KeyBank 2005 Annual Report Download - page 33

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32
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
Figure 17 shows loans that are either administered or serviced by Key, but
not recorded on its balance sheet. Included are loans that have been
both securitized and sold, or simply sold outright. As discussed previously,
the acquisitions of Malone Mortgage Company and the commercial
mortgage-backed securities servicing business of ORIX added more than
$28 billion to our commercial mortgage servicing portfolio during 2005.
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December 31,
in millions 2005 2004 2003 2002 2001
Commercial real estate loans $72,902 $33,252 $25,376 $19,508 $10,471
Education loans 5,083 4,916 4,610 4,605 4,433
Commercial loans 242 210 167 123 983
Home equity loans 59 130 215 456 768
Commercial lease financing 25 45———
Automobile loans —— — 54 131
Total $78,311 $38,553 $30,368 $24,746 $16,786
FIGURE 17. LOANS ADMINISTERED OR SERVICED
In the event of default, Key is subject to recourse with respect to
approximately $676 million of the $78.3 billion of loans administered
or serviced at December 31, 2005. Additional information about this
recourse arrangement is included in Note 18 (“Commitments, Contingent
Liabilities and Guarantees”) under the heading “Recourse agreement
with Federal National Mortgage Association” on page 85.
Key derives income from two sources when we sell or securitize loans but
retain the right to administer or service them. We earn noninterest
income (recorded as “other income”) from servicing or administering the
loans, and we earn interest income from any securitized assets we retain.
In addition, escrow deposits obtained in acquisitions, and collected
in connection with the servicing of commercial real estate loans have
contributed to the growth in Key’s average noninterest-bearing deposits
over the past twelve months.
Figure 18 shows the remaining final maturities of certain commercial and
real estate loans, and the sensitivity of those loans to changes in interest
rates. At December 31, 2005, approximately 36% of these outstanding
loans were scheduled to mature within one year. Loans with remaining
final maturities greater than one year include $20.5 billion with floating
or adjustable rates and $3.4 billion with predetermined rates.
December 31, 2005 Within 1-5 Over
in millions 1 Year Years 5 Years Total
Commercial, financial and agricultural $ 9,197 $ 9,263 $2,119 $20,579
Real estate — construction 2,422 4,434 253 7,109
Real estate — residential and commercial mortgage 2,062 3,785 3,971 9,818
$13,681 $17,482 $6,343 $37,506
Loans with floating or adjustable interest rates
a
$15,924 $4,543
Loans with predetermined interest rates
b
1,558 1,800
$17,482 $6,343
a
“Floating” and “adjustable” rates vary in relation to other interest rates (such as the base lending rate) or a variable index that may change during the term of the loan.
b
“Predetermined” interest rates either are fixed or may change during the term of the loan according to a specific formula or schedule.
FIGURE 18. REMAINING FINAL MATURITIES AND SENSITIVITY OF CERTAIN LOANS
TO CHANGES IN INTEREST RATES
Securities
At December 31, 2005, the securities portfolio totaled $8.7 billion
and included $7.3 billion of securities available for sale, $91 million of
investment securities and $1.3 billion of other investments (primarily
principal investments). In comparison, the total portfolio at December
31, 2004, was $8.9 billion, including $7.5 billion of securities available
for sale, $71 million of investment securities and $1.4 billion of other
investments.
Securities available for sale. The majority of Key’s securities available-
for-sale portfolio consists of collateralized mortgage obligations (“CMO”).
A CMO is a debt security that is secured by a pool of mortgages or
mortgage-backed securities. Key’s CMOs generate interest income and
serve as collateral to support certain pledging agreements. At December
31, 2005, Key had $6.5 billion invested in CMOs and other mortgage-
backed securities in the available-for-sale portfolio, compared with $6.7
billion at December 31, 2004. Substantially all of Key’s mortgage-
backed securities are issued or backed by federal agencies. The CMO
securities held by Key are shorter-duration class bonds that are structured
to have more predictable cash flows than longer-term class bonds.
The weighted-average maturity of the securities available-for-sale
portfolio was 2.4 years at December 31, 2005, compared with 2.3
years at December 31, 2004.