EX-99.1 2 l18037aexv99w1.htm EX-99.1 PRESS RELEASE EX-99.1
 

Exhibit 99.1
                     
Analyst Contact:
  Vernon L. Patterson   Media Contact:   William C. Murschel
 
  216.689.0520           216.689.0457    
         
Investor Relations
      Key Media
Information:
www.Key.com/ir     Newsroom: www.Key.com/newsroom
FOR IMMEDIATE RELEASE
KEYCORP REPORTS FOURTH QUARTER AND
RECORD 2005 EARNINGS
•   EPS of $0.72 for the fourth quarter and $2.73 for the full year
 
•   ROE of 15.59% for the fourth quarter, compared with 11.99% one year ago
 
•   Higher revenue
 
•   Average core deposits up 8% from the fourth quarter of 2004
 
•   Continued expansion of commercial mortgage servicing business
     CLEVELAND, January 20, 2006 – KeyCorp today announced fourth quarter net income of $296 million, or $0.72 per diluted common share, compared with $213 million, or $0.51 per share, for the fourth quarter of 2004. Adjusted net income for the year-ago quarter was $290 million, or $0.70 per share, excluding the effects of the sale of the broker-originated home equity loan portfolio and the reclassification of the indirect automobile loan portfolio to held-for-sale status. For the third quarter of 2005, net income was $278 million, or $0.67 per diluted common share. Return on average equity rose to 15.59% for the fourth quarter of 2005 from 11.99% for the same period last year and 14.84% for the third quarter of 2005.
     Key’s 2005 net income of $1.129 billion, or $2.73 per diluted common share, was the highest in the company’s history. Net income increased 18 percent from a reported $954 million, or $2.30 per share, for the previous year. Return on average equity rose to 15.42% for 2005 from 13.75% for 2004.
     “Key’s solid fourth quarter results reflect our success in growing revenue, improving our business mix and strengthening our credit risk profile,” said Chairman and Chief Executive Officer Henry L. Meyer III. “Compared with last year’s comparable quarter, taxable-equivalent revenue rose by $132 million, reflecting an improved net interest margin, strong commercial loan growth, higher fee income and growth in core deposits – which increased 8% from the fourth quarter of 2004. During the quarter, we also increased our commercial mortgage servicing portfolio from $44 billion to more than $70 billion through the acquisition of the commercial mortgage-backed servicing business of ORIX Capital Markets, LLC.
     “Over the past several years, we have restored our strong credit culture, and we remain committed to maintaining it. Included in our net charge-offs for the quarter were $127 million of commercial passenger airline leases. Our exposure to that industry now stands at $86 million, substantially all of which is categorized as performing. Total nonperforming loans were down $31 million and total nonperforming assets declined by $72 million from December 31, 2004; both are at their lowest level in 11 years.

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 2
     “We are also committed to strengthening our anti-money laundering processes, and controls related to the Bank Secrecy Act. We believe we have made significant progress in this regard during the fourth quarter and will continue with our improvement efforts into 2006.”
     The company expects earnings to be in the range of $0.67 to $0.71 per share for the first quarter of 2006 and $2.80 to $2.90 per share for the full year.
SUMMARY OF CONSOLIDATED RESULTS
     Taxable-equivalent net interest income increased to $748 million for the fourth quarter of 2005 from $698 million for the same period last year. Average earning assets rose by 4%, due primarily to commercial loan growth, while the net interest margin increased 8 basis points to 3.71%. The growth in commercial loans was attributable in part to the acquisition of American Express Business Finance Corporation during the fourth quarter of 2004. Compared with the third quarter of 2005, taxable-equivalent net interest income grew by $22 million. This growth was attributable to a $1.4 billion increase in average earning assets and a 4 basis point improvement in the net interest margin.
     Key’s noninterest income was $561 million for the fourth quarter of 2005, compared with $479 million for the year-ago quarter. The increase was attributable primarily to net gains from loan securitizations and sales recorded in the fourth quarter of 2005, compared with net losses recorded in the year-ago quarter. Current year results included a $16 million gain from the annual securitization and sale of education loans, while last year’s results included $46 million of losses associated with management’s decision to sell the broker-originated home equity and indirect automobile loan portfolios. Also contributing to the improved performance was a $15 million increase in income from principal investing.
     Compared with the third quarter of 2005, noninterest income grew by $30 million. The improvement reflected a $22 million increase in net gains from loan securitizations and sales, due largely to the gain resulting from the securitization and sale of education loans in the current period. Noninterest income also benefited from increases of $9 million in income from investment banking activities, $6 million in net gains on the residual values of leased equipment and $5 million in income from corporate owned life insurance. These increases were offset, in part, by an $11 million reduction in income from principal investing.
     Key’s noninterest expense was $834 million for the fourth quarter of 2005, compared with $818 million for the same period last year. Excluding a $55 million write-off of goodwill recorded during the fourth quarter of 2004 in connection with the decision to sell Key’s nonprime indirect automobile loan business, noninterest expense for the fourth quarter of 2005 was up $71 million from the year-ago quarter. Nonpersonnel expense accounted for most of the growth. During the fourth quarter, miscellaneous expense included a $15 million contribution to the Key Foundation, a $10 million accrual for the settlement of a legal dispute and an additional $5 million reserve to absorb potential noncredit-related losses from Key’s education lending business. Also contributing to the increase in noninterest expense were professional fees associated with Key’s efforts to strengthen its compliance controls, higher franchise and business taxes, and an increase in net occupancy expense. Personnel expense rose by $5 million from the fourth quarter of 2004.

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 3
     Compared with the third quarter of 2005, noninterest expense increased by $53 million. Nonpersonnel expense grew by $51 million, reflecting the $15 million contribution to the Key Foundation, the legal settlement accrual, and increases in professional fees and a variety of other expense components. The level of personnel expense was essentially unchanged.
ASSET QUALITY
     Key’s provision for loan losses was an expense of $36 million for the fourth quarter of 2005, compared with a credit of $21 million for the year-ago quarter and an expense of $43 million for the third quarter of 2005.
     Net loan charge-offs for the quarter totaled $164 million, or 0.98% of average loans, compared with $140 million, or 0.88%, for the same period last year and $49 million, or 0.30%, for the previous quarter. The increase from September 30, 2005, was attributable to the charge-off of several credits within the commercial passenger airline portfolio. Key had established reserves in prior periods in connection with these lease financing receivables.
     At December 31, 2005, Key’s nonperforming loans stood at $277 million and represented 0.42% of period-end loans, compared with 0.49% at December 31, 2004, and 0.55% at September 30, 2005. The decrease from the prior quarter reflects charge-offs related to certain commercial passenger airline leases.
     Key’s allowance for loan losses stood at $966 million, or 1.45% of loans outstanding at December 31, 2005, compared with $1.138 billion, or 1.80% at December 31, 2004, and $1.093 billion, or 1.67% at September 30, 2005. At December 31, 2005, the allowance for loan losses represented 349% of nonperforming loans, compared with 369% a year ago and 304% at September 30, 2005.
CAPITAL
     Key’s capital ratios continued to exceed all “well-capitalized” regulatory benchmarks at December 31, 2005. Key’s tangible equity to tangible assets ratio was 6.68% at quarter end, compared with 6.35% at December 31, 2004, and 6.68% at September 30, 2005. The ratio is currently within management’s targeted range of 6.25% to 6.75%.
     Key’s capital position provides it with the flexibility to take advantage of future investment opportunities, to repurchase shares when appropriate and to pay dividends. During the fourth quarter of 2005, Key repurchased 3,250,000 of its common shares. At December 31, 2005, there were 22,461,248 shares remaining for repurchase under the current authorization. Share repurchases and other activities that caused the change in Key’s outstanding common shares over the past five quarters are summarized in the table below.
Summary of Changes in Common Shares Outstanding
                                         
in thousands   4Q05   3Q05   2Q05   1Q05   4Q04
 
Shares outstanding at beginning of period
     408,542       408,231       407,297       407,570       405,723  
Issuance of shares under employee benefit and dividend reinvestment plans
     1,332       1,561       934       2,227       1,847  
Repurchase of common shares
     (3,250 )     (1,250 )     —       (2,500 )     —  
 
                                        
Shares outstanding at end of period
     406,624       408,542       408,231       407,297       407,570  
 
                                        

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 4
LINE OF BUSINESS RESULTS
     The following table shows the contribution made by each major business group to Key’s taxable-equivalent revenue and net income 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 last two pages of this release.
Major Business Groups
                                         
                            Percent change 4Q05 vs.  
dollars in millions   4Q05     3Q05     4Q04     3Q05     4Q04  
 
Revenue (taxable equivalent)
                                        
Consumer Banking
   $ 730     $ 716     $ 691       2.0 %     5.6 %
Corporate and Investment Banking
     577       543       515       6.3       12.0  
Other Segments
     17       24       (2 )     (29.2 )     N/M  
 
                              
Total segments
     1,324       1,283       1,204       3.2       10.0  
 
Reconciling Items
     (15 )     (26 )     (27 )     42.3       44.4  
 
                              
Total
   $ 1,309     $ 1,257     $ 1,177       4.1 %     11.2 %
 
                                  
 
                                        
Net income (loss)
                                        
Consumer Banking
   $ 109     $ 125     $ 59       (12.8 )%     84.7 %
Corporate and Investment Banking
     161       148       174       8.8       (7.5 )
Other Segments
     20       21       9       (4.8 )     122.2  
 
                              
Total segments
     290       294       242       (1.4 )     19.8  
 
Reconciling Items
     6       (16 )     (29 )     N/M       N/M  
 
                              
Total
   $ 296     $ 278     $ 213       6.5 %     39.0 %
 
                                  
 
N/M = Not Meaningful
Consumer Banking
                                         
                            Percent change 4Q05 vs.  
dollars in millions   4Q05     3Q05     4Q04     3Q05     4Q04  
 
Summary of operations
                                        
Net interest income (TE)
   $ 489     $ 483     $ 502       1.2 %     (2.6 )%
Noninterest income
     241       233       189       3.4       27.5  
 
                              
Total revenue (TE)
     730       716       691       2.0       5.6  
Provision for loan losses
     28       29       9       (3.4 )     211.1  
Noninterest expense
     527       488       555       8.0       (5.0 )
 
                              
Income before income taxes (TE)
     175       199       127       (12.1 )     37.8  
Allocated income taxes and TE adjustments
     66       74       68       (10.8 )     (2.9 )
 
                              
Net income
   $ 109     $ 125     $ 59       (12.8 )%     84.7 %
 
                                  
Percent of consolidated net income
     37 %     45 %     28 %     N/A       N/A  
 
                                        
Average balances
                                        
Loans
   $ 29,260     $ 29,139     $ 31,886       .4 %     (8.2 )%
Total assets
     35,688       35,473       37,796       .6       (5.6 )
Deposits
     43,158       42,359       40,925       1.9       5.5  
 
TE = Taxable Equivalent, N/A = Not Applicable

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 5
                                         
Additional Consumer Banking Data                              
                            Percent change 4Q05 vs.  
dollars in millions   4Q05     3Q05     4Q04     3Q05     4Q04  
 
Average deposits outstanding
                                        
Noninterest-bearing
   $ 7,131     $ 7,122     $ 6,741       .1 %     5.8 %
Money market deposit accounts and other savings
     21,313       20,785       20,315       2.5       4.9  
Time
     14,714       14,452       13,869       1.8       6.1  
 
                              
Total deposits
   $ 43,158     $ 42,359     $ 40,925       1.9 %     5.5 %
 
                                  
 
Home equity loans
                                        
Community Banking:
                                        
Average balance
   $ 10,288     $ 10,365     $ 10,534                  
Average loan-to-value ratio
     71 %     71 %     72 %                
Percent first lien positions
     61       61       61                  
National Home Equity:
                                        
Average balance
   $ 3,471     $ 3,515     $ 4,153                  
Average loan-to-value ratio
     64 %     65 %     67 %                
Percent first lien positions
     63       66       70                  
 
                 
Other data
                                        
On-line households / household penetration
     622,957/50 %     607,127/49 %     571,051/45 %                
KeyCenters
     947       946       935                  
Automated teller machines
     2,180       2,185       2,194                  
                 
     Net income for Consumer Banking was $109 million for the fourth quarter of 2005, compared with $59 million for the year-ago quarter. Two principal causes of the increase were the fourth quarter 2004 sale of the broker-originated home equity loan portfolio, and the reclassification of the indirect automobile loan portfolio to held-for-sale status. These actions significantly reduced noninterest income and the provision for loan losses, and substantially increased noninterest expense in the year-ago quarter. Excluding the effects of the above actions, net income for Consumer Banking was $136 million for the fourth quarter of 2004.
     Taxable-equivalent net interest income decreased by $13 million, or 3%, from the fourth quarter of 2004, due to a less favorable interest rate spread on average earning assets and a reduction in loans which resulted from the sale of the higher-yielding broker-originated home equity and indirect automobile loan portfolios. The adverse effects of these factors were moderated by growth in average deposits.
     Noninterest income rose by $52 million, or 28%, due primarily to net gains from loan securitizations and sales recorded in the fourth quarter of 2005, compared with net losses recorded in the year-ago quarter. Current year results included a $16 million gain from the annual securitization and sale of education loans, while last year’s results included $46 million of losses associated with management’s decision to sell the previously-mentioned portfolios. Noninterest income also benefited from higher income from electronic banking and loan securitization servicing. The positive effects of these factors were offset, in part, by decreases in income from brokerage, and various investment banking and capital markets activities.
     Noninterest expense decreased by $28 million, or 5%, due primarily to a $55 million write-down of goodwill recorded in the fourth quarter of 2004 in connection with management’s decision to sell the nonprime indirect automobile loan business, and a decrease in personnel expense. The overall reduction in noninterest expense was moderated by higher costs associated with loan servicing and various indirect charges.

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 6
Corporate and Investment Banking
                                         
                            Percent change 4Q05 vs.  
dollars in millions   4Q05     3Q05     4Q04     3Q05     4Q04  
 
Summary of operations
                                        
Net interest income (TE)
   $ 315     $ 297     $ 260       6.1 %     21.2 %
Noninterest income
     262       246       255       6.5       2.7  
 
                              
Total revenue (TE)
     577       543       515       6.3       12.0  
Provision for loan losses
     8       14       (30 )     (42.9 )     N/M  
Noninterest expense
     312       292       266       6.8       17.3  
 
                              
Income before income taxes (TE)
     257       237       279       8.4       (7.9 )
Allocated income taxes and TE adjustments
     96       89       105       7.9       (8.6 )
 
                              
Net income
   $ 161     $ 148     $ 174       8.8 %     (7.5 )%
 
                                  
 
                                        
Percent of consolidated net income
     54 %     53 %     82 %     N/A       N/A  
 
                                        
Average balances
                                        
Loans
   $ 36,407     $ 35,064     $ 30,852       3.8 %     18.0 %
Total assets
     42,998       41,398       37,012       3.9       16.2  
Deposits
     11,157       10,136       8,793       10.1       26.9  
 
TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
                                         
Additional Corporate and Investment Banking Data                           Percent change 4Q05 vs.  
dollars in millions   4Q05     3Q05     4Q04     3Q05     4Q04  
 
Average lease financing receivables managed by Key Equipment Financea
                                        
Receivables held in Key Equipment
                                        
Finance portfolio
   $ 8,311     $ 8,150     $ 6,937       2.0 %     19.8 %
Receivables assigned to other lines of business
     1,974       2,011       1,892       (1.8 )     4.3  
 
                              
Total lease financing receivables managed
   $ 10,285     $ 10,161     $ 8,829       1.2 %     16.5 %
 
                                  
 
(a)   Includes lease financing receivables held in portfolio and those assigned to other lines of business (primarily Corporate Banking) if those businesses are principally responsible for maintaining the relationship with the client.
     Net income for Corporate and Investment Banking was $161 million for the fourth quarter of 2005, down from $174 million for the same period last year. A significant increase in the provision for loan losses and growth in noninterest expense more than offset increases in both net interest income and noninterest income.
     The provision for loan losses was an expense of $8 million for the fourth quarter of 2005, compared with a credit of $30 million for the year-ago quarter. The credit recorded last year was due largely to improved asset quality in the Corporate Banking and KeyBank Real Estate Capital lines of business.
     Noninterest expense rose by $46 million, or 17%, as business expansion, including the acquisition of American Express Business Finance Corporation (“AEBF”), contributed to increases in personnel and various other expense categories.
     Taxable-equivalent net interest income increased by $55 million, or 21%, due primarily to strong growth in average loans and leases, as well as deposits. Average loans and leases rose by $5.6 billion, or 18%, reflecting improvements in each of the primary lines of business. The increase in lease financing receivables in the Key Equipment Finance line was bolstered by the acquisition of AEBF during the fourth quarter of 2004.

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 7
     Noninterest income grew by $7 million, or 3%. The improvement was driven by net securities gains in the current year, compared with net losses recorded one year ago, higher income from operating leases and an increase in net gains on the residual values of leased equipment. The positive effects of these factors were partially offset by a reduction in income from investment banking activities.
     On December 8, 2005, we continued the expansion of our commercial mortgage servicing business by acquiring the commercial mortgage-backed servicing business of ORIX Capital Markets, LLC. This is one in a series of acquisitions that we have made over the past several years to build upon our success in commercial mortgage origination and servicing.
Other Segments
     Other segments consist of Corporate Treasury and Key’s Principal Investing unit. These segments generated net income of $20 million for the fourth quarter of 2005, compared with $9 million for the same period last year. Increases in net gains from principal investing and net interest income drove the improvement.

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 8
Line of Business Descriptions
Consumer Banking
Community Banking includes Retail Banking, Small Business and McDonald Financial Group.
Retail 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.
Small Business provides businesses that typically have annual sales revenues of $10 million or less with deposit, investment and credit products, and business advisory services.
McDonald Financial Group offers financial, estate and retirement planning, and asset management services to assist high-net-worth clients with their banking, brokerage, trust, portfolio management, insurance, charitable giving and related needs.
Consumer Finance includes Indirect Lending and National Home Equity.
Indirect Lending offers loans to consumers through dealers and finances inventory for automobile and marine dealers. This business unit also provides federal and private education loans to students and their parents and processes payments on loans that private schools make to parents.
National Home Equity provides both prime and nonprime mortgage and home equity loan products to individuals. These products originate outside of Key’s retail branch system. This business unit also works with home improvement contractors to provide home equity and home improvement solutions.
Corporate and Investment Banking
Corporate Banking provides products and services to large corporations, middle-market companies, financial institutions and government organizations. These products and services include commercial lending, treasury management, investment banking, derivatives and foreign exchange, equity and debt underwriting and trading, and syndicated finance.
Through its Victory Capital Management unit, Corporate Banking also manages or gives 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.
KeyBank Real Estate Capital provides construction and interim lending, permanent debt placements and servicing, and equity and investment banking services to developers, brokers and owner-investors. This line of business deals exclusively with nonowner-occupied properties (i.e., generally properties for which the owner occupies less than 60% of the premises).
Key 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 Corporate Banking) if those businesses are principally responsible for maintaining the relationship with the client.

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 9
     Cleveland-based KeyCorp is one of the nation’s largest bank-based financial services companies, with assets of approximately $93 billion. 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 947 KeyCenters and offices; a network of 2,180 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, Key.com,â 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 earnings and currently anticipated earnings trends and to answer analysts’ questions can be accessed through the Investor Relations section at www.Key.com/ir at 9:00 a.m. ET, on Friday, January 20, 2006. A tape of the call will be available through January 27.
For up-to-date company information, media contacts and facts and figures about Key’s lines of business visit our Media Newsroom at www.Key.com/newsroom.

This news release contains forward-looking statements, including statements about our financial condition, results of operations, earnings outlook, asset quality trends and profitability. Forward-looking statements provide management’s current expectations or forecasts of future events and, by their nature, are subject to assumptions, risks and uncertainties. Although management believes that the expectations and forecasts reflected in these forward-looking statements are reasonable, actual results could differ materially from those contained in or implied by such forward-looking statements due to a variety of factors including: (1) changes in interest rates; (2) changes in trade, monetary or fiscal policy; (3) changes in general economic conditions, or in the condition of the local economies or industries in which we have significant operations or assets, which could, among other things, materially impact credit quality trends and our ability to generate loans; (4) increased competitive pressure among financial services companies; (5) the inability to successfully execute strategic initiatives designed to grow revenues and/or manage expenses; (6) consummation of significant business combinations or divestitures; (7) operational or risk management failures due to technological or other factors; (8) heightened regulatory practices, requirements or expectations; (9) new legal obligations or restrictions or unfavorable resolution of litigation; (10) adverse capital markets conditions; (11) disruption in the economy and general business climate as a result of terrorist activities or military actions; and (12) changes in accounting or tax practices or requirements. 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. We do not assume any obligation to update these forward-looking statements. For further information regarding KeyCorp, please read KeyCorp’s reports that are filed with the Securities and Exchange Commission and are available at www.sec.gov.
###

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 10
Financial Highlights
(dollars in millions, except per share amounts)
                         
    Three months ended  
    12-31-05     9-30-05     12-31-04  
Summary of operations
                        
Net interest income (TE)
   $ 748     $ 726     $ 698  
Noninterest income
     561       531       479  
 
                  
Total revenue (TE)
     1,309       1,257       1,177  
Provision for loan losses
     36       43       (21 )
Noninterest expense
     834       781       818  
Net income
     296       278       213  
 
                        
Per common share
                        
Net income
   $ .72     $ .68     $ .52  
Net income — assuming dilution
     .72       .67       .51  
Cash dividends paid
     .325       .325       .31  
Book value at period end
     18.69       18.41       17.46  
Market price at period end
     32.93       32.25       33.90  
 
                        
Performance ratios
                        
Return on average total assets
     1.27 %     1.22 %     .95 %
Return on average equity
     15.59       14.84       11.99  
Net interest margin (TE)
     3.71       3.67       3.63  
 
                        
Capital ratios at period end
                        
Equity to assets
     8.16 %     8.15 %     7.84 %
Tangible equity to tangible assets
     6.68       6.68       6.35  
Tier 1 risk-based capital a
     7.67       7.72       7.22  
Total risk-based capital a
     11.59       11.83       11.47  
Leverage a
     8.54       8.60       7.96  
 
                        
Asset quality
                        
Net loan charge-offs
   $ 164     $ 49     $ 140  
Net loan charge-offs to average loans
     .98 %     .30 %     .88 %
Allowance for loan losses
   $ 966     $ 1,093     $ 1,138  
Allowance for loan losses to period-end loans
     1.45 %     1.67 %     1.80 %
Allowance for loan losses to nonperforming loans
     348.74       303.61       369.48  
Nonperforming loans at period end
   $ 277     $ 360     $ 308  
Nonperforming assets at period end
     307       393       379  
Nonperforming loans to period-end loans
     .42 %     .55 %     .49 %
Nonperforming assets to period-end loans plus OREO and other nonperforming assets
     .46       .60       .60  
 
                        
Trust and brokerage assets
                        
Assets under management
   $ 77,144     $ 76,341     $ 74,557  
Nonmanaged and brokerage assets
     56,509       57,313       72,703  
 
                        
Other data
                        
Average full-time equivalent employees
     19,417       19,456       19,575  
KeyCenters
     947       946       935  
 
                        
Taxable-equivalent adjustment
   $ 30     $ 33     $ 26  

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 11
Financial Highlights (continued)
(dollars in millions, except per share amounts)
                 
    Twelve months ended  
    12-31-05     12-31-04  
Summary of operations
                
Net interest income (TE)
   $ 2,911     $ 2,699  
Noninterest income
     2,078       1,929  
 
            
Total revenue (TE)
     4,989       4,628  
Provision for loan losses
     143       185  
Noninterest expense
     3,137       2,961  
Net income
     1,129       954  
 
                
Per common share
                
Net income
   $ 2.76     $ 2.32  
Net income — assuming dilution
     2.73       2.30  
Cash dividends paid
     1.30       1.24  
 
                
Performance ratios
                
Return on average total assets
     1.24 %     1.10 %
Return on average equity
     15.42       13.75  
Net interest margin (TE)
     3.69       3.63  
 
                
Asset quality
                
Net loan charge-offs
   $ 315     $ 431  
Net loan charge-offs to average loans
     .49 %     .70 %
 
                
Other data
                
Average full-time equivalent employees
     19,485       19,576  
 
Taxable-equivalent adjustment
   $ 121     $ 94  
 
(a) 12-31-05 ratio is estimated.
TE = Taxable Equivalent

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 12
Consolidated Balance Sheets
(dollars in millions)
                         
    12-31-05     9-30-05     12-31-04  
Assets
                        
Loans
   $ 66,478     $ 65,575     $ 63,372  
Loans held for sale
     3,381       3,595       4,353  
Investment securities
     91       98       71  
Securities available for sale
     7,269       7,124       7,451  
Short-term investments
     1,592       2,394       1,472  
Other investments
     1,332       1,310       1,421  
 
                  
Total earning assets
     80,143       80,096       78,140  
Allowance for loan losses
     (966 )     (1,093 )     (1,138 )
Cash and due from banks
     3,108       2,660       2,454  
Premises and equipment
     656       593       603  
Goodwill
     1,355       1,344       1,359  
Other intangible assets
     125       109       87  
Corporate-owned life insurance
     2,690       2,658       2,608  
Derivative assets
     1,039       1,132       1,949  
Accrued income and other assets
     4,976       4,824       4,685  
 
                  
Total assets
   $ 93,126     $ 92,323     $ 90,747  
 
                  
 
                        
Liabilities
                        
Deposits in domestic offices:
                        
NOW and money market deposit accounts
   $ 24,241     $ 23,541     $ 21,748  
Savings deposits
     1,840       1,922       1,970  
Certificates of deposit ($100,000 or more)
     5,156       4,783       4,697  
Other time deposits
     11,170       10,804       10,435  
 
                  
Total interest-bearing
     42,407       41,050       38,850  
Noninterest-bearing
     13,335       12,202       11,581  
Deposits in foreign office — interest-bearing
     3,023       4,819       7,411  
 
                  
Total deposits
     58,765       58,071       57,842  
Federal funds purchased and securities sold under repurchase agreements
     4,835       3,444       2,145  
Bank notes and other short-term borrowings
     1,780       3,001       2,515  
Derivative liabilities
     1,060       1,075       1,196  
Accrued expense and other liabilities
     5,149       5,173       5,086  
Long-term debt
     13,939       14,037       14,846  
 
                  
Total liabilities
     85,528       84,801       83,630  
 
                        
Shareholders’ equity
                        
Preferred stock
    —       —       —  
Common shares
     492       492       492  
Capital surplus
     1,534       1,517       1,491  
Retained earnings
     7,882       7,719       7,284  
Treasury stock
     (2,204 )     (2,133 )     (2,128 )
Accumulated other comprehensive loss
     (106 )     (73 )     (22 )
 
                  
Total shareholders’ equity
     7,598       7,522       7,117  
 
                        
 
                  
Total liabilities and shareholders’ equity
   $ 93,126     $ 92,323     $ 90,747  
 
                  
 
                        
Common shares outstanding (000)
     406,624       408,542       407,570  

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 13
Consolidated Statements of Income
(dollars in millions, except per share amounts)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
Interest income
                                        
Loans
   $ 1,085     $ 1,006     $ 870     $ 3,922     $ 3,263  
Loans held for sale
     64       56       33       254       114  
Investment securities
     —       1       1       3       5  
Securities available for sale
     84       84       81       328       331  
Short-term investments
     19       15       11       56       38  
Other investments
     10       12       9       54       35  
 
                              
Total interest income
     1,262       1,174       1,005       4,617       3,786  
 
                                        
Interest expense
                                        
Deposits
     309       273       184       1,026       677  
Federal funds purchased and securities sold under repurchase agreements
     40       31       23       121       60  
Bank notes and other short-term borrowings
     24       22       13       82       42  
Long-term debt
     171       155       113       598       402  
 
                              
Total interest expense
     544       481       333       1,827       1,181  
 
                                        
 
                              
Net interest income
     718       693       672       2,790       2,605  
Provision for loan losses
     36       43       (21 )     143       185  
 
                              
 
     682       650       693       2,647       2,420  
 
                                        
Noninterest income
                                        
Trust and investment services income
     134       135       143       542       564  
Service charges on deposit accounts
     76       82       77       304       331  
Investment banking and capital markets income
     82       93       77       294       255  
Letter of credit and loan fees
     49       46       50       182       158  
Corporate-owned life insurance income
     31       26       33       109       110  
Electronic banking fees
     26       24       23       96       85  
Net gains (losses) from loan securitizations and sales
     34       12       (29 )     75       16  
Net securities gains (losses)
     3       3       (3 )     1       4  
Other income
     126       110       108       475       406  
 
                              
Total noninterest income
     561       531       479       2,078       1,929  
 
                                        
Noninterest expense
                                        
Personnel
     416       414       411       1,606       1,549  
Net occupancy
     68       66       60       280       236  
Computer processing
     57       54       50       212       191  
Equipment
     27       28       30       111       119  
Professional fees
     42       29       32       129       113  
Marketing
     30       29       32       118       111  
Other expense
     194       161       203       681       642  
 
                              
Total noninterest expense
     834       781       818       3,137       2,961  
 
                              
 
                                        
Income before income taxes
     409       400       354       1,588       1,388  
Income taxes
     113       122       141       459       434  
 
                              
Net income
   $ 296     $ 278     $ 213     $ 1,129     $ 954  
 
                              
 
                                        
Net income per common share
   $ .72     $ .68     $ .52     $ 2.76     $ 2.32  
Net income per common share — assuming dilution
     .72       .67       .51       2.73       2.30  
Cash dividends declared per common share
     .325       .325       .31       1.30       1.24  
 
                                        
Weighted-average common shares outstanding (000)
     408,431       410,456       408,243       408,981       410,585  
Weighted-average common shares and potential common shares outstanding (000)
     412,542       415,441       413,727       414,014       415,430  

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 14
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
(dollars in millions)
                                                                         
    Fourth Quarter 2005     Third Quarter 2005     Fourth Quarter 2004  
    Average                     Average                     Average              
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
Assets
                                                                        
Loans: a,b
                                                                       
Commercial, financial and agricultural
   $ 19,992     $ 315       6.25 %   $ 19,249     $ 280       5.78 %   $ 17,899     $ 206       4.59 %
Real estate — commercial mortgage
     8,580       151       6.98       8,467       136       6.42       7,967       107       5.35  
Real estate — construction
     6,896       129       7.42       6,388       110       6.81       5,295       74       5.52  
Commercial lease financing
     10,285       154       6.01       10,161       158       6.19       8,829       129       5.89  
 
                                                      
Total commercial loans
     45,753       749       6.51       44,265       684       6.15       39,990       516       5.15  
Real estate — residential
     1,460       23       6.22       1,472       23       6.13       1,512       23       5.94  
Home equity
     13,767       242       7.00       13,888       236       6.72       14,696       219       5.94  
Consumer — direct
     1,785       44       9.68       1,794       40       8.96       2,003       38       7.63  
Consumer — indirect lease financing
     23       1       11.28       36       1       11.05       104       3       10.02  
Consumer — indirect other
     3,317       55       6.68       3,303       55       6.62       5,076       96       7.55  
 
                                                      
Total consumer loans
     20,352       365       7.13       20,493       355       6.86       23,391       379       6.45  
 
                                                      
Total loans
     66,105       1,114       6.70       64,758       1,039       6.37       63,381       895       5.63  
Loans held for sale
     3,592       64       7.05       3,521       56       6.43       2,635       33       5.07  
Investment securities a
    95       1       5.81       76       1       7.00       75       2       8.53  
Securities available for sale c
     7,034       84       4.77       7,131       84       4.65       7,233       81       4.48  
Short-term investments
     2,091       19       3.53       1,972       15       3.15       2,100       11       2.00  
Other investments c
     1,297       10       3.09       1,342       12       3.25       1,417       9       2.56  
 
                                                      
Total earning assets
     80,214       1,292       6.40       78,800       1,207       6.08       76,841       1,031       5.35  
Allowance for loan losses
     (1,085 )                     (1,095 )                     (1,251 )                
Accrued income and other assets
     13,077                       12,918                       13,658                  
 
                                                                  
Total assets
   $ 92,206                     $ 90,623                     $ 89,248                  
 
                                                                  
 
                                                                        
Liabilities
                                                                        
NOW and money market deposit accounts
   $ 23,947       127       2.11     $ 22,886       101       1.75     $ 21,591       46       .84  
Savings deposits
     1,858       1       .27       1,952       2       .29       1,951       1       .23  
Certificates of deposit ($100,000 or more) d
     5,006       51       4.06       4,928       48       3.85       4,871       44       3.66  
Other time deposits
     10,951       96       3.46       10,805       87       3.21       10,366       75       2.89  
Deposits in foreign office
     3,316       34       4.03       4,048       35       3.46       3,506       18       1.96  
 
                                                      
Total interest-bearing deposits
     45,078       309       2.72       44,619       273       2.43       42,285       184       1.73  
Federal funds purchased and securities sold under repurchase agreements
     4,309       40       3.72       3,674       31       3.28       5,085       23       1.81  
Bank notes and other short-term borrowings
     2,607       24       3.67       2,841       22       3.04       2,793       13       1.79  
Long-term debt d
     13,860       171       4.89       13,814       155       4.50       14,119       113       3.36  
 
                                                      
Total interest-bearing liabilities
     65,854       544       3.28       64,948       481       2.94       64,282       333       2.08  
 
                                                      
Noninterest-bearing deposits
     12,594                       12,215                       11,804                  
Accrued expense and other liabilities
     6,224                       6,027                       6,095                  
 
                                                                  
Total liabilities
     84,672                       83,190                       82,181                  
 
                                                                        
Shareholders’ equity
     7,534                       7,433                       7,067                  
 
                                                                        
 
                                                                  
Total liabilities and shareholders’ equity
   $ 92,206                     $ 90,623                     $ 89,248                  
 
                                                                  
 
                                                                        
Interest rate spread (TE)
                     3.12 %                     3.14 %                     3.27 %
 
                                                                  
Net interest income (TE) and net interest margin (TE)
             748       3.71 %             726       3.67 %             698       3.63 %
 
                                                                  
TE adjustment a
             30                       33                       26          
 
                                                                  
Net interest income, GAAP basis
           $ 718                     $ 693                     $ 672          
 
                                                                  
 
(a)   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%.
 
(b)   For purposes of these computations, nonaccrual loans are included in average loan balances.
 
(c)   Yield is calculated on the basis of amortized cost.
 
(d)   Rate calculation excludes basis adjustments related to fair value hedges.
 
TE = Taxable Equivalent
 
GAAP = U.S. generally accepted accounting principles

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 15
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
(dollars in millions)
                                                 
    Twelve months ended December 31, 2005     Twelve months ended December 31, 2004  
    Average                     Average              
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
Assets
                                                
Loans: a,b
                                               
Commercial, financial and agricultural
   $ 19,480     $ 1,083       5.56 %   $ 17,119     $ 762       4.45 %
Real estate — commercial mortgage
     8,403       531       6.32       7,032       354       5.03  
Real estate — construction
     6,263       418       6.67       4,926       250       5.08  
Commercial lease financing
     10,122       628       6.21       8,269       487       5.90  
 
                                    
Total commercial loans
     44,268       2,660       6.01       37,346       1,853       4.96  
Real estate — residential
     1,468       90       6.10       1,563       94       6.01  
Home equity
     13,886       916       6.60       14,784       842       5.70  
Consumer — direct
     1,834       158       8.60       2,048       154       7.52  
Consumer — indirect lease financing
     47       5       10.72       178       18       9.86  
Consumer — indirect other
     3,286       212       6.45       5,188       393       7.58  
 
                                    
Total consumer loans
     20,521       1,381       6.73       23,761       1,501       6.32  
 
                                    
Total loans
     64,789       4,041       6.24       61,107       3,354       5.49  
Loans held for sale
     3,638       254       6.99       2,510       114       4.55  
Investment securitiesa
    76       5       7.30       85       8       8.69  
Securities available for sale c
     7,118       328       4.60       7,215       331       4.60  
Short-term investments
     1,887       56       2.96       2,218       38       1.70  
Other investmentsc
     1,379       54       3.79       1,257       35       2.77  
 
                                    
Total earning assets
     78,887       4,738       6.00       74,392       3,880       5.22  
Allowance for loan losses
     (1,109 )                     (1,284 )                
Accrued income and other assets
     13,150                       13,309                  
 
                                            
Total assets
   $ 90,928                     $ 86,417                  
 
                                            
 
                                                
Liabilities
                                                
NOW and money market deposit accounts
   $ 22,696       360       1.59     $ 20,175       147       .73  
Savings deposits
     1,941       5       .26       2,007       5       .23  
Certificates of deposit ($100,000 or more) d
     4,957       189       3.82       4,834       178       3.71  
Other time deposits
     10,789       341       3.16       10,564       304       2.88  
Deposits in foreign office
     4,155       131       3.15       2,978       43       1.43  
 
                                    
Total interest-bearing deposits
     44,538       1,026       2.30       40,558       677       1.67  
Federal funds purchased and securities sold under repurchase agreements
     4,070       121       2.97       4,669       60       1.29  
Bank notes and other short-term borrowings
     2,796       82       2.94       2,631       42       1.59  
Long-term debt d
     14,094       598       4.32       14,304       402       2.93  
 
                                    
Total interest-bearing liabilities
     65,498       1,827       2.80       62,162       1,181       1.92  
 
                                    
Noninterest-bearing deposits
     12,019                       11,192                  
Accrued expense and other liabilities
     6,088                       6,126                  
 
                                            
Total liabilities
     83,605                       79,480                  
 
                                                
Shareholders’ equity
     7,323                       6,937                  
 
                                                
 
                                            
Total liabilities and shareholders’ equity
   $ 90,928                     $ 86,417                  
 
                                            
 
                                                
Interest rate spread (TE)
                     3.20 %                     3.30 %
 
                                            
Net interest income (TE) and net interest margin (TE)
             2,911       3.69 %             2,699       3.63 %
 
                                            
TE adjustmenta
             121                       94          
 
                                            
Net interest income, GAAP basis
           $ 2,790                     $ 2,605          
 
                                            
 
(a)   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%.
 
(b)   For purposes of these computations, nonaccrual loans are included in average loan balances.
 
(c)   Yield is calculated on the basis of amortized cost.
 
(d)   Rate calculation excludes basis adjustments related to fair value hedges.
 
TE = Taxable Equivalent
 
GAAP = U.S. generally accepted accounting principles

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 16
Noninterest Income
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
Trust and investment services incomea
   $ 134     $ 135     $ 143     $ 542     $ 564  
Service charges on deposit accounts
     76       82       77       304       331  
Investment banking and capital markets incomea
     82       93       77       294       255  
Letter of credit and loan fees
     49       46       50       182       158  
Corporate-owned life insurance income
     31       26       33       109       110  
Electronic banking fees
     26       24       23       96       85  
Net gains (losses) from loan securitizations and sales
     34       12       (29 )     75       16  
Net securities gains (losses)
     3       3       (3 )     1       4  
Other income:
                                        
Operating lease income
     50       47       46       191       183  
Insurance income
     15       16       12       52       48  
Loan securitization servicing fees
     5       5       1       20       5  
Credit card fees
     2       4       4       14       13  
Miscellaneous income
     54       38       45       198       157  
 
                              
Total other income
     126       110       108       475       406  
 
                              
Total noninterest income
   $ 561     $ 531     $ 479     $ 2,078     $ 1,929  
 
                              
 
(a)   Additional detail provided in tables below.
Trust and Investment Services Income
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
Brokerage commissions and fee income
   $ 61     $ 61     $ 68     $ 247     $ 265  
Personal asset management and custody fees
     38       39       39       153       156  
Institutional asset management and custody fees
     35       35       36       142       143  
 
                              
Total trust and investment services income
   $ 134     $ 135     $ 143     $ 542     $ 564  
 
                              
Investment Banking and Capital Markets Income
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
Investment banking income
   $ 30     $ 21     $ 39     $ 87     $ 122  
Net gains from principal investing
     20       31       5       64       44  
Foreign exchange income
     11       11       10       40       41  
Dealer trading and derivatives income
     10       16       8       55       8  
Income from other investments
     11       14       15       48       40  
 
                              
Total investment banking and capital markets income
   $ 82     $ 93     $ 77     $ 294     $ 255  
 
                              

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 17
Noninterest Expense
(dollars in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
Personnel a
   $ 416     $ 414     $ 411     $ 1,606     $ 1,549  
Net occupancy
     68       66       60       280       236  
Computer processing
     57       54       50       212       191  
Equipment
     27       28       30       111       119  
Professional fees
     42       29       32       129       113  
Marketing
     30       29       32       118       111  
Other expense:
                                        
Operating lease expense
     40       40       36       158       151  
Postage and delivery
     14       12       13       51       52  
Telecommunications
     7       8       7       30       29  
Franchise and business taxes
     9       8       (1 )     34       16  
OREO expense, net
     2       2       3       8       17  
Provision for losses on lending-related commitments
     —       2       1       (7 )     (4 )
Miscellaneous expense
     122       89       144  b     407       381  
 
                              
Total other expense
     194       161       203       681       642  
 
                              
Total noninterest expense
   $ 834     $ 781     $ 818     $ 3,137     $ 2,961  
 
                              
 
                                        
Average full-time equivalent employees
     19,417       19,456       19,575       19,485       19,576  
 
(a)   Additional detail provided in table below.
 
(b)   Includes goodwill write-off of $55 million as a result of management’s decision to sell Key’s nonprime indirect automobile loan portfolio.
Personnel Expense
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
 
                              
Salaries
   $ 220     $ 222     $ 216     $ 878     $ 848  
Incentive compensation
     120       104       113       396       393  
Employee benefits
     56       67       65       263       258  
Stock-based compensation
     17       17       13       54       40  
Severance
     3       4       4       15       10  
 
                              
Total personnel expense
   $ 416     $ 414     $ 411     $ 1,606     $ 1,549  
 
                              

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 18
Loan Composition
(dollars in millions)
                                         
                            Percent change 12-31-05 vs.  
    12-31-05     9-30-05     12-31-04     9-30-05     12-31-04  
Commercial, financial and agricultural
   $ 20,579     $ 19,451     $ 18,730       5.8 %     9.9 %
Commercial real estate:
                                        
Commercial mortgage
     8,360       8,618       8,131       (3.0 )     2.8  
Construction
     7,109       6,700       5,508       6.1       29.1  
 
                              
Total commercial real estate loans
     15,469       15,318       13,639       1.0       13.4  
Commercial lease financing
     10,352       10,339       10,155       .1       1.9  
 
                              
Total commercial loans
     46,400       45,108       42,524       2.9       9.1  
Real estate — residential mortgage
     1,458       1,476       1,473       (1.2 )     (1.0 )
Home equity
     13,488       13,872       14,062       (2.8 )     (4.1 )
Consumer — direct
     1,794       1,792       1,983       .1       (9.5 )
Consumer — indirect:
                                        
Automobile lease financing
     19       28       89       (32.1 )     (78.7 )
Marine
     2,715       2,676       2,624       1.5       3.5  
Other
     604       623       617       (3.0 )     (2.1 )
 
                              
Total consumer — indirect loans
     3,338       3,327       3,330       .3       .2  
 
                              
Total consumer loans
     20,078       20,467       20,848       (1.9 )     (3.7 )
 
                              
Total loans
   $ 66,478     $ 65,575     $ 63,372       1.4 %     4.9 %
 
                                  
Loans Held for Sale Composition
(dollars in millions)
                                         
                            Percent change 12-31-05 vs.  
    12-31-05     9-30-05     12-31-04     9-30-05     12-31-04  
Commercial, financial and agricultural
   $ 85       —       —       N/M       N/M  
Real estate — commercial mortgage
     525     $ 416     $ 283       26.2 %     85.5 %
Real estate — residential mortgage
     11       21       26       (47.6 )     (57.7 )
Real estate — construction
     51       5       —       920.0       N/M  
Home equity
     —       1       29       (100.0 )     (100.0 )
Education
     2,687       3,123       2,278       (14.0 )     18.0  
Automobile
     22       29       1,737       (24.1 )     (98.7 )
 
                              
Total loans held for sale
   $ 3,381     $ 3,595     $ 4,353       (6.0 )%     (22.3 )%
 
                                  
 
N/M = Not Meaningful

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 19
Summary of Loan Loss Experience
(dollars in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
Average loans outstanding during the period
   $ 66,105     $ 64,758     $ 63,381     $ 64,789     $ 61,107  
 
                              
Allowance for loan losses at beginning of period
   $ 1,093     $ 1,100     $ 1,251     $ 1,138     $ 1,406  
Loans charged off:
                                        
Commercial, financial and agricultural
     22       14       20       80       145  
 
                                        
Real estate ___ commercial mortgage
     3       4       9       19       35  
Real estate ___ construction
     —       —       —       5       5  
 
                              
Total commercial real estate loans
     3       4       9       24       40  
Commercial lease financing
     140       18       18       183       52  
 
                              
Total commercial loans
     165       36       47       287       237  
Real estate ___ residential mortgage
     2       1       2       7       17  
Home equity
     6       7       26       26       63  
Consumer ___ direct
     10       10       10       38       42  
Consumer ___ indirect lease financing
     —       1       2       3       8  
Consumer ___ indirect other
     4       14       86       48       216  
 
                              
Total consumer loans
     22       33       126       122       346  
 
                              
 
     187       69       173       409       583  
Recoveries:
                                        
Commercial, financial and agricultural
     7       4       6       21       41  
 
                                        
Real estate ___ commercial mortgage
     1       1       4       3       8  
Real estate ___ construction
     1       —       —       3       4  
 
                              
Total commercial real estate loans
     2       1       4       6       12  
Commercial lease financing
     8       7       4       35       14  
 
                              
Total commercial loans
     17       12       14       62       67  
Real estate ___ residential mortgage
     —       —       —       1       1  
Home equity
     1       1       2       5       6  
Consumer ___ direct
     2       2       2       8       9  
Consumer ___ indirect lease financing
     —       1       —       2       3  
Consumer ___ indirect other
     3       4       15       16       66  
 
                              
Total consumer loans
     6       8       19       32       85  
 
                              
 
     23       20       33       94       152  
 
                              
Net loans charged off
     (164 )     (49 )     (140 )     (315 )     (431 )
Provision for loan losses
     36       43       (21 )     143       185  
Foreign currency translation adjustment
     1       (1 )     —       —       —  
Allowance related to loans acquired
     —       —       48       —       48  
Reclassification of allowance for credit losses on lending-related commitments a
     —       —       —       —       (70 )
 
                              
Allowance for loan losses at end of period
   $ 966     $ 1,093     $ 1,138     $ 966     $ 1,138  
 
                              
 
                                        
Net loan charge-offs to average loans
     .98 %     .30 %     .88 %     .49 %     .70 %
Allowance for loan losses to period-end loans
     1.45       1.67       1.80       1.45       1.80  
Allowance for loan losses to nonperforming loans
     348.74       303.61       369.48       348.74       369.48  
 
                                        
 
(a) Included in accrued expenses and other liabilities on the consolidated balance sheet.

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 20
Changes in Allowance for Credit Losses on Lending-Related Commitments
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-05     9-30-05     12-31-04     12-31-05     12-31-04  
Balance at beginning of period
   $ 59     $ 57     $ 65     $ 66       —  
Reclassification of allowance for credit losses
     —       —       —       —     $ 70  
Provision for losses on lending-related commitments
     —       2       1       (7 )     (4 )
 
                              
Balance at end of period a
   $ 59     $ 59     $ 66     $ 59     $ 66  
 
                              
 
(a) Included in accrued expenses and other liabilities on the consolidated balance sheet.
Summary of Nonperforming Assets and Past Due Loans
(dollars in millions)
                                         
    12-31-05     9-30-05     6-30-05     3-31-05     12-31-04  
Commercial, financial and agricultural
   $ 63     $ 50     $ 58     $ 46     $ 37  
 
Real estate — commercial mortgage
     43       33       36       41       37  
Real estate — construction
     2       3       3       5       20  
 
                              
Total commercial real estate loans
     45       36       39       46       57  
Commercial lease financing
     39       151       73       75       84  
 
                              
Total commercial loans
     147       237       170       167       178  
Real estate — residential mortgage
     41       40       38       43       39  
Home equity
     79       75       74       76       80  
Consumer — direct
     2       3       4       3       3  
Consumer — indirect lease financing
     1       1       1       5       1  
Consumer — indirect other
     7       4       5       5       7  
 
                              
Total consumer loans
     130       123       122       132       130  
 
                              
Total nonperforming loans
     277       360       292       299       308  
 
                                        
Nonperforming loans held for sale
     3       2       1       6       8  
 
                                        
OREO
     25       29       33       58       53  
Allowance for OREO losses
     (2 )     (3 )     (2 )     (4 )     (4 )
 
                              
OREO, net of allowance
     23       26       31       54       49  
 
                                        
Other nonperforming assets
     4       5       14       12       14  
 
                              
Total nonperforming assets
   $ 307     $ 393     $ 338     $ 371     $ 379  
 
                              
 
                                        
Accruing loans past due 90 days or more
   $ 90     $ 94     $ 74     $ 79     $ 122  
Accruing loans past due 30 through 89 days
     491       550       475       495       491  
Nonperforming loans to period-end loans
     .42 %     .55 %     .45 %     .47 %     .49 %
Nonperforming assets to period-end loans plus OREO and other nonperforming assets
     .46       .60       .52       .58       .60  
Summary of Changes in Nonperforming Loans
(in millions)
                                         
    4Q05     3Q05     2Q05     1Q05     4Q04  
Balance at beginning of period
   $ 360     $ 292     $ 299     $ 308     $ 389  
Loans placed on nonaccrual status
     106       126       58       71       88  
Charge-offs
     (164 )     (49 )     (48 )     (54 )     (91 )
Loans sold
     (2 )     (3 )     —       (5 )     (66 )
Payments
     (14 )     (5 )     (13 )     (9 )     (11 )
Transfers to OREO
     —       —       (4 )     (12 )     —  
Loans returned to accrual status
     (9 )     (1 )     —       —       (1 )
 
                              
Balance at end of period
   $ 277     $ 360     $ 292     $ 299     $ 308  
 
                              

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 21
Reconciliation of Fourth Quarter 2004 Summary of Operations As Reported to Adjusted Summary of Operations
(dollars in millions, except per share amounts)
                                                 
                                    Change 4Q05 As Reported  
    4Q04             4Q04     4Q05     vs. 4Q04 Adjusted Basis  
    As Reported     Adjustments a   Adjusted basis   As Reported     Amount     Percent  
Net interest income (TE)
   $ 698       —     $ 698     $ 748     $ 50       7.2 %
Noninterest income
     479     $ 46       525       561       36       6.9  
 
                                    
Total revenue (TE)
     1,177       46       1,223       1,309       86       7.0  
Provision for loan losses
     (21 )     21       —       36       36       N/M  
Noninterest expense
     818       (53 )     765       834       69       9.0  
 
                                    
Income before income taxes (TE)
     380       78       458       439       (19 )     (4.1 )
Income taxes and TE adjustments
     167       1       168       143       (25 )     (14.9 )
 
                                    
Net income
   $ 213     $ 77     $ 290     $ 296     $ 6       2.1  
 
                                      
Diluted earnings per common share
   $ .51     $ .19     $ .70     $ .72     $ .02       2.9 %
 
(a)   Adjustments reflect the effects of Key’s fourth quarter 2004 sale of its broker-originated home equity loan portfolio held in the Key Home Equity Services division, and the reclassification to held-for-sale status of its indirect automobile loan portfolio. Key sold the indirect automobile loan portfolio during the first half of 2005.
TE = Includes taxable-equivalent adjustment of $30 million in 4Q05 and $26 million in 4Q04
N/M = Not Meaningful
Reconciliation of Fourth Quarter 2004 Earnings As Reported (GAAP Basis) to Adjusted Earnings
(in millions, except per share amounts)
                         
    Pre-tax     After-tax     EPS  
    Amount     Amount     Impact a  
Fourth quarter 2004 earnings as reported (GAAP basis)
   $ 354     $ 213     $ .51  
Actions resulting in significant nonrecurring charges:
                        
Sale of broker-originated home equity loan portfolio
     9       6       .01  
Write-off of goodwill (nonprime indirect automobile loan business)
     55       55       .13  
Reclassification of indirect automobile loan portfolio to held-for-sale status
     14       16       .04  
 
                  
Adjusted fourth quarter 2004 earnings
   $ 432     $ 290     $ .70  
 
                  
 
                        
Fourth quarter 2005 earnings as reported (GAAP basis)
   $ 409     $ 296     $ .72  
 
                  
 
(a) Earnings per share (“EPS”) components do not foot due to rounding.
GAAP = U.S. generally accepted accounting principles

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 22
Line of Business Results
(dollars in millions)
Consumer Banking
                                                         
                                            Percent change 4Q05 vs.
    4Q05   3Q05   2Q05   1Q05   4Q04   3Q05   4Q04
Summary of operations
                                                        
Total revenue (TE)
   $ 730     $ 716     $ 706     $ 727     $ 691       2.0 %     5.6 %
Provision for loan losses
     28       29       22       48       9       (3.4 )     211.1  
Noninterest expense
     527       488       490       476       555       8.0       (5.0 )
Net income
     109       125       122       127       59       (12.8 )     84.7  
Average loans
     29,260       29,139       29,303       29,397       31,886       .4       (8.2 )
Average deposits
     43,158       42,359       41,567       41,063       40,925       1.9       5.5  
Net loan charge-offs
     31       36       32       39       118       (13.9 )     (73.7 )
Return on average allocated equity
     17.61 %     20.63 %     20.23 %     20.62 %     9.13 %     N/A       N/A  
Average full-time equivalent employees
     9,880       9,963       10,026       10,194       10,392       (.8 )     (4.9 )
 
                                                        
Supplementary information (lines of business)
                                                        
 
                                                        
Community Banking
                                                        
Total revenue (TE)
   $ 567     $ 567     $ 555     $ 544     $ 572       —       (.9 )%
Provision for loan losses
     24       22       18       20       21       9.1 %     14.3  
Noninterest expense
     427       405       388       386       404       5.4       5.7  
Net income
     72       88       93       86       92       (18.2 )     (21.7 )
Average loans
     19,716       19,781       19,773       19,919       20,094       (.3 )     (1.9 )
Average deposits
     42,489       41,670       40,920       40,475       40,365       2.0       5.3  
Net loan charge-offs
     26       24       21       25       23       8.3       13.0  
Return on average allocated equity
     18.36 %     22.77 %     24.43 %     22.80 %     23.87 %     N/A       N/A  
Average full-time equivalent employees
     8,513       8,546       8,448       8,548       8,728       (.4 )     (2.5 )
 
                                                        
Consumer Finance
                                                        
Total revenue (TE)
   $ 163     $ 149     $ 151     $ 183     $ 119       9.4 %     37.0 %
Provision for loan losses
     4       7       4       28       (12 )     (42.9 )     N/M  
Noninterest expense
     100       83       102       90       151       20.5       (33.8 )
Net income (loss)
     37       37       29       41       (33 )     —       N/M  
Average loans
     9,544       9,358       9,530       9,478       11,792       2.0       (19.1 )
Average deposits
     669       689       647       588       560       (2.9 )     19.5  
Net loan charge-offs
     5       12       11       14       95       (58.3 )     (94.7 )
Return on average allocated equity
     16.31 %     16.85 %     13.04 %     17.18 %     (12.66 )%     N/A       N/A  
Average full-time equivalent employees
     1,367       1,417       1,578       1,646       1,664       (3.5 )     (17.8 )

 

 

KeyCorp Reports Fourth Quarter and Record 2005 Earnings
January 20, 2006
Page 23
Line of Business Results (continued)
(dollars in millions)
Corporate and Investment Banking
                                                         
                                            Percent change 4Q05 vs.
    4Q05   3Q05   2Q05   1Q05   4Q04   3Q05   4Q04
Summary of operations
                                                        
Total revenue (TE)
   $ 577     $ 543     $ 523     $ 488     $ 515       6.3 %     12.0 %
Provision for loan losses
     8       14       (2 )     (4 )     (30 )     (42.9 )     N/M  
Noninterest expense
     312       292       274       254       266       6.8       17.3  
Net income
     161       148       157       149       174       8.8       (7.5 )
Average loans
     36,407       35,064       34,577       33,846       30,852       3.8       18.0  
Average deposits
     11,157       10,136       9,691       8,781       8,793       10.1       26.9  
Net loan charge-offs
     133       13       16       15       22       923.1       504.5  
Return on average allocated equity
     18.21 %     17.13 %     18.56 %     17.76 %     22.13 %     N/A       N/A  
Average full-time equivalent employees
     3,363       3,336       3,269       3,316       3,028       .8       11.1  
 
                                                        
Supplementary information (lines of business)
                                                        
 
Corporate Banking
                                                        
Total revenue (TE)
   $ 286     $ 271     $ 258     $ 259     $ 273       5.5 %     4.8 %
Provision for loan losses
     16       9       (6 )     (5 )     (32 )     77.8       N/M  
Noninterest expense
     164       157       144       135       158       4.5       3.8  
Net income
     66       66       75       80       92       —       (28.3 )
Average loans
     14,911       14,666       15,089       15,101       13,877       1.7       7.5  
Average deposits
     8,675       8,022       7,952       7,256       7,266       8.1       19.4  
Net loan charge-offs
     1       2       11       10       12       (50.0 )     (91.7 )
Return on average allocated equity
     15.49 %     15.66 %     17.80 %     19.04 %     21.37 %     N/A       N/A  
Average full-time equivalent employees
     1,519       1,558       1,532       1,541       1,558       (2.5 )     (2.5 )
 
                                                        
KeyBank Real Estate Capital
                                                        
Total revenue (TE)
   $ 163     $ 149     $ 138     $ 103     $ 132       9.4 %     23.5 %
Provision for loan losses
     4       2       (7 )     5       (4 )     100.0       N/M  
Noninterest expense
     69       64       55       46       49       7.8       40.8  
Net income
     57       52       56       33       54       9.6       5.6  
Average loans
     12,038       11,265       10,596       9,794       9,109       6.9       32.2  
Average deposits
     2,467       2,100       1,728       1,514       1,520       17.5       62.3  
Net loan charge-offs
     —       —       3       4       2       —       (100.0 )
Return on average allocated equity
     21.98 %     20.71 %     23.77 %     14.16 %     24.00 %     N/A       N/A  
Average full-time equivalent employees
     873       812       774       758       702       7.5       24.4  
 
                                                        
Key Equipment Finance
                                                        
Total revenue (TE)
   $ 128     $ 123     $ 127     $ 126     $ 110       4.1 %     16.4 %
Provision for loan losses
     (12 )     3       11       (4 )     6       N/M       N/M  
Noninterest expense
     79       71       75       73       59       11.3       33.9  
Net income
     38       30       26       36       28       26.7       35.7  
Average loans
     9,458       9,133       8,892       8,951       7,866       3.6       20.2  
Average deposits
     15       14       11       11       7       7.1       114.3  
Net loan charge-offs
     132       11       2       1       8       N/M       N/M  
Return on average allocated equity
     19.11 %     15.66 %     13.76 %     19.36 %     21.42 %     N/A       N/A  
Average full-time equivalent employees
     971       966       963       1,017       768       .5       26.4  
 
TE = Taxable Equivalent
N/A = Not Applicable
N/M = Not Meaningful