KeyBank 2005 Annual Report Download - page 46

45
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
The largest decreases in net charge-offs for 2005 occurred primarily in the
middle market segment of the commercial, financial and agricultural
loan portfolio, and in the home equity and indirect consumer loan
portfolios. The latter was due largely to the reclassification of the indirect
automobile loan portfolio to held-for-sale status in the fourth quarter of
2004. These reductions were offset in part by an increase in the level of
charge-offs taken against the commercial lease financing portfolio. As
mentioned above, during 2005, Key charged off $135 million of
commercial airline leases, reducing our exposure to that industry to $86
million, with less than $1 million categorized as nonperforming.
Nonperforming assets. Figure 31 shows the composition of Key’s
nonperforming assets, which at December 31, 2005, were at their
lowest level in eleven years. These assets totaled $307 million at
December 31, 2005, and represented .46% of loans, other real estate
owned (known as “OREO”) and other nonperforming assets, compared
with $379 million, or .60%, at December 31, 2004. See Note 1 under
the headings “Impaired and Other Nonaccrual Loans” and “Allowance
for Loan Losses” on pages 58 and 59 for a summary of Key’s nonaccrual
and charge-off policies.
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December 31,
dollars in millions 2005 2004 2003 2002 2001
Commercial, financial and agricultural $63 $ 37 $252 $448 $409
Real estate — commercial mortgage 43 37 85 157 187
Real estate — construction 220 25 50 83
Total commercial real estate loans
a
45 57 110 207 270
Commercial lease financing 39 84 103 69 94
Total commercial loans 147 178 465 724 773
Real estate — residential mortgage 41 39 39 36 32
Home equity 79 80 153 146 60
Consumer — direct 231413 9
Consumer — indirect lease financing 113510
Consumer — indirect other 77201926
Total consumer loans 130 130 229 219 137
Total nonperforming loans 277 308 694 943 910
Nonperforming loans held for sale 38———
OREO 25 53 61 48 38
Allowance for OREO losses (2) (4) (4) (3) (1)
OREO, net of allowance 23 49 57 45 37
Other nonperforming assets
b
414 2 5 —
Total nonperforming assets $307 $379 $753 $993 $947
Accruing loans past due 90 days or more $90 $122 $152 $198 $ 250
Accruing loans past due 30 through 89 days 491 491 613 790 1,096
Nonperforming loans to year-end loans .42% .49% 1.16% 1.58% 1.50%
Nonperforming assets to year-end loans
plus OREO and other nonperforming assets .46 .60 1.26 1.66 1.56
a
See Figure 14 and the accompanying discussion on page 30 for more information related to Key’s commercial real estate portfolio.
b
Primarily collateralized mortgage-backed securities.
FIGURE 31. SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
Most of the 2005 reduction in nonperforming assets occurred during
the fourth quarter as a result of the previously mentioned charge-offs
taken on several credits within the commercial passenger airline
portfolio. The decrease in nonperforming assets also reflected an
improvement in the construction portfolio as well as substantial declines
in OREO and other nonperforming assets. These reductions were offset
in part by an increase in commercial, financial and agricultural loans on
nonaccrual status.
At December 31, 2005, our 20 largest nonperforming loans totaled $91
million, representing 33% of total loans on nonperforming status.
The level of Key’s delinquent loans has been trending downward, due
largely to a strengthening economy and strategic changes, such as
reductions in credit-only client relationships, in the composition of
Key’s loan portfolio. Over the course of a normal business cycle, there
will be fluctuations in the level of Key’s delinquent loans.