KeyBank 2008 Annual Report Download - page 36

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
FIGURE 9. AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES FROM CONTINUING OPERATIONS
Year ended December 31, 2008 2007 2006
Average Yield/ Average Yield/ Average Yield/
dollars in millions Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Loans
(a),(b)
Commercial, financial and agricultural
(d)
$ 26,372 $1,446 5.48% $22,415 $1,622 7.23% $21,679 $1,547 7.13%
Real estate — commercial mortgage 10,576 640 6.05 8,802 675 7.67 8,167 628 7.68
Real estate — construction 8,109 461 5.68 8,237 653 7.93 7,802 635 8.14
Commercial lease financing
(d)
9,642 (425) (4.41)
(c)
10,154 606 5.97 9,773 595 6.08
Total commercial loans 54,699 2,122 3.88 49,608 3,556 7.17 47,421 3,405 7.18
Real estate — residential 1,909 117 6.11 1,525 101 6.64 1,430 93 6.49
Home equity:
Community Banking 9,846 564 5.73 9,671 686 7.09 10,046 703 7.00
National Banking 1,171 90 7.67 1,144 89 7.84 925 72 7.77
Total home equity loans 11,017 654 5.93 10,815 775 7.17 10,971 775 7.07
Consumer other — Community Banking 1,275 130 10.22 1,367 144 10.53 1,639 152 9.26
Consumer other — National Banking:
Marine 3,586 226 6.30 3,390 214 6.30 2,896 178 6.16
Education 2,818 170 6.05 333 32 9.54 354 33 9.31
Other 315 26 8.25 319 28 8.93 285 27 9.33
Total consumer other — National Banking 6,719 422 6.29 4,042 274 6.77 3,535 238 6.73
Total consumer loans 20,920 1,323 6.33 17,749 1,294 7.29 17,575 1,258 7.16
Total loans 75,619 3,445 4.56 67,357 4,850 7.20 64,996 4,663 7.17
Loans held for sale 2,385 146 6.11 4,461 337 7.57 4,168 325 7.80
Securities available for sale
(a),(e)
8,317 442 5.36 7,757 427 5.52 7,302 347 4.71
Held-to-maturity securities
(a)
27 4 11.73 36 2 6.68 47 3 7.43
Trading account assets 1,279 56 4.38 917 38 4.10 857 30 3.51
Short-term investments 1,615 31 1.96 846 37 4.34 791 33 4.15
Other investments
(e)
1,563 51 3.02 1,524 52 3.33 1,362 82 5.78
Total earning assets 90,805 4,175 4.59 82,898 5,743 6.84 79,523 5,483 6.88
Allowance for loan losses (1,438) (948) (952)
Accrued income and other assets 15,023 12,934 13,131
Total assets $104,390 $94,884 $91,702
LIABILITIES AND SHAREHOLDERS’ EQUITY
NOW and money market deposit accounts $ 26,429 427 1.62 $24,070 762 3.17 $25,044 710 2.84
Savings deposits 1,796 6 .32 1,591 3 .19 1,728 4 .23
Certificates of deposit ($100,000 or more)
(f)
9,385 398 4.25 6,389 321 5.02 5,581 261 4.67
Other time deposits 13,300 556 4.18 11,767 550 4.68 11,592 481 4.14
Deposits in foreign office
(g)
3,501 81 2.31 4,287 209 4.87 2,305 120 5.22
Total interest-bearing deposits 54,411 1,468 2.70 48,104 1,845 3.84 46,250 1,576 3.41
Federal funds purchased and securities
sold under repurchase agreements
(g)
2,847 57 2.00 4,330 208 4.79 2,215 107 4.80
Bank notes and other short-termborrowings 5,944 131 2.20 2,423 104 4.28 2,284 94 4.12
Long-term debt
(f),(g),(h)
14,387 564 4.12 12,537 718 5.84 13,983 788 5.62
Total interest-bearing liabilities 77,589 2,220 2.89 67,394 2,875 4.28 64,732 2,565 3.96
Noninterest-bearing deposits 10,744 13,635 13,053
Accrued expense and other liabilities 7,134 6,133 6,183
Shareholders’ equity 8,923 7,722 7,734
Total liabilities and
shareholders’ equity $104,390 $94,884 $91,702
Interest rate spread (TE) 1.70% 2.56% 2.92%
Net interest income (TE) and net interest
margin (TE) 1,955
(c)
2.16%
(c)
2,868 3.46% 2,918 3.67%
TE adjustment
(a)
(454) 99 103
Net interest income, GAAP basis $2,409 $2,769 $2,815
Capital securities — — — — — —
Average balances have not been restated to reflect Key’s January 1, 2008, adoption of FASB Interpretation No. 39, “Offsetting of Amounts Related to Certain Contracts,” and FASB Staff Position No. FIN 39-1,
“Amendment of FASB Interpretation 39.”
(a)
Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutoryfederal income tax rate of 35%.
(b)
For purposes of these computations, nonaccrual loans areincluded in average loan balances.
(c)
During the fourth quarter of 2008, Key’s taxable-equivalent net interest income was reduced by $18 million as a result of an agreement reached with the IRS on all material aspects related to the IRS global tax
settlement pertaining to certain leveraged lease financing transactions. During the second quarter of 2008, Key’s taxable-equivalent net interest income was reduced by $838 million following an adverse federal
court decision on Key’s tax treatment of a leveraged sale-leaseback transaction. During the first quarter of 2008, Key increased its tax reserves for certain LILO transactions and recalculated its lease income in
accordance with prescribed accounting standards. These actions reduced Key’s first quarter 2008 taxable-equivalent net interest income by $34 million. Excluding all of these reductions, the taxable-equivalent
yield on Key’s commercial lease financing portfolio would have been 4.82% for 2008, and Key’s taxable-equivalent net interest margin would have been 3.14%.
(d)
During the first quarter of 2006, Key reclassified $760 million of average loans and related interest income from the commercial lease financing portfolio to the commercial, financial and agricultural portfolio
to more accurately reflect the nature of these receivables. Balances presented for prior periods were not reclassified as the historical data was not available.
(e)
Yield is calculated on the basis of amortized cost.
(f)
Rate calculation excludes basis adjustments related to fair value hedges. See Note 19 (“Derivatives and Hedging Activities”), which begins on page 115, for an explanation of fair value hedges.
(g)
Results from continuing operations exclude the dollar amount of liabilities assumed necessaryto supportinterest-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.
(h)
Long-term debt includes capital securities prior to July 1, 2003. Effective July 1, 2003, the business trusts that issued the capital securities were de-consolidated in accordance with FASB Revised
Interpretation No. 46. Beginning July 1, 2003, long-term debt includes the junior subordinated debentures issued to the business trusts by the parent company.
TE = Taxable Equivalent, N/M = Not Meaningful, GAAP = U.S. generally accepted accounting principles