligation
relating to the portion of deferred compensation payable in KeyCorp
common shares from “other liabilities” to “capital surplus” in accordance
with EITF 97-14, “Accounting for Deferred Compensation Arrangements
Where Amounts Earned Are Held in a Rabbi Trust and Invested.” Key
did not reclassify its obligation in years prior to 2002 because it was
not material.
CAPITAL ADEQUACY
KeyCorp and KBNA must meet specific capital requirements imposed by
federal banking regulators. Sanctions for failure to meet applicable capital
requirements may include regulatory enforcement actions that restrict
dividend payments, require the adoption of remedial measures to increase
capital, terminate FDIC deposit insurance, and mandate the appointment
of a conservator or receiver in severe cases. In addition, failure to maintain
a well-capitalized status affects the evaluation of regulatory applications for
certain dealings, including acquisitions, continuation and expansion of
existing activities, and commencement of new activities, and could affect
the confidence of our clients and potential investors. As of December 31,
2004, KeyCorp and KBNA met all regulatory capital requirements.
Federal bank regulators apply certain capital ratios to assign FDIC-
insured depository institutions to one of five categories: “well
capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” and “critically undercapitalized.” At December 31,
2004 and 2003, the most recent regulatory notification classified KBNA
as “well capitalized.” Management believes there have not been any
changes in condition or events since that notification that would cause
KBNA’s classification to change.
Bank holding companies are not assigned to any of the five capital
categories applicable to insured depository institutions. However, if these
categories applied to bank holding companies, management believes Key
would satisfy the criteria for a “well capitalized” institution at December
31, 2004 and 2003. The FDIC-defined capital categories serve a limited
regulatory function and may not accurately represent the overall
financial condition or prospects of KeyCorp or its affiliates.
The following table presents Key’s, KBNA’s and Key Bank USA’s actual
capital amounts and ratios, minimum capital amounts and ratios
prescribed by regulatory guidelines, and capital amounts and ratios
required to qualify as “well capitalized” under the Federal Deposit
Insurance Act. The October 1, 2004, merger of Key Bank USA into
KBNA did not affect KBNA’s ability to remain “well-capitalized.”