KEY Keycorp

CLEVELAND, Oct. 21 /PRNewswire-FirstCall/ -- -- Net loss from continuing operations of $.50 per common share -- Loan loss reserve increased to $2.5 billion, or 4.00% of total loans -- Capital and liquidity positions remain strong; Tier 1 common equity ratio of 7.63% -- Sharpened focus on relationship businesses -- $8.5 billion in new or renewed loans and commitments originated KeyCorp (NYSE:KEY) today announced a third quarter net loss from continuing operations attributable to Key common shareholders of $422 million, or $.50 per common share. These results compare to a net loss from continuing operations attributable to Key common shareholders of $9 million, or $.02 per common share, for the third quarter of 2008. The loss for the current quarter is largely the result of an increase in the provision for loan losses, write-downs of certain real estate related investments, higher costs associated with other real estate owned ("OREO"), and the write-off of certain intangible assets. During the third quarter, Key continued to increase its loan loss reserves by taking a $733 million provision for loan losses, which exceeded net charge-offs by $146 million. As of the end of the quarter, Key's allowance for loan losses was $2.5 billion, or 4.00% of total loans, up from $1.4 billion, or 1.90%, one year ago. "While our results continue to be impacted by the difficult operating environment, we believe the aggressive actions we've taken to address credit quality, strengthen capital and liquidity, and reshape our business mix position us to meet the challenges posed by the current environment and to emerge as a more competitive company when the economy rebounds," said Chief Executive Officer Henry L. Meyer III. "Further, we are encouraged by the continuation of deposit growth and the improvement in our net interest margin." During the third quarter, Key exchanged common shares for retail capital securities, raising $505 million of additional Tier 1 common equity. This completed a series of successful capital raises and exchanges that generated approximately $2.4 billion of new Tier 1 common equity to bolster the company's overall capital. At September 30, 2009, Key's estimated Tier 1 risk-based capital and Tier 1 common equity ratios were 12.61% and 7.63%, respectively. Key's average deposits grew by $3.6 billion, or 6%, compared to the year-ago quarter, and the company originated approximately $8.5 billion in new or renewed loans and commitments to consumers and businesses during the quarter, and $24.5 billion during the first nine months of the year. As part of a multi-year investment in its 14-state branch network, the company has opened 32 new branches (including relocations) in 8 markets in 2009, and expects to open an additional 6 branches by the end of the year. Also, Key will have completed renovations on approximately 160 branches over the past two years by the end of 2009. Meyer added: "We are continuing to strengthen our business mix and to concentrate on the areas in which we believe we can be the most competitive. Earlier this month, we announced our decision to exit the government-guaranteed education lending business, following earlier actions taken to cease private student lending. Additionally, within the equipment leasing business, we have decided to cease conducting business in both the commercial vehicle and office leasing markets. These actions exemplify our disciplined focus on our core relationship businesses." As a result of the decision to exit the government-guaranteed education lending business, Key has applied discontinued operations accounting to the education lending business for all periods presented in this release. In addition, during the third quarter of 2009, the company recorded a $45 million charge to write-off intangible assets, other than goodwill, associated with the decision to cease lending in certain equipment leasing markets. The following table shows Key's continuing and discontinued operating results for comparative quarters and for the nine-month periods ended September 30, 2009 and 2008. Results of Operations Three months ended Nine months ended ------------------ ----------------- in millions, except per share amounts 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------------------------------------------------------------------------- Summary of operations --------------------- Income (loss) from continuing operations attributable to Key $(381) $(230) $3 $(1,070) $(801) Income (loss) from discontinued operations, net of taxes (a) (16) 4 (39) (41) (143) --- - --- --- ---- Net loss attributable to Key $(397) $(226) $(36) $(1,111) $(944) ===== ===== ==== ======= ===== Income (loss) from continuing operations attributable to Key $(381) $(230) $3 $(1,070) $(801) Less: Dividends on Series A Preferred Stock 7 15 12 34 12 Noncash deemed dividend - common shares exchanged for Series A Preferred Stock -- 114 -- 114 -- Cash dividends on Series B Preferred Stock 31 31 -- 94 -- Amortization of discount on Series B Preferred Stock 3 4 -- 11 -- --- --- --- --- --- Loss from continuing operations attributable to Key common shareholders (422) (394) (9) (1,323) (813) Income (loss) from discontinued operations, net of taxes (a) (16) 4 (39) (41) (143) --- --- --- --- ---- Net loss attributable to Key common shareholders $(438) $(390) $(48) $(1,364) $(956) ===== ===== ==== ======= ===== Per common share - assuming dilution --------------------------- Loss from continuing operations attributable to Key common shareholders $(.50) $(.68) $(.02) $(2.07) $(1.87) Income (loss) from discontinued operations, net of taxes (a) (.02) .01 (.08) (.06) (.33) ---- --- ---- ---- ---- Net loss attributable to Key common shareholders (b) $(.52) $(.68) $(.10) $(2.14) $(2.19) ===== ===== ===== ====== ====== ------------------------------------------------------------------------- (a) In September 2009, management made the decision to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association. In April 2009, management made the decision to curtail the operations of Austin Capital Management, Ltd., an investment subsidiary that specializes in managing hedge fund investments for its institutional customer base. As a result of these decisions, Key has accounted for these businesses as discontinued operations. Included in the loss from discontinued operations for the nine-month period ended September 30, 2009, is a $23 million after tax, or $.05 per common share, charge for intangible assets impairment related to Austin Capital Management recorded during the first quarter. (b) Earnings per share may not foot due to rounding. As shown in the following table, the comparability of Key's earnings for the current, prior and year-ago quarters is affected by several significant items. Significant Items Affecting the Comparability of Earnings Third Quarter 2009 Second Quarter 2009 -------------------------- -------------------------- in millions, except per share Pre-tax After-tax Impact Pre-tax After-tax Impact amounts Amount Amount on EPS Amount Amount on EPS ------------------------------------------------------------------------- Provision for loan losses in excess of net charge-offs $(146) $(91) $(.11) $(321) $(201) $(.35) Realized and unrealized losses on loan and securities portfolios held for sale or trading (58) (37) (.04) (23) (15) (.03) Noncash charge for intangible assets impairment (45) (28) (.03) - - - Provision for losses on lending- related commitments (29) (18) (.02) (11) (7) (.01) Gain (loss) related to exchange of common shares for capital securities (17) (11) (.01) 95 59 .10 Noncash deemed dividend - common shares exchanged for Series A Preferred Stock - - - - - (.20) (a) FDIC special assessment - - - (44) (27) (.05) Net gains from repositioning of securities portfolio - - - 125 78 .13 Gain from sale of Key's claim associated with the Lehman Brothers' bankruptcy - - - 32 20 .03 Charges related to leveraged lease tax litigation - - - - - - Reversal of Honsador litigation reserve - - - - - - Third Quarter 2008 ------------------ in millions, except per Pre-tax After-tax Impact share amounts Amount Amount on EPS ------------------------------------------------- Provision for loan losses in excess of net charge-offs $(103) $(64) $(.13) Realized and unrealized losses on loan and securities portfolios held for sale or trading (88) (b) (56) (b) (.11) Noncash charge for intangible assets impairment - - - Provision for losses on lending- related commitments (8) (5) (.01) Gain (loss) related to exchange of common shares for capital securities - - - Noncash deemed dividend - common shares exchanged for Series A Preferred Stock - - - FDIC special Assessment - - - Net gains from repositioning of securities portfolio - - - Gain from sale of Key's claim associated with the Lehman Brothers' bankruptcy - - - Charges related to leveraged lease tax litigation - (30) (.06) Reversal of Honsador litigation reserve 23 14 .03 ------------------------------------------------------------------------- (a) The deemed dividend related to the exchange of Key common shares for Series A Preferred Stock is subtracted from earnings to derive the numerator used in the calculation of per share results; it is not recorded as a reduction to equity. (b) Includes $54 million ($33 million after tax) of derivative-related charges recorded as a result of market disruption caused by the failure of Lehman Brothers, and $31 million ($19 million after tax) of realized and unrealized losses from the residential properties segment of the construction loan portfolio. EPS = Earnings per common share SUMMARY OF CONTINUING OPERATIONS Taxable-equivalent net interest income was $599 million for the third quarter of 2009, and the net interest margin was 2.80%. These results compare to taxable-equivalent net interest income of $684 million and a net interest margin of 3.17% for the third quarter of 2008. During the past twelve months, the net interest margin has remained under pressure as the decrease in the federal funds target rate has resulted in a larger decrease in the interest rates on earning assets than that experienced for interest-bearing liabilities. Competition for deposits and a shift in deposit mix to higher costing, longer-term certificates of deposit have also contributed to the lower net interest margin. During the same period, earning asset yields have been compressed as a result of the higher levels of nonperforming loans. Additionally, during the third quarter of 2009, Key terminated certain leveraged lease financing arrangements, which reduced net interest income by $14 million and lowered the net interest margin by approximately 7 basis points. Compared to the second quarter of 2009, taxable-equivalent net interest income increased by $24 million, and the net interest margin rose by 10 basis points. The improvement reflects the impact of repricing maturing certificates of deposit at lower market rates, new or renewed loans with more favorable interest rate spreads, and increasing the securities available-for-sale portfolio using excess cash flows from loan repayments and deposit flows. The net interest margin for the second quarter was also affected by the termination of certain leveraged lease financing arrangements, which reduced net interest income by $16 million and lowered the net interest margin by approximately 7 basis points. Key's noninterest income was $382 million for the third quarter of 2009, compared to $390 million for the year-ago quarter. Both the third quarter of 2009 and 2008 were impacted by market related conditions. In the third quarter of 2009, the company recorded a $26 million loss resulting from changes in the fair values of certain investments made by the Funds Management unit within the Real Estate Capital and Corporate Banking Services line of business, a $20 million loss resulting from changes in the fair values of certain commercial mortgage-backed securities held in the trading portfolio, and a $12 million charge resulting from an increase in the reserve for losses related to customer derivatives. In addition, the company incurred a $17 million loss associated with the exchange of common shares for capital securities in the third quarter of 2009. Noninterest income for the third quarter of 2008 includes $54 million of derivative-related charges recorded as a result of market disruption caused by the failure of Lehman Brothers and $31 million of realized and unrealized losses from the residential properties segment of the construction loan portfolio. The major components of Key's fee-based income for the past five quarters are shown in the following table. Fee-based Income - Major Components in millions 3Q09 2Q09 1Q09 4Q08 3Q08 ----------------------------------------------------------------------- Trust and investment services income $113 $119 $110 $131 $125 Service charges on deposit accounts 83 83 82 90 94 Operating lease income 55 59 61 64 69 Letter of credit and loan fees 46 44 38 42 53 Corporate-owned life insurance income 26 25 27 33 28 Electronic banking fees 27 27 24 25 27 Insurance income 18 16 18 15 15 Investment banking and capital markets income (loss) (26) 14 17 5 (26) Net losses from principal investing (6) (6) (72) (37) (14) ----------------------------------------------------------------------- Compared to the second quarter of 2009, noninterest income decreased by $324 million. The decrease was due largely to three transactions recorded during the second quarter. These transactions included $125 million of net gains recorded in connection with the repositioning of the securities portfolio; a $95 million gain related to the exchange of common shares for capital securities, compared to the $17 million loss recorded in the current quarter; and a $32 million gain from the sale of Key's claim associated with the Lehman Brothers' bankruptcy. During the third quarter, Key also experienced a $40 million decrease in results from investment banking and capital markets activities, due primarily to the items discussed above, and a $14 million decrease in net gains on sales of leased equipment. Key's noninterest expense was $901 million for the third quarter of 2009, compared to $740 million for the same period last year. Personnel expense rose by $6 million, due largely to higher costs associated with employee benefits, primarily pension expense. This increase was offset in part by a reduction in salaries expense caused by a 9% decline in the number of average full-time equivalent employees. Nonpersonnel expense increased by $155 million, reflecting increases of $46 million resulting from the write-down or sale of OREO, $37 million in the FDIC deposit insurance assessment and $21 million in the provision for losses on lending-related commitments. Also contributing to the increase in noninterest expense was the $45 million write-off of intangible assets, other than goodwill, recorded during the third quarter of 2009 as a result of Key's decision to cease lending in certain equipment leasing markets. Compared to the second quarter of 2009, noninterest expense increased by $46 million as a result of the $45 million write-off of intangible assets associated with Key's equipment leasing business during the third quarter of 2009. Other changes in expense components between the third and second quarters of 2009 offset each other, with the FDIC deposit insurance assessment decreasing by $30 million and OREO expense increasing by $36 million. ASSET QUALITY Key's provision for loan losses was $733 million for the third quarter of 2009, compared to $336 million for the year-ago quarter and $823 million for the second quarter of 2009. Credit migration, particularly in the commercial real estate portfolio, continues to result in higher levels of net charge-offs and nonperforming loans, and increased reserves. Key's provision for loan losses for the third quarter of 2009 exceeded net loan charge-offs by $146 million. As a result, Key's allowance for loan losses rose to $2.5 billion, or 4.00% of total loans, at September 30, 2009, up from $2.3 billion, or 3.48%, at June 30, 2009. Selected asset quality statistics for Key for each of the past five quarters are presented in the following table. Selected Asset Quality Statistics from Continuing Operations dollars in millions 3Q09 2Q09 1Q09 4Q08 3Q08 ------------------------------------------------------------------------- Net loan charge-offs $587 $502 $460 $309 $233 Net loan charge-offs to average loans 3.59% 2.93% 2.60% 1.67% 1.28% Allowance for loan losses $2,485 $2,339 $2,016 $1,629 $1,390 Allowance for credit losses (a) 2,579 2,404 2,070 1,683 1,449 Allowance for loan losses to period-end loans 4.00% 3.48% 2.88% 2.24% 1.90% Allowance for credit losses to period-end loans 4.15 3.58 2.96 2.31 1.99 Allowance for loan losses to nonperforming loans 108.52 107.05 116.20 133.42 144.19 Allowance for credit losses to nonperforming loans 112.62 110.02 119.31 137.84 150.31 Nonperforming loans at period end $2,290 $2,185 $1,735 $1,221 $964 Nonperforming assets at period end 2,799 2,548 1,994 1,460 1,236 Nonperforming loans to period-end portfolio loans 3.68% 3.25% 2.48% 1.68% 1.32% Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets 4.46 3.77 2.84 2.00 1.69 ------------------------------------------------------------------------- (a) Includes the allowance for loan losses plus the liability for credit losses on lending-related commitments. Net loan charge-offs for the quarter totaled $587 million, or 3.59% of average loans. These results compare to $233 million, or 1.28%, for the same period last year and $502 million, or 2.93%, for the previous quarter. Key's net loan charge-offs by loan type for each of the past five quarters are shown in the following table. Net Loan Charge-offs from Continuing Operations dollars in millions 3Q09 2Q09 1Q09 4Q08 3Q08 --------------------------------------------------------------------- Commercial, financial and agricultural $168 $168 $232 $119 $62 Real estate - commercial mortgage 81 87 21 43 20 Real estate - construction 216 133 104 49 79 Commercial lease financing 27 22 18 21 19 -- -- -- -- -- Total commercial loans 492 410 375 232 180 Home equity - Community Banking 25 24 17 14 9 Home equity - National Banking 20 18 15 17 12 Marine 25 29 32 25 16 Other 25 21 21 21 16 -- -- -- -- -- Total consumer loans 95 92 85 77 53 -- -- -- -- -- Total net loan charge-offs $587 $502 $460 $309 $233 ==== ==== ==== ==== ==== Net loan charge-offs to average loans from continuing operations 3.59% 2.93% 2.60% 1.67% 1.28% Net loan charge-offs from discontinued operations - education lending business $38 $37 $32 $33 $40 --------------------------------------------------------------------- Compared to the second quarter of 2009, net loan charge-offs in the commercial loan portfolio increased by $82 million, as elevated net charge-offs continue on commercial real estate loans. The Real Estate Capital and Corporate Banking Services line of business within the National Banking group accounted for most of the growth in net charge-offs in the commercial real estate portfolio. The level of net charge-offs in the consumer portfolio rose by $3 million. As shown in the table on page 7, Key's exit loan portfolio accounted for $137 million, or 23%, of Key's total net loan charge-offs for the third quarter of 2009. Net charge-offs in the exit portfolio decreased by $11 million from the second quarter of 2009. At September 30, 2009, Key's nonperforming loans totaled $2.3 billion and represented 3.68% of period-end portfolio loans, compared to 3.25% at June 30, 2009, and 1.32% at September 30, 2008. Nonperforming assets at September 30, 2009, totaled $2.8 billion and represented 4.46% of portfolio loans, OREO and other nonperforming assets, compared to 3.77% at June 30, 2009, and 1.69% at September 30, 2008. The following table illustrates the trend in Key's nonperforming assets by loan type over the past five quarters. Nonperforming Assets from Continuing Operations dollars in millions 3Q09 2Q09 1Q09 4Q08 3Q08 ------------------------------------------------------------------------- Commercial, financial and agricultural $679 $700 $595 $415 $309 Real estate - commercial mortgage 566 454 310 128 119 Real estate - construction 702 716 546 436 334 Commercial lease financing 131 122 109 81 55 Total consumer loans 212 193 175 161 147 --- --- --- --- --- Total nonperforming loans 2,290 2,185 1,735 1,221 964 Nonperforming loans held for sale 304 145 72 90 169 OREO and other nonperforming assets 205 218 187 149 103 --- --- --- --- --- Total nonperforming assets $2,799 $2,548 $1,994 $1,460 $1,236 ====== ====== ====== ====== ====== Nonperforming loans to period-end portfolio loans 3.68% 3.25% 2.48% 1.68% 1.32% Nonperforming assets to period-end portfolio loans, plus OREO and other nonperforming assets 4.46 3.77 2.84 2.00 1.69 As shown in the preceding table, nonperforming assets rose during the third quarter of 2009, but at a much slower pace than that experienced in recent quarters. Most of the increase in nonperforming loans was attributable to the commercial real estate portfolio and was caused in part by the continuation of deteriorating market conditions in the income properties segment. The increase in nonperforming loans held for sale reflects the actions Key is taking to aggressively reduce its exposure in the commercial real estate and institutional portfolios through the sale of selected assets. In conjunction with these efforts, Key transferred $193 million of loans ($248 million, net of $55 million in net charge-offs) from the held-to-maturity loan portfolio to held-for-sale status during the third quarter of 2009, and has contracted to sell most of these loans by the end of October. As shown in the following table, Key's exit loan portfolio accounted for $695 million, or 25%, of Key's total nonperforming assets at September 30, 2009, compared to $747 million, or 29%, at June 30, 2009. The composition of Key's exit loan portfolio at September 30, 2009, and June 30, 2009, the net charge-offs recorded on this portfolio for the third and second quarters of 2009, and the nonperforming status of these loans at September 30, 2009, and June 30, 2009, are shown in the following table. Exit Loan Portfolio from Continuing Operations Balance on Balance Change Net Loan Nonperforming Outstanding 9-30-09 Charge-offs Status --------------- vs. ----------- --------------- in millions 9-30-09 6-30-09 6-30-09 3Q09 2Q09 9-30-09 6-30-09 ------------------------------------------------------------------------- Residential properties - homebuilder $518 $614 $(96) $33 $62 $260 $298 Residential properties held for sale 62 65 (3) -- -- 62 65 --- --- --- --- --- --- --- Total residential properties 580 679 (99) 33 62 322 363 Marine and RV floor plan 511 696 (185) 25 8 142 154 --- --- --- --- --- --- --- Commercial lease Financing (a) 3,304 3,824 (520) 30 29 194 190 Total commercial loans 4,395 5,199 (804) 88 99 658 707 Home equity - National Banking 880 934 (54) 20 18 21 20 Marine 2,943 3,095 (152) 25 29 15 19 RV and other consumer 231 245 (14) 4 2 1 1 --- --- --- --- --- --- --- Total consumer loans 4,054 4,274 (220) 49 49 37 40 ----- ----- --- --- --- --- --- Total exit loans in loan portfolio $8,449 $9,473 $(1,024) $137 $148 $695 $747 ====== ====== ===== ==== ==== ==== ==== Discontinued operations -- education lending business $3,912 $3,784 $128 $38 $37 $11 $3 ------------------------------------------------------------------------- (a) Includes the business aviation, commercial vehicle, office products, construction and industrial, and Canadian lease financing portfolios; and all remaining balances related to lease in, lease out; sale in, sale out; service contract leases and qualified technological equipment leases. Key's allowance for loan losses was $2.5 billion, or 4.00% of loans outstanding, at September 30, 2009, compared to $2.3 billion, or 3.48%, at June 30, 2009, and $1.4 billion, or 1.90%, at September 30, 2008. The company has continued to increase its allowance for loan losses as the current credit cycle progresses, and at September 30, 2009, had a coverage ratio of 109% of nonperforming loans. CAPITAL Key's risk-based capital ratios included in the following table continued to exceed all "well-capitalized" regulatory benchmarks at September 30, 2009. Capital Ratios 9-30-09 6-30-09 3-31-09 12-31-08 9-30-08 ------------------------------------------------------------------------- Tier 1 common equity (a) 7.63% 7.36% 5.62% 5.62% 5.58% Tier 1 risk-based capital (a) 12.61 12.57 11.22 10.92 8.55 Total risk-based capital (a) 16.75 16.67 15.18 14.82 12.40 Tangible Key shareholders' equity to tangible assets 10.41 10.16 9.23 8.92 6.95 Tangible common equity to tangible assets 7.58 7.35 6.06 5.95 6.29 ------------------------------------------------------------------------- (a) 9-30-09 ratio is estimated. In an effort to further enhance its Tier 1 common equity, on July 8, 2009, Key commenced an SEC-registered offer to exchange Key common shares for certain capital (i.e., retail trust preferred) securities. This exchange offer, which expired on August 4, 2009, generated approximately $505 million of additional Tier 1 common equity. This completes a series of successful capital raises and exchanges that generated approximately $2.4 billion of new Tier I common equity to bolster the company's overall capital and to respond to the SCAP initiated by the U.S. Treasury Department and the federal banking regulators. As shown in the preceding table, at September 30, 2009, Key had a Tier 1 risk-based capital ratio of 12.61%, a Tier 1 common equity ratio of 7.63% and a tangible common equity ratio of 7.58%. Transactions that caused the change in Key's outstanding common shares over the past five quarters are summarized in the following table. Summary of Changes in Common Shares Outstanding in thousands 3Q09 2Q09 1Q09 4Q08 3Q08 ------------------------------------------------------------------------- Shares outstanding at beginning of period 797,246 498,573 495,002 494,765 485,662 Common shares exchanged for capital securities 81,278 46,338 -- -- -- Common shares exchanged for Series A Preferred Stock -- 46,602 -- -- -- Common shares issued -- 205,439 -- -- 7,066 Shares reissued under employee benefit plans 35 294 3,571 237 2,037 -- --- ----- --- ----- Shares outstanding at end of period 878,559 797,246 498,573 495,002 494,765 ======= ======= ======= ======= ======= ------------------------------------------------------------------------- During the third quarter of 2009, Key made a $31 million cash dividend payment to the U.S. Treasury Department. This is the third of such quarterly payments that Key has made after having raised $2.5 billion of additional capital during the fourth quarter of 2008 as a participant in the U.S. Treasury's Capital Purchase Program. LINE OF BUSINESS RESULTS The following table shows the contribution made by each major business group to Key's taxable-equivalent revenue from continuing operations and income (loss) from continuing operations attributable to Key for the periods presented. The specific lines of business that comprise each of the major business groups are described under the heading "Line of Business Descriptions." For more detailed financial information pertaining to each business group and its respective lines of business, see the tables at the end of this release. Major Business Groups Percent change 3Q09 vs. -------------- dollars in millions 3Q09 2Q09 3Q08 2Q09 3Q08 ------------------------------------------------------------------------- Revenue from continuing operations (TE) ----------------------- Community Banking $618 $593 $651 4.2% (5.1)% National Banking (a) 461 514 460 (10.3) .2 Other Segments (b) (56) 183 (9) N/M (522.2) --- --- -- ---- ------ Total Segments 1,023 1,290 1,102 (20.7) (7.2) Reconciling Items (c) (42) (9) (28) (366.7) (50.0) --- --- --- ------ ----- Total $981 $1,281 $1,074 (23.4)% (8.7)% ==== ====== ====== Income (loss) from continuing operations attributable to Key ------------------------------- Community Banking $(7) $(54) $98 87.0% N/M National Banking (a) (352) (290) (90) (21.4) (291.1)% Other Segments (b) (28) 112 8 N/M N/M --- --- --- ---- ---- Total Segments (387) (232) 16 (66.8) N/M Reconciling Items (c) 6 2 (13) 200.0 N/M --- --- --- ----- ---- Total $(381) $(230) $3 (65.7)% N/M ===== ===== ==== ------------------------------------------------------------------------- (a) National Banking's results for the third quarter of 2009 include a $45 million ($28 million after tax) write-off of intangible assets, other than goodwill, resulting from Key's decision to cease lending in certain equipment leasing markets. For the third quarter of 2008, National Banking's results include $54 million ($33 million after tax) of derivative-related charges recorded as a result of market disruption caused by the failure of Lehman Brothers, and $31 million ($19 million after tax) of realized and unrealized losses from the residential properties segment of the construction loan portfolio. (b) Other Segments' results for the third quarter of 2009 include a $17 million ($11 million after tax) loss related to the exchange of Key common shares for capital securities. For the second quarter of 2009, Other Segments' results include net gains of $125 million ($78 million after tax) recorded in connection with the repositioning of the securities portfolio and a $95 million ($59 million after tax) gain related to the exchange of Key common shares for capital securities. During the third quarter of 2008, Other Segments' results include a $23 million ($14 million after tax) credit, representing the reversal of the remaining reserve associated with the previously disclosed Honsador litigation, which was settled in September 2008. (c) Reconciling Items for the second quarter of 2009 include a $32 million ($20 million after tax) gain from the sale of Key's claim associated with the Lehman Brothers' bankruptcy. For the third quarter of 2008, Reconciling Items includes a charge of $30 million to income taxes for the interest cost associated with the previously disclosed leveraged lease tax litigation. TE = Taxable Equivalent, N/M = Not Meaningful Community Banking Percent change 3Q09 vs. -------------- dollars in millions 3Q09 2Q09 3Q08 2Q09 3Q08 ------------------------------------------------------------------------- Summary of operations Net interest income (TE) $419 $398 $438 5.3% (4.3)% Noninterest income 199 195 213 2.1 (6.6) --- --- --- --- ---- Total revenue (TE) 618 593 651 4.2 (5.1) Provision for loan losses 143 187 56 (23.5) 155.4 Noninterest expense 486 492 438 (1.2) 11.0% --- --- --- ---- ---- Income (loss) before income taxes (TE) (11) (86) 157 87.2 N/M Allocated income taxes and TE adjustments (4) (32) 59 87.5 N/M -- --- -- ---- ---- Net income (loss) attributable to Key $(7) $(54) $98 87.0% N/M === ==== === Average balances Loans and leases $27,410 $28,237 $28,874 (2.9)% (5.1)% Total assets 30,304 31,168 31,896 (2.8) (5.0) Deposits 52,954 52,689 50,378 .5 5.1 Assets under management at period end $17,090 $15,815 $18,278 8.1% (6.5)% ------------------------------------------------------------------------- TE = Taxable Equivalent, N/M = Not Meaningful Percent change Additional Community Banking Data 3Q09 vs. -------------- dollars in millions 3Q09 2Q09 3Q08 2Q09 3Q08 ------------------------------------------------------------------------- Average deposits outstanding NOW and money market deposit accounts $17,375 $17,361 $19,507 .1% (10.9)% Savings deposits 1,776 1,785 1,752 (.5) 1.4 Certificates of deposit ($100,000 or more) 8,884 8,974 6,875 (1.0) 29.2 Other time deposits 14,705 14,898 13,103 (1.3) 12.2 Deposits in foreign office 477 548 1,193 (13.0) (60.0) Noninterest-bearing deposits 9,737 9,123 7,948 6.7 22.5 ----- ----- ----- --- ---- Total deposits $52,954 $52,689 $50,378 .5% 5.1% ======= ======= ======= ------------------------------------------------------------------------- Home equity loans Average balance $10,188 $10,287 $9,887 Weighted-average loan-to-value ratio (at date of origination) 70% 70% 70% Percent first lien positions 53 53 54 ----------------------------------------------------------- Other data Branches 1,003 993 986 Automated teller machines 1,492 1,485 1,479 ----------------------------------------------------------- Community Banking Summary of Operations Community Banking recorded a net loss attributable to Key of $7 million for the third quarter of 2009, compared to net income attributable to Key of $98 million for the year-ago quarter. Increases in the provision for loan losses and noninterest expense, coupled with decreases in net interest income and noninterest income, caused the decline. Taxable-equivalent net interest income declined by $19 million, or 4%, from the third quarter of 2008, due primarily to a decrease in average earning assets. Average deposits increased by $2.6 billion, or 5%, reflecting strong growth in noninterest-bearing deposits. The composition and value of deposits have been impacted by the declining interest rate environment and a shift from money market deposit accounts into higher-costing, longer-term certificates of deposit, reflecting consumer preferences. Noninterest income decreased by $14 million, or 7%, from the year-ago quarter, due largely to a decline in service charges on deposit accounts resulting from changing client behavior. Also contributing to lower noninterest income was a reduction in investment banking and capital markets income, due primarily to a decline in derivatives trading volume and an increase in the reserve for losses related to customer derivatives. These reductions were partially offset by higher mortgage loan sale gains. The provision for loan losses rose by $87 million compared to the third quarter of 2008, reflecting a $24 million increase in net loan charge-offs, primarily from the home equity and consumer installment loan portfolios. Community Banking's provision for loan losses for the third quarter of 2009 exceeded its net loan charge-offs by $49 million, as the company continued to increase reserves in light of the challenging credit conditions brought on by a weak economy. Noninterest expense grew by $48 million, or 11%, from the year-ago quarter, due largely to a higher FDIC deposit insurance assessment, and increases in both internally allocated overhead and marketing expense. The adverse effect of these factors was offset in part by lower personnel expense, reflecting a reduction in salaries expense caused by a decrease in the number of average full-time equivalent employees, and lower incentive compensation accruals. National Banking Percent change 3Q09 vs. -------------- dollars in millions 3Q09 2Q09 3Q08 2Q09 3Q08 ------------------------------------------------------------------------- Summary of operations Net interest income (TE) $267 $258 $308 3.5% (13.3)% Noninterest income 194 256 152(a) (24.2) 27.6 --- --- --- ----- ---- Total revenue (TE) 461 514 460 (10.3) .2 Provision for loan losses 593 636 279 (6.8) 112.5 Noninterest expense 434(a) 344 322 26.2 34.8 --- --- --- ---- ---- Loss from continuing operations before income taxes (TE) (566) (466) (141) (21.5) (301.4) Allocated income taxes and TE adjustments (213) (175) (51) (21.7) (317.6) ---- ---- --- ----- ------ Loss from continuing operations (353) (291) (90) (21.3) (292.2) Income (loss) from discontinued operations, net of taxes (16) 4 (39) N/M 59.0 --- -- --- ---- ---- Net loss (369) (287) (129) (28.6) (186.0) Less: Net loss attributable to noncontrolling interests (1) (1) -- -- N/M -- -- --- --- --- Net loss attributable to Key $(368) $(286) $(129) (28.7) (185.3) ===== ===== ===== Loss from continuing operations attributable to Key $(352) $(290) $(90) (21.4)% (291.1)% Average balances Loans and leases $37,229 $40,271 $43,419 (7.6)% (14.3)% Loans held for sale 469 466 1,495 .6 (68.6) Total assets 42,479 46,640 52,037 (8.9) (18.4) Deposits 13,435 13,141 12,304 2.2 9.2 Assets under management at period end $49,055 $47,567 $58,398 3.1% (16.0)% ------------------------------------------------------------------------- (a) National Banking's results for the third quarter of 2009 include a $45 million ($28 million after tax) write-off of intangible assets, other than goodwill, resulting from Key's decision to cease lending in certain equipment leasing markets. For the third quarter of 2008, National Banking's results include $54 million ($33 million after tax) of derivative-related charges recorded as a result of market disruption caused by the failure of Lehman Brothers, and $31 million ($19 million after tax) of realized and unrealized losses from the residential properties segment of the construction loan portfolio. TE = Taxable Equivalent, N/M = Not Meaningful National Banking Summary of Continuing Operations National Banking recorded a loss from continuing operations attributable to Key of $352 million for the third quarter of 2009, compared to $90 million for the same period one year ago. A substantially higher provision for loan losses, lower net interest income and an increase in noninterest expense were offset in part by an increase in noninterest income. Taxable-equivalent net interest income decreased by $41 million, or 13%, from the third quarter of 2008, due primarily to a decrease in average earning assets and a higher level of nonperforming loans, offset in part by more favorable deposit spreads and an increase in average deposits. Average earning assets decreased by $7.9 billion, or 17%, from the year-ago quarter, reflecting reductions in the commercial and held-for-sale loan portfolios. Average deposits rose by $1.1 billion, or 9%, as growth in NOW accounts and noninterest-bearing deposits more than offset a decline in money market deposit accounts. Noninterest income rose by $42 million, or 28%, from the third quarter of 2008. Both the third quarter of 2009 and 2008 were impacted by market-related conditions. In the third quarter of 2009, National Banking recorded a $26 million loss resulting from changes in the fair values of certain investments made by the Funds Management unit within the Real Estate Capital and Corporate Banking Services line of business, a $20 million loss resulting from changes in the fair values of certain commercial mortgage-backed securities held in the trading portfolio, and an $8 million charge resulting from an increase in the reserve for losses related to customer derivatives. Noninterest income for the third quarter of 2008 includes $54 million of derivative-related charges recorded as a result of market disruption caused by the failure of Lehman Brothers, and $31 million of realized and unrealized losses from the residential properties segment of the construction loan portfolio. The improvement in noninterest income compared to the third quarter of 2008 also reflects a $16 million increase in net gains on sales of leased equipment. The provision for loan losses rose by $314 million from the year-ago quarter. National Banking's provision for loan losses for the third quarter of 2009 exceeded its net loan charge-offs by $100 million as the company continued to increase reserves in a weak economy. Noninterest expense grew by $112 million, or 35%, from the third quarter of 2008, reflecting higher expenses associated with the write-down or sale of OREO, and the $45 million write-off of intangible assets, other than goodwill, recorded during the current quarter as a result of Key's decision to cease conducting business in certain equipment leasing markets. Also contributing to the growth in noninterest expense were increases in the provision for losses on lending-related commitments and a variety of other miscellaneous expense components. The adverse effect of these factors was offset in part by lower personnel expense, reflecting a reduction in salaries expense caused by a decrease in the number of average full-time equivalent employees, and a decline in severance costs. Earlier this month, management announced its decision to discontinue the education lending business and to focus on the growing demand from schools for integrated, simplified billing, payment and cash management solutions. The Consumer Finance line of business will continue to service existing loans in this portfolio and to originate education loans through December 4, 2009. In April 2009, Key made the strategic decision to curtail the operations of Austin Capital Management, Ltd., an investment subsidiary that specializes in managing hedge fund investments for its institutional customer base. As a result of these decisions, Key has applied discontinued operations accounting to these businesses. Other Segments Other Segments consist of Corporate Treasury and Key's Principal Investing unit. These segments generated a net loss attributable to Key of $28 million for the third quarter of 2009, compared to net income attributable to Key of $8 million for the same period last year. These results reflect a $17 million loss related to the exchange of Key common shares for capital securities during the current quarter. Additionally, Key incurred $11 million of expense in the third quarter of 2009, compared to income of $8 million in the year-ago quarter as a result of the volatility associated with hedge accounting applied to debt instruments. Line of Business Descriptions Community Banking Regional Banking provides individuals with branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans. This line of business also provides small businesses with deposit, investment and credit products, and business advisory services. Regional Banking also offers financial, estate and retirement planning, and asset management services to assist high-net-worth clients with their banking, trust, portfolio management, insurance, charitable giving and related needs. Commercial Banking provides midsize businesses with 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. National Banking Real Estate Capital and Corporate Banking Services consists of two business units, Real Estate Capital and Corporate Banking Services. Real Estate Capital is a national business that provides construction and interim lending, permanent debt placements and servicing, equity and investment banking, and other commercial banking products and services to developers, brokers and owner-investors. This unit deals primarily with nonowner-occupied properties (i.e., generally properties in which at least 50% of the debt service is provided by rental income from nonaffiliated third parties). Real Estate Capital emphasizes providing clients with finance solutions through access to the capital markets. Corporate Banking Services provides cash management, interest rate derivatives, and foreign exchange products and services to clients served by both the Community Banking and National Banking groups. Through its Public Sector and Financial Institutions businesses, Corporate Banking Services also provides a full array of commercial banking products and services to government and not-for-profit entities, and to community banks. Equipment Finance meets the equipment leasing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with financing options for their clients. Lease financing receivables and related revenues are assigned to other lines of business (primarily Institutional and Capital Markets, and Commercial Banking) if those businesses are principally responsible for maintaining the relationship with the client. Institutional and Capital Markets, through its KeyBanc Capital Markets unit, provides commercial lending, treasury management, investment banking, derivatives, foreign exchange, equity and debt underwriting and trading, and syndicated finance products and services to large corporations and middle-market companies. Through its Victory Capital Management unit, Institutional and Capital Markets also manages or offers advice regarding investment portfolios for a national client base, including corporations, labor unions, not-for-profit organizations, governments and individuals. These portfolios may be managed in separate accounts, common funds or the Victory family of mutual funds. Consumer Finance provides government-guaranteed education loans to students and their parents, and processes tuition payments for private schools. Through its Commercial Floor Plan Lending unit, this line of business also finances inventory for automobile dealers. In October 2008, Key exited retail and floor-plan lending for marine and recreational vehicle products, and began to limit new education loans to those backed by government guarantee. In September 2009, management made the decision to discontinue the education lending business and to focus on the growing demand from schools for integrated, simplified billing, payment and cash management solutions. The Consumer Finance line of business continues to service existing loans in these portfolios and will continue to originate education loans through December 4, 2009. These actions are consistent with Key's strategy of de-emphasizing nonrelationship or out-of-footprint businesses. Cleveland-based KeyCorp is one of the nation's largest bank-based financial services companies, with assets of $97.0 billion at September 30, 2009. Key companies provide investment management, retail and commercial banking, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. The company's businesses deliver their products and services through 1,003 branches and additional offices; a network of 1,492 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, https://www.key.com/, that provides account access and financial products 24 hours a day. Notes to Editors: A live Internet broadcast of KeyCorp's conference call to discuss quarterly results and currently anticipated earnings trends and to answer analysts' questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Wednesday, October 21, 2009. An audio replay of the call will be available through October 28. For up-to-date company information, media contacts and facts and figures about Key's lines of business visit our Media Newsroom at https://www.key.com/newsroom. This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about Key's financial condition, results of operations, earnings outlook, asset quality trends and profitability. Forward-looking statements are not historical facts but instead represent only management's current expectations and forecasts regarding future events, many of which, by their nature, are inherently uncertain and outside of Key's control. Key's actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Factors that may cause actual results to differ materially include, among other things: (1) adverse capital market conditions and the ability to raise equity and other funding required by the banking regulators or otherwise; (2) further downgrades in Key's credit ratings; (3) unprecedented volatility in the stock markets, public debt markets and other capital markets, including continued disruption in the fixed income markets; (4) changes in interest rates; (5) changes in trade, monetary or fiscal policy; (6) changes in foreign exchange rates, equity markets and the financial soundness of other unrelated financial companies; (7) asset price deterioration, which has had (and may continue to have) a negative effect on the valuation of certain asset categories represented on Key's balance sheet; (8) continuation of the recent deterioration in general economic conditions, or in the condition of the local economies or industries in which Key has significant operations or assets, which could, among other things, materially impact credit quality trends and Key's ability to generate loans; (9) continued disruption in the housing markets and related conditions in the financial markets; (10) increased competitive pressure among financial services companies due to the consolidation of competing financial institutions and the conversion of certain investment banks to bank holding companies; (11) heightened legal standards and regulatory practices, requirements or expectations; (12) the inability to successfully execute strategic initiatives designed to grow revenues and/or manage expenses; (13) increased FDIC deposit insurance premiums and debt-guarantee fees; (14) difficulty in attracting and/or retaining executives and/or relationship managers; (15) consummation of significant business combinations or divestitures; (16) operational or risk management failures due to technological or other factors; (17) changes in accounting or tax practices or requirements; (18) new legal obligations or liabilities or unfavorable resolution of litigation; and (19) disruption in the economy and general business climate as a result of terrorist activities or military actions. For additional information on KeyCorp and the factors that could cause actual results or financial condition to differ materially from those described in the forward-looking statements consult KeyCorp's Annual Report on Form 10-K for the year ended December 31, 2008, and subsequent filings with the Securities and Exchange Commission available on the Securities and Exchange Commission's website (http://www.sec.gov/). Forward-looking statements are not guarantees of future performance and should not be relied upon as representing management's views as of any subsequent date. Key does not assume any obligation to update these forward-looking statements. Financial Highlights (dollars in millions, except per share amounts) Three months ended ------------------ 9-30-09 6-30-09 9-30-08 ------- ------- ------- Summary of operations Net interest income (TE) $599 $575 $684 Noninterest income 382 706 390 --- --- --- Total revenue (TE) 981 1,281 1,074 Provision for loan losses 733 823 336 Noninterest expense 901 855 740 Income (loss) from continuing operations attributable to Key (381) (230) 3 Income (loss) from discontinued operations, net of taxes (b) (16) 4 (39) Net loss attributable to Key (397)(a) (226) (36)(a) Loss from continuing operations attributable to Key common shareholders $(422) $(394) $(9) Income (loss) from discontinued operations, net of taxes (b) (16) 4 (39) Net loss attributable to Key common shareholders (438)(a) (390) (48)(a) Per common share Loss from continuing operations attributable to Key common shareholders $(.50) $(.68) $(.02) Income (loss) from discontinued operations, net of taxes (b) (.02) .01 (.08) Net loss attributable to Key common shareholders (.52) (.68) (.10) Loss from continuing operations attributable to Key common shareholders - assuming dilution (.50) (.68) (.02) Income (loss) from discontinued operations, net of taxes - assuming dilution (b) (.02) .01 (.08) Net loss attributable to Key common shareholders - assuming dilution (.52)(a) (.68) (.10)(a) Cash dividends paid .01 .01 .1875 Book value at period end 9.39 10.21 16.16 Tangible book value at period end 8.29 8.92 12.66 Market price at period end 6.50 5.24 11.94 Performance ratios From continuing operations: Return on average total assets (1.62)% (.96)% .01% Return on average common equity (20.30) (15.52) (.44) Net interest margin (TE) 2.80 2.70 3.17 From consolidated operations: Return on average total assets (1.62)%(a) (.90)% (.14)%(a) Return on average common equity (21.07)(a) (15.32) (2.36)(a) Net interest margin (TE) 2.79 2.67 3.13 Capital ratios at period end Key shareholders' equity to assets 11.31% 11.10% 8.54% Tangible Key shareholders' equity to tangible assets 10.41 10.16 6.95 Tangible common equity to tangible assets 7.58 7.35 6.29 Tier 1 common equity (c) 7.63 7.36 5.58 Tier 1 risk-based capital (c) 12.61 12.57 8.55 Total risk-based capital (c) 16.75 16.67 12.40 Leverage (c) 12.05 12.26 9.28 Asset quality - from continuing operations Net loan charge-offs $587 $502 $233 Net loan charge-offs to average loans 3.59% 2.93% 1.28% Allowance for loan losses $2,485 $2,339 $1,390 Allowance for credit losses 2,579 2,404 1,449 Allowance for loan losses to period-end loans 4.00% 3.48% 1.90% Allowance for credit losses to period-end loans 4.15 3.58 1.99 Allowance for loan losses to nonperforming loans 108.52 107.05 144.19 Allowance for credit losses to nonperforming loans 112.62 110.02 150.31 Nonperforming loans at period end $2,290 $2,185 $964 Nonperforming assets at period end 2,799 2,548 1,236 Nonperforming loans to period-end portfolio loans 3.68% 3.25% 1.32% Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets 4.46 3.77 1.69 Trust and brokerage assets Assets under management $66,145 $63,382 $76,676 Nonmanaged and brokerage assets 25,883 23,261 27,187 Other data Average full-time equivalent employees 16,436 16,937 18,098 Branches 1,003 993 986 Taxable-equivalent adjustment $7 $6 $6 Financial Highlights (continued) (dollars in millions, except per share amounts) Nine months ended ----------------- 9-30-09 9-30-08 ------- ------- Summary of operations Net interest income (TE) $1,769 $1,238(a) Noninterest income 1,566 1,464 ----- ----- Total revenue (TE) 3,335 2,702 Provision for loan losses 2,403 986 Noninterest expense 2,683 2,212 Loss from continuing operations attributable to Key (1,070) (801) Loss from discontinued operations, net of taxes (b) (41) (143) Net loss attributable to Key (1,111)(a) (944)(a) Loss from continuing operations attributable to Key common shareholders $(1,323) $(813) Income (loss) from discontinued operations, net of taxes (b) (41) (143) Net loss attributable to Key common shareholders (1,364)(a) (956)(a) Per common share Loss from continuing operations attributable to Key common shareholders $(2.07) $(1.87) Loss from discontinued operations, net of taxes (b) (.06) (.33) Net loss attributable to Key common shareholders (2.14) (2.19) Loss from continuing operations attributable to Key common shareholders - assuming dilution (2.07) (1.87) Loss from discontinued operations, net of taxes - assuming dilution (b) (.06) (.33) Net loss attributable to Key common shareholders - assuming dilution (2.14)(a) (2.19)(a) Cash dividends paid .0825 .9375 Performance ratios From continuing operations: Return on average total assets (1.49)% (1.08)% Return on average common equity (21.31) (13.03) Net interest margin (TE) 2.77 1.92(a) From consolidated operations: Return on average total assets (1.48)%(a) (1.22)%(a) Return on average common equity (22.03)(a) (15.32)(a) Net interest margin (TE) 2.74 1.95 Asset quality - from continuing operations Net loan charge-offs $1,549 $822 Net loan charge-offs to average loans 3.03% 1.51% Other data Average full-time equivalent employees 16,943 18,229 Taxable-equivalent adjustment $19 $(461) (a) The following table entitled "GAAP to Non-GAAP Reconciliations" presents certain earnings data and performance ratios, excluding charges related to goodwill and other intangible assets impairment, and the tax treatment of certain leveraged lease financing transactions disallowed by the Internal Revenue Service. The table also shows the computations of certain financial measures related to "tangible common equity" and "Tier 1 common equity." The table reconciles the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons. (b) In September 2009, management made the decision to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank National Association. In April 2009, management made the decision to curtail the operations of Austin Capital Management, Ltd., an investment subsidiary that specializes in managing hedge fund investments for its institutional customer base. As a result of these decisions, Key has accounted for these businesses as discontinued operations. (c) 9-30-09 ratio is estimated. TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles GAAP to Non-GAAP Reconciliations (dollars in millions, except per share amounts) The table below presents certain earnings data and performance ratios, excluding charges related to intangible assets impairment, and the tax treatment of certain leveraged lease financing transactions disallowed by the Internal Revenue Service. Management believes that eliminating the effects of significant items that are generally nonrecurring facilitates the analysis of results by presenting them on a more comparable basis. The table also shows the computations of certain financial measures related to "tangible common equity" and "Tier 1 common equity." The tangible common equity ratio has become a focus of some investors and management believes that this ratio may assist investors in analyzing Key's capital position absent the effects of intangible assets and preferred stock. Traditionally, the Federal Reserve and other banking regulators have assessed a bank's capital adequacy based on Tier 1 capital, the calculation of which is codified in federal banking regulations. As a result of the Supervisory Capital Assessment Program, these same regulators began supplementing their assessment of the capital adequacy of a bank based on a variation of Tier 1 capital, known as Tier 1 common equity. While not codified, analysts and banking regulators have assessed Key's capital adequacy using the tangible common equity and/or the Tier 1 common equity measure. Because tangible common equity and Tier 1 common equity are not formally defined by GAAP or codified in the federal banking regulations, these measures are considered to be non-GAAP financial measures. Since analysts and banking regulators may assess Key's capital adequacy using tangible common equity and Tier 1 common equity, management believes it is useful to provide investors the ability to assess Key's capital adequacy on these same bases. The table also reconciles the GAAP performance measures to the corresponding non-GAAP measures. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied and are not audited. To mitigate these limitations, Key has procedures in place to ensure that these measures are calculated using the appropriate GAAP or regulatory components and to ensure that Key's performance is properly reflected to facilitate period-to-period comparisons. Although these non-GAAP financial measures are frequently used by investors in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. Three months ended Nine months ended ------------------------- ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------- ------- ------- Net income (loss) Net loss attributable to Key (GAAP) $(397) $(226) $(36) $(1,111) $(944) Charges related to intangible assets impairment, after tax 28 -- 4 192 4 Charges related to leveraged lease tax litigation, after tax -- -- 30 -- 1,079 --- --- --- --- ----- Net income (loss) attributable to Key, excluding charges related to intangible assets impairment and leveraged lease tax litigation (non-GAAP) $(369) $(226) $(2) $(919) $139 ===== ===== === ===== ==== Noncash deemed dividend - common shares exchanged for Series A Preferred Stock -- $114 -- $114 -- Other preferred dividends and amortization of discount on preferred stock $41 50 $12 139 $12 Net loss attributable to Key common shareholders (GAAP) $(438) $(390) $(48) $(1,364) $(956) Net income (loss) attributable to Key common shareholders, excluding charges related to intangible assets impairment and leveraged lease tax litigation (non-GAAP) (410) (390) (14) (1,172) 127 Per common share Net loss attributable to Key common shareholders - assuming dilution (GAAP) $(.52) $(.68) $(.10) $(2.14) $(2.19) Net income (loss) attributable to Key common shareholders, excluding charges related to intangible assets impairment and leveraged lease tax litigation - assuming dilution (non-GAAP) (.49) (.68) (.03) (1.84) .28 Performance ratios from consolidated operations Return on average total assets: (a) Average total assets $97,221 $100,858 $103,156 $100,607 $103,267 Return on average total assets (GAAP) (1.62)% (.90)% (.14)% (1.48)% (1.22)% Return on average total assets, excluding charges related to intangible assets impairment and leveraged lease tax litigation (non-GAAP) (1.51) (.90) (.01) (1.22) .18 Return on average common equity: (a) Average common equity $8,249 $7,227 $8,077 $7,587 $8,336 Return on average common equity (GAAP) (21.07)% (15.32)% (2.36)% (22.03)% (15.32)% Return on average common equity, excluding charges related to intangible assets impairment and leveraged lease tax litigation (non-GAAP) (19.72) (15.32) (.69) (18.64) 2.04 Net interest income and margin from continuing operations Net interest income: Net interest income (GAAP) $592 $569 $678 $1,750 $1,699 Charges related to leveraged lease tax litigation, pre-tax -- -- -- -- 362 --- --- --- --- --- Net interest income, excluding charges related to leveraged lease tax litigation (non-GAAP) $592 $569 $678 $1,750 $2,061 ==== ==== ==== ====== ====== Net interest income/margin (TE): Net interest income (TE) (as reported) $599 $575 $684 $1,769 $1,238 Charges related to leveraged lease tax litigation, pre-tax (TE) -- -- -- -- 872 ---- ---- ---- --- --- Net interest income, excluding charges related to leveraged lease tax litigation (TE) (adjusted basis) $599 $575 $684 $1,769 $2,110 ==== ==== ==== ====== ====== Net interest margin (TE) (as reported) (a) 2.80% 2.70% 3.17% 2.77% 1.92% Impact of charges related to leveraged lease tax litigation, pre-tax (TE)(a) -- -- -- -- 1.30 --- --- --- --- ---- Net interest margin, excluding charges related to leveraged lease tax litigation (TE) (adjusted basis) (a) 2.80% 2.70% 3.17% 2.77% 3.22% ==== ==== ==== ==== ==== GAAP to Non-GAAP Reconciliations (continued) (dollars in millions, except per share amounts) Three months ended ------------------- 9-30-09 6-30-09 9-30-08 ------- ------- ------- Tangible common equity to tangible assets at period end Key shareholders' equity (GAAP) $10,970 $10,851 $8,651 Less: Intangible assets 972 1,023 1,730 Preferred Stock, Series B 2,426 2,422 -- Preferred Stock, Series A 291 291 658 --- --- --- Tangible common equity (non-GAAP) $7,281 $7,115 $6,263 ====== ====== ====== Total assets (GAAP) $96,989 $97,792 $101,290 Less: Intangible assets 972 1,023 1,730 --- ----- ----- Tangible assets (non-GAAP) $96,017 $96,769 $99,560 ======= ======= ======= Tangible common equity to tangible assets ratio (non-GAAP) 7.58% 7.35% 6.29% Tier 1 common equity at period end Key shareholders' equity (GAAP) $10,970 $10,851 $8,651 Qualifying capital securities 1,791 2,290 2,582 Less: Goodwill 917 917 1,595 Accumulated other comprehensive income (loss) (b) 11 (20) 107 Other assets (c) 408 172 212 --- --- --- Total Tier 1 capital (regulatory) 11,425 12,072 9,319 Less: Qualifying capital securities 1,791 2,290 2,582 Preferred Stock, Series B 2,426 2,422 -- Preferred Stock, Series A 291 291 658 --- --- --- Total Tier 1 common equity (non-GAAP) $6,917 $7,069 $6,079 ====== ====== ====== Net risk-weighted assets (regulatory) (c), (d) $90,601 $96,006 $109,017 Tier 1 common equity ratio (non-GAAP) (d) 7.63% 7.36% 5.58% (a) Income statement amount has been annualized in calculation of percentage. (b) Includes net unrealized 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 December 31, 2006, adoption and subsequent application of the applicable accounting guidance for defined benefit and other postretirement plans. (c) Other assets deducted from Tier 1 capital and net risk-weighted assets consist of disallowed deferred tax assets, disallowed intangible assets (excluding goodwill), and deductible portions of nonfinancial equity investments. (d) 9-30-09 amount or ratio is estimated. TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles Consolidated Balance Sheets (dollars in millions) 9-30-09 6-30-09 9-30-08 ------- ------- ------- Assets Loans $62,193 $67,167 $72,994 Loans held for sale 703 761 1,252 Securities available for sale 15,413 11,988 8,196 Held-to-maturity securities 24 25 28 Trading account assets 1,406 771 1,449 Short-term investments 2,986 3,487 653 Other investments 1,448 1,450 1,556 ----- ----- ----- Total earning assets 84,173 85,649 86,128 Allowance for loan losses (2,485) (2,339) (1,390) Cash and due from banks 744 723 1,937 Premises and equipment 863 858 801 Operating lease assets 775 842 1,030 Goodwill 917 917 1,595 Other intangible assets 55 106 135 Corporate-owned life insurance 3,041 3,016 2,940 Derivative assets 1,285 1,182 951 Accrued income and other assets 3,473 2,782 2,899 Discontinued assets - education lending business 4,148 4,056 4,264 ----- ----- ----- Total assets $96,989 $97,792 $101,290 ======= ======= ======== Liabilities Deposits in domestic offices: NOW and money market deposit accounts $24,635 $23,939 $25,789 Savings deposits 1,783 1,795 1,731 Certificates of deposit ($100,000 or more) 12,216 13,486 10,316 Other time deposits 14,211 15,055 13,929 ------ ------ ------ Total interest- bearing deposits 52,845 54,275 51,765 Noninterest- bearing deposits 13,631 12,873 11,011 Deposits in foreign office - interest- bearing 783 632 1,791 --- --- ----- Total deposits 67,259 67,780 64,567 Federal funds purchased and securities sold under repurchase agreements 1,664 1,530 1,799 Bank notes and other short-term borrowings 471 1,710 5,352 Derivative liabilities 1,185 528 581 Accrued expense and other liabilities 2,242 1,603 4,392 Long-term debt 12,865 13,462 15,597 Discontinued liabilities - education lending business 115 119 144 --- --- --- Total liabilities 85,801 86,732 92,432 Equity Preferred stock, Series A 291 291 658 Preferred stock, Series B 2,426 2,422 -- Common shares 946 865 584 Common stock warrant 87 87 -- Capital surplus 3,726 3,292 2,552 Retained earnings 5,431 5,878 7,320 Treasury stock, at cost (1,983) (1,984) (2,616) Accumulated other comprehensive income 46 -- 153 -- ------ --- Key shareholders' equity 10,970 10,851 8,651 Noncontrolling interests 218 209 207 --- --- --- Total equity 11,188 11,060 8,858 ------ ------ ----- Total liabilities and equity $96,989 $97,792 $101,290 ======= ======= ======== Common shares outstanding (000) 878,559 797,246 494,765 Consolidated Statements of Income (dollars in millions, except per share amounts) Three months ended Nine months ended ------------------ ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------- ------- ------- Interest income Loans $786 $819 $1,012 $2,445 $2,792 Loans held for sale 7 8 19 23 62 Securities available for sale 121 89 101 310 303 Held-to-maturity securities 1 -- 1 2 2 Trading account assets 9 13 16 35 39 Short-term investments 3 3 6 9 23 Other investments 13 13 12 38 38 -- -- -- -- -- Total interest income 940 945 1,167 2,862 3,259 Interest expense Deposits 277 296 347 873 1,122 Federal funds purchased and securities sold under repurchase agreements 2 1 10 4 53 Bank notes and other short-term borrowings 3 4 34 13 100 Long-term debt 66 75 98 222 285 -- -- -- --- --- Total interest expense 348 376 489 1,112 1,560 --- --- --- ----- ----- Net interest income 592 569 678 1,750 1,699 Provision for loan losses 733 823 336 2,403 986 --- --- --- ----- --- Net interest income (expense) after provision for loan losses (141) (254) 342 (653) 713 Noninterest income Trust and investment services income 113 119 125 342 378 Service charges on deposit accounts 83 83 94 248 275 Operating lease income 55 59 69 175 206 Letter of credit and loan fees 46 44 53 128 141 Corporate-owned life insurance income 26 25 28 78 84 Electronic banking fees 27 27 27 78 78 Insurance income 18 16 15 52 50 Investment banking and capital markets income (loss) (26) 14 (26) 5 63 Net securities gains (a) 1 125 1 112 3 Net losses from principal investing (6) (6) (14) (84) (17) Net gains (losses) from loan securitizations and sales -- (3) (29) 4 (86) Gain (loss) related to exchange of common shares for capital securities (17) 95 -- 78 -- Gain from sale/ redemption of Visa Inc. shares -- -- -- 105 165 Other income 62 108 47 245 124 -- --- -- --- --- Total noninterest income 382 706 390 1,566 1,464 Noninterest expense Personnel 380 375 374 1,114 1,176 Net occupancy 63 63 65 192 193 Operating lease expense 46 49 56 145 169 Computer processing 48 48 46 143 136 Professional fees 41 46 34 121 88 FDIC assessment 40 70 3 140 7 Equipment 24 25 23 71 70 Marketing 19 17 27 50 62 Intangible assets impairment 45 -- 4 241 4 Other expense 195 162 108 466 307 --- --- --- --- --- Total noninterest expense 901 855 740 2,683 2,212 --- --- --- ----- ----- Loss from continuing operations before income taxes (660) (403) (8) (1,770) (35) Income taxes (274) (176) (22) (688) 755 ---- ---- --- ---- --- Income (loss) from continuing operations (386) (227) 14 (1,082) (790) Income (loss) from discontinued operations, net of taxes (16) 4 (39) (41) (143) --- - --- --- ---- Net loss (402) (223) (25) (1,123) (933) Less: Net income (loss) attributable to noncontrolling interests (5) 3 11 (12) 11 -- - -- --- -- Net loss attributable to Key $(397) $(226) $(36) $(1,111) $(944) ===== ===== ==== ======= ===== Loss from continuing operations attributable to Key common shareholders $(422) $(394) $(9) $(1,323) $(813) Net loss attributable to Key common shareholders (438) (390) (48) (1,364) (956) Per common share ---------------- Loss from continuing operations attributable to Key common shareholders $(.50) $(.68) $(.02) $(2.07) $(1.87) Income (loss) from discontinued operations, net of taxes (.02) .01 (.08) (.06) (.33) Net loss attributable to Key common shareholders (.52) (.68) (.10) (2.14) (2.19) Per common share - assuming dilution ------------------------------------ Loss from continuing operations attributable to Key common shareholders $(.50) $(.68) $(.02) $(2.07) $(1.87) Income (loss) from discontinued operations, net of taxes (.02) .01 (.08) (.06) (.33) Net loss attributable to Key common shareholders (.52) (.68) (.10) (2.14) (2.19) Cash dividends declared per common share $.01 $.01 $.1875 $.0825 $.9375 Weighted-average common shares outstanding (000) 839,906 576,883 491,179 637,805 435,846 Weighted-average common shares and potential common shares outstanding (000) 839,906 576,883 491,179 637,805 435,846 (a) For the three months ended September 30, 2009, impairment losses totaled $4 million, of which $2 million was recognized in equity as a component of accumulated other comprehensive income on the balance sheet. Impairment losses totaled $7 million for the three months ended June 30, 2009, of which $1 million was recognized in equity as a component of accumulated other comprehensive income. Consolidated Average Balance Sheets, and Net Interest Income and Yields/Rates From Continuing Operations (dollars in millions) Third Quarter 2009 ------------------ Average Balance Interest(a) Yield/Rate(a) ------- ---------- ------------ Assets Loans: (b), (c) Commercial, financial and agricultural $22,098 $255 4.59% Real estate - commercial mortgage 11,529 141 4.84 Real estate - construction 5,834 72 4.86 Commercial lease financing 8,073 88 4.35 ----- -- ---- Total commercial loans 47,534 556 4.64 Real estate - residential mortgage 1,748 25 5.88 Home equity: Community Banking 10,186 110 4.32 National Banking 918 18 7.51 --- -- ---- Total home equity loans 11,104 128 4.58 Consumer other - Community Banking 1,189 32 10.48 Consumer other - National Banking: Marine 3,017 48 6.26 Other 238 4 7.95 --- - ---- Total consumer other - National Banking 3,255 52 6.38 ----- -- ---- Total consumer loans 17,296 237 5.46 ------ --- ---- Total loans 64,830 793 4.86 Loans held for sale 665 7 4.26 Securities available for sale (b), (f) 12,154 121 4.00 Held-to-maturity securities (b) 25 1 9.64 Trading account assets 1,074 9 3.49 Short-term investments 5,243 3 .25 Other investments (f) 1,459 13 3.26 ----- -- ---- Total earning assets 85,450 947 4.40 Allowance for loan losses (2,462) Accrued income and other assets 10,142 Discontinued assets - education lending business 4,091 ----- Total assets $97,221 ======= Liabilities NOW and money market deposit accounts $24,444 29 .49 Savings deposits 1,799 -- .07 Certificates of deposit ($100,000 or more) (g) 12,771 114 3.55 Other time deposits 14,749 133 3.57 Deposits in foreign office 665 1 .31 --- - --- Total interest-bearing deposits 54,428 277 2.03 Federal funds purchased and securities sold under repurchase agreements 1,642 2 .30 Bank notes and other short-term borrowings 1,034 3 1.14 Long-term debt (g) 9,183 66 3.07 ----- -- ---- Total interest-bearing liabilities 66,287 348 2.10 ------ --- ---- Noninterest-bearing deposits 13,604 Accrued expense and other liabilities 2,055 Discontinued liabilities - education lending business (e) 4,091 ----- Total liabilities 86,037 Equity Key shareholders' equity 10,961 Noncontrolling interests 223 --- Total equity 11,184 ------- Total liabilities and equity $97,221 ======= Interest rate spread (TE) 2.30% ==== Net interest income (TE) and net interest margin (TE) 599 2.80% ==== TE adjustment (b) 7 - Net interest income, GAAP basis $592 ==== Second Quarter 2009 ------------------ Average Balance Interest(a) Yield/Rate(a) ------- ---------- ------------ Assets Loans: (b), (c) Commercial, financial and agricultural $24,468 $273 4.48% Real estate - commercial mortgage 11,892 (d) 144 4.83 Real estate - construction 6,264 (d) 76 4.89 Commercial lease financing 8,432 90 4.26 ----- -- ---- Total commercial loans 51,056 583 4.58 Real estate - residential mortgage 1,750 26 5.96 Home equity: Community Banking 10,289 112 4.36 National Banking 974 18 7.47 --- -- ---- Total home equity loans 11,263 130 4.63 Consumer other - Community Banking 1,207 31 10.41 Consumer other - National Banking: Marine 3,178 49 6.23 Other 256 6 7.96 --- - ---- Total consumer other - National Banking 3,434 55 6.36 ----- -- ---- Total consumer loans 17,654 242 5.49 ------ --- ---- Total loans 68,710 825 4.81 Loans held for sale 635 8 4.92 Securities available for sale (b), (f) 8,360 89 4.37 Held-to-maturity securities (b) 25 -- 9.75 Trading account assets 1,217 13 4.09 Short-term investments 5,195 3 .26 Other investments (f) 1,463 13 3.19 ----- -- ---- Total earning assets 85,605 951 4.45 Allowance for loan losses (2,211) Accrued income and other assets 13,094 Discontinued assets - education lending business 4,370 ----- Total assets $100,858 ======== Liabilities NOW and money market deposit accounts $24,058 32 .52 Savings deposits 1,806 1 .07 Certificates of deposit ($100,000 or more) (g) 13,555 124 3.69 Other time deposits 14,908 139 3.74 Deposits in foreign office 579 -- .26 --- -------- --- Total interest-bearing deposits 54,906 296 2.15 Federal funds purchased and securities sold under repurchase agreements 1,627 1 .31 Bank notes and other short-term borrowings 1,821 4 .79 Long-term debt (g) 10,132 75 3.23 ------ -- ---- Total interest-bearing liabilities 68,486 376 2.22 ------ --- ---- Noninterest-bearing deposits 12,457 Accrued expense and other liabilities 5,140 Discontinued liabilities - education lending business (e) 4,370 ----- Total liabilities 90,453 Equity Key shareholders' equity 10,201 Noncontrolling interests 204 --- Total equity 10,405 -------- Total liabilities and equity $100,858 ======== Interest rate spread (TE) 2.23% ==== Net interest income (TE) and net interest margin (TE) 575 2.70% ==== TE adjustment (b) 6 - Net interest income, GAAP basis $569 ==== Third Quarter 2008 ------------------ Average Balance Interest(a) Yield/Rate(a) ------- ---------- ------------ Assets Loans: (b), (c) Commercial, financial and agricultural $26,345 $356 5.38% Real estate - commercial mortgage 10,718 158 5.87 Real estate - construction 7,806 109 5.53 Commercial lease financing 9,585 108 4.52 ----- --- ---- Total commercial loans 54,454 731 5.35 Real estate - residential mortgage 1,899 28 6.04 Home equity: Community Banking 9,887 141 5.64 National Banking 1,138 22 7.65 ----- -- ---- Total home equity loans 11,025 163 5.85 Consumer other - Community Banking 1,264 33 10.37 Consumer other - National Banking: Marine 3,586 57 6.33 Other 308 6 8.22 --- - ---- Total consumer other - National Banking 3,894 63 6.48 ----- -- ---- Total consumer loans 18,082 287 6.32 ------ --- ---- Total loans 72,536 1,018 5.59 Loans held for sale 1,566 19 4.75 Securities available for sale (b), (f) 8,073 101 5.06 Held-to-maturity securities (b) 27 1 13.81 Trading account assets 1,579 16 4.02 Short-term investments 794 6 3.44 Other investments (f) 1,563 12 2.87 ----- -- ---- Total earning assets 86,138 1,173 5.42 Allowance for loan losses (1,357) Accrued income and other assets 14,246 Discontinued assets - education lending business 4,129 ----- Total assets $103,156 ======== Liabilities NOW and money market deposit accounts $26,657 108 1.61 Savings deposits 1,783 1 .21 Certificates of deposit ($100,000 or more) (g) 9,506 97 4.05 Other time deposits 13,118 129 3.92 Deposits in foreign office 2,762 12 1.77 ----- -- ---- Total interest-bearing deposits 53,826 347 2.57 Federal funds purchased and securities sold under repurchase agreements 2,546 10 1.58 Bank notes and other short-term borrowings 4,843 34 2.72 Long-term debt (g) 11,159 98 3.76 ------ -- ---- Total interest-bearing liabilities 72,374 489 2.72 ------ --- ---- Noninterest-bearing deposits 10,619 Accrued expense and other liabilities 7,124 Discontinued liabilities - education lending business (e) 4,129 ----- Total liabilities 94,246 Equity Key shareholders' equity 8,734 Noncontrolling interests 176 --- Total equity 8,910 -------- Total liabilities and equity $103,156 ======== Interest rate spread (TE) 2.70% ==== Net interest income (TE) and net interest margin (TE) 684 3.17% ==== TE adjustment (b) 6 - Net interest income, GAAP basis $678 ==== Average balances have not been adjusted prior to the third quarter of 2009 to reflect Key's January 1, 2008, adoption of the applicable accounting guidance related to the offsetting of certain derivative contracts on the consolidated balance sheet. (a) Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (e) below, calculated using a matched funds transfer pricing methodology. (b) Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%. (c) For purposes of these computations, nonaccrual loans are included in average loan balances. (d) In late March 2009, Key transferred $1.5 billion of loans from the construction portfolio to the commercial mortgage portfolio in accordance with regulatory guidelines pertaining to the classification of loans that have reached a completed status. (e) Discontinued liabilities include the liabilities of the education lending business and the dollar amount of any additional liabilities assumed necessary to support the assets associated with this business. (f) Yield is calculated on the basis of amortized cost. (g) Rate calculation excludes basis adjustments related to fair value hedges. TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles Consolidated Average Balance Sheets, and Net Interest Income and Yields/ Rates From Continuing Operations (dollars in millions) Nine months ended September 30, 2009 Average Balance Interest(a) Yield/Rate(a) ------- ---------- ------------ Assets Loans: (b), (c) Commercial, financial and agricultural $24,315 $806 4.43% Real estate - commercial mortgage 11,464 (d) 425 4.95 Real estate - construction 6,530 (d) 232 4.75 Commercial lease financing 8,429 272 4.30 ----- --- ---- Total commercial loans 50,738 1,735 4.57 Real estate - residential mortgage 1,758 78 5.94 Home equity: Community Banking 10,249 336 4.39 National Banking 977 55 7.50 --- -- ---- Total home equity loans 11,226 391 4.66 Consumer other - Community Banking 1,207 95 10.48 Consumer other - National Banking: Marine 3,174 149 6.24 Other 256 15 7.96 --- -- ---- Total consumer other - National Banking 3,430 164 6.37 ----- --- ---- Total consumer loans 17,621 728 5.52 ------ --- ---- Total loans 68,359 2,463 4.81 Loans held for sale 662 23 4.69 Securities available for sale (b), (g) 9,561 311 4.40 Held-to-maturity securities (b) 25 2 9.74 Trading account assets 1,212 35 3.87 Short-term investments 4,306 9 .30 Other investments (g) 1,482 38 3.08 ----- -- ---- Total earning assets 85,607 2,881 4.49 Allowance for loan losses (2,191) Accrued income and other assets 12,875 Discontinued assets - education lending business 4,316 ----- Total assets $100,607 ======== Liabilities NOW and money market deposit accounts $24,155 99 .55 Savings deposits 1,783 1 .08 Certificates of deposit ($100,000 or more) (h) 12,928 359 3.72 Other time deposits 14,798 412 3.72 Deposits in foreign office 832 2 .26 --- - --- Total interest-bearing deposits 54,496 873 2.14 Federal funds purchased and securities sold under repurchase agreements 1,605 4 .31 Bank notes and other short-term borrowings 2,408 13 .71 Long-term debt (h) 9,911 222 3.23 ----- --- ---- Total interest-bearing liabilities 68,420 1,112 2.20 ------ ----- ---- Noninterest-bearing deposits 12,394 Accrued expense and other liabilities 4,759 Discontinued liabilities - education lending business (f) 4,316 ----- Total liabilities 89,889 Equity Key shareholders' equity 10,507 Noncontrolling interests 211 --- Total equity 10,718 -------- Total liabilities and equity $100,607 ======== Interest rate spread (TE) 2.29% ==== Net interest income (TE) and net interest margin (TE) 1,769 2.77% ==== TE adjustment (b) 19 -- Net interest income, GAAP basis $1,750 ====== Nine months ended September 30, 2008 Average Balance Interest(a) Yield/Rate(a) ------- ---------- ------------ Assets Loans: (b),(c) Commercial, financial and agricultural $25,939 $1,100 5.66% Real estate - commercial mortgage 10,532 489 6.20 Real estate - construction 8,251 361 5.84 Commercial lease financing 9,795 (503) (6.85) (e) ----- ---- ----- Total commercial loans 54,517 1,447 3.55 Real estate - residential mortgage 1,911 88 6.15 Home equity: Community Banking 9,782 435 5.93 National Banking 1,199 69 7.69 ----- -- ---- Total home equity loans 10,981 504 6.13 Consumer other - Community Banking 1,280 100 10.43 Consumer other - National Banking: Marine 3,626 171 6.30 Other 324 20 8.25 --- -- ---- Total consumer other - National Banking 3,950 191 6.46 ----- --- ---- Total consumer loans 18,122 883 6.50 ------ --- ---- Total loans 72,639 2,330 4.28 Loans held for sale 1,480 62 5.51 Securities available for sale (b), (g) 8,143 304 5.04 Held-to-maturity securities (b) 27 2 12.06 Trading account assets 1,233 39 4.22 Short-term investments 910 23 3.44 Other investments (g) 1,565 38 3.00 ----- -- ---- Total earning assets 85,997 2,798 4.34 Allowance for loan losses (1,284) Accrued income and other assets 14,410 Discontinued assets - education lending business 4,144 ----- Total assets $103,267 ======== Liabilities NOW and money market deposit accounts $26,936 349 1.73 Savings deposits 1,821 5 .37 Certificates of deposit ($100,000 or more) (h) 8,752 280 4.27 Other time deposits 12,877 410 4.26 Deposits in foreign office 4,240 78 2.45 ----- -- ---- Total interest-bearing deposits 54,626 1,122 2.74 Federal funds purchased and securities sold under repurchase agreements 3,223 53 2.20 Bank notes and other short-term borrowings 4,849 100 2.74 Long-term debt (h) 10,362 285 3.97 ------ --- ---- Total interest-bearing liabilities 73,060 1,560 2.88 ------ ----- ---- Noninterest-bearing deposits 10,551 Accrued expense and other liabilities 6,728 Discontinued liabilities - education lending business (f) 4,144 ----- Total liabilities 94,483 Equity Key shareholders' equity 8,599 Noncontrolling interests 185 --- Total equity 8,784 -------- Total liabilities and equity $103,267 ======== Interest rate spread (TE) 1.46% ==== Net interest income (TE) and net interest margin (TE) 1,238 (e) 1.92% (e) ==== TE adjustment (b) (461) ---- Net interest income, GAAP basis $1,699 ====== Average balances have not been adjusted prior to the third quarter of 2009 to reflect Key's January 1, 2008, adoption of the applicable accounting guidance related to the offsetting of certain derivative contracts on the consolidated balance sheet. (a) Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (f) below, calculated using a matched funds transfer pricing methodology. (b) Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%. (c) For purposes of these computations, nonaccrual loans are included in average loan balances. (d) In late March 2009, Key transferred $1.5 billion of loans from the construction portfolio to the commercial mortgage portfolio in accordance with regulatory guidelines pertaining to the classification of loans that have reached a completed status. (e) 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 lease in, lease out 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 these reductions, the taxable-equivalent yield on Key's commercial lease financing portfolio would have been 5.02% for the first nine months of 2008, and Key's taxable-equivalent net interest margin would have been 3.22%. (f) Discontinued liabilities include the liabilities of the education lending business and the dollar amount of any additional liabilities assumed necessary to support the assets associated with this business. (g) Yield is calculated on the basis of amortized cost. (h) Rate calculation excludes basis adjustments related to fair value hedges. TE = Taxable Equivalent, GAAP = U.S. generally accepted accounting principles Noninterest Income (in millions) Three months ended Nine months ended ------------------- ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------- ------- ------- Trust and investment services income (a) $113 $119 $125 $342 $378 Service charges on deposit accounts 83 83 94 248 275 Operating lease income 55 59 69 175 206 Letter of credit and loan fees 46 44 53 128 141 Corporate-owned life insurance income 26 25 28 78 84 Electronic banking fees 27 27 27 78 78 Insurance income 18 16 15 52 50 Investment banking and capital markets income (loss) (a) (26) 14 (26) 5 63 Net securities gains 1 125 1 112 3 Net losses from principal investing (6) (6) (14) (84) (17) Net gains (losses) from loan securitizations and sales -- (3) (29) 4 (86) Gain (loss) related to exchange of common shares for capital securities (17) 95 -- 78 -- Gain from sale/ redemption of Visa Inc. shares -- -- -- 105 165 Other income: Gain from sale of Key's claim associated with the Lehman Brothers' bankruptcy -- 32 -- 32 -- Gains on leased equipment 22 36 6 84 21 Credit card fees 6 3 6 12 13 Miscellaneous income 34 37 35 117 90 -- -- -- --- -- Total other income 62 108 47 245 124 -- --- -- --- --- Total noninterest income $382 $706 $390 $1,566 $1,464 ==== ==== ==== ====== ====== (a) Additional detail provided in tables below. Trust and Investment Services Income (in millions) Three months ended Nine months ended ------------------- ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------- ------- ------- Brokerage commissions and fee income $37 $45 $37 $120 $111 Personal asset management and custody fees 35 36 38 104 119 Institutional asset management and custody fees 41 38 50 118 148 -- -- -- --- --- Total trust and investment services income $113 $119 $125 $342 $378 ==== ==== ==== ==== ==== Investment Banking and Capital Markets Income (Loss) (in millions) Three months ended Nine months ended ------------------- ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------- ------- ------- Investment banking income $22 $21 $20 $54 $78 Loss from other investments (23) (6) (7) (37) (12) Dealer trading and derivatives loss (36) (14) (52) (49) (44) Foreign exchange income 11 13 13 37 41 -- -- -- -- -- Total investment banking and capital markets income (loss) $(26) $14 $(26) $5 $63 ==== === ==== == === Noninterest Expense (dollars in millions) Three months ended Nine months ended ------------------- ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------- ------- ------- Personnel (a) $380 $375 $374 $1,114 $1,176 Net occupancy 63 63 65 192 193 Operating lease expense 46 49 56 145 169 Computer processing 48 48 46 143 136 Professional fees 41 46 34 121 88 FDIC assessment 40 70 3 140 7 Equipment 24 25 23 71 70 Marketing 19 17 27 50 62 Intangible assets impairment 45 -- 4 241 4 Other expense: OREO expense, net 51 15 5 72 10 Postage and delivery 9 8 11 25 34 Franchise and business taxes 8 9 7 26 23 Telecommunications 7 6 7 20 22 Provision for losses on LIHTC guaranteed funds 1 16 4 17 10 Provision (credit) for losses on lending- related commitments 29 11 8 40 (21) Miscellaneous expense 90 97 66 266 229 -- -- -- --- --- Total other expense 195 162 108 466 307 --- --- --- --- --- Total noninterest expense $901 $855 $740 $2,683 $2,212 ==== ==== ==== ====== ====== Average full-time equivalent employees (b) 16,436 16,937 18,098 16,943 18,229 (a) Additional detail provided in table below. (b) The number of average full-time equivalent employees has not been adjusted for discontinued operations. Personnel Expense (in millions) Three months ended Nine months ended ------------------ ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------ - ------- ------- Salaries $228 $225 $244 $676 $711 Incentive compensation 58 52 53 146 203 Employee benefits 76 69 57 228 197 Stock-based compensation 12 15 8 36 39 Severance 6 14 12 28 26 -- -- -- -- -- Total personnel expense $380 $375 $374 $1,114 $1,176 ==== ==== ==== ====== ====== Loan Composition (dollars in millions) Percent change 9-30-09 vs. ---------------- 9-30-09 6-30-09 9-30-08 6-30-09 9-30-08 ------- ------- ------- ------- ------- Commercial, financial and agricultural $20,600 $23,542 $27,207 (12.5)% (24.3)% Commercial real estate: Commercial mortgage 11,169 11,761(a) 10,569 (5.0) 5.7 Construction 5,473 6,119(a) 7,708 (10.6) (29.0) ----- ----- ----- ----- ----- Total commercial Real estate loans 16,642 17,880 18,277 (6.9) (8.9) Commercial lease financing 7,787 8,263 9,437 (5.8) (17.5) ----- ----- ----- ---- ----- Total commercial loans 45,029 49,685 54,921 (9.4) (18.0) Real estate - residential mortgage 1,763 1,753 1,898 .6 (7.1) Home equity: Community Banking 10,158 10,256 9,970 (1.0) 1.9 National Banking 880 934 1,101 (5.8) (20.1) --- --- ----- ---- ----- Total home equity loans 11,038 11,190 11,071 (1.4) (.3) Consumer other - Community Banking 1,189 1,199 1,274 (.8) (6.7) Consumer other - National Banking: Marine 2,943 3,095 3,529 (4.9) (16.6) Other 231 245 301 (5.7) (23.3) --- --- --- ---- ----- Total consumer other - National Banking 3,174 3,340 3,830 (5.0) (17.1) ----- ----- ----- ---- ----- Total consumer loans 17,164 17,482 18,073 (1.8) (5.0) ------ ------ ------ ---- ----- Total loans (b) $62,193 $67,167 $72,994 (7.4)% (14.8)% ======= ======= ======= Loans Held for Sale Composition (dollars in millions) Percent change 9-30-09 vs. ----------------- 9-30-09 6-30-09 9-30-08 6-30-09 9-30-08 ------- ------- ------- ------- ------- Commercial, financial and agricultural $128 $51 $159 151.0% (19.5)% Real estate - commercial mortgage 302 288 718 4.9 (57.9) Real estate - construction 133 146 262 (8.9) (49.2) Commercial lease financing 29 30 52 (3.3) (44.2) Real estate - residential mortgage 110 245 57 (55.1) 93.0 Automobile 1 1 4 -- (75.0) Total loans held for sale (c) $703 $761 $1,252 (7.6)% (43.8)% ==== ==== ====== (a) In late March 2009, Key transferred $1.5 billion of loans from the construction portfolio to the commercial mortgage portfolio in accordance with regulatory guidelines pertaining to the classification of loans that have reached a completed status. (b) Excluded at September 30, 2009, June 30, 2009, and September 30, 2008, are loans in the amount of $3,571 million, $3,636 million and $3,711 million, respectively, related to the discontinued operations of the education lending business. (c) Excluded at September 30, 2009, June 30, 2009, and September 30, 2008, are loans held for sale in the amount of $341 million, $148 million, and $223 million, respectively, related to the discontinued operations of the education lending business. Summary of Loan Loss Experience from Continuing Operations (dollars in millions) Three months ended Nine months ended ------------------ ----------------- 9-30-09 6-30-09 9-30-08 9-30-09 9-30-08 ------- ------- ------- ------- ------- Average loans outstanding $64,830 $68,710 $72,536 $68,359 $72,639 ======= ======= ======= ======= ======= Allowance for loan losses at beginning of period $2,339 $2,016 $1,288 $1,629 $1,195 Loans charged off: Commercial, financial and agricultural 180 182 75 606 200 Real estate - commercial mortgage 81 87 21 190 40 Real estate - construction 217 135 80 456 445 --- --- -- --- --- Total commercial real estate loans 298 222 101 646 485 Commercial lease financing 32 29 24 83 57 -- -- -- -- -- Total commercial loans 510 433 200 1,335 742 Real estate - residential mortgage 4 4 2 11 8 Home equity: Community Banking 26 25 10 69 28 National Banking 20 19 12 54 30 -- -- -- -- -- Total home equity loans 46 44 22 123 58 Consumer other - Community Banking 19 17 11 50 31 Consumer other - National Banking: Marine 35 39 20 113 55 Other 5 3 4 14 10 -- -- -- -- -- Total consumer other - National Banking 40 42 24 127 65 -- -- -- --- -- Total consumer loans 109 107 59 311 162 --- --- -- --- --- Total loans charged off 619 540 259 1,646 904 Recoveries: Commercial, financial and agricultural 12 14 13 38 41 Real estate - commercial mortgage -- -- 1 1 1 Real estate - construction 1 2 1 3 2 -- -- -- -- -- Total commercial real estate loans 1 2 2 4 3 Commercial lease financing 5 7 5 16 15 -- -- -- -- -- Total commercial loans 18 23 20 58 59 Real estate - residential mortgage -- -- -- -- 1 Home equity: Community Banking 1 1 1 3 2 National Banking -- 1 -- 1 1 -- -- -- -- -- Total home equity loans 1 2 1 4 3 Consumer other - Community Banking 2 2 1 5 4 Consumer other - National Banking: Marine 10 10 4 27 13 Other 1 1 -- 3 2 -- -- -- -- -- Total consumer other - National Banking 11 11 4 30 15 -- -- -- -- -- Total consumer loans 14 15 6 39 23 -- -- -- -- -- Total recoveries 32 38 26 97 82 -- -- -- -- -- Net loan charge-offs (587) (502) (233) (1,549) (822) Provision for loan losses 733 823 336 2,403 986 Allowance related to loans acquired, net -- -- -- -- 32 Foreign currency translation adjustment -- 2 (1) 2 (1) -- -- -- -- -- Allowance for loan losses at end of period $2,485 $2,339 $1,390 $2,485 $1,390 ====== ====== ====== ====== ====== Liability for credit losses on lending-related commitments at beginning of period $65 $54 $51 $54 $80 Provision (credit) for losses on lending-related commitments 29 11 8 40 (21) -- -- -- -- --- Liability for credit losses on lending-related commitments at end of period (a) $94 $65 $59 $94 $59 === === === === === Total allowance for credit losses at end of period $2,579 $2,404 $1,449 $2,579 $1,449 ====== ====== ====== ====== ====== Net loan charge-offs to average loans 3.59% 2.93% 1.28% 3.03% 1.51% Allowance for loan losses to period-end loans 4.00 3.48 1.90 4.00 1.90 Allowance for credit losses to period-end loans 4.15 3.58 1.99 4.15 1.99 Allowance for loan losses to nonperforming loans 108.52 107.05 144.19 108.52 144.19 Allowance for credit losses to nonperforming loans 112.62 110.02 150.31 112.62 150.31 Discontinued operations - education lending business: Loans charged off $39 $38 $41 $110 $98 Recoveries 1 1 1 3 2 -- -- -- -- -- Net loan charge-offs $(38) $(37) $(40) $(107) $(96) ==== ==== ==== ===== ==== (a) Included in "accrued expense and other liabilities" on the consolidated balance sheet. Summary of Nonperforming Assets and Past Due Loans From Continuing Operations (dollars in millions) 9-30-09 6-30-09 3-31-09 12-31-08 9-30-08 ------- ------- ------- -------- ------- Commercial, financial and Agricultural $679 $700 $595 $415 $309 Real estate - commercial mortgage 566 454 310 128 119 Real estate - construction 702 716 546 436 334 --- --- --- --- --- Total commercial real estate loans 1,268 1,170 856 564 453 Commercial lease financing 131 122 109 81 55 --- --- --- -- -- Total commercial loans 2,078 1,992 1,560 1,060 817 Real estate - residential mortgage 68 46 39 39 35 Home equity: Community Banking 103 101 91 76 70 National Banking 21 20 19 15 16 -- -- -- -- -- Total home equity loans 124 121 110 91 86 Consumer other - Community Banking 4 5 3 3 3 Consumer other - National Banking: Marine 15 19 21 26 22 Other 1 2 2 2 1 -- -- -- -- -- Total consumer other - National Banking 16 21 23 28 23 -- -- -- -- -- Total consumer loans 212 193 175 161 147 --- --- --- --- --- Total nonperforming loans 2,290 2,185 1,735 1,221 964 Nonperforming loans held for sale 304 145 72 90 169 OREO 187 182 147 110 64 Allowance for OREO losses (40) (11) (4) (3) (4) --- --- -- -- -- OREO, net of allowance 147 171 143 107 60 Other nonperforming assets 58 47 44 42 43 -- -- -- -- -- Total nonperforming assets $2,799 $2,548 $1,994 $1,460 $1,236 ====== ====== ====== ====== ====== Accruing loans past due 90 days or more $375 $552 $435 $413 $308 Accruing loans past due 30 through 89 days 1,071 1,081 1,313 1,230 852 Nonperforming loans to period-end portfolio loans 3.68% 3.25% 2.48% 1.68% 1.32% Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets 4.46 3.77 2.84 2.00 1.69 Summary of Changes in Nonperforming Loans From Continuing Operations (in millions) 3Q09 2Q09 1Q09 4Q08 3Q08 ---- ---- ---- ---- ---- Balance at beginning of period $2,185 $1,735 $1,221 $964 $810 Loans placed on nonaccrual status 1,140 1,218 1,175 734 530 Charge-offs (619) (540) (487) (336) (259) Loans sold (4) (12) (15) (5) (1) Payments (300) (148) (112) (111) (83) Transfers to OREO (94) (30) (34) (22) -- Transfer to nonperforming loans held for sale (5) (30) --- --- (30) Loans returned to accrual status (13) (8) (13) (3) (3) --- -- --- -- -- Balance at end of period $2,290 $2,185 $1,735 $1,221 $964 ====== ====== ====== ====== ==== Line of Business Results (dollars in millions) Community Banking 3Q09 2Q09 1Q09 4Q08 3Q08 ---- ---- ---- ---- ---- Summary of operations Total revenue (TE) $618 $593 $600 $641 $651 Provision for loan losses 143 187 81 102 56 Noninterest expense 486 492 460 473 438 Net income (loss) attributable to Key (7) (54) 37 41 98 Average loans and leases 27,410 28,237 28,940 29,164 28,874 Average deposits 52,954 52,689 51,560 51,051 50,378 Net loan charge-offs 94 87 54 66 70 Net loan charge-offs to average loans 1.36% 1.24% .76% .90% .96% Nonperforming assets at period end $470 $380 $331 $260 $225 Return on average allocated equity (.83)% (6.47)% 4.61% 5.08% 12.63% Average full-time equivalent employees 8,419 8,656 8,887 8,797 8,854 Supplementary information (lines of business) Regional Banking Total revenue (TE) $522 $502 $508 $551 $549 Provision for loan losses 93 165 69 80 39 Noninterest expense 437 441 408 426 391 Net income (loss) attributable to Key (5) (65) 19 28 74 Average loans and leases 19,347 19,746 20,004 20,022 19,801 Average deposits 48,551 48,717 47,784 47,426 46,655 Net loan charge-offs 78 73 53 52 41 Net loan charge-offs to average loans 1.60% 1.48% 1.07% 1.03% .82% Nonperforming assets at period end $290 $245 $216 $184 $168 Return on average allocated equity (.85)% (11.22)% 3.40% 5.02% 13.51% Average full-time equivalent employees 8,120 8,339 8,565 8,474 8,527 Commercial Banking Total revenue (TE) $96 $91 $92 $90 $102 Provision for loan losses 50 22 12 22 17 Noninterest expense 49 51 52 47 47 Net income (loss) attributable to Key (2) 11 18 13 24 Average loans and leases 8,063 8,491 8,936 9,142 9,073 Average deposits 4,403 3,972 3,776 3,625 3,723 Net loan charge-offs 16 14 1 14 29 Net loan charge-offs to average loans .79% .66% .05% .61% 1.27% Nonperforming assets at period end $180 $135 $115 $76 $57 Return on average allocated equity (.77)% 4.32% 7.40% 5.23% 10.53% Average full-time equivalent employees 299 317 322 323 327 Percent change 3Q09 vs. -------------- 2Q09 3Q08 ---- ---- Summary of operations Total revenue (TE) 4.2% (5.1)% Provision for loan losses (23.5) 155.4 Noninterest expense (1.2) 11.0 Net income (loss) attributable to Key 87.0 N/M Average loans and leases (2.9) (5.1) Average deposits .5 5.1 Net loan charge-offs 8.0 34.3 Net loan charge-offs to average loans N/A N/A Nonperforming assets at period end 23.7 108.9 Return on average allocated equity N/A N/A Average full-time equivalent employees (2.7) (4.9) Supplementary information (lines of business) Regional Banking Total revenue (TE) 4.0% (4.9)% Provision for loan losses (43.6) 138.5 Noninterest expense (.9) 11.8 Net income (loss) attributable to Key (92.3) N/M Average loans and leases (2.0) (2.3) Average deposits (.3) 4.1 Net loan charge-offs 6.8 90.2 Net loan charge-offs to average loans N/A N/A Nonperforming assets at period end 18.4 72.6 Return on average allocated equity N/A N/A Average full-time equivalent employees (2.6) (4.8) Commercial Banking Total revenue (TE) 5.5% (5.9)% Provision for loan losses 127.3 194.1 Noninterest expense (3.9) 4.3 Net income (loss) attributable to Key N/M N/M Average loans and leases (5.0) (11.1) Average deposits 10.9 18.3 Net loan charge-offs 14.3 (44.8) Net loan charge-offs to average loans N/A N/A Nonperforming assets at period end 33.3 215.8 Return on average allocated equity N/A N/A Average full-time equivalent employees (5.7) (8.6) Line of Business Results (continued) (dollars in millions) National Banking 3Q09 2Q09 1Q09 4Q08 3Q08 ---- ---- ---- ---- ---- Summary of operations Total revenue (TE) $461 $514 $501 $505 $460 Provision for loan losses 593 636 761 446 279 Noninterest expense 434 344 494 789 322 Loss from continuing operations attributable to Key (352) (290) (544) (631) (90) Net loss attributable to Key (368) (286) (573) (661) (129) Average loans and leases (a) 37,229 40,271 42,476 43,793 43,419 Average loans held for sale (a) 469 466 567 1,088 1,495 Average deposits 13,435 13,141 12,081 12,176 12,304 Net loan charge-offs(a) 493 415 406 243 163 Net loan charge-offs to average loans (a) 5.25% 4.13% 3.88% 2.21% 1.49% Nonperforming assets at period end (a) $2,308 $2,146 $1,643 $1,185 $1,001 Return on average allocated equity (a) (26.07)% (21.10)% (40.09)% (47.23)% (6.91)% Return on average allocated equity (27.27) (20.85) (42.34) (49.48) (9.91) Average full-time equivalent employees(b) 2,780 2,895 3,013 3,287 3,524 Supplementary information (lines of business) Real Estate Capital and Corporate Banking Services Total revenue (TE) $140 $183 $174 $165 $98 Provision for loan losses 372 462 470 153 99 Noninterest expense 135 106 137 96 91 Net loss attributable to Key (228) (240) (292) (53) (57) Average loans and leases 14,902 15,873 16,567 16,604 16,447 Average loans held for sale 248 231 269 511 792 Average deposits 10,624 10,582 9,987 10,390 10,446 Net loan charge-offs 309 274 218 81 100 Net loan charge-offs to average loans 8.23% 6.92% 5.34% 1.94% 2.42% Nonperforming assets at period end $1,522 $1,460 $1,072 $763 $714 Return on average allocated equity (34.97)% (35.79)% (47.37)% (9.85)% (11.00)% Average full-time equivalent employees 967 982 1,024 1,107 1,209 Equipment Finance Total revenue (TE) $86 $101 $101 $86 $111 Provision for loan losses 99 72 77 33 64 Noninterest expense 126 88 88 346 89 Net loss attributable to Key (87) (37) (40) (278) (26) Average loans and leases 8,462 8,769 9,091 9,548 10,013 Average loans held for sale 73 40 28 29 49 Average deposits 15 17 17 15 20 Net loan charge-offs 51 46 44 51 32 Net loan charge-offs to average loans 2.39% 2.10% 1.96% 2.12% 1.27% Nonperforming assets at period end $309 $270 $215 $158 $115 Return on average allocated equity (54.53)% (23.82)% (22.85)% (125.25)% (11.56)% Average full-time equivalent employees 731 766 781 858 897 Institutional and Capital Markets Total revenue (TE) $186 $185 $171 $195 $177 Provision for loan losses 29 38 31 52 17 Noninterest expense 138 121 182 322 101 Income (loss) from continuing operations attributable to Key 12 17 (56) (192) 36 Net income (loss) attributable to Key 14 27 (78) (191) 38 Average loans and leases 7,383 8,391 8,949 9,341 8,351 Average loans held for sale 147 194 268 545 650 Average deposits 2,450 2,331 1,773 1,442 1,478 Net loan charge-offs 49 11 45 38 -- Net loan charge-offs to average loans 2.63% .53% 2.04% 1.62% -- Nonperforming assets at period end $208 $88 $59 $55 $57 Return on average allocated equity (a) 4.32% 6.02% (18.63)% (57.95)% 11.15% Return on average allocated equity 5.04 9.57 (25.95) (57.65) 11.77 Average full-time equivalent employees (b) 813 869 913 939 964 Consumer Finance Total revenue (TE) $49 $45 $55 $59 $74 Provision for loan losses 93 64 183 208 99 Noninterest expense 35 29 87 25 41 Loss from continuing operations attributable to Key (49) (30) (156) (108) (43) Net loss attributable to Key (67) (36) (163) (139) (84) Average loans and leases (a) 6,482 7,238 7,869 8,300 8,608 Average loans held for sale (a) 1 1 2 3 4 Average deposits 346 211 304 329 360 Net loan charge-offs (a) 84 84 99 73 31 Net loan charge-offs to average loans (a) 5.14% 4.65% 5.10% 3.50% 1.43% Nonperforming assets at period end (a) $269 $328 $297 $209 $115 Return on average allocated equity (a) (18.78)% (11.27)% (58.91)% (44.11)% (18.22)% Return on average allocated equity (25.68) (13.52) (61.55) (56.77) (35.59) Average full-time equivalent employees (b) 269 278 295 383 454 Percent change 3Q09 vs. -------------- 2Q09 3Q08 ---- ---- Summary of operations Total revenue (TE) (10.3)% .2% Provision for loan losses (6.8) 112.5 Noninterest expense 26.2 34.8 Loss from continuing operations attributable to Key (21.4) (291.1) Net loss attributable to Key (28.7) (185.3) Average loans and leases (a) (7.6) (14.3) Average loans held for sale (a) .6 (68.6) Average deposits 2.2 9.2 Net loan charge-offs (a) 18.8 202.5 Net loan charge-offs to average loans (a) N/A N/A Nonperforming assets at period end (a) 7.5 130.6 Return on average allocated equity (a) N/A N/A Return on average allocated equity N/A N/A Average full-time equivalent employees (b) (4.0) (21.1) Supplementary information (lines of business) Real Estate Capital and Corporate Banking Services Total revenue (TE) (23.5)% 42.9% Provision for loan losses (19.5) 275.8 Noninterest expense 27.4 48.4 Net loss attributable to Key 5.0 (300.0) Average loans and leases (6.1) (9.4) Average loans held for sale 7.4 (68.7) Average deposits .4 1.7 Net loan charge-offs 12.8 209.0 Net loan charge-offs to average loans N/A N/A Nonperforming assets at period end 4.2 113.2 Return on average allocated equity N/A N/A Average full-time equivalent employees (1.5) (20.0) Equipment Finance Total revenue (TE) (14.9)% (22.5)% Provision for loan losses 37.5 54.7 Noninterest expense 43.2 41.6 Net loss attributable to Key (135.1) (234.6) Average loans and leases (3.5) (15.5) Average loans held for sale 82.5 49.0 Average deposits (11.8) (25.0) Net loan charge-offs 10.9 59.4 Net loan charge-offs to average loans N/A N/A Nonperforming assets at period end 14.4 168.7 Return on average allocated equity N/A N/A Average full-time equivalent employees (4.6) (18.5) Institutional and Capital Markets Total revenue (TE) .5% 5.1% Provision for loan losses (23.7) 70.6 Noninterest expense 14.0 36.6 Income (loss) from continuing operations attributable to Key (29.4) (66.7) Net income (loss) attributable to Key (48.1) (63.2) Average loans and leases (12.0) (11.6) Average loans held for sale (24.2) (77.4) Average deposits 5.1 65.8 Net loan charge-offs 345.5 100.0 Net loan charge-offs to average loans N/A N/A Nonperforming assets at period end 136.4 264.9 Return on average allocated equity (a) N/A N/A Return on average allocated equity N/A N/A Average full-time equivalent employees (b) (6.4) (15.7) Consumer Finance Total revenue (TE) 8.9% (33.8)% Provision for loan losses 45.3 (6.1) Noninterest expense 20.7 (14.6) Loss from continuing operations attributable to Key 63.3 14.0 Net loss attributable to Key (86.1) 20.2 Average loans and leases (a) (10.4) (24.7) Average loans held for sale (a) -- (75.0) Average deposits 64.0 (3.9) Net loan charge-offs (a) -- 171.0 Net loan charge-offs to average loans (a) N/A N/A Nonperforming assets at period end (a) (18.0) 133.9 Return on average allocated equity (a) N/A N/A Return on average allocated equity N/A N/A Average full-time equivalent employees (b) (3.2) (40.7) (a) From continuing operations. (b) The number of average full-time equivalent employees has not been adjusted for discontinued operations. TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful DATASOURCE: KeyCorp Corporate Communications CONTACT: ANALYSTS: Vernon L. Patterson, +1-216-689-0520, , or Christopher F. Sikora, +1-216-689-3133, , or MEDIA: William C. Murschel, +1-216-828-7416, Web Site: https://www.key.com/

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