KeyBank 2006 Annual Report Download - page 52

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52
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
During the third quarter of 2006, Key refined its methodology for
allocating the allowance for loan losses. The refinements include a more
accurate assignment of the allowance by loan type within each of the
specific lines of business. Prior to this refinement, the allowance assigned
to a specific line of business was allocated to the predominant loan
types within the line. The allowance for loan losses at December 31 for
each of the years presented in Figure 31 has been reallocated among the
various loan types within Key’s loan portfolio to reflect this refinement.
The reduction in the allowance allocated to the home equity loan
portfolio from December 31, 2005, to December 31, 2006, was due in
part to the transfer of the Champion portfolio to held-for-sale status.
Net loan charge-offs. Net loan charge-offs for 2006 were $170 million,
or .26% of average loans from continuing operations, representing Key’s
lowest level of net charge-offs since 1995 and the fifth consecutive year
in which this asset quality measure has improved. These results compare
to net charge-offs of $315 million, or .51%, for 2005, and $431
million, or .74%, for 2004. The composition of Key’s loan charge-offs
and recoveries by type of loan is shown in Figure 32. The largest
decreases in net charge-offs for 2006 occurred in the commercial lease
financing and consumer installment portfolios. During 2005, net
charge-offs included $135 million related to commercial passenger
airline leases.
Year ended December 31,
dollars in millions 2006 2005 2004 2003 2002
Average loans outstanding from
continuing operations $64,996 $61,997 $58,226 $57,386 $58,477
Allowance for loan losses at beginning of year $966 $1,138 $1,406 $1,452 $1,677
Loans charged off:
Commercial, financial and agricultural 92 80 145 280 403
Real estate — commercial mortgage 24 19 35 42 81
Real estate — construction 455722
Total commercial real estate loans
a
28 24 40 49 103
Commercial lease financing 40 183 52 60 94
Total commercial loans 160 287 237 389 600
Real estate — residential mortgage 77 17 11 7
Home equity 30 26 63 60 56
Consumer — direct 33 38 42 47 51
Consumer — indirect 38 51 224 171 191
Total consumer loans 108 122 346 289 305
268 409 583 678 905
Recoveries:
Commercial, financial and agricultural 34 21 41 36 44
Real estate — commercial mortgage 53811 6
Real estate — construction 13432
Total commercial real estate loans
a
661214 8
Commercial lease financing 27 35 14 13 9
Total commercial loans 67 62 67 63 61
Real estate — residential mortgage 11111
Home equity 75654
Consumer — direct 78998
Consumer — indirect 16 18 69 52 51
Total consumer loans 31 32 85 67 64
98 94 152 130 125
Net loans charged off (170) (315) (431) (548) (780)
Provision for loan losses from continuing operations 150 143 185 498 548
Provision for loan losses from discontinued operations (3) ——35
Reclassification of allowance for credit losses
on lending-related commitments
b
—— (70) — —
Allowance related to loans acquired, net —— 48 — 2
Foreign currency translation adjustment 1—— 1—
Allowance for loan losses at end of year $944 $ 966 $1,138 $1,406 $1,452
Net loan charge-offs to average loans from
continuing operations .26% .51% .74% .95% 1.33%
Allowance for loan losses to year-end loans 1.43 1.45 1.80 2.35 2.43
Allowance for loan losses to nonperforming loans 439.07 348.74 369.48 202.59 153.98
a
See Figure15 and the accompanying discussion on page 38 for moreinformation related to Key’s commercial real estate portfolio.
b
Included in “accrued expenses and other liabilities” on the consolidated balance sheet.
FIGURE 32. SUMMARY OF LOAN LOSS EXPERIENCE
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