KeyBank 2005 Annual Report Download - page 45

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44
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
During the first quarter of 2005, Key refined its methodology for
allocating the allowance established for nonimpaired loans. The process
used by management to establish this portion of the allowance is
described in Note 1 under the heading “Allowance for Loan Losses” on
page 59. The allowance for loan losses for each of the four preceding
years was reallocated among the various segments of Key’s loan portfolio
to reflect this refinement.
Net loan charge-offs. Net loan charge-offs for 2005 were $315 million,
or .49% of average loans, representing Key’s lowest level of net charge-
offs since 1998. These results compare with net charge-offs of $431
million, or .70% of average loans, for 2004, and $548 million, or
.91% of average loans, for 2003. The composition of Key’s loan charge-
offs and recoveries by type of loan is shown in Figure 30.
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Year ended December 31,
dollars in millions 2005 2004 2003 2002 2001
Average loans outstanding during the year $64,789 $61,107 $59,928 $60,578 $63,140
Allowance for loan losses at beginning of year $1,138 $1,406 $1,452 $1,677 $1,001
Loans charged off:
Commercial, financial and agricultural 80 145 280 403 308
Real estate — commercial mortgage 19 35 42 81 23
Real estate — construction 557228
Total commercial real estate loans
a
24 40 49 103 31
Commercial lease financing 183 52 60 94 62
Total commercial loans 287 237 389 600 401
Real estate — residential mortgage 717 11 7 17
Home equity 26 63 60 56 99
Consumer — direct 38 42 47 51 48
Consumer — indirect lease financing 38152527
Consumer — indirect other 48 216 156 166 192
Total consumer loans 122 346 289 305 383
409 583 678 905 784
Recoveries:
Commercial, financial and agricultural 21 41 36 44 26
Real estate — commercial mortgage 3811 6 4
Real estate — construction 3432—
Total commercial real estate loans
a
612 14 8 4
Commercial lease financing 35 14 13 9 5
Total commercial loans 62 67 63 61 35
Real estate — residential mortgage 11118
Home equity 56541
Consumer — direct 89989
Consumer — indirect lease financing 23689
Consumer — indirect other 16 66 46 43 49
Total consumer loans 32 85 67 64 76
94 152 130 125 111
Net loans charged off (315) (431) (548) (780) (673)
Provision for loan losses 143 185 501 553 1,350
Reclassification of allowance for credit losses
on lending-related commitments
b
—(70) — — —
Allowance related to loans acquired (sold), net —48 — 2 (1)
Foreign currency translation adjustment ——1——
Allowance for loan losses at end of year $ 966 $1,138 $1,406 $1,452 $1,677
Net loan charge-offs to average loans .49% .70% .91% 1.29% 1.07%
Allowance for loan losses to year-end loans 1.45 1.80 2.35 2.43 2.77
Allowance for loan losses to nonperforming loans 348.74 369.48 202.59 153.98 184.29
a
See Figure 14 and the accompanying discussion on page 30 for more information related to Key’s commercial real estate portfolio.
b
Included in “accrued expenses and other liabilities” on the consolidated balance sheet.
FIGURE 30. SUMMARY OF LOAN LOSS EXPERIENCE