KeyBank 2006 Annual Report Download

Download and view the complete annual report

Please find the complete 2006 KeyBank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

Next Page
Search

Table of contents

  • Page 1
    Search Next Page

  • Page 2
    Previous Page Search Next Page

  • Page 3
    2006 KeyCorp Annual Report A LOOK INSIDE KEY'S RELATIONSHIP STRATEGY AND THE PURSUIT OF TOP-TIER PERFORMANCE Q&A. CEO Henry Meyer talks about Key's progress and prospects in a wide-ranging interview beginning on page 2. STOCK PERFORMANCE. Changes in Key's business mix since 2002 have contributed ...

  • Page 4
    ...91 per diluted common share, the highest level of earnings in the company's history. These positive results were driven by solid commercial loan growth and asset quality, higher income from fee-based businesses and growth in core deposits. During 2006, total revenue from continuing operations rose...

  • Page 5
    .... Return on equity (ROE) improved to 15.43 percent in 2006, close to our long-term goal of 16 to 18 percent. STOCK PRICE APPRECIATION Capital ratios are an indicator of a bank's financial strength. How does Key fare in this area? Our tangible equity to total assets capital ratio - one of a number...

  • Page 6
    Previous Page Search Next Page

  • Page 7
    ... we are always looking for ways to improve our operating efficiency, we don't believe that we can "save our way to prosperity" by simply slashing costs. Our focus is on the appropriate balance between investing for revenue growth and careful expense management. "We want the Key brand to convey our...

  • Page 8
    ... issue. We came to a point where we needed to make more technology and marketing investments in the business, or sell it to a company that had the strategy and capital to do so. Now we can focus our full attention on delivering private banking, wealth management, trust services, mutual funds and...

  • Page 9
    ... 2006 that to make the fundamental point that banking, at its core, is a people business, from the Board to managers to corporate bankers and front-line tellers. It's no coincidence that integrity, respect and accountability are three of Key's five Values. From those ï¬,ow qualities such as trust...

  • Page 10
    ... day, just pick one) let's try not to spend any money. Let's take the $1.79 we save here and the $3.50 there and put it in savings. It's just a little bit now, but over time, a little bit adds up. To a lot. Visit key.com/saveday today. Member FDIC. ©2007 KeyCorp. Previous Page Search Next Page

  • Page 11
    Previous Page Search Next Page

  • Page 12
    ... way to go." 2006 RESULTS Community Banking earned $427 million in 2006, up 2 percent from the previous year. Those results accounted for 36 percent of Key's total earnings from continuing operations. Interest income - challenged by tighter interest rate spreads and fierce competition for deposits...

  • Page 13
    ...000 new online banking/investing clients, 180 small business applicants and more than $4 million in credit card fees. "There are significant hurdles when people switch banks," Mooney notes. "The iPod was a gift to thank them for taking the time to move to Key." The successful campaign was a result...

  • Page 14
    ... equipment; finance major shopping malls or 300-home developments; borrow for a yacht or their children's education; take their private company public; or obtain advice on the management of company pension funds or investment portfolios, among many other services. Search Next Page 14 á"¤ Key 2006...

  • Page 15
    ... results and improved Key's ranking in closely watched industry "league" tables. In the 2006 commercial real estate loan syndications rankings, for instance, Key placed second nationally in the number of deals and fourth in dollar value. Two KNB units - KeyBank Real Estate Capital and Key Equipment...

  • Page 16
    ... that money have been put towards? Something to sit on while listening to a CD, perhaps? Knowing where your money goes is a financial fundamental. And once you know that, you can do the right thing at the right time with the money you hold onto. key.com KeyBank is Member FDIC Previous Page Search...

  • Page 17
    ... Long-term goals Forward-looking statements Corporate strategy Economic overview Critical accounting policies and estimates Revenue recognition Highlights of Key's 2006 Performance Financial performance Strategic developments Line of Business Results Community Banking summary of operations National...

  • Page 18
    ... services of accepting deposits and making loans, KeyCorp's bank, registered investment advisor and trust company subsidiaries offer personal and corporate trust services, personal financial services, access to mutual funds, cash management services, investment banking and capital markets products...

  • Page 19
    ...payments, require the adoption of remedial measures to increase capital, terminate Federal Deposit Insurance Corporation ("FDIC") deposit insurance, and mandate the appointment of a conservator or receiver in severe cases. Capital markets conditions. Changes in the stock markets, public debt markets...

  • Page 20
    ... market companies. In addition, we focus nationwide on businesses such as commercial real estate lending, investment management and equipment leasing. We believe Key possesses resources of the scale necessary to compete nationally in the market for these services. • Build relationships. We work...

  • Page 21
    ...for the commercial loan portfolio would result in a $48 million increase in the allowance. If these changes had actually occurred in 2006, they could have reduced Key's net income by approximately $11 million, or $.03 per share, and $30 million, or $.07 per share, respectively. Our accounting policy...

  • Page 22
    ... direct and indirect investments, predominantly in privately-held companies. The fair values of these investments are estimated by considering a number of factors, including the investee's financial condition and results of operations, values of public companies in comparable businesses, market...

  • Page 23
    ... growth in Key's commercial loan portfolio was geographically broadbased and spread among a number of industry sectors. The increase in fee income was attributable to a variety of sources, including trust and investment services, investment banking, operating leases, electronic banking and several...

  • Page 24
    ... dilution Cash dividends declared Book value at year end Market price at year end Dividend payout ratio Weighted-average common shares outstanding (000) Weighted-average common shares and potential common shares outstanding (000) AT DECEMBER 31, Loans Earning assets Total assets Deposits Long-term...

  • Page 25
    ...assets under management at the date of acquisition. Austin specializes in selecting and managing hedge fund investments for its principally institutional customer base. • On December 8, 2005, Key acquired the commercial mortgage-backed servicing business of ORIX Capital Markets, LLC, headquartered...

  • Page 26
    ... under the terms of the sales agreement. Key has retained the corporate and institutional businesses, including Institutional Equities and Equity Research, Debt Capital Markets and Investment Banking. In addition, KBNA will continue the Wealth Management, Trust and Private Banking businesses. During...

  • Page 27
    ...reï¬,ecting growth in the Real Estate Capital, Equipment Finance and Consumer Finance lines of business. In addition, the net interest margin for 2006 benefited from a $16 million lease accounting adjustment resulting from a change in effective state tax rates. These positive trends were moderated...

  • Page 28
    ... expanded its market share positions and strengthened its business. In 2006, Key expanded the asset management product line by acquiring Austin Capital Management, Ltd., an investment firm headquartered in Austin, Texas. Austin specializes in selecting and managing hedge fund investments for its...

  • Page 29
    ... in Figure 6, Key's interest rate spread narrowed by 23 basis points from 2005 as a result of competitive pressure on loan and deposit pricing, and a change in deposit mix, as consumers shifted funds from money market deposit accounts to time deposits. Management expects these conditions and the...

  • Page 30
    ... - commercial mortgage Real estate - construction Commercial lease financingc Total commercial loans Real estate - residential Home equity Consumer - direct Consumer - indirect Total consumer loans Total loans Loans held for sale Investment securitiesa Securities available for saled Short-term...

  • Page 31
    MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES 2003 Average Balance Interest Yield/ Rate Average Balance 2002 Interest Yield/ Rate Average Balance 2001 Interest Yield/ Rate Compound Annual Rate of Change (2001-2006) Average Balance ...

  • Page 32
    ...dollars in millions Trust and investment services income Service charges on deposit accounts Investment banking and capital markets income Operating lease income Letter of credit and loan fees Corporate-owned life insurance income Electronic banking fees Net gains from loan securitizations and sales...

  • Page 33
    ... December 31, dollars in millions Assets under management by investment type: Equity Securities lending Fixed income Money market Hedge funds Total Proprietary mutual funds included in assets under management: Money market Equity Fixed income Total N/M = Not Meaningful Change 2006 vs 2005 2006 $41...

  • Page 34
    ...proportion of Key's clients have elected to use Key's free checking products. In addition, as interest rates increase, commercial clients are able to cover a larger portion of their service charges with credits earned on compensating balances. Investment banking and capital markets income. As shown...

  • Page 35
    MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES FIGURE 12. NONINTEREST EXPENSE Year ended December 31, dollars in millions Personnel Net occupancy Computer processing Operating lease expense Professional fees Equipment Marketing Other ...

  • Page 36
    ... credits associated with investments in low-income housing projects and records tax deductions associated with dividends paid on Key common shares held in Key's 401(k) savings plan. In addition, a lower tax rate is applied to portions of the equipment lease portfolio that are managed by a foreign...

  • Page 37
    ... OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES FIGURE 14. COMPOSITION OF LOANS December 31, dollars in millions COMMERCIAL Commercial, financial and agricultural Commercial real estate:a Commercial mortgage Construction Total commercial real estate loans Commercial lease...

  • Page 38
    ... the Equipment Finance line of business and have increased in both volume and number following the fourth quarter 2004 acquisition of American Express Business Finance Corporation ("AEBF"), the equipment leasing unit of American Express' small business division. AEBF had commercial loan and lease...

  • Page 39
    ... fit with Key's relationship banking strategy; • Key's asset/liability management needs; • whether the characteristics of a specific loan portfolio make it conducive to securitization; • the cost of alternative funding sources; • the level of credit risk; and • capital requirements. 39...

  • Page 40
    ... "other income") from fees for servicing or administering loans. In addition, Key earns interest income from securitized assets retained and from investing funds generated by escrow deposits collected in connection with the servicing of commercial real estate loans. These deposits have contributed...

  • Page 41
    ... & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES FIGURE 19. REMAINING FINAL MATURITIES AND SENSITIVITY OF CERTAIN LOANS TO CHANGES IN INTEREST RATES December 31, 2006 in millions Commercial, financial and agricultural Real estate - construction Real estate...

  • Page 42
    ..., focused sales and marketing efforts on Key's free checking products, and collected more escrow deposits associated with the servicing of commercial real estate loans. Purchased funds, comprising large certificates of deposit, deposits in the foreign branch and short-term borrowings, averaged...

  • Page 43
    ... 2006 are shown in the Consolidated Statements of Changes in Shareholders' Equity presented on page 65. Common shares outstanding. KeyCorp's common shares are traded on the New York Stock Exchange under the symbol KEY. At December 31, 2006: FIGURE 22. MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100...

  • Page 44
    ...the open market or through privately-negotiated transactions. The program does not have an expiration date. At December 31, 2006, Key had 92.7 million treasury shares. Management expects to reissue those shares as needed in connection with the employee stock purchase and dividend reinvestment plans...

  • Page 45
    ...& ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES Federal bank regulators group FDIC-insured depository institutions into five categories, ranging from "critically undercapitalized" to "well capitalized." Key's affiliate bank, KBNA, qualified as "well capitalized...

  • Page 46
    ... services Technology equipment and software Other Total purchase obligations Total Lending-related and other off-balance sheet commitments: Commercial, including real estate Home equity When-issued and to be announced securities commitments Commercial letters of credit Principal investing...

  • Page 47
    ... used to fund loans) do not mature or reprice at the same time. • "Yield curve risk" exists when short-term and long-term interest rates change by different amounts. For example, when U.S. Treasury and other term rates decline, the rates on automobile loans also will decline, but the cost of money...

  • Page 48
    ...-rate home equity loans at 7.50% funded short-term. Rates unchanged: Increases annual net interest income $2.3 million. Rates up 200 basis points over 12 months: Increases annual net interest income $1.2 million. Premium money market deposits at 4.75% that reduce short-term funding. Rates unchanged...

  • Page 49
    ...19. Management uses a value at risk ("VAR") simulation model to measure the potential adverse effect of changes in interest rates, foreign exchange rates, equity prices and credit spreads on the fair value of Key's trading portfolio. Using two years of historical information, the model estimates the...

  • Page 50
    ... changes across multiple portfolios. Increases in the Commercial Floor Plan and Real Estate Capital portfolios were substantially offset by decreases in a number of other portfolios. Management continues to closely monitor ï¬,uctuations in Key's watch and criticized commitments. Allowance for loan...

  • Page 51
    ... 100.0% dollars in millions Commercial, financial and agricultural Real estate - commercial mortgage Real estate - construction Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity Consumer - direct Consumer - indirect Total consumer loans Total Amount...

  • Page 52
    ... Real estate - commercial mortgage Real estate - construction Total commercial real estate loansa Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity Consumer - direct Consumer - indirect Total consumer loans Net loans charged off Provision for loan...

  • Page 53
    ...PAST DUE LOANS December 31, dollars in millions Commercial, financial and agricultural Real estate - commercial mortgage Real estate - construction Total commercial real estate loansa Commercial lease financing Total commercial loans Real estate - residential mortgage Home equity Consumer - direct...

  • Page 54
    ...sale of the Champion Mortgage finance business. Liquidity risk management Key defines "liquidity" as the ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a reasonable cost, in a timely...

  • Page 55
    ... timely manner and without adverse consequences, and pay dividends to shareholders. Management's primary tool for assessing parent company liquidity is the net short-term cash position, which measures the ability to fund debt maturing in twelve months or less with existing liquid assets. Another key...

  • Page 56
    ... can be denominated in U.S. dollars or foreign currencies. During 2006, there were $666 million of notes issued under this program. At December 31, 2006, $6.1 billion was available for future issuance. KeyCorp medium-term note program. In January 2005, the parent company registered $2.9 billion of...

  • Page 57
    ...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...

  • Page 58
    ... Cash dividends declared Book value at period end Market price: High Low Close Weighted-average common shares outstanding (000) Weighted-average common shares and potential common shares outstanding (000) AT PERIOD END Loans Earning assets Total assets Deposits Long-term debt Shareholders' equity...

  • Page 59
    ..., offset in part by an increase in effective state tax rates applied to Key's lease financing business. Excluding these items, the effective tax rate for the fourth quarter of 2006 was 26.7%. CERTIFICATIONS KeyCorp has filed, as exhibits to its Annual Report on Form 10-K for the year ended...

  • Page 60
    ... position, results of operations and cash ï¬,ows in all material respects. Management is responsible for establishing and maintaining a system of internal control that is designed to protect Key's assets and the integrity of its financial reporting. This corporate-wide system of controls includes...

  • Page 61
    ..., in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Key as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in shareholders' equity, and cash ï¬,ow for each of the three years...

  • Page 62
    ... PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors KeyCorp We have audited the accompanying consolidated balance sheets of KeyCorp and subsidiaries ("Key") as of December 31, 2006 and 2005, and the related consolidated statements of income, changes in shareholders' equity, and cash...

  • Page 63
    ...Net loans Loans held for sale Premises and equipment Operating lease assets Goodwill Other intangible assets Corporate-owned life insurance Derivative assets Accrued income and other assets Total assets LIABILITIES Deposits in domestic offices: NOW and money market deposit accounts Savings deposits...

  • Page 64
    ... INCOME Trust and investment services income Service charges on deposit accounts Investment banking and capital markets income Operating lease income Letter of credit and loan fees Corporate-owned life insurance income Electronic banking fees Net gains from loan securitizations and sales Net...

  • Page 65
    ... investment funds held in employee welfare benefits trust, net of income taxes of $1 Foreign currency translation adjustments Minimum pension liability adjustment, net of income taxes of ($2) Total comprehensive income Deferred compensation Cash dividends declared on common shares ($1.24 per share...

  • Page 66
    ... from sales of other real estate owned NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES FINANCING ACTIVITIES Net increase in deposits Net increase (decrease) in short-term borrowings Net proceeds from issuance of long-term debt Payments on long-term debt Purchases of treasury shares Net proceeds...

  • Page 67
    ... ACCOUNTING POLICIES ORGANIZATION KeyCorp, an Ohio corporation and bank holding company headquartered in Cleveland, Ohio, is one of the nation's largest bankbased financial services companies. KeyCorp's subsidiaries provide retail and commercial banking, commercial leasing, investment management...

  • Page 68
    ... in "investment banking and capital markets income" on the income statement. constant rate of return on the lease. Deferred initial direct costs are amortized over the lease term as an adjustment to the yield. Leveraged leases are carried net of nonrecourse debt. Revenue on leveraged leases is...

  • Page 69
    ... trading account assets, any increase or decrease in the asset's fair value is recognized in "other income" on the income statement. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses represents management's estimate of probable credit losses inherent in the loan portfolio at the balance sheet...

  • Page 70
    ... balance sheet. The resulting asset ($115 million at December 31, 2006, and $131 million at December 31, 2005) is amortized using the straight-line method over its expected useful life (not to exceed five years). Costs incurred during the planning and post-development phases of an internal software...

  • Page 71
    ... used for trading purposes, changes in fair value (including payments and receipts), as well as the premium paid or received for credit protection, are included in "investment banking and capital markets income" on the income statement. STOCK-BASED COMPENSATION Prior to January 1, 2006, Key used...

  • Page 72
    ... share issuances under all stock-based compensation programs other than the discounted stock purchase plan. Shares issued under the stock purchase plan are purchased on the open market. SFAS No. 123R requires companies like Key that have used the intrinsic value method to account for employee stock...

  • Page 73
    ... million to Key's retained earnings. However, future earnings are expected to increase over the remaining term of the affected leases by a similar amount. Accounting for servicing of financial assets. In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets," which...

  • Page 74
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES 2. EARNINGS PER COMMON SHARE Key's basic and diluted earnings per common share are calculated as follows: Year ended December 31, dollars in millions, except per share amounts EARNINGS Income from continuing operations before ...

  • Page 75
    ...LLC, a global alternative investment and asset management firm. The sale of the platform 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 report. The results of the...

  • Page 76
    ...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...

  • Page 77
    ... branch network to serve customers across the country and internationally through four primary lines of business: Real Estate Capital, Equipment Finance, Institutional and Capital Markets, and Consumer Finance. These changes are reï¬,ected in the financial data reported for all periods presented in...

  • Page 78
    ... (COMMUNITY BANKING LINES OF BUSINESS) Year ended December 31, dollars in millions Total revenue (TE) Provision for loan losses Noninterest expense Net income Average loans and leases Average deposits Net loan charge-offs Return on average allocated equity Average full-time equivalent employees TE...

  • Page 79
    ... 6,484 98% 100 $64,853 89,465 59,489 $101 170 18.03% 15.25 13,522 SUPPLEMENTARY INFORMATION (NATIONAL BANKING LINES OF BUSINESS) Year ended December 31, dollars in millions Total revenue (TE) Provision for loan losses Noninterest expense Income from continuing operations Net income (loss) Average...

  • Page 80
    ...TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES 5. RESTRICTIONS ON CASH, DIVIDENDS AND LENDING ACTIVITIES Federal law requires depository institutions to maintain a prescribed amount of cash or noninterest-bearing balances with the Federal Reserve Bank. KBNA, KeyCorp's bank subsidiary...

  • Page 81
    ...-rate agency collateralized mortgage obligations, which Key invests in as part of an overall asset/liability management strategy. Since these instruments have fixed interest rates, their fair value is sensitive to movements in market interest rates. During 2006, interest rates generally increased...

  • Page 82
    ... income Unguaranteed residual value Deferred fees and costs Net investment in direct financing leases 2006 $6,955 (738) 549 72 $6,838 2005 $7,324 (763) 520 54 $7,135 Total commercial real estate loans Commercial lease financinga Total commercial loans Real estate - residential mortgage Home...

  • Page 83
    ... by calculating the present value of future cash ï¬,ows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. Primary economic assumptions used to measure the fair value of Key's mortgage servicing assets at December 31, 2006...

  • Page 84
    ...the Community Banking line of business, Key has made investments directly in LIHTC operating partnerships formed by third parties. As a limited partner in these operating partnerships, Key is allocated tax credits and deductions associated with the underlying properties. At December 31, 2006, assets...

  • Page 85
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES Commercial and residential real estate investments and principal investments. Key's Principal Investing unit and the KeyBank Real Estate Capital line of business make equity and mezzanine investments in entities, some of which are ...

  • Page 86
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES During 2006, Key acquired other intangible assets with a fair value of $18 million in conjunction with the purchase of Austin Capital Management, Ltd. These assets are being amortized using the straightline method over periods ...

  • Page 87
    ...type leases. Long-term advances from the Federal Home Loan Bank had weighted-average interest rates of 5.35% at December 31, 2006, and 4.49% at December 31, 2005. These advances, which had a combination of fixed and ï¬,oating interest rates, were secured by real estate loans and securities totaling...

  • Page 88
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES 13. CAPITAL SECURITIES ISSUED BY UNCONSOLIDATED SUBSIDIARIES KeyCorp owns the outstanding common stock of business trusts that issued corporation-obligated mandatorily redeemable preferred capital securities. The trusts used the ...

  • Page 89
    ... Federal Deposit Insurance Act Amount Ratio Actual dollars in millions December 31, 2006 TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS Key KBNA TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS Key KBNA TIER 1 CAPITAL TO AVERAGE QUARTERLY TANGIBLE ASSETS Key KBNA December 31, 2005 TOTAL CAPITAL TO NET RISK...

  • Page 90
    ... the fair market value of Key's common shares on the grant date. Management estimates the fair value of options granted using the Black-Scholes option-pricing model. This model was originally developed to estimate the fair value of exchange-traded equity options, which (unlike employee stock options...

  • Page 91
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES The compensation cost of time-lapsed restricted stock awards granted under the Program is calculated using the average of the high and low trading price of Key's common shares on the grant date. Unlike the timelapsed and ...

  • Page 92
    ... current actuarial reports using a September 30 measurement date. Changes in the projected benefit obligation ("PBO") related to Key's pension plans are summarized as follows: Year ended December 31, in millions PBO at beginning of year Service cost Interest cost Actuarial losses Benefit payments...

  • Page 93
    ... a 25 basis point increase in the expected return on plan assets would decrease Key's net pension cost for 2007 by the same amount. In addition, pension cost is affected by an assumed discount rate and an assumed compensation increase rate. Management estimates that a 25 basis point change in either...

  • Page 94
    .... An executive oversight committee reviews the plans' investment performance at least quarterly, and compares performance against appropriate market indices. The pension funds' investment allocation policies specify that fund assets are to be invested within the following ranges: Asset Class Equity...

  • Page 95
    ... Year ended December 31, Discount rate Expected return on plan assets 2006 5.25% 5.64 2005 5.75% 5.79 2004 6.00% 5.78 Management estimates the expected returns on plan assets for VEBA trusts much the same way it estimates returns on Key's pension funds. The primary investment objectives of the VEBA...

  • Page 96
    ... times 35% statutory federal tax rate State income tax, net of federal tax benefit Write-off of nondeductible goodwill Tax-exempt interest income Corporate-owned life insurance income Tax credits Reduced tax rate on lease income Reduction of deferred tax asset Other Total income tax expense 2006...

  • Page 97
    ... in effect at the time Key entered into these transactions. Subsequently, the Internal Revenue Service ("IRS") has challenged the tax treatment of these transactions by a number of bank holding companies and other corporations. The IRS has completed audits of Key's income tax returns for the 1995...

  • Page 98
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES Loan commitments involve credit risk not reï¬,ected on Key's balance sheet. Key mitigates exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, how credit limits are ...

  • Page 99
    ... offered limited partnership interests to qualified investors. Partnerships formed by KAHC invested in low-income residential rental properties that qualify for federal LIHTCs under Section 42 of the Internal Revenue Code. In certain partnerships, investors pay a fee to KAHC for a guaranteed return...

  • Page 100
    ...rate Credit Foreign exchange Equity Energy Total 2006 $ 697 43 321 45 29 $1,135 2005 $ 800 39 167 42 - $1,048 ASSET AND LIABILITY MANAGEMENT Fair value hedging strategies. Key uses interest rate swap contracts known as "receive fixed/pay variable" swaps to modify its exposure to interest rate risk...

  • Page 101
    ... uses "pay fixed/receive variable" interest rate swaps to manage the interest rate risk associated with anticipated sales or securitizations of certain commercial real estate loans. These swaps protect against a possible short-term decline in the value of the loans that could result from changes...

  • Page 102
    ... fair value of loans. Fair values of servicing assets, time deposits and long-term debt were estimated based on discounted cash ï¬,ows. Fair values of interest rate swaps and caps were based on discounted cash ï¬,ow models. Foreign exchange forward contracts were valued based on quoted market prices...

  • Page 103
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES 21. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY CONDENSED BALANCE SHEETS December 31, in millions ASSETS Interest-bearing deposits Loans and advances to subsidiaries: Banks Nonbank subsidiaries Investment in subsidiaries:...

  • Page 104
    ...decrease in investments in subsidiaries NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings Net proceeds from issuance of long-term debt Payments on long-term debt Purchases of treasury shares Net proceeds from issuance of common stock Tax bene...

  • Page 105
    Previous Page Search Contents Next Page

  • Page 106
    Previous Page Search Contents