KeyBank 2005 Annual Report Download - page 47

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
Credit exposure by industry classification in the largest sector of Key’s
loan portfolio, “commercial, financial and agricultural loans,” is
presented in Figure 32. The types of activity that caused the change in
Key’s nonperforming loans during 2005 are summarized in Figure 33.
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Nonperforming Loans
December 31, 2005 Total Loans % of Loans
dollars in millions Commitments
a
Outstanding Amount Outstanding
Industry classification:
Manufacturing $10,242 $ 3,246 $22 .7%
Services 9,610 2,906 5 .2
Retail trade 6,297 3,826 3 .1
Financial services 4,901 2,069 2 .1
Property management 3,799 1,498 1 .1
Public utilities 3,592 598 — —
Wholesale trade 3,352 1,355 9 .7
Insurance 2,422 100 — —
Building contractors 2,021 816 4 .5
Public administration 1,147 401 — —
Transportation 1,141 448 10 2.2
Communications 1,001 382 — —
Agriculture/forestry/fishing 878 533 2 .4
Mining 737 197 — —
Individuals 73 48 — —
Other 2,789 2,156 5 .2
Total $54,002 $20,579 $63 .3%
a
Total commitments include unfunded loan commitments, unfunded letters of credit (net of amounts conveyed to others) and loans outstanding.
FIGURE 32. COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS
2005 Quarters
in millions 2005 Fourth Third Second First 2004
BALANCE AT BEGINNING OF PERIOD $ 308 $ 360 $292 $299 $308 $ 694
Loans placed on nonaccrual status 361 106 126 58 71 394
Charge-offs (315) (164) (49) (48) (54) (382)
Loans sold (10) (2) (3) — (5) (192)
Payments (41) (14) (5) (13) (9) (161)
Transfers to OREO (16) — — (4) (12) (11)
Loans returned to accrual status (10) (9) (1) — — (34)
BALANCE AT END OF PERIOD $ 277 $ 277 $360 $292 $299 $ 308
FIGURE 33. SUMMARY OF CHANGES IN NONPERFORMING LOANS
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 manner and without adverse consequences. Liquidity
management involves maintaining sufficient and diverse sources of
funding to accommodate planned as well as unanticipated changes in
assets and liabilities under both normal and adverse conditions.
Key manages liquidity for all of its affiliates on an integrated basis. This
approach considers the unique funding sources available to each entity
and the differences in their capabilities to manage through adverse
conditions. It also recognizes that the access of all affiliates to money
market funding would be similarly affected by adverse market conditions
or other events that could negatively affect the level or cost of liquidity.
As part of the management process, we have established guidelines or
target ranges that relate to the maturities of various types of wholesale
borrowings, such as money market funding and term debt. In addition,
we assess our needs for future reliance on wholesale borrowings, and
then develop strategies to address those needs.
Key’s liquidity could be adversely affected by both direct and indirect
circumstances. An example of a direct (but hypothetical) event would
be a downgrade in Key’s public credit rating by a rating agency due to