KeyBank 2008 Annual Report Download - page 30

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28
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
As shown in Figure 5, during the fourth quarter of 2008, Key recorded
an after-tax credit of $120 million, or $.24 per common share, in
connection with its opt-in to the IRS global tax settlement. As a result of
an adverse federal court decision regarding Key’s tax treatment of a
leveraged sale-leaseback transaction, Key recorded after-tax charges of
$30 million, or $.06 per common share, during the third quarter of 2008
and $1.011 billion, or $2.43 per common share, during the second
quarter of 2008. During the first quarter of 2008, Key increased its tax
reserves for certain lease in, lease out transactions and recalculated its lease
income in accordance with prescribed accounting standards, resulting in
after-tax charges of $38 million, or $.10 per common share.
Additionally, during the fourth quarter of 2008, Key recorded an
after-tax charge of $420 million, or $.85 per common share, as a
result of annual goodwill impairment testing. During the third
quarter of 2008, Key recorded an after-tax charge of $4 million, or $.01
per common share, as a result of goodwill impairment related to
management’s decision to limit new education loans to those backed by
government guarantee.
Strategic developments
Management initiated a number of specific actions during 2008 and 2007
to support Key’s corporate strategy, which is summarized on page 18.
• During the third quarter of 2008, Key decided to exit retail and
floor-plan lending for marine and recreational vehicle products, and
to limit new education loans to those backed by government
guarantee. Key also determined that it will cease lending to
homebuilders within its 14-state Community Banking footprint.
This came after Key began to reduce its business with nonrelationship
homebuilders outside that footprint in December 2007.
• 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 presence in the attractive Lower
Hudson Valley area.
• On December 20, 2007, Key announced its decision to exit dealer-
originated home improvement lending activities, which involve prime
loans but are largely out-of-footprint. Key also announced that it will
cease offering Payroll Online services since they are not of sufficient
size to provide economies of scale to compete profitably.
• On October 1, 2007, Key acquired Tuition Management Systems, Inc.,
one of the nation’s largest providers of outsourced tuition planning,
billing, counseling and payment services. Headquartered in Warwick,
Rhode Island, Tuition Management Systems serves more than 700
colleges, universities, and elementary and secondary educational
institutions. The combination of the payment plan systems and
technology in place at Tuition Management Systems, and the array of
payment plan products already offered by Key’s Consumer Finance
line of business created one of the largest education payment plan
providers in the nation.
• On February 9, 2007, McDonald Investments Inc., a wholly owned
subsidiary of KeyCorp, sold its branch network, which included
approximately 570 financial advisors and field support staff, and
certain fixed assets. Key retained the corporate and institutional
businesses, including Institutional Equities and Equity Research,
Debt Capital Markets and Investment Banking. In addition, KeyBank
continues to operate the Wealth Management, Trust and Private
Banking businesses. On April 16, 2007, Key renamed the registered
broker-dealer through which its corporate and institutional
investment banking and securities businesses operate to KeyBanc
Capital Markets Inc.
LINE OF BUSINESS RESULTS
This section summarizes the financial performance and related strategic
developments of Key’s two major business groups, Community Banking
and National Banking. To better understand this discussion, see Note 4
(“Line of Business Results”), which begins on page 88. Note 4 describes
the products and services offered by each of these business groups,
provides moredetailed financial information pertaining to the groups and
their respective lines of business, and explains “Other Segments” and
“Reconciling Items.”
Figure 6 summarizes the contribution made by each major business group
to Key’staxable-equivalent revenue and (loss) income from continuing
operations for each of the past three years.