EX-99.1 2 l24123aexv99w1.htm EX-99.1 EX-99.
 

Exhibit 99.1
                 
CONTACTS:
  Vernon L. Patterson   William C. Murschel
    Analyst   Media
    216.689.0520   216.689.0457
 
  Vernon_Patterson@KeyBank.com   William_C_Murschel@KeyBank.com
 
                
INVESTOR
          KEY MEDIA
RELATIONS: www.Key.com/ir   NEWSROOM: www.Key.com/newsroom
FOR IMMEDIATE RELEASE
KEYCORP REPORTS FOURTH QUARTER AND 2006 EARNINGS
•   Fourth quarter EPS from continuing operations up 10% to $0.76
•   Strategic actions improve business mix
•   Higher income from National Banking businesses
     CLEVELAND, January 19, 2007 — KeyCorp (NYSE: KEY) today announced fourth quarter income from continuing operations of $311 million, or $0.76 per diluted common share. This compares to income from continuing operations of $284 million, or $0.69 per share, for the fourth quarter of 2005, and $305 million, or $0.74 per share, for the third quarter of 2006. Earnings per share from continuing operations increased 10% compared to the fourth quarter of 2005. Key’s income from continuing operations for 2006 was $1.193 billion, or $2.91 per diluted common share, compared to $1.090 billion, or $2.63 per share, in 2005.
     Key sold the nonprime mortgage loan portfolio held by its Champion Mortgage finance business in November 2006 and announced that it had entered into a separate agreement to sell Champion’s origination platform. The platform sale is expected to close in the first quarter of 2007. As a result of these actions, Key has applied discontinued operations accounting to this business for all periods presented in this release.
     Net income totaled $146 million, or $0.36 per diluted common share, for the fourth quarter of 2006, compared to net income of $296 million, or $0.72 per share, for the fourth quarter of 2005, and $312 million, or $0.76 per share, for the third quarter of 2006. Key’s net income for 2006 was $1.055 billion, or $2.57 per diluted common share, compared to $1.129 billion, or $2.73 per share, in 2005.
     The following table shows Key’s continuing and discontinued operating results for comparative quarters and for the twelve months ended December 31, 2006 and 2005.
Results of Operations
                                         
    Three months ended     Twelve months ended  
in millions, except per share amounts   12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Summary of operations
                                        
Income from continuing operations
   $ 311     $ 305     $ 284     $ 1,193     $ 1,090  
Champion discontinued operations
     (165 )a     7       12       (143 )a     39  
Cumulative effect of accounting change
     —       —       —       5       —  
 
                              
Total net income
   $ 146     $ 312     $ 296     $ 1,055     $ 1,129  
 
                              
 
                                        
Per common share b
                                        
Income from continuing operations
   $ .76     $ .74     $ .69     $ 2.91     $ 2.63  
Champion discontinued operations
     (.40 )a     .02       .03       (.35 )a     .09  
Cumulative effect of accounting change
     —       —       —       .01       —  
 
                              
Total net income
   $ .36     $ .76     $ .72     $ 2.57     $ 2.73  
 
                              
 
(a)   Includes a net after-tax charge of $165 million, or $.40 per share, consisting of: (1) a $170 million, or $.42 per share, write-off of goodwill associated with Key’s 1997 acquisition of Champion and (2) a net after-tax credit of $5 million, or $.01 per share, from the net gain on sale of the Champion Mortgage loan portfolio and sale transaction costs.
 
(b)   Earnings per share may not foot due to rounding.

 

 

KeyCorp Reports Fourth Quarter and 2006 Earnings
January 19, 2007
Page 2
     “Key’s positive results reflect the strategic actions we have taken over the past several years to improve the company’s business mix,” said Chairman and Chief Executive Officer Henry L. Meyer III. “Our decisions in 2006 to sell the Champion Mortgage finance business and the McDonald Investments branch network exemplify our disciplined focus on our core relationship-oriented businesses. These actions, along with our commitment to maintaining a strong credit culture and strengthening our compliance controls, have positioned the company well as we move into 2007. We remain on track to sell the McDonald branch network and the Champion origination platform during the first quarter.”
     The company expects full year 2007 earnings from continuing operations to be in the range of $3.00 to $3.10 per share.
SUMMARY OF CONTINUING OPERATIONS
     Taxable-equivalent net interest income was $744 million for the fourth quarter of 2006, compared to $716 million for the year-ago quarter. Average earning assets grew by 4%, due primarily to a 5% increase in commercial loans. The net interest margin was 3.66%, compared to 3.68% for the same period one year ago. During the fourth quarter of 2006, Key’s net interest margin benefited from a $16 million lease accounting adjustment resulting from a change in effective state tax rates, and an $8 million principal investing distribution received in the form of a dividend. These two items added approximately 12 basis points to the taxable-equivalent net interest margin for the current quarter.
     Compared to the third quarter of 2006, taxable-equivalent net interest income rose by $18 million. The improvement was due to the lease accounting adjustment and the principal investing distribution recorded during the fourth quarter.
     Key’s noninterest income was $558 million for the fourth quarter of 2006, compared to $552 million for the year-ago quarter. Noninterest income for the fourth quarter of 2006 included two offsetting items: a $24 million charge to miscellaneous income recorded in connection with the redemption of certain trust preferred securities, and a $25 million gain from the annual securitization and sale of education loans. Key experienced strong performance from its fee-based businesses in the fourth quarter, including investment banking and capital markets activities. Fee income from principal investing activities was down $11 million from the fourth quarter of 2005. However, in the current period, the Principal Investing unit received $8 million in the form of a dividend included in net interest income.
     Compared to the third quarter of 2006, noninterest income grew by $15 million. The company experienced higher fee income from several fee-based businesses, including investment banking and capital markets activities. Net gains from principal investing decreased from the third quarter.
     Key’s noninterest expense for the fourth quarter of 2006 was $809 million, down from $812 million for the same period last year. Personnel expense rose by $36 million from the year-ago quarter, due to higher costs associated with business expansion, employee benefits and variable compensation associated with the improvement in Key’s fee-based businesses. Nonpersonnel expense was down $39 million, primarily due to a $9 million decrease in professional fees and a $16 million decrease in franchise and business tax expense, due to settlements of disputed amounts during the fourth quarter of 2006. In addition, miscellaneous expense for the fourth quarter of 2005 included a $15 million contribution to Key Foundation.
     Compared to the third quarter of 2006, noninterest expense rose by $19 million, due primarily to increases in personnel expense, professional fees and net occupancy expense. These costs were offset in part by lower franchise taxes and marketing expense. In addition, miscellaneous expense for the third quarter of 2006 included a $10 million contribution to Key Foundation.

 

 

KeyCorp Reports Fourth Quarter and 2006 Earnings
January 19, 2007
Page 3
ASSET QUALITY
     Key’s provision for loan losses from continuing operations was $53 million for the fourth quarter of 2006, compared to $35 million for the year-ago quarter and the third quarter of 2006.
     Net loan charge-offs for the quarter totaled $54 million, or 0.33% of average loans from continuing operations, compared to $164 million, or 1.02%, for the same period last year and $43 million, or 0.26%, for the previous quarter. The fourth quarter of 2005 included net charge-offs of $127 million related to commercial passenger airline leases.
     At December 31, 2006, Key’s nonperforming loans totaled $215 million and represented 0.33% of period-end portfolio loans, compared to 0.42% at December 31, 2005, and 0.34% at September 30, 2006. At December 31, 2006, nonperforming assets totaled $273 million and represented 0.41% of portfolio loans, other real estate owned and other nonperforming assets, compared to 0.46% at December 31, 2005, and 0.50% at September 30, 2006.
     Key’s allowance for loan losses was $944 million, or 1.43% of loans outstanding, at December 31, 2006, compared to $966 million, or 1.45%, at December 31, 2005, and $944 million, or 1.44%, at September 30, 2006.
CAPITAL
     Key’s capital ratios continued to exceed all “well-capitalized” regulatory benchmarks at December 31, 2006. Key’s tangible equity to tangible assets ratio was 7.01% at quarter end, compared to 6.68% at December 31, 2005, and 6.81% at September 30, 2006.
     Key repurchased 5.0 million of its common shares and reissued 1.4 million shares under employee benefit and dividend reinvestment plans during the fourth quarter of 2006. For the full year, Key repurchased 17.5 million shares and reissued 10.0 million shares. Key has 30.0 million common shares remaining for repurchase under the new authorization approved by the Board of Directors yesterday.
     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   4Q06     3Q06     2Q06     1Q06     4Q05  
Shares outstanding at beginning of period
     402,748       402,672       405,273       406,624       408,542  
Issuance of shares under employee benefit and dividend reinvestment plans
     1,405       2,576       1,399       4,649       1,332  
Repurchase of common shares
     (5,000 )     (2,500 )     (4,000 )     (6,000 )     (3,250 )
 
                              
Shares outstanding at end of period
     399,153       402,748       402,672       405,273       406,624  
 
                              
     Effective December 31, 2006, Key adopted Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” which requires an employer to recognize an asset or liability for the overfunded or underfunded status, respectively, of its defined benefit plans. As a result of adopting this guidance, Key recorded an after-tax charge of $149 million to the accumulated other comprehensive loss component of shareholders’ equity during the fourth quarter.

 

 

KeyCorp Reports Fourth Quarter and 2006 Earnings
January 19, 2007
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 income from continuing operations 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 4Q06 vs.  
dollars in millions   4Q06     3Q06     4Q05     3Q06     4Q05  
Revenue from continuing operations (TE)
                                        
Community Banking
   $ 664     $ 671     $ 666       (1.0 )%     (.3 )%
National Banking
     684       605       604       13.1       13.2  
Other Segments
     (11 )     25       17       N/M       N/M  
 
                              
Total segments
     1,337       1,301       1,287       2.8       3.9  
Reconciling Items
     (35 )     (32 )     (19 )     (9.4 )     (84.2 )
 
                              
Total
   $ 1,302     $ 1,269     $ 1,268       2.6 %     2.7 %
 
                                  
 
                                        
Income from continuing operations
                                        
Community Banking
   $ 101     $ 112     $ 95       (9.8 )%     6.3 %
National Banking
     194       169       164       14.8       18.3  
Other Segments
     2       20       19       (90.0 )     (89.5 )
 
                              
Total segments
     297       301       278       (1.3 )     6.8  
Reconciling Items
     14       4       6       250.0       133.3  
 
                              
Total
   $ 311     $ 305     $ 284       2.0 %     9.5 %
 
                                  
 
TE = Taxable Equivalent, N/M = Not Meaningful
Community Banking
                                         
                            Percent change 4Q06 vs.  
dollars in millions   4Q06     3Q06     4Q05     3Q06     4Q05  
Summary of operations
                                        
Net interest income (TE)
   $ 439     $ 444     $ 441       (1.1 )%     (.5 )%
Noninterest income
     225       227       225       (.9 )     —  
 
                              
Total revenue (TE)
     664       671       666       (1.0 )     (.3 )
Provision for loan losses
     23       22       30       4.5       (23.3 )
Noninterest expense
     480       470       484       2.1       (.8 )
 
                              
Income before income taxes (TE)
     161       179       152       (10.1 )     5.9  
Allocated income taxes and TE adjustments
     60       67       57       (10.4 )     5.3  
 
                              
Net income
   $ 101     $ 112     $ 95       (9.8 )%     6.3 %
 
                                  
 
                                        
Percent of consolidated income from continuing operations
     32 %     37 %     33 %     N/A       N/A  
 
                                        
Average balances
                                        
Loans and leases
   $ 26,632     $ 26,737     $ 27,267       (.4 )%     (2.3 )%
Total assets
     29,486       29,713       30,247       (.8 )     (2.5 )
Deposits
     47,376       46,987       45,730       .8       3.6  
 
TE = Taxable Equivalent, N/A = Not Applicable

 

 

KeyCorp Reports Fourth Quarter and 2006 Earnings
January 19, 2007
Page 5
Additional Community Banking Data
                                         
                            Percent change 4Q06 vs.  
dollars in millions   4Q06     3Q06     4Q05     3Q06     4Q05  
Average deposits outstanding
                                        
Noninterest-bearing
   $ 8,082     $ 8,111     $ 8,458       (.4 )%     (4.4 )%
Money market deposit accounts and other savings
     22,238       22,390       22,037       (.7 )     .9  
Time
     17,056       16,486       15,235       3.5       12.0  
 
                              
Total deposits
   $ 47,376     $ 46,987     $ 45,730       .8 %     3.6 %
 
                                  
 
                                        
Home equity loans
                                        
Average balance
   $ 9,881     $ 10,048     $ 10,289                  
Weighted-average loan-to-value ratio
     70 %     70 %     71 %                
Percent first lien positions
     59       60       61                  
 
                                        
Other data
                                        
On-line households/household penetration
     682,955/53 %     646,993/52 %     622,957/50 %                
KeyCenters
     950       949       947                  
Automated teller machines
     2,050       2,099       2,180                  
Community Banking Summary of Operations
     Net income for Community Banking was $101 million for the fourth quarter of 2006, up from $95 million for the year-ago quarter. Decreases in the provision for loan losses and noninterest expense accounted for the improvement, and more than offset a slight decline in net interest income. Noninterest income was essentially unchanged.
     Taxable-equivalent net interest income decreased by $2 million from the fourth quarter of 2005. Net interest income benefited from growth in average deposits, which also experienced a more favorable interest rate spread. However, the positive effects of these factors were offset by a reduction in, and a tighter interest rate spread on, earning assets.
     The provision for loan losses decreased by $7 million, or 23%, as a result of lower net charge-offs.
     Noninterest expense decreased by $4 million, or 1%. Reductions in various indirect charges caused the improvement, but were offset in part by increases in personnel and marketing expense.
     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 Fourth Quarter and 2006 Earnings
January 19, 2007
Page 6
National Banking
                                         
                            Percent change 4Q06 vs.  
dollars in millions   4Q06     3Q06     4Q05     3Q06     4Q05  
Summary of operations
                                        
Net interest income (TE)
   $ 364     $ 349     $ 333       4.3 %     9.3 %
Noninterest income
     320       256       271       25.0       18.1  
 
                              
Total revenue (TE)
     684       605       604       13.1       13.2  
Provision for loan losses
     30       13       5       130.8       500.0  
Noninterest expense
     343       321       336       6.9       2.1  
 
                              
Income from continuing operations before income taxes (TE)
     311       271       263       14.8       18.3  
Allocated income taxes and TE adjustments
     117       102       99       14.7       18.2  
 
                              
Income from continuing operations
     194       169       164       14.8       18.3  
Income (loss) from discontinued operations, net of tax
     (165 )     7       12       N/M       N/M  
 
                              
Net income
   $ 29     $ 176     $ 176       (83.5 )%     (83.5 )%
 
                                  
 
                                        
Percent of consolidated income from continuing operations
     62 %     55 %     58 %     N/A       N/A  
 
                                        
Average balances from continuing operations
                                        
Loans and leases
   $ 38,534     $ 37,929     $ 35,705       1.6 %     7.9 %
Loans held for sale
     4,537       4,568       3,585       (.7 )     26.6  
Total assets
     49,251       48,689       45,398       1.2       8.5  
Deposits
     11,847       11,055       8,562       7.2       38.4  
 
TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable
National Banking Summary of Continuing Operations
     Income from continuing operations for National Banking was $194 million for the fourth quarter of 2006, up from $164 million for the same period last year. The improvement was attributable to growth in net interest income and noninterest income, offset in part by a higher provision for loan losses and an increase in noninterest expense.
     Taxable-equivalent net interest income grew by $31 million, or 9%, from the fourth quarter of 2005, reflecting strong growth in deposits, as well as average loans and leases. Deposits rose by $3.3 billion, or 38%, from the fourth quarter of 2005. Average loans and leases grew by $2.8 billion, or 8%, reflecting growth in all major lines of business. In addition, the net interest margin for the fourth quarter of 2006 benefited from a $16 million lease accounting adjustment resulting from a change in effective state tax rates. The positive effects of the above factors were moderated by tighter interest rate spreads on average earning assets in the Consumer Finance and Equipment Leasing lines of business.
     Noninterest income rose by $49 million, or 18%. Higher income from investment banking and capital markets activities, operating leases, trust and investment services, and net gains from loan securitizations and sales drove the improvement.
     The provision for loan losses rose by $25 million, with most of the increase recorded in the Real Estate Capital and Equipment Finance lines of business.
     Noninterest expense grew by $7 million, or 2%, reflecting increases in personnel expense and costs associated with operating leases. These increases were partially offset by decreases in various indirect charges.

 

 

KeyCorp Reports Fourth Quarter and 2006 Earnings
January 19, 2007
Page 7
     In the current year, Key has continued to take actions to improve its business mix and to support its focus on relationship businesses. These actions include the November 2006 sale of the nonprime mortgage loan portfolio held by the Champion Mortgage finance business, and the sale of Champion’s origination platform, which is expected to close in the first quarter of 2007. As a result of these actions, Key has applied discontinued operations accounting to this business. Further information with regard to the composition of the fourth quarter 2006 loss from Champion discontinued operations presented in the preceding table is presented on the first page of this release.
     In 2006, Key expanded its asset management product line by acquiring Austin Capital Management, Ltd., an investment firm headquartered in Austin, Texas.
     During the second half of 2005, Key completed two acquisitions that have helped to build upon success in commercial mortgage origination and servicing. In the fourth quarter of 2005, Key continued the expansion of its 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, Key expanded its 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 $2 million for the fourth quarter of 2006, compared to $19 million for the same period last year. A decrease in net gains from principal investing and a $24 million charge recorded in the current quarter in connection with the redemption of certain trust preferred securities caused the decrease.

 

 

KeyCorp Reports Fourth Quarter and 2006 Earnings
January 19, 2007
Page 8
Line of Business Descriptions
Community Banking
Regional Banking provides individuals with branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans. This line of business also provides small businesses with deposit, investment and credit products, and business advisory services.
Regional Banking also offers financial, estate and retirement planning, and asset management services to assist high-net-worth clients with their banking, 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.
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 works with home improvement contractors to provide home equity and home improvement financing solutions. On November 29, 2006, Key sold the nonprime mortgage loan portfolio held by the Champion Mortgage finance business, a separate component of National Home Equity, and subsequently announced that it had entered into an agreement to sell Champion’s loan origination platform to another party. The sale of the origination platform is expected to close in the first quarter of 2007.

 

 

KeyCorp Reports Fourth Quarter and 2006 Earnings
January 19, 2007
Page 9
     Cleveland-based KeyCorp is one of the nation’s largest bank-based financial services companies, with assets of approximately $92 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 950 KeyCenters and offices; a network of 2,050 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 19, 2007. A tape of the call will be available through January 26.
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.
###

 

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 10
Financial Highlights
(dollars in millions, except per share amounts)
                         
    Three months ended  
    12-31-06     9-30-06     12-31-05  
Summary of operations
                        
Net interest income (TE)
   $ 744     $ 726     $ 716  
Noninterest income
     558       543       552  
 
                  
Total revenue (TE)
     1,302       1,269       1,268  
Provision for loan losses
     53       35       35  
Noninterest expense
     809       790       812  
Income from continuing operations
     311       305       284  
Income (loss) from discontinued operations, net of tax
     (165 )     7       12  
Net income
     146       312       296  
 
                        
Per common share
                        
Income from continuing operations
   $ .77     $ .76     $ .70  
Income from continuing operations — assuming dilution
     .76       .74       .69  
Income (loss) from discontinued operations
     (.41 )     .02       .03  
Income (loss) from discontinued operations — assuming dilution
     (.40 )     .02       .03  
Net income
     .36       .77       .72  
Net income — assuming dilution
     .36       .76       .72  
Cash dividends declared
     .345       .345       .325  
Book value at period end
     19.30       19.73       18.69  
Market price at period end
     38.03       37.44       32.93  
 
                        
Performance ratios — from continuing operations
                        
Return on average total assets
     1.33 %     1.31 %     1.26 %
Return on average equity
     15.63       15.52       14.96  
Net interest margin (TE)
     3.66       3.61       3.68  
 
                        
Performance ratios — from consolidated operations
                        
Return on average total assets
     .61 %     1.30 %     1.27 %
Return on average equity
     7.34       15.88       15.59  
Net interest margin (TE)
     3.69       3.63       3.71  
 
                        
Capital ratios at period end
                        
Equity to assets
     8.34 %     8.26 %     8.16 %
Tangible equity to tangible assets
     7.01       6.81       6.68  
Tier 1 risk-based capital a
     8.30       8.02       7.59  
Total risk-based capital a
     12.53       12.13       11.47  
Leverage a
    8.94       8.89       8.53  
 
                        
Asset quality
                        
Net loan charge-offs
   $ 54     $ 43     $ 164  
Net loan charge-offs to average loans from continuing operations
     .33 %     .26 %     1.02 %
Allowance for loan losses
   $ 944     $ 944     $ 966  
Allowance for loan losses to period-end loans
     1.43 %     1.44 %     1.45 %
Allowance for loan losses to nonperforming loans
     439.07       423.32       348.74  
Nonperforming loans at period end
   $ 215     $ 223     $ 277  
Nonperforming assets at period end
     273       329       307  
Nonperforming loans to period-end portfolio loans
     .33 %     .34 %     .42 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
     .41       .50       .46  
 
                        
Trust and brokerage assets
                        
Assets under management
   $ 84,699     $ 84,060     $ 77,144  
Nonmanaged and brokerage assets
     56,292       55,221       56,509  
 
                        
Other data
                        
Average full-time equivalent employees
     20,100       20,264       19,417  
KeyCenters
     950       949       947  
 
                        
Taxable-equivalent adjustment
   $ 32     $ 21     $ 30  

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 11
Financial Highlights (continued)
(dollars in millions, except per share amounts)
                 
    Twelve months ended  
    12-31-06     12-31-05  
Summary of operations
                
Net interest income (TE)
   $ 2,918     $ 2,777  
Noninterest income
     2,127       2,067  
 
            
Total revenue (TE)
     5,045       4,844  
Provision for loan losses
     150       143  
Noninterest expense
     3,149       3,054  
Income from continuing operations
     1,193       1,090  
Income (loss) from discontinued operations, net of tax
     (143 )     39  
Net income
     1,055       1,129  
 
                
Per common share
                
Income from continuing operations
   $ 2.95     $ 2.67  
Income from continuing operations — assuming dilution
     2.91       2.63  
Income (loss) from discontinued operations
     (.35 )     .10  
Income (loss) from discontinued operations — assuming dilution
     (.35 )     .09  
Net income
     2.61       2.76  
Net income — assuming dilution
     2.57       2.73  
Cash dividends declared
     1.38       1.30  
 
                
Performance ratios — from continuing operations
                
Return on average total assets
     1.30 %     1.24 %
Return on average equity
     15.43       14.88  
Net interest margin (TE)
     3.67       3.65  
 
                
Performance ratios — from consolidated operations
                
Return on average total assets
     1.12 %     1.24 %
Return on average equity
     13.64       15.42  
Net interest margin (TE)
     3.69       3.69  
 
                
Asset quality
                
Net loan charge-offs
   $ 170     $ 315  
Net loan charge-offs to average loans from continuing operations
     .26 %     .51 %
 
                
Other data
                
Average full-time equivalent employees
     20,006       19,485  
 
                
Taxable-equivalent adjustment
   $ 103     $ 121  
 
                
(a) 12-31-06 ratio is estimated.
                
TE = Taxable Equivalent
                

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 12
Consolidated Balance Sheets
(dollars in millions)
                         
    12-31-06     9-30-06     12-31-05  
Assets
                        
Loans
   $ 65,826     $ 65,551     $ 66,478  
Loans held for sale
     3,637       7,150       3,381  
Investment securities
     41       41       91  
Securities available for sale
     7,827       7,441       7,269  
Short-term investments
     1,407       1,582       1,592  
Other investments
     1,352       1,367       1,332  
 
                  
Total earning assets
     80,090       83,132       80,143  
Allowance for loan losses
     (944 )     (944 )     (966 )
Cash and due from banks
     2,264       2,957       3,108  
Premises and equipment
     595       567       575  
Goodwill
     1,202       1,372       1,355  
Other intangible assets
     120       127       125  
Corporate-owned life insurance
     2,782       2,754       2,690  
Derivative assets
     1,091       915       1,039  
Accrued income and other assets
     5,137       5,275       5,057  
 
                  
Total assets
   $ 92,337     $ 96,155     $ 93,126  
 
                  
 
                        
Liabilities
                        
Deposits in domestic offices:
                        
NOW and money market deposit accounts
   $ 24,340     $ 25,150     $ 24,241  
Savings deposits
     1,642       1,672       1,840  
Certificates of deposit ($100,000 or more)
     5,941       5,734       5,156  
Other time deposits
     11,956       11,848       11,170  
 
                  
Total interest-bearing
     43,879       44,404       42,407  
Noninterest-bearing
     13,553       13,396       13,335  
Deposits in foreign office — interest-bearing
     1,684       3,629       3,023  
 
                  
Total deposits
     59,116       61,429       58,765  
Federal funds purchased and securities sold under repurchase agreements
     3,643       4,701       4,835  
Bank notes and other short-term borrowings
     1,192       2,594       1,780  
Derivative liabilities
     922       844       1,060  
Accrued expense and other liabilities
     5,228       4,986       5,149  
Long-term debt
     14,533       13,654       13,939  
 
                  
Total liabilities
     84,634       88,208       85,528  
 
                        
Shareholders’ equity
                        
Preferred stock
     —       —       —  
Common shares
     492       492       492  
Capital surplus
     1,602       1,588       1,534  
Retained earnings
     8,377       8,371       7,882  
Treasury stock, at cost
     (2,584 )     (2,434 )     (2,204 )
Accumulated other comprehensive loss
     (184 )     (70 )     (106 )
 
                  
Total shareholders’ equity
     7,703       7,947       7,598  
 
                  
 
                        
Total liabilities and shareholders’ equity
   $ 92,337     $ 96,155     $ 93,126  
 
                  
 
                        
Common shares outstanding (000)
     399,153       402,748       406,624  

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 13
Consolidated Statements of Income
(dollars in millions, except per share amounts)
                                         
    Three months ended     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Interest income
                                        
Loans
   $ 1,187     $ 1,178     $ 1,026     $ 4,561     $ 3,693  
Loans held for sale
     90       94       64       325       254  
Investment securities
     —       1       —       2       3  
Securities available for sale
     96       84       84       347       327  
Short-term investments
     16       16       18       63       52  
Other investments
     24       16       10       82       54  
 
                              
Total interest income
     1,413       1,389       1,202       5,380       4,383  
 
Interest expense
                                        
Deposits
     440       428       295       1,576       976  
Federal funds purchased and securities sold under repurchase agreements
     37       30       26       107       71  
Bank notes and other short-term borrowings
     19       24       24       94       82  
Long-term debt
     205       202       171       788       598  
 
                              
Total interest expense
     701       684       516       2,565       1,727  
 
 
                              
Net interest income
     712       705       686       2,815       2,656  
Provision for loan losses
     53       35       35       150       143  
 
                              
Net interest income after provision for loan losses
     659       670       651       2,665       2,513  
 
Noninterest income
                                        
Trust and investment services income
     142       137       134       553       542  
Service charges on deposit accounts
     77       78       76       304       304  
Investment banking and capital markets income
     69       44       61       230       229  
Operating lease income
     63       58       50       229       191  
Letter of credit and loan fees
     55       48       48       188       181  
Corporate-owned life insurance income
     31       23       31       105       109  
Electronic banking fees
     27       27       26       105       96  
Net gains from loan securitizations and sales
     42       14       28       76       69  
Net securities gains (losses)
     3       (7 )     3       1       1  
Other income
     49       121       95       336       345  
 
                              
Total noninterest income
     558       543       552       2,127       2,067  
 
Noninterest expense
                                        
Personnel
     447       418       411       1,692       1,588  
Net occupancy
     68       62       67       250       276  
Computer processing
     55       52       57       212       209  
Operating lease expense
     50       48       40       184       158  
Professional fees
     33       28       42       134       126  
Equipment
     24       26       26       102       110  
Marketing
     27       32       23       97       88  
Other expense
     105       124       146       478       499  
 
                              
Total noninterest expense
     809       790       812       3,149       3,054  
 
                              
Income from continuing operations before income taxes and cumulative effect of accounting change
     408       423       391       1,643       1,526  
Income taxes
     97       118       107       450       436  
 
                              
Income from continuing operations before cumulative effect of accounting change
     311       305       284       1,193       1,090  
Income (loss) from discontinued operations, net of tax
     (165 )     7       12       (143 )     39  
 
                              
Income before cumulative effect of accounting change
     146       312       296       1,050       1,129  
Cumulative effect of change in accounting for forfeited stock-based awards, net of tax
     —       —       —       5       —  
 
                              
Net income
   $ 146     $ 312     $ 296     $ 1,055     $ 1,129  
 
                              
 
Per common share:
                                        
Income from continuing operations before cumulative effect of accounting change
   $ .77     $ .76     $ .70     $ 2.95     $ 2.67  
Income before cumulative effect of accounting change
     .36       .77       .72       2.60       2.76  
Net income
     .36       .77       .72       2.61       2.76  
 
Per common share — assuming dilution:
                                        
Income from continuing operations before cumulative effect of accounting change
   $ .76     $ .74     $ .69     $ 2.91     $ 2.63  
Income before cumulative effect of accounting change
     .36       .76       .72       2.56       2.73  
Net income
     .36       .76       .72       2.57       2.73  
 
Cash dividends declared per common share
   $ .345     $ .345     $ .325     $ 1.38     $ 1.30  
 
Weighted-average common shares outstanding (000)
     402,329       403,780       408,431       404,490       408,981  
Weighted-average common shares and potential common shares outstanding (000)
     407,828       409,428       412,542       410,222       414,014  

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 14
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations
(dollars in millions)
                                                                         
    Fourth Quarter 2006     Third Quarter 2006     Fourth 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
   $ 21,384     $ 400       7.42 %   $ 21,648     $ 400       7.34 %   $ 19,992     $ 315       6.25 %
Real estate — commercial mortgage
     8,399       167       7.86       8,106       164       8.04       8,580       151       6.98  
Real estate — construction
     8,347       174       8.25       7,965       171       8.51       6,896       129       7.42  
Commercial lease financing c
     9,891       160       6.47       9,850       144       5.83       10,285       154       6.01  
 
                                                      
Total commercial loans
     48,021       901       7.44       47,569       879       7.34       45,753       749       6.51  
Real estate — residential
     1,428       24       6.59       1,415       23       6.49       1,460       23       6.22  
Home equity
     10,896       197       7.22       11,017       200       7.19       11,074       183       6.61  
Consumer — direct
     1,557       34       8.63       1,585       36       9.07       1,785       44       9.68  
Consumer — indirect
     3,671       62       6.85       3,594       61       6.83       3,340       56       6.71  
 
                                                      
Total consumer loans
     17,552       317       7.21       17,611       320       7.23       17,659       306       6.91  
 
                                                      
Total loans
     65,573       1,218       7.38       65,180       1,199       7.31       63,412       1,055       6.62  
Loans held for sale
     4,547       90       7.86       4,578       94       8.17       3,592       64       7.05  
Investment securities a
     38       1       7.68       42       1       8.12       95       1       5.81  
Securities available for sale d
     7,765       96       4.88       7,216       84       4.61       7,034       84       4.77  
Short-term investments
     1,584       16       4.04       1,588       16       3.78       2,069       18       3.23  
Other investments d
     1,351       24       6.76       1,363       16       4.67       1,297       10       3.09  
 
                                                      
Total earning assets
     80,858       1,445       7.09       79,967       1,410       7.00       77,499       1,232       6.32  
Allowance for loan losses
     (941 )                     (951 )                     (1,079 )                
Accrued income and other assets
     13,129                       13,247                       12,862                  
                                                             
Total assets
   $ 93,046                     $ 92,263                     $ 89,282                  
                                                             
 
Liabilities
                                                                        
NOW and money market deposit accounts
   $ 25,136       198       3.13     $ 25,230       194       3.05     $ 23,947       127       2.11  
Savings deposits
     1,651       1       .19       1,700       1       .19       1,858       1       .27  
Certificates of deposit ($100,000 or more) e
     6,013       75       4.93       5,517       67       4.82       5,006       51       4.06  
Other time deposits
     11,921       136       4.50       11,700       127       4.29       10,951       96       3.46  
Deposits in foreign office f
     2,245       30       5.55       2,820       39       5.55       1,869       20       4.21  
 
                                                      
Total interest-bearing deposits
     46,966       440       3.72       46,967       428       3.61       43,631       295       2.69  
Federal funds purchased and securities sold under repurchase agreements f
   2,816     37       5.21       2,315       30       5.05       2,862       26       3.64  
Bank notes and other short-term borrowings
     1,814       19       4.17       2,285       24       4.29       2,607       24       3.67  
Long-term debt e
     14,092       205       5.80       13,763       202       5.83       13,860       171       4.89  
 
                                                      
Total interest-bearing liabilities
     65,688       701       4.24       65,330       684       4.15       62,960       516       3.26  
 
                                                      
Noninterest-bearing deposits
     13,424                       13,073                       12,576                  
Accrued expense and other liabilities
     6,041                       6,063                       6,212                  
 
                                                                  
Total liabilities
     85,153                       84,466                       81,748                  
 
Shareholders’ equity
     7,893                       7,797                       7,534                  
                                                             
Total liabilities and shareholders’ equity
   $ 93,046                     $ 92,263                     $ 89,282                  
                                                             
Interest rate spread (TE)
                     2.85 %                     2.85 %                     3.06 %
                                                             
Net interest income (TE) and net interest margin (TE)
             744       3.66 %             726       3.61 %             716       3.68 %
                                                             
TE adjustment a
             32                       21                       30          
                                                             
Net interest income, GAAP basis
           $ 712                     $ 705                     $ 686          
                                                             

(a)   Interest income on tax-exempt securities and loans is 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)   Yield is calculated on the basis of amortized cost.
 
(e)   Rate calculation excludes basis adjustments related to fair value hedges.
 
(f)   Results from continuing operations exclude the dollar amount of liabilities assumed to support interest-earning assets held by the discontinued Champion Mortgage finance business. The interest expense related to these liabilities, which is also excluded from continuing operations, is calculated using an internal funds transfer pricing rate.

TE = Taxable Equivalent
GAAP = U.S. generally accepted accounting principles

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 15
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations
(dollars in millions)
                                                 
    Twelve months ended December 31, 2006     Twelve months ended December 31, 2005  
    Average                     Average              
    Balance     Interest     Yield/Rate     Balance     Interest     Yield/Rate  
Assets
                                                
Loans: a,b
                                                
Commercial, financial and agricultural c
   $ 21,679     $ 1,547       7.13 %   $ 19,480     $ 1,083       5.56 %
Real estate — commercial mortgage
     8,167       628       7.68       8,403       531       6.32  
Real estate — construction
     7,802       635       8.14       6,263       418       6.67  
Commercial lease financing c
     9,773       595       6.08       10,122       628       6.21  
 
                                    
Total commercial loans
     47,421       3,405       7.18       44,268       2,660       6.01  
Real estate — residential
     1,430       93       6.49       1,468       90       6.10  
Home equity
     10,971       775       7.07       11,094       687       6.20  
Consumer — direct
     1,639       152       9.26       1,834       158       8.60  
Consumer — indirect
     3,535       238       6.73       3,333       217       6.51  
 
                                    
Total consumer loans
     17,575       1,258       7.16       17,729       1,152       6.50  
 
                                    
Total loans
     64,996       4,663       7.17       61,997       3,812       6.15  
Loans held for sale
     4,168       325       7.80       3,637       254       6.99  
Investment securities a
     47       3       7.43       76       5       7.30  
Securities available for sale d
     7,302       347       4.71       7,118       327       4.58  
Short-term investments
     1,648       63       3.82       1,860       52       2.79  
Other investments d
     1,362       82       5.78       1,379       54       3.79  
 
                                    
Total earning assets
     79,523       5,483       6.88       76,067       4,504       5.92  
Allowance for loan losses
     (952 )                     (1,103 )                
Accrued income and other assets
     13,131                       12,945                  
 
                                            
Total assets
   $ 91,702                     $ 87,909                  
 
                                            
 
Liabilities
                                                
NOW and money market deposit accounts
   $ 25,044       710       2.84     $ 22,696       360       1.59  
Savings deposits
     1,728       4       .23       1,941       5       .26  
Certificates of deposit ($100,000 or more) e
     5,581       261       4.67       4,957       189       3.82  
Other time deposits
     11,592       481       4.14       10,789       341       3.16  
Deposits in foreign office f
     2,305       120       5.22       2,662       81       3.06  
 
                                    
Total interest-bearing deposits
     46,250       1,576       3.41       43,045       976       2.27  
Federal funds purchased and securities sold under repurchase agreements f
     2,215       107       4.80       2,577       71       2.74  
Bank notes and other short-term borrowings
     2,284       94       4.12       2,796       82       2.94  
Long-term debt e
     13,983       788       5.62       14,094       598       4.32  
 
                                      
Total interest-bearing liabilities
     64,732       2,565       3.96       62,512       1,727       2.77  
 
                                    
Noninterest-bearing deposits
     13,053                       12,001                  
Accrued expense and other liabilities
     6,183                       6,073                  
 
                                            
Total liabilities
     83,968                       80,586                  
 
Shareholders’ equity
     7,734                       7,323                  
 
                                            
 
                
Total liabilities and shareholders’ equity
   $ 91,702                     $ 87,909                  
 
                                            
Interest rate spread (TE)
                     2.92 %                     3.15 %
 
                                            
Net interest income (TE) and net interest margin (TE)
             2,918       3.67 %             2,777       3.65 %
 
                                            
TE adjustment a
             103                       121          
 
                                            
Net interest income, GAAP basis
           $ 2,815                     $ 2,656          
 
                                            

(a)   Interest income on tax-exempt securities and loans is 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)   Yield is calculated on the basis of amortized cost.
 
(e)   Rate calculation excludes basis adjustments related to fair value hedges.
 
(f)   Results from continuing operations exclude the dollar amount of liabilities assumed to support interest-earning assets held by the discontinued Champion Mortgage finance business. The interest expense related to these liabilities, which is also excluded from continuing operations, is calculated using an internal funds transfer pricing rate.

TE = Taxable Equivalent
GAAP = U.S. generally accepted accounting principles

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 16
Noninterest Income
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Trust and investment services income a
   $ 142     $ 137     $ 134     $ 553     $ 542  
Service charges on deposit accounts
     77       78       76       304       304  
Investment banking and capital markets income a
     69       44       61       230       229  
Operating lease income
     63       58       50       229       191  
Letter of credit and loan fees
     55       48       48       188       181  
Corporate-owned life insurance income
     31       23       31       105       109  
Electronic banking fees
     27       27       26       105       96  
Net gains from loan securitizations and sales
     42       14       28       76       69  
Net securities gains (losses)
     3       (7 )     3       1       1  
Other income:
                                        
Insurance income
     15       18       16       64       51  
Loan securitization servicing fees
     5       5       4       20       19  
Credit card fees
     3       8       2       17       14  
Net gains from principal investing
     5       28       16       53       56  
Miscellaneous income
     21       62       57       182       205  
 
                              
Total other income
     49       121       95       336       345  
 
                              
Total noninterest income
   $ 558     $ 543     $ 552     $ 2,127     $ 2,067  
 
                              
(a) Additional detail provided in tables below.
Trust and Investment Services Income
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Brokerage commissions and fee income
   $ 58     $ 56     $ 61     $ 235     $ 247  
Personal asset management and custody fees
     40       39       38       156       153  
Institutional asset management and custody fees
     44       42       35       162       142  
 
                              
Total trust and investment services income
   $ 142     $ 137     $ 134     $ 553     $ 542  
 
                              
Investment Banking and Capital Markets Income
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Investment banking income
   $ 43     $ 21     $ 29     $ 112     $ 87  
Dealer trading and derivatives income
     10       7       10       33       54  
Income from other investments
     6       5       11       43       48  
Foreign exchange income
     10       11       11       42       40  
 
                              
Total investment banking and capital markets income
   $ 69     $ 44     $ 61     $ 230     $ 229  
 
                              

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 17
Noninterest Expense
(dollars in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Personnel a
   $ 447     $ 418     $ 411     $ 1,692     $ 1,588  
Net occupancy
     68       62       67       250       276  b
Computer processing
     55       52       57       212       209  
Operating lease expense
     50       48       40       184       158  
Professional fees
     33       28       42       134       126  
Equipment
     24       26       26       102       110  
Marketing
     27       32       23       97       88  
Other expense:
                                        
Postage and delivery
     12       13       13       50       50  
Franchise and business taxes
     (7 )     9       9       22       34  
Telecommunications
     7       7       7       28       30  
OREO expense, net
     2       2       2       6       8  
Credit for losses on lending- related commitments
     (6 )     —       —       (6 )     (7 )
Miscellaneous expense
     97       93       115       378       384  
 
                              
Total other expense
     105       124       146       478       499  
 
                              
Total noninterest expense
   $ 809     $ 790     $ 812     $ 3,149     $ 3,054  
 
                              
 
                                        
Average full-time equivalent employees
     20,100       20,264       19,417       20,006       19,485  
(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     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Salaries
   $ 238     $ 240     $ 217     $ 940     $ 873  
Incentive compensation
     120       93       113       388       367  
Employee benefits
     64       67       54       287       254  
Stock-based compensation
     17       15       24       64       79  
Severance
     8       3       3       13       15  
 
                              
Total personnel expense
   $ 447     $ 418     $ 411     $ 1,692     $ 1,588  
 
                              

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 18
Loan Composition
(dollars in millions)
                                         
                            Percent change 12-31-06 vs.  
    12-31-06     9-30-06     12-31-05     9-30-06     12-31-05  
Commercial, financial and agricultural a
   $ 21,412     $ 21,556     $ 20,579       (.7 )%     4.0 %
Commercial real estate:
                                        
Commercial mortgage
     8,426       8,266       8,360       1.9       .8  
Construction
     8,209       8,272       7,109       (.8 )     15.5  
 
                              
Total commercial real estate loans
     16,635       16,538       15,469       .6       7.5  
Commercial lease financing a
     10,259       9,860       10,352       4.0       (.9 )
 
                              
Total commercial loans
     48,306       47,954       46,400       .7       4.1  
Real estate — residential mortgage
     1,442       1,407       1,458       2.5       (1.1 )
Home equity b
     10,826       10,988       13,488       (1.5 )     (19.7 )
Consumer — direct
     1,536       1,576       1,794       (2.5 )     (14.4 )
Consumer — indirect:
                                        
Marine
     3,077       2,982       2,715       3.2       13.3  
Other
     639       644       623       (.8 )     2.6  
 
                              
Total consumer — indirect loans
     3,716       3,626       3,338       2.5       11.3  
 
                              
Total consumer loans
     17,520       17,597       20,078       (.4 )     (12.7 )
 
                              
Total loans
   $ 65,826     $ 65,551     $ 66,478       .4 %     (1.0 )%
 
                                  
 
Loans Held for Sale Composition
(dollars in millions)
                                         
                            Percent change 12-31-06 vs.  
    12-31-06     9-30-06     12-31-05     9-30-06     12-31-05  
Commercial, financial and agricultural
   $ 47     $ 219     $ 85       (78.5 )%     (44.7) %
Real estate — commercial mortgage
     946       1,062       525       (10.9 )     80.2  
Real estate — construction
     36       198       51       (81.8 )     (29.4 )
Commercial lease financing
     3       2       —       50.0       N/M  
Real estate — residential mortgage
     21       21       11       —       90.9  
Home equity b
     180       2,485       —       (92.8 )     N/M  
Education
     2,390       3,147       2,687       (24.1 )     (11.1 )
Automobile
     14       16       22       (12.5 )     (36.4 )
 
                              
Total loans held for sale
   $ 3,637     $ 7,150     $ 3,381       (49.1 )%     7.6 %
 
                                  
(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 the November sale of the Champion Mortgage loan portfolio.
N/M = Not Meaningful

 

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 19
Summary of Loan Loss Experience
(dollars in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Average loans outstanding from continuing operations
   $ 65,573     $ 65,180     $ 63,412     $ 64,996     $ 61,997  
 
                              
 
                                        
Allowance for loan losses at beginning of period
   $ 944     $ 956     $ 1,093     $ 966     $ 1,138  
Loans charged off:
                                        
Commercial, financial and agricultural
     18       30       22       92       80  
 
                                        
Real estate — commercial mortgage
     15       3       3       24       19  
Real estate — construction
     1       1       —       4       5  
 
                              
Total commercial real estate loans
     16       4       3       28       24  
Commercial lease financing
     13       13       140       40       183  
 
                              
Total commercial loans
     47       47       165       160       287  
Real estate — residential mortgage
     2       2       2       7       7  
Home equity
     8       6       6       30       26  
Consumer — direct
     7       7       10       33       38  
Consumer — indirect
     10       8       4       38       51  
 
                              
Total consumer loans
     27       23       22       108       122  
 
                              
 
     74       70       187       268       409  
 
                                        
Recoveries:
                                        
Commercial, financial and agricultural
     7       8       7       34       21  
 
                                        
Real estate — commercial mortgage
     2       2       1       5       3  
Real estate — construction
     —       1       1       1       3  
 
                              
Total commercial real estate loans
     2       3       2       6       6  
Commercial lease financing
     4       9       8       27       35  
 
                              
Total commercial loans
     13       20       17       67       62  
Real estate — residential mortgage
     —       —       —       1       1  
Home equity
     2       2       1       7       5  
Consumer — direct
     2       1       2       7       8  
Consumer — indirect
     3       4       3       16       18  
 
                              
Total consumer loans
     7       7       6       31       32  
 
                              
 
     20       27       23       98       94  
 
                              
 
                                        
Net loans charged off
     (54 )     (43 )     (164 )     (170 )     (315 )
Provision for loan losses from continuing operations
     53       35       35       150       143  
Provision for loan losses from discontinued operations
     —       (4 )     1       (3 )     —  
Foreign currency translation adjustment
     1       —       1       1       —  
 
                              
Allowance for loan losses at end of period
   $ 944     $ 944     $ 966     $ 944     $ 966  
 
                              
 
                                        
Net loan charge-offs to average loans from continuing operations
     .33 %     .26 %     1.02 %     .26 %     .51 %
Allowance for loan losses to period-end loans
     1.43       1.44       1.45       1.43       1.45  
Allowance for loan losses to nonperforming loans
     439.07       423.32       348.74       439.07       348.74  

 

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 20
Changes in Allowance for Credit Losses on Lending-Related Commitments
(in millions)
                                         
    Three months ended     Twelve months ended  
    12-31-06     9-30-06     12-31-05     12-31-06     12-31-05  
Balance at beginning of period
   $ 59     $ 59     $ 59     $ 59     $ 66  
Credit for losses on lending- related commitments
     (6 )     —       —       (6 )     (7 )
 
                              
Balance at end of period a
   $ 53     $ 59     $ 59     $ 53     $ 59  
 
                              
 
Summary of Nonperforming Assets and Past Due Loans
(dollars in millions)
                                         
    12-31-06     9-30-06     6-30-06     3-31-06     12-31-05  
Commercial, financial and agricultural
   $ 38     $ 42     $ 76     $ 68     $ 63  
 
                                        
Real estate — commercial mortgage
     53       41       40       42       43  
Real estate — construction
     10       37       4       4       2  
 
                              
Total commercial real estate loans
     63       78       44       46       45  
Commercial lease financing
     22       20       29       29       39  
 
                              
Total commercial loans
     123       140       149       143       147  
Real estate — residential mortgage
     29       29       31       43       41  
Home equity b
     50       46       90       97       79  
Consumer — direct
     2       2       3       6       2  
Consumer — indirect
     11       6       6       6       8  
 
                              
Total consumer loans
     92       83       130       152       130  
 
                              
Total nonperforming loans
     215       223       279       295       277  
 
                                        
Nonperforming loans held for sale b
     3       56       1       2       3  
 
                                        
OREO
     57       52       26       21       25  
Allowance for OREO losses
     (3 )     (3 )     (1 )     (1 )     (2 )
 
                              
OREO, net of allowance
     54       49       25       20       23  
 
                                        
Other nonperforming assets
     1       1       3       3       4  
 
                              
Total nonperforming assets
   $ 273     $ 329     $ 308     $ 320     $ 307  
 
                              
 
                                        
Accruing loans past due 90 days or more
   $ 120     $ 125     $ 119     $ 107     $ 90  
Accruing loans past due 30 through 89 days
     644       715       600       498       491  
Nonperforming loans to period-end portfolio loans
     .33 %     .34 %     .41 %     .44 %     .42 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets
     .41       .50       .46       .48       .46  
 
Summary of Changes in Nonperforming Loans
(in millions)
                                         
    4Q06     3Q06     2Q06     1Q06     4Q05  
Balance at beginning of period
   $ 223     $ 279     $ 295     $ 277     $ 360  
Loans placed on nonaccrual status
     115       134       98       100       142  
Charge-offs
     (74 )     (70 )     (59 )     (65 )     (187 )
Loans sold
     (5 )     (22 )     (6 )     (2 )     (2 )
Payments
     (23 )     (43 )     (45 )     (15 )     (27 )
Transfer to held-for-sale portfolio b
     —       (55 )     —       —       —  
Transfers to OREO
     (12 )     —       (4 )     —       —  
Loans returned to accrual status
     (9 )     —       —       —       (9 )
 
                              
Balance at end of period
   $ 215     $ 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 an expected sale of the Champion Mortgage finance business.

 

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 21
Line of Business Results
(dollars in millions)
Community Banking
                                                         
                                            Percent change 4Q06 vs.  
    4Q06     3Q06     2Q06     1Q06     4Q05     3Q06     4Q05  
Summary of operations
                                                        
Total revenue (TE)
   $ 664     $ 671     $ 663     $ 643     $ 666       (1.0 )%     (.3 )%
Provision for loan losses
     23       22       21       29       30       4.5       (23.3 )
Noninterest expense
     480       470       475       439       484       2.1       (.8 )
Net income
     101       112       104       109       95       (9.8 )     6.3  
Average loans and leases
     26,632       26,737       26,804       26,739       27,267       (.4 )     (2.3 )
Average deposits
     47,376       46,987       46,683       45,835       45,730       .8       3.6  
Net loan charge-offs
     25       22       24       28       31       13.6       (19.4 )
Return on average allocated equity
     17.38 %     19.20 %     18.11 %     19.14 %     16.18 %     N/A       N/A  
Average full-time equivalent employees
     8,966       9,080       8,970       8,829       8,701       (1.3 )     3.0  
 
                                                        
Supplementary information (lines of business)
                                                        
Regional Banking
Total revenue (TE)
   $ 565     $ 570     $ 564     $ 547     $ 558       (.9 )%     1.3 %
Provision for loan losses
     19       19       19       22       26       —       (26.9 )
Noninterest expense
     432       420       423       391       429       2.9       .7  
Net income
     72       82       76       83       65       (12.2 )     10.8  
Average loans and leases
     18,581       18,722       18,771       18,776       19,010       (.8 )     (2.3 )
Average deposits
     43,683       43,405       43,091       42,222       41,929       .6       4.2  
Net loan charge-offs
     19       19       21       22       26       —       (26.9 )
Return on average allocated equity
     17.95 %     20.40 %     19.31 %     21.20 %     16.11 %     N/A       N/A  
Average full-time equivalent employees
     8,645       8,761       8,642       8,519       8,387       (1.3 )     3.1  
 
                                                        
Commercial Banking
Total revenue (TE)
   $ 99     $ 101     $ 99     $ 96     $ 108       (2.0 )%     (8.3 )%
Provision for loan losses
     4       3       2       7       4       33.3       —  
Noninterest expense
     48       50       52       48       55       (4.0 )     (12.7 )
Net income
     29       30       28       26       30       (3.3 )     (3.3 )
Average loans and leases
     8,051       8,015       8,033       7,963       8,257       .4       (2.5 )
Average deposits
     3,693       3,582       3,592       3,613       3,801       3.1       (2.8 )
Net loan charge-offs
     6       3       3       6       5       100.0       20.0  
Return on average allocated equity
     16.11 %     16.55 %     15.49 %     14.62 %     16.35 %     N/A       N/A  
Average full-time equivalent employees
     321       319       328       310       314       .6       2.2  

 

KeyCorp Reports Fourth Quarter 2006 Earnings
January 19, 2007
Page 22
Line of Business Results (continued)
(dollars in millions)
National Banking
                                                         
                                            Percent change 4Q06 vs.  
    4Q06     3Q06     2Q06     1Q06     4Q05     3Q06     4Q05  
Summary of operations
                                                        
Total revenue (TE)
   $ 684     $ 605     $ 604     $ 591     $ 604       13.1 %     13.2 %
Provision for loan losses
     30       13       2       10       5       130.8       500.0  
Noninterest expense
     343       321       328       316       336       6.9       2.1  
Income from continuing operations
     194       169       172       166       164       14.8       18.3  
Net income
     29       176       177       176       176       (83.5 )     (83.5 )
Average loans and leases a
     38,534       37,929       37,755       37,072       35,705       1.6       7.9  
Average loans held for sale a
     4,537       4,568       3,835       3,689       3,585       (.7 )     26.6  
Average deposits a
     11,847       11,055       10,624       9,947       8,562       7.2       38.4  
Net loan charge-offs a
     29       21       10       11       133       38.1       (78.2 )
Return on average allocated equity a
     19.99 %     17.93 %     18.74 %     18.33 %     18.19 %     N/A       N/A  
Return on average allocated equity
     2.81       17.52       18.09       18.18       18.13       N/A       N/A  
Average full-time equivalent employees
     4,558       4,573       4,466       4,455       4,402       (.3 )     3.5  
 
                                                        
Supplementary information (lines of business)
                                                        
Real Estate Capital
                                                        
Total revenue (TE)
   $ 188     $ 169     $ 174     $ 155     $ 163       11.2 %     15.3 %
Provision for loan losses
     18       7       —       2       —       157.1       N/M  
Noninterest expense
     69       69       70       64       69       —       —  
Net income
     63       57       65       56       59       10.5       6.8  
Average loans and leases
     12,931       12,854       12,719       12,467       12,038       .6       7.4  
Average loans held for sale
     1,125       1,022       692       577       605       10.1       86.0  
Average deposits
     4,096       3,598       3,467       3,214       2,467       13.8       66.0  
Net loan charge-offs
     8       —       2       2       —       N/M       N/M  
Return on average allocated equity
     21.45 %     20.05 %     23.32 %     20.63 %     22.27 %     N/A       N/A  
Average full-time equivalent employees
     957       970       980       981       873       (1.3 )     9.6  
 
                                                        
Equipment Finance
                                                        
Total revenue (TE)
   $ 146     $ 137     $ 136     $ 124     $ 128       6.6 %     14.1 %
Provision for loan losses
     7       11       2       3       5       (36.4 )     40.0  
Noninterest expense
     79       83       79       75       80       (4.8 )     (1.3 )
Net income
     37       27       34       29       27       37.0       37.0  
Average loans and leases
     10,222       10,100       9,871       9,569       9,458       1.2       8.1  
Average loans held for sale
     33       6       34       8       —       450.0       N/M  
Average deposits
     15       19       14       15       15       (21.1 )     —  
Net loan charge-offs
     14       11       3       3       132       27.3       (89.4 )
Return on average allocated equity
     16.97 %     12.43 %     16.29 %     14.19 %     13.31 %     N/A       N/A  
Average full-time equivalent employees
     938       927       915       935       971       1.2       (3.4 )
 
                                                        
Institutional and Capital Markets
                                                        
Total revenue (TE)
   $ 219     $ 187     $ 187     $ 204     $ 188       17.1 %     16.5 %
Provision for loan losses
     (2 )     —       (4 )     (5 )     (4 )     N/M       50.0  
Noninterest expense
     129       110       115       115       112       17.3       15.2  
Net income
     58       49       48       59       50       18.4       16.0  
Average loans and leases
     7,510       7,377       7,589       7,824       7,358       1.8       2.1  
Average loans held for sale
     387       454       139       112       73       (14.8 )     430.1  
Average deposits
     7,078       6,703       6,441       6,029       5,434       5.6       30.3  
Net loan charge-offs (recoveries)
     1       —       (2 )     (4 )     (3 )     N/M       N/M  
Return on average allocated equity
     20.04 %     17.74 %     18.03 %     21.89 %     18.45 %     N/A       N/A  
Average full-time equivalent employees
     1,297       1,305       1,228       1,234       1,223       (.6 )     6.1  
 
                                                        
Consumer Finance
                                                        
Total revenue (TE)
   $ 131     $ 112     $ 107     $ 108     $ 125       17.0 %     4.8 %
Provision for loan losses
     7       (5 )     4       10       4       N/M       75.0  
Noninterest expense
     66       59       64       62       75       11.9       (12.0 )
Income from continuing operations
     36       36       25       22       28       —       28.6  
Net income (loss)
     (129 )     43       30       32       40       N/M       N/M  
Average loans and leases a
     7,871       7,598       7,576       7,212       6,851       3.6       14.9  
Average loans held for sale a
     2,992       3,086       2,970       2,992       2,907       (3.0 )     2.9  
Average deposits a
     658       735       702       689       646       (10.5 )     1.9  
Net loan charge-offs a
     6       10       7       10       4       (40.0 )     50.0  
Return on average allocated equity a
     21.22 %     21.84 %     15.26 %     13.71 %     17.20 %     N/A       N/A  
Return on average allocated equity
     (56.06 )     18.98       13.36       14.37       17.25       N/A       N/A  
Average full-time equivalent employees
     1,366       1,371       1,343       1,305       1,335       (.4 )     2.3  
     
(a)   From continuing operations.
TE = Taxable Equivalent
N/A = Not Applicable
N/M = Not Meaningful