EX-99.1 2 l22724aexv99w1.htm EX-99.1 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 THIRD QUARTER 2006 EARNINGS
•   Third quarter EPS of $0.76, up 13% from the year-ago quarter
 
•   Return on average equity of 15.88%, compared to 14.84% one year ago
 
•   Total revenue up from the third quarter of 2005
 
•   Nonperforming assets and net loan charge-offs down from the year-ago quarter
CLEVELAND, October 17, 2006 – KeyCorp today announced third quarter net income of $312 million, or $0.76 per diluted common share, compared to $278 million, or $0.67 per share, for the third quarter of 2005. For the second quarter of 2006, net income was $308 million, or $0.75 per diluted common share. Return on average equity was 15.88% for the third quarter of 2006, compared to 14.84% for the same period last year and 16.11% for the second quarter of 2006.
     For the first nine months of 2006, net income was $909 million, or $2.21 per diluted common share, compared to $833 million, or $2.01 per share, for the first nine months of 2005. Return on average equity was 15.82%, compared to 15.36% for the same period last year.
     “Key’s financial performance continued to improve in the third quarter, driven once again by revenue growth and solid asset quality trends,” said Chairman and Chief Executive Officer Henry L. Meyer III. “Key’s taxable-equivalent revenue rose by $37 million from the year-ago quarter due to solid commercial loan growth, an increase in core deposits and higher fee income. These improved results were achieved in a challenging interest rate environment and a highly competitive market for loans and deposits.
     “With regard to asset quality, nonperforming assets decreased by $64 million from the third quarter of 2005. Net loan charge-offs were down $6 million and represented 0.25% of Key’s average total loans for the current quarter.
     “During the third quarter, we reached an agreement to sell our McDonald Investments branch network to UBS Financial Services and separately announced our intention to pursue the sale of the Champion Mortgage finance business. These actions will improve Key’s business mix and support our focus on relationship businesses.”
     The company expects earnings to be in the range of $0.72 to $0.76 per share for the fourth quarter of 2006.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 2
SUMMARY OF CONSOLIDATED RESULTS
     Taxable-equivalent net interest income was $751 million for the third quarter of 2006, compared to $726 million for the year-ago quarter. The positive effect of a 5% increase in average earning assets, due primarily to a 7% rise in commercial loans, more than offset the effect of a 4 basis point decline in the net interest margin to 3.63%. Competitive pressure on loan and deposit pricing and the flat-to-inverted yield curve are expected to continue to put pressure on margins.
     Compared to the second quarter of 2006, taxable-equivalent net interest income was essentially unchanged. The favorable effect of an increase in average earning assets was offset by the effect of a 6 basis point decline in the net interest margin.
     Key’s noninterest income was $543 million for the third quarter of 2006, compared to $531 million for the year-ago quarter. The improvement reflected higher income from several of Key’s fee-based businesses, offset in part by reductions in income from dealer trading and derivatives, and other investments. In addition, Key recorded net losses from the sales of securities, compared to net gains in the same period one year ago.
     Compared to the second quarter of 2006, noninterest income decreased by $4 million. Lower income from investment banking and capital markets activities was the primary cause of the decline. In addition, Key recorded net losses from the sales of securities in the third quarter of 2006, compared to net gains in the prior quarter. These results were moderated by increases in income from a number of other fee-based businesses.
     Key’s noninterest expense was $808 million for the third quarter of 2006, compared to $781 million for the same period last year. Personnel expense rose by $8 million, due primarily to higher costs incurred in connection with business expansion. Nonpersonnel expense grew by $19 million, which included a $10 million contribution made to Key Foundation during the third quarter of 2006.
     Compared to the second quarter of 2006, noninterest expense decreased by $8 million. The improvement was attributable to decreases in personnel expense, professional fees and miscellaneous expense, offset in part by higher costs associated with marketing and the contribution to Key Foundation.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 3
ASSET QUALITY
     Key’s provision for loan losses was $31 million for the third quarter of 2006, compared to $43 million for the year-ago quarter and $24 million for the second quarter of 2006.
     Net loan charge-offs for the quarter totaled $43 million, or 0.25% of average loans, compared to $49 million, or 0.30%, for the same period last year and $34 million, or 0.21%, for the previous quarter.
     At September 30, 2006, Key’s nonperforming loans totaled $223 million and represented 0.34% of period-end portfolio loans, compared to 0.55% at September 30, 2005, and 0.41% at June 30, 2006. During the third quarter of 2006, Key moved approximately $55 million of loans from “nonperforming loans” to “nonperforming loans held for sale” in connection with its intention to pursue the sale of the Champion Mortgage finance business. This reclassification had no effect on Key’s total nonperforming assets. At September 30, 2006, nonperforming assets totaled $329 million and represented 0.50% of portfolio loans, other real estate owned and other nonperforming assets, compared to 0.60% at September 30, 2005, and 0.46% at June 30, 2006.
     Key’s allowance for loan losses stood at $944 million, or 1.44% of loans outstanding, at September 30, 2006, compared to $1.093 billion, or 1.67%, at September 30, 2005, and $956 million, or 1.42%, at June 30, 2006. At September 30, 2006, the allowance for loan losses represented 423% of nonperforming loans, compared to 304% one year ago and 343% at June 30, 2006.
CAPITAL
     Key’s capital ratios continued to exceed all “well-capitalized” regulatory benchmarks at September 30, 2006. Key’s tangible equity to tangible assets ratio was 6.81% at quarter end, compared to 6.68% at September 30, 2005, and June 30, 2006.
     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 third quarter of 2006, Key repurchased 2,500,000 of its common shares. At September 30, 2006, there were 9,961,248 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   3Q06     2Q06     1Q06     4Q05     3Q05  
 
Shares outstanding at beginning of period
     402,672       405,273       406,624       408,542       408,231  
Issuance of shares under employee benefit and dividend reinvestment plans
     2,576       1,399       4,649       1,332       1,561  
Repurchase of common shares
     (2,500 )     (4,000 )     (6,000 )     (3,250 )     (1,250 )
 
                              
Shares outstanding at end of period
     402,748       402,672       405,273       406,624       408,542  
 
                              
 

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 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 3Q06 vs.  
dollars in millions   3Q06     2Q06     3Q05     2Q06     3Q05  
 
Revenue (taxable equivalent)
                                        
Community Banking
       $ 671         $ 663         $ 659       1.2 %     1.8 %
National Banking
     631       632       601       (.2 )     5.0  
Other Segments
     25       21       25       19.0       —  
 
                              
Total segments
     1,327       1,316       1,285       .8       3.3  
 
                                       
Reconciling Items
     (33 )     (17 )     (28 )     (94.1 )     (17.9 )
 
                              
Total
       $ 1,294         $ 1,299         $ 1,257       (.4 )%     2.9 %
 
                                  
 
                                       
Net income
                             `          
Community Banking
       $ 112         $ 104         $ 111       7.7 %     .9 %
National Banking
     176       177       161       (.6 )     9.3  
Other Segments
     20       19       21       5.3       (4.8 )
 
                              
Total segments
     308       300       293       2.7       5.1  
 
                                       
Reconciling Items
     4       8       (15 )     (50.0 )     N/M  
 
                              
Total
       $ 312         $ 308         $ 278       1.3 %     12.2 %
 
                                  
 
 
N/M = Not Meaningful
Community Banking
                                         
                            Percent change 3Q06 vs.  
dollars in millions   3Q06     2Q06     3Q05     2Q06     3Q05  
 
Summary of operations
                                        
Net interest income (TE)
       $ 443         $ 437         $ 432       1.4 %     2.5 %
Noninterest income
     228       226       227       .9       .4  
 
                              
Total revenue (TE)
     671       663       659       1.2       1.8  
Provision for loan losses
     22       20       26       10.0       (15.4 )
Noninterest expense
     470       476       455       (1.3 )     3.3  
 
                              
Income before income taxes (TE)
     179       167       178       7.2       .6  
Allocated income taxes and TE adjustments
     67       63       67       6.3       —  
 
                              
Net income
       $ 112         $ 104         $ 111       7.7 %     .9 %
 
                                  
 
                                       
Percent of consolidated net income
     36 %     34 %     40 %     N/A       N/A  
 
                                       
Average balances
                                        
Loans and leases
       $ 26,737         $ 26,804         $ 27,131       (.2 )%     (1.5 )%
Total assets
     29,718       29,805       30,026       (.3 )     (1.0 )
Deposits
     46,987       46,683       44,705       .7       5.1  
 
 
TE = Taxable Equivalent, N/A = Not Applicable

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 5
Additional Community Banking Data
                                         
                            Percent change 3Q06 vs.  
dollars in millions   3Q06     2Q06     3Q05     2Q06     3Q05  
 
Average deposits outstanding
                                        
Noninterest-bearing
       $ 8,111         $ 8,086         $ 8,411       .3 %     (3.6 )%
Money market deposit accounts and other savings
     22,390       22,523       21,448       (.6 )     4.4  
Time
     16,486       16,074       14,846       2.6       11.0  
 
                              
Total deposits
       $ 46,987         $ 46,683         $ 44,705       .7 %     5.1 %
 
                              
 
Home equity loans
                                        
Average balance
       $ 10,048         $ 10,107         $ 10,365                  
Weighted-average loan-to-value ratio
     70 %     70 %     71 %                
Percent first lien positions
     60       60       61                  
                 
Other data
                                        
On-line households / household penetration
     646,993 / 52 %     639,444 / 52 %     607,127 / 49 %                
KeyCenters
     949       946       946                  
Automated teller machines
     2,099       2,120       2,185                  
 
     Net income for Community Banking was $112 million for the third quarter of 2006, up slightly from $111 million for the year-ago quarter. Growth in net interest income and a decrease in the provision for loan losses drove the improvement and more than offset an increase in noninterest expense. Noninterest income was essentially unchanged.
     Taxable-equivalent net interest income increased by $11 million, or 3%, from the third quarter of 2005, due to growth in average deposits, which also experienced a more favorable interest rate spread. The positive effects of these factors were moderated by a reduction in, and a tighter interest rate spread on, earning assets.
     The provision for loan losses decreased by $4 million, or 15%, as a result of an improved credit risk profile.
     Noninterest expense rose by $15 million, or 3%. Increases in personnel expense and various indirect charges caused the rise.
     During the third quarter of 2006, Key entered into an agreement to sell the McDonald Investments branch network to UBS Financial Services Inc., a subsidiary of UBS AG. This network includes approximately 340 financial advisors in addition to the field support staff who work in 14 states throughout the Northeast, Midwest, Rocky Mountain and Northwest. The sale is expected to be completed in the first quarter of 2007.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 6
National Banking
                                         
                            Percent change 3Q06 vs.  
dollars in millions   3Q06     2Q06     3Q05     2Q06     3Q05  
 
Summary of operations
                                        
Net interest income (TE)
       $ 375         $ 373         $ 348       .5 %     7.8 %
Noninterest income
     256       259       253       (1.2 )     1.2  
 
                              
Total revenue (TE)
     631       632       601       (.2 )     5.0  
Provision for loan losses
     9       4       17       125.0       (47.1 )
Noninterest expense
     340       345       326       (1.4 )     4.3  
 
                              
Income before income taxes (TE)
     282       283       258       (.4 )     9.3  
Allocated income taxes and TE adjustments
     106       106       97       —       9.3  
 
                              
Net income
       $ 176         $ 177         $ 161       (.6 )%     9.3 %
 
                                  
 
                                       
Percent of consolidated net income
     57 %     57 %     58 %     N/A       N/A  
 
                                       
Average balances
                                        
Loans and leases a
       $ 38,767         $ 40,201         $ 37,072       (3.6 )%     4.6 %
Loans held for sale a
     6,192       3,835       3,511       61.5       76.4  
Total assets
     51,347       50,432       46,708       1.8       9.9  
Deposits
     11,068       10,638       7,785       4.0       42.2  
 
     
(a)   On August 1, 2006, Key transferred $2.5 billion of home equity loans from the loan portfolio to loans held for sale in connection with its intention to pursue the sale of the Champion Mortgage finance business. This transfer reduced average home equity loans and leases and increased average loans held for sale by approximately $1.6 billion for the third quarter of 2006.
 
TE = Taxable Equivalent, N/A = Not Applicable
     Net income for National Banking was $176 million for the third quarter of 2006, up from $161 million for the same period last year. The improvement was due primarily to higher net interest income and a decrease in the provision for loan losses, offset in part by a rise in the level of noninterest expense.
     Taxable-equivalent net interest income grew by $27 million, or 8%, from the third quarter of 2005, reflecting strong growth in deposits, as well as average loans and leases. Deposits rose by $3.3 billion, or 42%, from the third quarter of 2005. Average loans and leases grew by $1.7 billion, or 5%, due largely to increases in the Real Estate Capital and Equipment Finance lines of business. The positive effects of these factors were moderated by tighter interest rate spreads on average earning assets in the Equipment Finance and Consumer Finance lines.
     Noninterest income rose by $3 million, or 1%. Higher income from operating leases, trust and investment services, and a number of other fee-based services were moderated by reductions in income from dealer trading and derivatives, and other investments. In addition, Key recorded net losses from the sales of securities, compared to net gains in the same period one year ago.
     The provision for loan losses decreased by $8 million, or 47%, as a result of an improved credit risk profile.
     Noninterest expense increased by $14 million, or 4%, reflecting higher costs associated with operating leases and various indirect charges.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 7
     In the current year, we have continued to take actions to improve our business mix and to support our focus on relationship businesses. During the third quarter, we announced our plans to pursue the sale of the Champion Mortgage finance business, and during the prior quarter, we expanded our asset management product line by acquiring Austin Capital Management, Ltd., an investment firm headquartered in Austin, Texas.
     In addition, during the second half of 2005, we completed two acquisitions that have helped us to build upon our success in commercial mortgage origination and servicing. In the fourth quarter of 2005, we continued the expansion of our commercial mortgage servicing business by acquiring the commercial mortgage-backed servicing business of ORIX Capital Markets, LLC, headquartered in Dallas, Texas. In the third quarter, we expanded our FHA financing and servicing capabilities by acquiring Malone Mortgage Company, also based in Dallas.
Other Segments
     Other segments consist of Corporate Treasury and Key’s Principal Investing unit. These segments generated net income of $20 million for the third quarter of 2006, compared to $21 million for the same period last year.
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 that typically have annual sales revenues of $5 million or less 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, brokerage, 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, investments and employee benefit programs, succession planning, capital markets, derivatives and foreign exchange.
National Banking
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 in which the owner occupies less than 60% of the premises).
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.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 8
Institutional and Capital Markets provides products and services to large corporations, middle-market companies, financial institutions, government entities and not-for-profit 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, Institutional and Capital Markets 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.
Consumer Finance includes Indirect Lending, Commercial Floor Plan Lending and National Home Equity.
Indirect Lending offers loans to consumers through 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.
Commercial Floor Plan Lending finances inventory for automobile and marine dealers.
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.
     Cleveland-based KeyCorp is one of the nation’s largest bank-based financial services companies, with assets of approximately $96 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 949 KeyCenters and offices; a network of 2,099 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.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 9
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 Tuesday, October 17, 2006. A tape of the call will be available through October 24.
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 express 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 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 liabilities 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.
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KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 10
Financial Highlights
(dollars in millions, except per share amounts)
                         
    Three months ended  
    9-30-06     6-30-06     9-30-05  
Summary of operations
                        
Net interest income (TE)
       $ 751         $ 752         $ 726  
Noninterest income
     543       547       531  
 
                  
Total revenue (TE)
     1,294       1,299       1,257  
Provision for loan losses
     31       24       43  
Noninterest expense
     808       816       781  
Net income
     312       308       278  
 
                        
Per common share
                        
Net income
       $ .77         $ .76         $ .68  
Net income — assuming dilution
     .76       .75       .67  
Cash dividends declared
     .345       .345       .325  
Book value at period end
     19.73       19.21       18.41  
Market price at period end
     37.44       35.68       32.25  
 
                        
Performance ratios
                        
Return on average total assets
     1.30 %     1.32 %     1.22 %
Return on average equity
     15.88       16.11       14.84  
Net interest margin (TE)
     3.63       3.69       3.67  
 
                        
Capital ratios at period end
                        
Equity to assets
     8.26 %     8.16 %     8.15 %
Tangible equity to tangible assets
     6.81       6.68       6.68  
Tier 1 risk-based capital a
     7.92       7.90       7.72  
Total risk-based capital a
     11.98       12.08       11.83  
Leverage a
    8.90       8.82       8.60  
 
                        
Asset quality
                        
Net loan charge-offs
       $ 43         $ 34         $ 49  
Net loan charge-offs to average loans
     .25 %     .21 %     .30 %
Allowance for loan losses
       $ 944         $ 956         $ 1,093  
Allowance for loan losses to period-end loans
     1.44 %     1.42 %     1.67 %
Allowance for loan losses to nonperforming loans
     423.32       342.65       303.61  
Nonperforming loans at period end
       $ 223         $ 279         $ 360  
Nonperforming assets at period end
     329       308       393  
Nonperforming loans to period-end portfolio loans
     .34 %     .41 %     .55 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
     .50       .46       .60  
 
                        
Trust and brokerage assets
                        
Assets under management
       $ 84,060         $ 80,349         $ 76,341  
Nonmanaged and brokerage assets
     55,221       57,682       57,313  
 
                        
Other data
                        
Average full-time equivalent employees
     20,264       19,931       19,456  
KeyCenters
     949       946       946  
 
                        
Taxable-equivalent adjustment
       $ 21         $ 22         $ 33  

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 11
Financial Highlights (continued)
(dollars in millions, except per share amounts)
                 
    Nine months ended  
    9-30-06     9-30-05  
Summary of operations
                
Net interest income (TE)
       $ 2,259         $ 2,163  
Noninterest income
     1,571       1,517  
 
            
Total revenue (TE)
     3,830       3,680  
Provision for loan losses
     94       107  
Noninterest expense
     2,394       2,303  
Net income
     909       833  
 
                
Per common share
                
Net income
       $ 2.24         $ 2.04  
Net income — assuming dilution
     2.21       2.01  
Cash dividends declared
     1.035       .975  
 
                
Performance ratios
                
Return on average total assets
     1.29 %     1.23 %
Return on average equity
     15.82       15.36  
Net interest margin (TE)
     3.69       3.68  
 
                
Asset quality
                
Net loan charge-offs
       $ 116         $ 151  
Net loan charge-offs to average loans
     .23 %     .32 %
 
                
Other data
                
Average full-time equivalent employees
     19,974       19,508  
 
                
Taxable-equivalent adjustment
       $ 71         $ 91  
 
(a) 9-30-06 ratio is estimated.
TE = Taxable Equivalent

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 12
Consolidated Balance Sheets
(dollars in millions)
                         
    9-30-06     6-30-06     9-30-05  
Assets
                        
Loans
       $ 65,551         $ 67,408         $ 65,575  
Loans held for sale
     7,150       4,189       3,595  
Investment securities
     41       44       98  
Securities available for sale
     7,441       7,140       7,124  
Short-term investments
     1,582       1,577       2,394  
Other investments
     1,367       1,379       1,310  
 
                  
Total earning assets
     83,132       81,737       80,096  
Allowance for loan losses
     (944 )     (956 )     (1,093 )
Cash and due from banks
     2,957       2,814       2,660  
Premises and equipment
     567       557       593  
Goodwill
     1,372       1,372       1,344  
Other intangible assets
     127       132       109  
Corporate-owned life insurance
     2,754       2,732       2,658  
Derivative assets
     915       1,016       1,132  
Accrued income and other assets
     5,275       5,390       4,824  
 
                  
Total assets
       $ 96,155         $ 94,794         $ 92,323  
 
                  
 
                        
Liabilities
                        
Deposits in domestic offices:
                        
NOW and money market deposit accounts
       $ 25,150         $ 25,291         $ 23,541  
Savings deposits
     1,672       1,751       1,922  
Certificates of deposit ($100,000 or more)
     5,734       5,224       4,783  
Other time deposits
     11,848       11,542       10,804  
 
                  
Total interest-bearing
     44,404       43,808       41,050  
Noninterest-bearing
     13,396       13,268       12,202  
Deposits in foreign office — interest-bearing
     3,629       3,762       4,819  
 
                  
Total deposits
     61,429       60,838       58,071  
Federal funds purchased and securities sold under repurchase agreements
     4,701       3,654       3,444  
Bank notes and other short-term borrowings
     2,594       2,360       3,001  
Derivative liabilities
     844       1,156       1,075  
Accrued expense and other liabilities
     4,986       4,999       5,173  
Long-term debt
     13,654       14,050       14,037  
 
                  
Total liabilities
     88,208       87,057       84,801  
 
                        
Shareholders’ equity
                        
Preferred stock
     —       —       —  
Common shares
     492       492       492  
Capital surplus
     1,588       1,577       1,517  
Retained earnings
     8,371       8,199       7,719  
Treasury stock, at cost
     (2,434 )     (2,411 )     (2,133 )
Accumulated other comprehensive loss
     (70 )     (120 )     (73 )
 
                  
Total shareholders’ equity
     7,947       7,737       7,522  
 
                        
 
                  
Total liabilities and shareholders’ equity
       $ 96,155         $ 94,794         $ 92,323  
 
                  
 
                        
Common shares outstanding (000)
     402,748       402,672       408,542  

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 13
Consolidated Statements of Income
(dollars in millions, except per share amounts)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Interest income
                                        
Loans
       $ 1,196         $ 1,190         $ 1,006         $ 3,500         $ 2,837  
Loans held for sale
     131       73       56       272       190  
Investment securities
     1       1       1       2       3  
Securities available for sale
     84       84       84       251       244  
Short-term investments
     16       16       15       54       37  
Other investments
     16       17       12       58       44  
 
                              
Total interest income
     1,444       1,381       1,174       4,137       3,355  
 
                                        
Interest expense
                                        
Deposits
     443       392       273       1,178       717  
Federal funds purchased and securities sold under repurchase agreements
     45       34       31       113       81  
Bank notes and other short-term borrowings
     24       27       22       75       58  
Long-term debt
     202       198       155       583       427  
 
                              
Total interest expense
     714       651       481       1,949       1,283  
 
                                        
 
                              
Net interest income
     730       730       693       2,188       2,072  
Provision for loan losses
     31       24       43       94       107  
 
                              
Net interest income after provision for loan losses
     699       706       650       2,094       1,965  
 
                                        
Noninterest income
                                        
Trust and investment services income
     137       139       135       411       408  
Service charges on deposit accounts
     78       77       82       227       228  
Investment banking and capital markets income
     44       59       62       163       168  
Operating lease income
     58       56       47       166       141  
Letter of credit and loan fees
     48       45       46       133       133  
Corporate-owned life insurance income
     23       26       26       74       78  
Electronic banking fees
     27       27       24       78       70  
Net gains from loan securitizations and sales
     14       10       12       34       41  
Net securities gains (losses)
     (7 )     4       3       (2 )     (2 )
Other income
     121       104       94       287       252  
 
                              
Total noninterest income
     543       547       531       1,571       1,517  
 
                                        
Noninterest expense
                                        
Personnel
     422       431       414       1,258       1,190  
Net occupancy
     63       61       66       187       212  
Computer processing
     52       49       54       157       155  
Operating lease expense
     48       45       40       134       118  
Professional fees
     29       40       29       102       87  
Marketing
     37       28       29       83       88  
Equipment
     26       26       28       78       84  
Other expense
     131       136       121       395       369  
 
                              
Total noninterest expense
     808       816       781       2,394       2,303  
 
                              
 
                                        
Income before income taxes and cumulative effect of accounting change
     434       437       400       1,271       1,179  
Income taxes
     122       129       122       367       346  
 
                              
Income before cumulative effect of accounting change
     312       308       278       904       833  
Cumulative effect of change in accounting for forfeited stock-based awards, net of tax
     —       —       —       5       —  
 
                              
Net income
       $ 312         $ 308         $ 278         $ 909         $ 833  
 
                              
 
                                        
Per common share:
                                        
Income before cumulative effect of accounting change
       $ .77         $ .76         $ .68         $ 2.23         $ 2.04  
Net income
     .77       .76       .68       2.24       2.04  
 
                                        
Per common share — assuming dilution:
                                        
Income before cumulative effect of accounting change
       $ .76         $ .75         $ .67         $ 2.20         $ 2.01  
Net income
     .76       .75       .67       2.21       2.01  
 
                                        
Cash dividends declared per common share
       $ .345         $ .345         $ .325         $ 1.035         $ .975  
 
                                        
Weighted-average common shares outstanding (000)
     403,780       404,528       410,456       405,218       409,166  
Weighted-average common shares and potential common shares outstanding (000)
     409,428       410,559       415,441       411,029       414,510  

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 14
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
(dollars in millions)
                                                                         
    Third Quarter 2006     Second Quarter 2006     Third Quarter 2005  
    Average                     Average                     Average              
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
Assets
                                                                        
Loans: a,b
                                                                        
Commercial, financial and agricultural c
       $ 21,648         $ 400       7.34 %       $ 21,970         $ 390       7.12 %       $ 19,249         $ 280       5.78 %
Real estate — commercial mortgage
     8,106       164       8.04       8,071       153       7.59       8,467       136       6.42  
Real estate — construction
     7,965       171       8.51       7,570       152       8.07       6,388       110       6.81  
Commercial lease financing c
     9,850       144       5.83       9,764       148       6.05       10,161       158       6.19  
 
                                                      
Total commercial loans
     47,569       879       7.34       47,375       843       7.13       44,265       684       6.15  
Real estate — residential
     1,415       23       6.49       1,430       24       6.54       1,472       23       6.13  
Home equity d
     11,847       218       7.32       13,449       247       7.36       13,888       236       6.72  
Consumer — direct
     1,585       36       9.07       1,685       41       9.64       1,794       40       8.96  
Consumer — indirect
     3,594       61       6.83       3,503       57       6.66       3,339       56       6.67  
 
                                                      
Total consumer loans
     18,441       338       7.31       20,067       369       7.37       20,493       355       6.86  
 
                                                      
Total loans
     66,010       1,217       7.33       67,442       1,212       7.20       64,758       1,039       6.37  
Loans held for sale d
     6,201       131       8.40       3,844       73       7.64       3,521       56       6.43  
Investment securities a
     42       1       8.12       46       1       8.01       76       1       7.00  
Securities available for sale e
     7,216       84       4.61       7,075       84       4.71       7,131       84       4.65  
Short-term investments
     1,588       16       3.78       1,678       16       3.89       1,972       15       3.15  
Other investments e
     1,363       16       4.67       1,398       17       4.60       1,342       12       3.25  
 
                                                      
Total earning assets
     82,420       1,465       7.06       81,483       1,403       6.89       78,800       1,207       6.08  
Allowance for loan losses
     (954 )                     (963 )                     (1,095 )                
Accrued income and other assets
     13,452                       13,341                       12,918                  
 
                                                                  
Total assets
       $ 94,918                         $ 93,861                         $ 90,623                  
 
                                                                  
 
                                                                        
Liabilities
                                                                        
NOW and money market deposit accounts
       $ 25,230       194       3.05         $ 25,347       173       2.75         $ 22,886       101       1.75  
Savings deposits
     1,700       1       .19       1,752       1       .20       1,952       2       .29  
Certificates of deposit ($100,000 or more) f
     5,517       67       4.82       5,382       61       4.54       4,928       48       3.85  
Other time deposits
     11,700       127       4.29       11,456       115       4.02       10,805       87       3.21  
Deposits in foreign office
     4,139       54       5.22       3,429       42       4.88       4,048       35       3.46  
 
                                                      
Total interest-bearing deposits
     48,286       443       3.64       47,366       392       3.32       44,619       273       2.43  
Federal funds purchased and securities sold under repurchase agreements
     3,634       45       4.88       3,005       34       4.60       3,674       31       3.28  
Bank notes and other short-term borrowings
     2,285       24       4.29       2,497       27       4.17       2,841       22       3.04  
Long-term debt f
     13,763       202       5.83       14,088       198       5.59       13,814       155       4.50  
 
                                                      
Total interest-bearing liabilities
     67,968       714       4.17       66,956       651       3.89       64,948       481       2.94  
 
                                                      
Noninterest-bearing deposits
     13,085                       13,027                       12,215                  
Accrued expense and other liabilities
     6,068                       6,211                       6,027                  
 
                                                                  
Total liabilities
     87,121                       86,194                       83,190                  
 
                                                                        
Shareholders’ equity
     7,797                       7,667                       7,433                  
 
                                                                        
 
                                                                  
Total liabilities and shareholders’ equity
       $ 94,918                         $ 93,861                         $ 90,623                  
 
                                                                  
Interest rate spread (TE)
                     2.89 %                     3.00 %                     3.14 %
 
                                                                  
Net interest income (TE) and net interest margin (TE)
             751       3.63 %             752       3.69 %             726       3.67 %
 
                                                                  
TE adjustment a
             21                       22                       33          
 
                                                                  
Net interest income, GAAP basis
               $ 730                         $ 730                         $ 693          
 
                                                                  
     
(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)   During the first quarter of 2006, Key reclassified $760 million of average loans and related interest income from the commercial lease financing component of the commercial loan portfolio to the commercial, financial and agricultural component to more accurately reflect the nature of these receivables. Balances presented for prior periods were not reclassified as the historical data was not available.
 
(d)   On August 1, 2006, Key transferred $2.5 billion of home equity loans from the loan portfolio to loans held for sale in connection with its intention to pursue the sale of the Champion Mortgage finance business. This transfer reduced average home equity loans and increased average loans held for sale by approximately $1.6 billion for the third quarter of 2006.
 
(e)   Yield is calculated on the basis of amortized cost.
 
(f)   Rate calculation excludes basis adjustments related to fair value hedges.
TE = Taxable Equivalent
GAAP = U.S. generally accepted accounting principles

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 15
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
(dollars in millions)
                                                 
    Nine months ended September 30, 2006     Nine months ended September 30, 2005  
    Average                     Average              
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
Assets
                                                
 
                                                
Loans: a,b
                                                
Commercial, financial and agricultural c
       $ 21,779         $ 1,147       7.04 %       $ 19,307         $ 768       5.32 %
Real estate — commercial mortgage
     8,089       461       7.62       8,344       380       6.09  
Real estate — construction
     7,618       461       8.10       6,050       289       6.38  
Commercial lease financing c
     9,733       435       5.95       10,067       474       6.28  
 
                                    
Total commercial loans
     47,219       2,504       7.09       43,768       1,911       5.83  
Real estate — residential
     1,431       69       6.45       1,471       67       6.06  
Home equity d
     12,904       704       7.29       13,926       674       6.47  
Consumer — direct
     1,666       118       9.46       1,850       114       8.25  
Consumer — indirect
     3,489       176       6.72       3,331       161       6.44  
 
                                    
Total consumer loans
     19,490       1,067       7.31       20,578       1,016       6.59  
 
                                    
Total loans
     66,709       3,571       7.15       64,346       2,927       6.08  
Loans held for sale d
     4,588       272       7.93       3,654       190       6.96  
Investment securities a
     50       2       7.38       70       4       8.00  
Securities available for sale e
     7,147       251       4.64       7,146       244       4.54  
Short-term investments
     1,672       54       4.27       1,818       37       2.74  
Other investments e
     1,365       58       5.45       1,406       44       4.00  
 
                                    
Total earning assets
     81,531       4,208       6.89       78,440       3,446       5.86  
Allowance for loan losses
     (960 )                     (1,117 )                
Accrued income and other assets
     13,334                       13,175                  
 
                                            
Total assets
       $ 93,905                         $ 90,498                  
 
                                            
 
                                                
Liabilities
                                                
NOW and money market deposit accounts
       $ 25,012       512       2.74         $ 22,274       233       1.40  
Savings deposits
     1,754       3       .24       1,969       4       .26  
Certificates of deposit ($100,000 or more)f
     5,436       186       4.57       4,941       138       3.74  
Other time deposits
     11,481       345       4.02       10,734       245       3.06  
Deposits in foreign office
     3,644       132       4.83       4,438       97       2.93  
 
                                    
Total interest-bearing deposits
     47,327       1,178       3.33       44,356       717       2.16  
Federal funds purchased and securities sold under repurchase agreements
    3,330       113       4.52       3,990       81       2.70  
Bank notes and other short-term borrowings
     2,443       75       4.11       2,860       58       2.71  
Long-term debt f
     13,946       583       5.57       14,172       427       4.12  
 
                                    
Total interest-bearing liabilities
     67,046       1,949       3.88       65,378       1,283       2.64  
 
                                    
Noninterest-bearing deposits
     12,941                       11,825                  
Accrued expense and other liabilities
     6,238                       6,042                  
 
                                            
Total liabilities
     86,225                       83,245                  
 
                                                
Shareholders’ equity
     7,680                       7,253                  
 
                                                
 
                                            
Total liabilities and shareholders’ equity
       $ 93,905                         $ 90,498                  
 
                                            
Interest rate spread (TE)
                     3.01 %                     3.22 %
 
                                            
Net interest income (TE) and net interest margin (TE)
             2,259       3.69 %             2,163       3.68 %
 
                                            
TE adjustment a
             71                       91          
 
                                            
Net interest income, GAAP basis
               $ 2,188                         $ 2,072          
 
                                            
     
(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)   During the first quarter of 2006, Key reclassified $760 million of average loans and related interest income from the commercial lease financing component of the commercial loan portfolio to the commercial, financial and agricultural component to more accurately reflect the nature of these receivables. Balances presented for prior periods were not reclassified as the historical data was not available.
 
(d)   On August 1, 2006, Key transferred $2.5 billion of home equity loans from the loan portfolio to loans held for sale in connection with its intention to pursue the sale of the Champion Mortgage finance business. This transfer reduced average home equity loans and increased average loans held for sale by approximately $550 million for the first nine months of 2006.
 
(e)   Yield is calculated on the basis of amortized cost.
 
(f)   Rate calculation excludes basis adjustments related to fair value hedges.
TE = Taxable Equivalent
GAAP = U.S. generally accepted accounting principles

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 16
Noninterest Income
(in millions)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Trust and investment services income a
       $ 137         $ 139         $ 135         $ 411         $ 408  
Service charges on deposit accounts
     78       77       82       227       228  
Investment banking and capital markets income a
     44       59       62       163       168  
Operating lease income
     58       56       47       166       141  
Letter of credit and loan fees
     48       45       46       133       133  
Corporate-owned life insurance income
     23       26       26       74       78  
Electronic banking fees
     27       27       24       78       70  
Net gains from loan securitizations and sales
     14       10       12       34       41  
Net securities gains (losses)
     (7 )     4       3       (2 )     (2 )
Other income:
                                        
Insurance income
     18       17       15       49       37  
Loan securitization servicing fees
     5       5       5       15       15  
Credit card fees
     8       3       4       14       12  
Net gains from principal investing
     28       23       29       48       40  
Miscellaneous income
     62       56       41       161       148  
 
                              
Total other income
     121       104       94       287       252  
 
                              
Total noninterest income
       $ 543         $ 547         $ 531         $ 1,571         $ 1,517  
 
                              
     
(a)   Additional detail provided in tables below.
Trust and Investment Services Income
(in millions)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Brokerage commissions and fee income
       $ 56         $ 59         $ 61         $ 177         $ 186  
Personal asset management and custody fees
     39       38       39       116       115  
Institutional asset management and custody fees
     42       42       35       118       107  
 
                              
Total trust and investment services income
       $ 137         $ 139         $ 135         $ 411         $ 408  
 
                              
Investment Banking and Capital Markets Income
(in millions)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Investment banking income
       $ 21         $ 26         $ 21         $ 69         $ 57  
Dealer trading and derivatives income
     7       11       16       25       45  
Income from other investments
     5       11       14       37       37  
Foreign exchange income
     11       11       11       32       29  
 
                              
Total investment banking and capital markets income
       $ 44         $ 59         $ 62         $ 163         $ 168  
 
                              

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 17
Noninterest Expense
(dollars in millions)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Personnel a
       $ 422         $ 431         $ 414         $ 1,258         $ 1,190  
Net occupancy
     63       61       66       187       212 b
Computer processing
     52       49       54       157       155  
Operating lease expense
     48       45       40       134       118  
Professional fees
     29       40       29       102       87  
Marketing
     37       28       29       83       88  
Equipment
     26       26       28       78       84  
Other expense:
                                        
Postage and delivery
     13       12       12       38       37  
Franchise and business taxes
     9       10       8       29       25  
Telecommunications
     7       7       8       21       23  
OREO expense, net
     2       1       2       4       6  
Provision (credit) for losses on lending- related commitments
     —       —       2       —       (7 )
Miscellaneous expense
     100       106       89       303       285  
 
                              
Total other expense
     131       136       121       395       369  
 
                              
Total noninterest expense
       $ 808         $ 816         $ 781         $ 2,394         $ 2,303  
 
                              
 
                                        
Average full-time equivalent employees
     20,264       19,931       19,456       19,974       19,508  
     
(a)   Additional detail provided in table below.
 
(b)   Includes a charge of $30 million recorded during the first quarter of 2005 to adjust the accounting for rental expense associated with operating leases from an escalating to a straight-line basis.
Personnel Expense
(in millions)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Salaries
       $ 241         $ 235         $ 222         $ 706         $ 657  
Incentive compensation
     95       100       99       274       262  
Employee benefits
     68       76       66       226       204  
Stock-based compensation
     15       18       23       47       55  
Severance
     3       2       4       5       12  
 
                              
Total personnel expense
       $ 422         $ 431         $ 414         $ 1,258         $ 1,190  
 
                              

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 18
Loan Composition
(dollars in millions)
                                         
                            Percent change 9-30-06 vs.  
    9-30-06     6-30-06     9-30-05     6-30-06     9-30-05  
Commercial, financial and agricultural a
       $ 21,556         $ 21,598         $ 19,451       (.2) %     10.8 %
Commercial real estate:
                                        
Commercial mortgage
     8,266       7,994       8,618       3.4       (4.1 )
Construction
     8,272       7,767       6,700       6.5       23.5  
 
                              
Total commercial real estate loans
     16,538       15,761       15,318       4.9       8.0  
Commercial lease financing a
     9,860       9,909       10,339       (.5 )     (4.6 )
 
                              
Total commercial loans
     47,954       47,268       45,108       1.5       6.3  
Real estate — residential mortgage
     1,407       1,418       1,476       (.8 )     (4.7 )
Home equity b
     10,988       13,509       13,872       (18.7 )     (20.8 )
Consumer — direct
     1,576       1,670       1,792       (5.6 )     (12.1 )
Consumer — indirect:
                                        
Marine
     2,982       2,920       2,676       2.1       11.4  
Other
     644       623       651       3.4       (1.1 )
 
                              
Total consumer — indirect loans
     3,626       3,543       3,327       2.3       9.0  
 
                              
Total consumer loans
     17,597       20,140       20,467       (12.6 )     (14.0 )
 
                              
Total loans
       $ 65,551         $ 67,408         $ 65,575       (2.8) %     —  
 
                                  
Loans Held for Sale Composition
(dollars in millions)
                                         
                            Percent change 9-30-06 vs.  
    9-30-06     6-30-06     9-30-05     6-30-06     9-30-05  
Commercial, financial and agricultural
       $ 219         $ 45       —       386.7 %     N/M  
Real estate — commercial mortgage
     1,062       1,133         $ 416       (6.3 )     155.3 %
Real estate — construction
     198       36       5       450.0       N/M  
Commercial lease financing
     2       —       —       N/M       N/M  
Real estate — residential mortgage
     21       27       21       (22.2 )     —  
Home equity b
     2,485       1       1       N/M       N/M  
Education
     3,147       2,929       3,123       7.4       .8  
Automobile
     16       18       29       (11.1 )     (44.8 )
 
                              
Total loans held for sale
       $ 7,150         $ 4,189         $ 3,595       70.7 %     98.9 %
 
                                  
N/M = Not Meaningful
(a)   On March 31, 2006, Key reclassified $792 million of loans from the commercial lease financing component of the commercial loan portfolio to the commercial, financial and agricultural component to more accurately reflect the nature of these receivables. Balances presented for prior periods were not reclassified as the historical data was not available.
 
(b)   On August 1, 2006, Key transferred $2.5 billion of home equity loans from the loan portfolio to loans held for sale in connection with its intention to pursue the sale of the Champion Mortgage finance business.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 19
Summary of Loan Loss Experience
(dollars in millions)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Average loans outstanding during the period
       $ 66,010         $ 67,442         $ 64,758         $ 66,709         $ 64,346  
 
                              
 
                                        
Allowance for loan losses at beginning of period
       $ 956         $ 966         $ 1,100         $ 966         $ 1,138  
Loans charged off:
                                        
Commercial, financial and agricultural
     30       20       14       74       58  
 
                                        
Real estate— commercial mortgage
     3       3       4       9       16  
Real estate— construction
     1       —       —       3       5  
 
                              
Total commercial real estate loans
     4       3       4       12       21  
Commercial lease financing
     13       8       18       27       43  
 
                              
Total commercial loans
     47       31       36       113       122  
Real estate— residential mortgage
     2       2       1       5       5  
Home equity
     6       8       7       22       20  
Consumer— direct
     7       9       10       26       28  
Consumer— indirect
     8       9       15       28       47  
 
                              
Total consumer loans
     23       28       33       81       100  
 
                              
 
     70       59       69       194       222  
 
                                        
Recoveries:
                                        
Commercial, financial and agricultural
     8       7       4       27       14  
 
                                        
Real estate— commercial mortgage
     2       —       1       3       2  
Real estate— construction
     1       —       —       1       2  
 
                              
Total commercial real estate loans
     3       —       1       4       4  
Commercial lease financing
     9       9       7       23       27  
 
                              
Total commercial loans
     20       16       12       54       45  
Real estate— residential mortgage
     —       1       —       1       1  
Home equity
     2       1       1       5       4  
Consumer— direct
     1       2       2       5       6  
Consumer— indirect
     4       5       5       13       15  
 
                              
Total consumer loans
     7       9       8       24       26  
 
                              
 
     27       25       20       78       71  
 
                              
Net loans charged off
     (43 )     (34 )     (49 )     (116 )     (151 )
Provision for loan losses
     31       24       43       94       107  
Foreign currency translation adjustment
     —       —       (1 )     —       (1 )
 
                              
Allowance for loan losses at end of period
       $ 944         $ 956         $ 1,093         $ 944         $ 1,093  
 
                              
 
                                        
Net loan charge-offs to average loans
     .25 %     .21 %     .30 %     .23 %     .32 %
Allowance for loan losses to period-end loans
     1.44       1.42       1.67       1.44       1.67  
Allowance for loan losses to nonperforming loans
     423.32       342.65       303.61       423.32       303.61  

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 20
Changes in Allowance for Credit Losses on Lending-Related Commitments
(in millions)
                                         
    Three months ended     Nine months ended  
    9-30-06     6-30-06     9-30-05     9-30-06     9-30-05  
Balance at beginning of period
       $ 59         $ 59         $ 57         $ 59         $ 66  
Provision (credit) for losses on lending-related commitments
     —       —       2       —       (7 )
 
                              
Balance at end of period a
       $ 59         $ 59         $ 59         $ 59         $ 59  
 
                              
Summary of Nonperforming Assets and Past Due Loans
(dollars in millions)
                                         
    9-30-06     6-30-06     3-31-06     12-31-05     9-30-05  
Commercial, financial and agricultural
       $ 42         $ 76         $ 68         $ 63         $ 50  
 
                                        
Real estate — commercial mortgage
     41       40       42       43       33  
Real estate — construction
     37       4       4       2       3  
 
                              
Total commercial real estate loans
     78       44       46       45       36  
Commercial lease financing
     20       29       29       39       151  
 
                              
Total commercial loans
     140       149       143       147       237  
Real estate — residential mortgage
     29       31       43       41       40  
Home equity b
     46       90       97       79       75  
Consumer — direct
     2       3       6       2       3  
Consumer — indirect
     6       6       6       8       5  
 
                              
Total consumer loans
     83       130       152       130       123  
 
                              
Total nonperforming loans
     223       279       295       277       360  
 
                                        
Nonperforming loans held for sale b
     56       1       2       3       2  
 
                                        
OREO
     52       26       21       25       29  
Allowance for OREO losses
     (3 )     (1 )     (1 )     (2 )     (3 )
 
                              
OREO, net of allowance
     49       25       20       23       26  
 
                                        
Other nonperforming assets
     1       3       3       4       5  
 
                              
Total nonperforming assets
       $ 329         $ 308         $ 320         $ 307         $ 393  
 
                              
 
                                        
Accruing loans past due 90 days or more
       $ 125         $ 119         $ 107         $ 90         $ 94  
Accruing loans past due 30 through 89 days
     715       600       498       491       550  
Nonperforming loans to period-end portfolio loans
     .34 %     .41 %     .44 %     .42 %     .55 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
     .50       .46       .48       .46       .60  
Summary of Changes in Nonperforming Loans
(in millions)
                                 
    3Q06     2Q06     1Q06     4Q05  
Balance at beginning of period
       $ 279         $ 295         $ 277         $ 360  
Loans placed on nonaccrual status
     134       98       100       142  
Charge-offs
     (70 )     (59 )     (65 )     (187 )
Loans sold
     (22 )     (6 )     (2 )     (2 )
Payments
     (43 )     (45 )     (15 )     (27 )
Transfer to held-for-sale portfolio b
     (55 )     —       —       —  
Transfers to OREO
     —       (4 )     —       —  
Loans returned to accrual status
     —       —       —       (9 )
 
                        
Balance at end of period
       $ 223         $ 279         $ 295         $ 277  
 
                        
(a)   Included in accrued expenses and other liabilities on the consolidated balance sheet.
 
(b)   On August 1, 2006, Key transferred approximately $55 million of home equity loans from nonperforming loans to nonperforming loans held for sale in connection with its intention to pursue the sale of the Champion Mortgage finance business.

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 21
Line of Business Results
(dollars in millions)
Community Banking
                                                         
                                            Percent change 3Q06 vs.  
    3Q06     2Q06     1Q06     4Q05     3Q05     2Q06     3Q05  
Summary of operations
                                                        
Total revenue (TE)
       $ 671         $ 663         $ 643         $ 666         $ 659       1.2 %     1.8 %
Provision for loan losses
     22       20       29       30       26       10.0       (15.4 )
Noninterest expense
     470       476       439       484       455       (1.3 )     3.3  
Net income
     112       104       109       95       111       7.7       .9  
Average loans and leases
     26,737       26,804       26,739       27,267       27,131       (.2 )     (1.5 )
Average deposits
     46,987       46,683       45,835       45,730       44,705       .7       5.1  
Net loan charge-offs
     22       24       28       31       25       (8.3 )     (12.0 )
Return on average allocated equity
     19.20 %     18.11 %     19.14 %     16.18 %     19.10 %     N/A       N/A  
Average full-time equivalent employees
     9,080       8,970       8,829       8,701       8,743       1.2       3.9  
 
                                                        
Supplementary information (lines of business)
                                                        
Regional Banking
                                                        
Total revenue (TE)
       $ 570         $ 564         $ 547         $ 558         $ 556       1.1 %     2.5 %
Provision for loan losses
     27       16       30       24       19       68.8       42.1  
Noninterest expense
     420       424       392       429       406       (.9 )     3.4  
Net income
     77       77       78       66       82       —       (6.1 )
Average loans and leases
     18,722       18,771       18,776       19,010       19,093       (.3 )     (1.9 )
Average deposits
     43,405       43,091       42,222       41,929       41,126       .7       5.5  
Net loan charge-offs
     19       21       22       26       23       (9.5 )     (17.4 )
Return on average allocated equity
     19.15 %     19.56 %     19.92 %     16.36 %     20.55 %     N/A       N/A  
Average full-time equivalent employees
     8,761       8,642       8,519       8,387       8,420       1.4       4.0  
 
                                                        
Commercial Banking
                                                        
Total revenue (TE)
       $ 101         $ 99         $ 96         $ 108         $ 103       2.0 %     (1.9) %
Provision for loan losses
     (5 )     4       (1 )     6       7       N/M       N/M  
Noninterest expense
     50       52       47       55       49       (3.8 )     2.0  
Net income
     35       27       31       29       29       29.6       20.7  
Average loans and leases
     8,015       8,033       7,963       8,257       8,038       (.2 )     (.3 )
Average deposits
     3,582       3,592       3,613       3,801       3,579       (.3 )     .1  
Net loan charge-offs
     3       3       6       5       2       —       50.0  
Return on average allocated equity
     19.31 %     14.94 %     17.44 %     15.80 %     15.91 %     N/A       N/A  
Average full-time equivalent employees
     319       328       310       314       323       (2.7 )     (1.2 )

 

 

KeyCorp Reports Third Quarter 2006 Earnings
October 17, 2006
Page 22
Line of Business Results (continued)
(dollars in millions)
National Banking
                                                         
                                            Percent change 3Q06 vs.  
    3Q06     2Q06     1Q06     4Q05     3Q05     2Q06     3Q05  
Summary of operations
                                                        
Total revenue (TE)
       $ 631         $ 632         $ 625         $ 644         $ 601       (.2) %     5.0 %
Provision for loan losses
     9       4       10       6       17       125.0       (47.1 )
Noninterest expense
     340       345       334       356       326       (1.4 )     4.3  
Net income
     176       177       176       176       161       (.6 )     9.3  
Average loans and leases a
     38,767       40,201       39,534       38,398       37,072       (3.6 )     4.6  
Average loans held for sale a
     6,192       3,835       3,689       3,585       3,511       61.5       76.4  
Average deposits
     11,068       10,638       9,962       8,580       7,785       4.0       42.2  
Net loan charge-offs
     21       10       11       133       24       110.0       (12.5 )
Return on average allocated equity
     17.52 %     18.09 %     18.18 %     18.13 %     17.10 %     N/A       N/A  
Average full-time equivalent employees
     4,573       4,466       4,455       4,402       4,418       2.4       3.5  
 
                                                        
Supplementary information (lines of business)
                                                        
Real Estate Capital
                                                        
Total revenue (TE)
       $ 169         $ 174         $ 154         $ 163         $ 148       (2.9) %     14.2 %
Provision for loan losses
     14       9       4       8       4       55.6       250.0  
Noninterest expense
     70       72       66       68       64       (2.8 )     9.4  
Net income
     53       58       53       54       50       (8.6 )     6.0  
Average loans and leases
     12,854       12,719       12,467       12,038       11,265       1.1       14.1  
Average loans held for sale
     1,022       692       577       605       603       47.7       69.5  
Average deposits
     3,598       3,467       3,214       2,467       2,100       3.8       71.3  
Net loan charge-offs
     —       2       2       —       —       (100.0 )     —  
Return on average allocated equity
     18.64 %     20.81 %     19.52 %     20.38 %     19.60 %     N/A       N/A  
Average full-time equivalent employees
     970       954       981       873       812       1.7       19.5  
 
                                                        
Equipment Finance
                                                        
Total revenue (TE)
       $ 137         $ 135         $ 124         $ 128         $ 122       1.5 %     12.3 %
Provision for loan losses
     4       11       10       (8 )     5       (63.6 )     (20.0 )
Noninterest expense
     82       79       77       80       72       3.8       13.9  
Net income
     32       29       23       35       28       10.3       14.3  
Average loans and leases
     10,108       9,871       9,569       9,458       9,133       2.4       10.7  
Average loans held for sale
     6       34       8       —       —       (82.4 )     N/M  
Average deposits
     19       14       15       15       14       35.7       35.7  
Net loan charge-offs
     12       3       3       132       11       300.0       9.1  
Return on average allocated equity
     14.73 %     13.90 %     11.25 %     17.25 %     14.32 %     N/A       N/A  
Average full-time equivalent employees
     927       915       935       971       966       1.3       (4.0 )
 
                                                        
Institutional and Capital Markets
                                                        
Total revenue (TE)
       $ 188         $ 189         $ 205         $ 189         $ 180       (.5) %     4.4 %
Provision for loan losses
     (3 )     (26 )     (4 )     4       (5 )     88.5       40.0  
Noninterest expense
     110       112       110       111       109       (1.8 )     .9  
Net income
     50       63       62       46       48       (20.6 )     4.2  
Average loans and leases
     7,377       7,589       7,823       7,358       7,316       (2.8 )     .8  
Average loans held for sale
     455       139       112       73       —       227.3       N/M  
Average deposits
     6,704       6,441       6,030       5,434       4,986       4.1       34.5  
Net loan charge-offs (recoveries)
     (1 )     (1 )     (4 )     (4 )     —       —       N/M  
Return on average allocated equity
     18.10 %     23.66 %     23.00 %     16.98 %     18.03 %     N/A       N/A  
Average full-time equivalent employees
     1,305       1,254       1,234       1,223       1,255       4.1       4.0  
 
                                                        
Consumer Finance
                                                        
Total revenue (TE)
       $ 137         $ 134         $ 142         $ 164         $ 151       2.2 %     (9.3) %
Provision for loan losses
     (6 )     10       —       2       13       N/M       N/M  
Noninterest expense
     78       82       81       97       81       (4.9 )     (3.7 )
Net income
     41       27       38       41       35       51.9       17.1  
Average loans and leases a
     8,428       10,022       9,675       9,544       9,358       (15.9 )     (9.9 )
Average loans held for sale a
     4,709       2,970       2,992       2,907       2,908       58.6       61.9  
Average deposits
     747       716       703       664       685       4.3       9.1  
Net loan charge-offs
     10       6       10       5       13       66.7       (23.1 )
Return on average allocated equity
     18.09 %     12.02 %     17.07 %     17.68 %     15.58 %     N/A       N/A  
Average full-time equivalent employees
     1,371       1,343       1,305       1,335       1,385       2.1       (1.0 )
(a)   On August 1, 2006, Key transferred $2.5 billion of home equity loans from the loan portfolio to loans held for sale in connection with its intention to pursue the sale of the Champion Mortgage finance business. This transfer reduced average home equity loans and increased average loans held for sale by approximately $1.6 billion for the third quarter of 2006.
TE = Taxable Equivalent
N/A = Not Applicable
N/M = Not Meaningful