KeyCorp (KEY) 2006 Q4 法說會逐字稿

Good morning and welcome to KeyCorp's fourth quarter 2006 earnings results conference call. [OPERATOR INSTRUCTIONS]

At this time I would like the turn the conference over to the Chairman and Chief Executive Officer, Mr. Henry Meyer.

Please go ahead, sir.

Thank you, operator.

Good morning and welcome to KeyCorp's fourth quarter earnings conference call.

We appreciate you taking time to be part of our discussion this morning.

Joining me for this presentation is our CFO, Jeff Weeden.

Also participating in the Q&A portion of our call are Vice Chair's Tom Bunn and Beth Mooney, and our Chief Risk Officer, Chuck Hyle.

Slide 2 is our forward-looking disclosure statement.

It covers both our presentation and the Q&A that will follow.

Now if you turn to slide 3.

Overall 2006 was a very good year for Key in terms of achieving our financial targets and continuing to make progress on our strategic priorities.

One of our priorities has been to improve our business mix.

In December, Key announced that it had sold its non-prime loan portfolio, held by Champion Mortgage, and had entered into a separate agreement to sell Champion's origination platform.

The platform sale is expected to close in the first quarter of 2007.

You'll also recall that in September Key agreed to sell McDonald's retail brokerage business.

We remain on track to complete that sale, also in the first quarter of this year.

Both of these divestitures are consistent with our strategy of focusing on our relationship businesses and exiting those areas where is we don't have the scale or an opportunity to build profitable relationships with our customers.

Also shown on this slide are two actions that were approved by Key's board of directors yesterday.

These actions reflect the board's confidence in the financial strength and future direction of our Company.

The first was a new 30 million share repurchase program, which includes the five million shares remaining under our prior authorization.

And the second was a $0.02 increase in the quarterly common stock dividend from $0.345 to $0.365 per share.

On an annualized basis this would bring our dividend to $1.46 per share.

As you can see on slide 4, this is the 42nd consecutive year that our dividend has been increased, and that places us among a select group of companies in the S&P 500.

Let me conclude by saying that I was very pleased with our strong performance in 2006, and feel that the Company is in a strong position as we head into what is likely to be a more challenging operating environment in 2007.

Over the past several years we've continued to improve our risk profile, strengthen our management team and focus on higher return relationship businesses, and I believe that these actions will allow us to continue to deliver long-term value for our shareholders.

Now I'll turn the call over to Jeff Weeden for a review of our financial results.

Jeff?

Thank you, Henry.

I'll begin with the financial summary shown on slide 5.

As we noted in our fourth quarter earnings release, we are accounting for the Champion business as discontinued operations.

Unless otherwise noted, my comments will be with respect to Key's continuing operation.

We earned $0.76 per share in the fourth quarter compared to $0.74 per share in the third quarter and $0.69 per share for the same period one year ago.

Our tax equivalent revenue was up $34 million, or 2.7% from the year-ago period.

Net interest income increased $28 million, and fee income was up $6 million.

I'll review a few of the items, which impacted both net interest income and fee income comparisons in just a minute.

Average earning assets grew by 4.3% and average core deposits were up 5.7% compared to one year ago.

Turning to slide 6, the Company's taxable equivalent net interest income for the fourth quarter increased $18 million from the third quarter and increased $28 million from the year-ago quarter.

The fourth quarter results included two items of note.

First, we experienced a benefit of $16 million resulting from a change in the effective state tax rate associated with our lease portfolio, which helped the margin.

The majority of this improvement shows up as an increase in our taxable equivalent adjustment line of the margin.

The other item benefiting the margin in the fourth quarter was the receipt of $8 million in dividends on principle investments, which impacted the yield on other investments.

The two items noted above increased our net interest margin by approximately 12 basis points in the current quarter.

The adjusted net interest margin of 3.54% from continuing operations is down approximately seven basis points from the continuing operations of the third quarter of 2006.

As we've said before, competition for both loans and deposits remained strong in our markets, and the continuation of the inverted yield curve has put pressure on the net interest margin over the past several quarters.

Our expectation for the net interest margin in 2007 is for it to remain around the adjusted level we experienced in the fourth quarter, plus or minus a few basis points.

Slide 7 highlights the changes in noninterest income between the fourth quarter and the third quarter of 2006, and the fourth quarter of 2005.

During the fourth quarter we experienced significant increase in our investment banking and capital markets fees.

Investment banking and capital markets income was up $25 million or 56.8% from the third quarter, and letter of credit and loan fees were up $7 million or 14.6% from the third quarter.

The letter of credit and loan fee category is a line item where loan syndication fees are recorded.

In 2006 we improved our rankings in the [league] table to number two in the number of real estate transactions placed and to number four in total dollar volume.

In the fourth quarter we also completed our annual student loan securitization and recorded a gain of $25 million from that transaction, which accounted for the majority of the improvement we experienced in that particular line.

As we previously announced on December 1st, in the fourth quarter we incurred a charge of $24 million from the redemption of certain trust preferred securities.

Overall we were very pleased with the strength of our non-interest income in the fourth quarter.

Turning to slide 8, we have prepared a similar comparison of the increase, decrease in noninterest expense between the fourth and the third quarters of 2006, and the fourth quarter of 2005.

Total personnel costs were up $29 million, primarily due to an increase in variable incentive pay and a $5 million increase in severance-related costs associated with the pending sale of McDonald brokerage operations.

As Henry mentioned earlier, this transaction remains on schedule to close later this quarter.

Total non-personnel expense decreased $10 million during the fourth quarter, primarily as a result of lower franchise and business taxes.

During the fourth quarter we resolved a number of items, which resulted in a net credit to this expense in the current quarter of $7 million.

We expect this line item to return to historical run rates in the first quarter of 2007.

While not shown on this slide, the Company also benefited from resolving a number of open state tax -- income tax issues in the fourth quarter, which resulted in a lower effective tax rate overall for the Company.

Looking at 2007, we expect our effective tax rate on taxable equivalent income to be approximately 33%.

Turning to slide 9, our average loans from continuing operations increased $393 million, or 0.6% unannualized from the third quarter of 2006, and were up $2.2 billion or 3.4% compared to the same period one year ago.

Average commercial loan balances were up 5% in the current quarter versus one year ago and 1% unannualized versus the third quarter.

As we look to 2007, our expectation is for commercial loan growth in the mid single-digit range and consumer loan growth in the low to mid single-digit range.

Turning to slide 10, our fourth quarter average core deposit balances were up $429 million, or 0.8% unannualized from the third quarter of 2006, and up $2.8 billion or 5.7% compared to the same period one year ago.

Versus the prior year, DDA balances were up $848 million or 6.7%, with growth coming from both personal checking accounts and escrow balances in our commercial mortgage servicing area.

NOW and MMDA average balances increased $1.2 billion or 5% compared to the same period one year ago.

NOW and MMDA balances were down $94 million or 0.4% unannualized from the third quarter, as we continue to see customers shift money from transaction accounts into CDs and experience slower growth in overall core deposits.

Our CD balances grew $221 million or 1.9% unannualized from the third quarter, and were up $970 million or 8.9% from the same period one year ago.

As part of the McDonald brokerage sale, expected to close later this quarter, approximately $1.6 billion of MMDA balances currently being swept from the brokerage account will be transferred with the sale of the brokerage operation.

Excluding the transfer of the McDonald deposits we expect core deposit rates in the low to mid single-digit range in 2007.

Slides 11 through 14 show our asset quality trends.

On slide 11 net charge-offs in the current quarter were $54 million or 33 basis points, compared to $43 million or 26 basis points in the third quarter.

The primary reason for the increase in the third quarter -- from the third quarter net charge-offs is a decrease in commercial loan recoveries of $7 million during the fourth quarter.

Our expectation is for net charge-offs to be in the mid to upper-30 basis point range in 2007.

Shown on slide 12, nonperforming assets at December 31, 2006, totaled $273 million and represented 41 basis points of total loans, other real estate owned and other nonperforming assets.

NPA's decreased $56 million from the third quarter as a result of the Champion sale.

Excluding the Champion assets sold, NPA's were basically flat with the prior quarter.

We believe through our portfolio management practices we have done a reasonable job of staying in front of potential problem credits.

While we believe NPA's will increase in 2007, we have not yet experienced any material changes through the end of 2006.

Turning to slide 13, our loan loss reserve at December 31, 2006, represented 1.43% of total loans.

And on slide 14 our coverage ratio of our allowance to nonperforming loans stood at 439% at December 31, 2006.

Looking at slide 15, the Company's tangible capital to tangible asset ratio was 7.01% at December 31, 2006, which is above our targeted range of 6.25% to 6.75%.

During the quarter we repurchased five million of our common shares and reissued 1.4 million shares under employee benefit and dividend reinvestment plans.

Yesterday we announced the board of directors of Key had improved an increase in our share repurchase authorization of 30 million -- to 30 million shares.

With this increased authorization we will continue to use share repurchases in the overall management of our capital level, in addition for looking for growth opportunity in the market.

Slide 16 provides our 2007 outlook and long term financial goals.

We have summarized on this slide some of the statements we have made regarding 2007 as we have reviewed our fourth quarter results.

And we are also providing our initial 2007 EPS guidance of $3.00 to $3.10 per share.

This range is for continuing operations and does not include any potential gain from the sale of the McDonald brokerage business, nor does it include any of the exit costs associated with this business, which will be incurred in 2007.

Unlike the Champion business, McDonald brokerage does not qualify for discontinued accounting treatment.

Therefore, we will provide you with the impact on our reported numbers when we release future results.

We are not providing specific quarterly guidance for 2007.

When we report our first quarter results in April, we will update you on the impact of the Cham -- of the McDonald brokerage sale and break out the specific impact to the Company.

This concludes our remarks, and now I'll turn the call back over to the operator to provide instructions for the Q&A segment of our call.

Operator?

[OPERATOR INSTRUCTIONS] At this time we have a question from Terry McEvoy of Oppenheimer & Co.

Thank you.

Good morning.

Good morning.

A couple of questions.

The franchise and business taxes that were called a positive $7 million, going forward will that look to be in the $9 million range like we've seen over the past few quarters?

That is correct, Terry.

And the 16 of deposits that will leave connected to the sale of McDonald, will the securities portfolio be reduced?

Will there be loans sold?

Can you talk about the impact on the assets side of the balance sheet?

Terry, there shouldn't be any impact on the assets side of the balance sheet.

We've been reducing our overall purchase funds position as a result of the sale of the Champion portfolio that closed in November, so I think what you'll see is just that purchase funds will come back up slightly, as those deposits exit the bank.

Just one last question.

Strong numbers on the banking capital markets side, could you just talk about the pipeline as you moved into 2007?

I'll ask Tom Bunn to comment on that.

Thank you.

Hi, Terry.

Our pipeline for '06 is exceptionally strong, and as we go into '07 remains strong.

Thank you.

At this time we have a question from Jeff Davis of FTN Midwest Securities.

Good morning.

Henry, if you covered this in your remarks, I'm toggling calls.

I'll read it in the transcripts, don't cover it.

But any update on the written agreement with the Federal Reserve, I guess, for the parent Company and the OCC at the bank level?

Actually, Jeff, I did not cover that in my opening remarks, and there's really been no change there.

This is not a destination; it's really a journey.

Every day, every week we continue to strengthen our AML and BSA practices.

It is now in the hands of the regulators to both examine and get back to us, and that process continues.

I continue to be hopeful there've been no detours in the road, but as we've said in the past, it really is in the hands of the OCC and the Fed.

But I remain optimistic that we're doing all of the right things to improve the consequences of antimony laundering or violations of bank secrecy happening at Key.

Henry, is -- since the agreements are still on, has it -- and it is apparently precluding you, at least easily, from acquiring other depositories, does that potentially crimp your plans for 2007, or there hasn't been much on the market that you're interested in at a reason price anyway?

Well, I think that last comment, Jeff, defines why there haven't been a whole lot of deals being done.

Deals are being done all the time.

The Fed and the OCC have not precluded us from talking to other companies.

We're just precluded from getting expedited treatment if we had a deal that just made all the sense in the world.

But we haven't yet seen generally in the marketplace that pricing is at a level where there're going to be a lot of deals being done.

We feel fortunate that this environment has not led to a lot of deals, so I don't think we're missing a tremendous amount of opportunities out there because they just aren't there right now.

And I fully expect in the not too distant future -- not defined by any specific time period -- but that we will get out from underneath.

We've been working hard at this now for two years, so I don't think we've missed a whole lot.

You all have seen the prices that are being paid, and they're still very, very rich premiums being paid, which is not necessarily consistent with our strategy.

And, Henry, to the extent thinking about M&A, what are your thoughts on your growth markets out west versus something in market -- maybe not as large as Huntington Sky -- but how do you think about M&A between the two regions?

Well, we really -- we try to be opportunistic, and we have not said we won't do a deal in Ohio, and yet our highest shares in the markets that we're in are probably in the Great Lakes region.

But if there was a good opportunity here, we would pursue that.

We really are more focused, Jeff, as you sort of alluded to, to the higher growth markets in the Northwest and the Rockies, but that doesn't preclude us from, and we have looked at other markets.

We're looking for good fits to raise the share in the micro-markets.

That's where Beth Mooney and her team's focus really is, and we haven't said we won't do anything.

We're looking for the right price and the right fit.

Okay.

And then new office construction for '07, what are your plans there?

Are you talking de no --

Yes, yes, de novo, Jeff.

Beth, do you want to respond to that?

Yes, Jeff, we are scheduling to open somewhere around seven to ten branches next year and are in the process of relooking our de novo expansion plans and revising those as we go into '08 and '09.

But for this coming year it's around seven to ten mar -- seven to ten offices.

And would that be comparable to '06?

Yes, it would.

Okay.

Thank you.

Now we have a question from Brent Erensel of Portales Partners.

Good morning.

Just wondering your margin guidance is currently what the margin is because of the non-recurring items and then you didn't really quantify whether you're taking gains or losses on the dispositions in the first quarter.

I'm just wondering -- you also said you wouldn't give quarterly guidance, but I'm just wondering how much could we expect first quarter to fall off?

Second -- and this is a positive -- I'm very curious about why your asset quality, your nonperforming trends are at such a divergence from the rest of the industry and excluding the decline from the sale, they're flat, and you say there will be a modest increase?

Okay.

With respect to the -- this is Jeff Weeden.

With respect to the margin, we expect it to be relatively stable to our adjusted fourth quarter level that we experienced.

And in our third quarter call we anticipated that the margin would decline by up to seven basis points from where our run rate was in the third quarter.

In fact, that's what has happened.

As we look at our forecast and looking to the future, as well as we can given the rate environment, our expectation is for it to remain relatively stable in that mid 350 range.

Okay.

And Chuck Hyle will respond on the asset quality.

I think the point I would make here is that, as we've sort of publicly stated periodically, we've taken the view that we want to be quite active in managing the asset side of the balance sheet from a credit risk perspective. and this has been going on for a couple years now.

So we try to get out ahead of where we perceive there might be some deterioration, take action by selling in secondary market or adjusting our view on a client and doing something about it.

I think we're beginning to see that show up in our portfolio.

As a result, our NPL's and NPA's are looking pretty flat, as are our classified and [inaudible].

I guess -- does that mean your loan loss reserve is too high?

I think we're still -- you know, we're looking at a lot of things, trying to understand where the economy is actually going.

A lot of discussion about is the landing going to be a softer landing.

So we continue to view that with some intensity, but I think there's still -- there's still some issues out there.

We're looking at the commercial real estate side very carefully, wanted to see how that particular -- how the cycle begins to unfold.

Thank you.

And now we have a question from Ed Najarian of Merrill Lynch.

Good morning, guys.

Morning, Ed.

My question is on operating costs.

We've got, obviously, some divestures, Champion and a portion of McDonald and a lot of noise in the quarter around operating expenses.

Can you give us any kind of help with how you see operating expenses coming in in '07 or just anything to get us maybe on the right track for where expenses should be?

Ed, what we talked about in our -- when we were going through some of the slides --

Yes, I apologize.

I jumped in halfway.

There are some costs that were low in the thir -- excuse me, in the fourth quarter that -- primarily franchising business taxes, we expect that to go back up to a more normal level -- but fourth quarter we had very strong revenue.

We also had expenses that were up a little bit in the fourth quarter as a result of those stronger revenues.

I think as we look forward, we are going to have -- as we previously talked about, the McDonald brokerage operation, when that goes away, in the future -- basically revenue and expenses were very similar to one another in that particular business, so it wasn't positive nor was it much of any kind of negative on the direct contribution margin from the business.

We're going to see numbers change in the first quarter with the exception of Champion, obviously.

Champion is a discontinued operations, so you'll be able to identify that quite easily.

And we will provide additional information when we release our first quarter numbers and break out specifically what Champion -- excuse me, what McDonald brokerage contributed, both from a revenue and from a expense perspective in that particular release.

Let me ask a question maybe a slightly different way.

Do you have any kind of range or expectation of where your operating efficiency ratio should be next year, given how these business trends are playing out?

Ed, I think if you look at it, you eliminate a business that had revenues and expenses comparable to one another, you would expect to see some improvement in the operating efficiency of the Company as a result of those particular actions.

All right.

Thanks.

At this time we have a question from [Phillip Gupwiche] of Elm Ridge Capital.

Just a quick question on page 20 in your earnings release.

If I look at the accruing loans past 90 days and then the accruing loans past 30 days and 89 days, there's a big drop off in the second category.

Is that all organic or is there, let's say on the portfolio that you're holding, or is there a portion of that that's also related to Champion?

That particular category -- because those are in the loan portfolio, remember Champion is both two things, discontinued operations and it was moved to loans held for sale, so in this particular -- as we lock at this particular portfolio that was an organic drop in the delinquencies in the 30 to 89 past due in the fourth quarter.

So that's just an improvement or was it a sale, because the past due 90 days or more didn't really -- it certainly didn't change by anywhere near the same magnitude?

It was an improvement.

We had a system conversion that we went through, and so there was a little bit of noise earlier in the year in that particular category, and we've worked our way through that particular issue.

Okay.

Thank you very much.

Appreciate it.

We now have a question from Matthew O'Connor of UBS.

Hi, guys.

Hi, Matt.

I was just wondering if you could comment on the pace of buy backs that you expect?

Matt, we don't give specific information on the pace of buy back.

I think if you look at last year, we repurchased 17.5 million shares.

We will manage our capital to what we believe is necessary for both organic growth and any other opportunities that may present themselves in the marketplace, and ensure that we return appropriate levels of capital back to shareholders, both through our dividend that was increased by the board yesterday and through share repurchase.

Okay.

So we shouldn't look at this buy back as having a certain period of time that you're looking to complete it?

It's more of an ongoing buyback program?

That is correct.

It's an ongoing buy back program.

Okay.

And then just separately, can you talk a little about where you expect the loan growth in the commercial side to come?

I know you slowed the commercial mortgage earlier this year and construction seems to have slowed, which makes sense.

I'm just wondering what areas you think will grow going forward?

Tom Bunn will comment on that.

What I'll address is where we see growth in the real estate side and the leasing side and the institutional side, then I'll turn it over to Beth and let her address the commercial side.

In the real estate side we've seen, as we anticipated, a slowing of growth in that business, specifically in the home builders side.

It's been some -- a little bit offset by growth in the institutional and IPG income property group side of real estate.

But as Jeff has said, we expect the growth going forward in the real estate area to be mid single-digits.

Leasing similarly posted good growth and especially in the fourth quarter of this year.

We expect single-digit, mid single-digit growth in leasing, as well.

On the institutional side, which really is not a very big portfolio, about $4 billion, that portfolio we tend to say is more transactional oriented, and we don't plan growth in that portfolio.

So overall, outside of the commercial side we expect our businesses to grow mid single-digits as we look into '07.

Beth?

Thanks, Tom.

Matthew, in the commercial middle market book that would be included in the community bank, we have stated before that we have seen strength in the growth in our portfolios in the Northwest region, and as we ended the year we also had some strength in our Northeast market.

The Great Lakes/Midwest continues to be a slower growth market for us based on the economy here, but we looked west, and then saw some nice numbers coming out of the Northeast and hope those trends continue into next year, and would say low to mid single-digits on the middle market book, as well.

Okay.

Great.

Thank you.

We now have a question from David Pringle of [Sells Points].

Good morning, gentlemen.

Nice job on credit.

Just some loan questions, if I may, please.

Now that Champion's gone, how much do you guys have of subprime consumer, and how do you define that?

David, we have no subprime consumer.

There may be some in what would have community development bank-type CRA lending, but it's -- it's a nominal.

There's really nothing.

We're out of that particular business.

Good.

On the construction side, how much of that is single family and sort of builder related of the $8.2 billion?

David, we'd have to ask you to look at the third quarter 10-Q again.

Right.

Yes.

We don't have those numbers assembled here as of the fourth quarter for this call.

We will put that complete disclosure in our 10-K when we file that, but I would say that it has not materially changed from the previous disclosures that we've made.

So it's $2 billion plus and change sort of, I think that was the third quarter Q.

It has not changed much.

I am trying to find it.

It is like page 54 or something, 53.

I've got more PDF files open on this computer.

I think if I open another one it's just going to blow the thing.

Okay.

I will go back and look in the third quarter.

Just sort of drilling down a little bit more into that, how much in condo do you guys have on the construction side?

It's a number that's coming down.

You would find it in I think figure 13 of your Q's.

It's in the residential section.

Okay.

Condo side is coming down pretty dramatically, and it's -- you may recall that particular portfolio has always had a pretty short duration in the way we've handled it, and it's coming down very nicely quarter on quarter.

Thank you.

And then just a last question on could you talk a little bit about your outlook for deposit flows in sort of the foreseeable future, please?

Sure, David.

This is Beth Mooney.

Good morning, Beth.

We are continuing to see -- as many banks reported in this current rate environment -- a consumer shift to certificates of deposits, given the rate environment.

We are going to continue our focus on the core transactional, but given current rates and CD rates at 5% and higher, continued preference there, and we will always have plans to make sure we're attracting the core household, as well.

But I would say deposits as you go into next year would be, again, low single-digits to mid single-digits, depending on the rate environment.

The only thing I would -- this is Tom Bunn.

The only thing I would add to Beth is that we expect the escrow deposits related to our commercial mortgage business, as it continues to grow, those deposits should continue to grow as well.

Good.

Thank you for taking my questions.

Now we have a question from Mike Mayo of Prudential.

Good morning.

Good morning.

Did you have any sales of non-performing loans or loan sales?

Yes.

If you look at the press release on page 20 you'll see that nonperforming -- there was some nonperforming loan sales, but there are also some loan sales that came out of the NPA balances of approximately $5 million during the fourth quarter.

And what impact did hedging have on your problem loans?

Chuck, do you have any?

Yes, this is Chuck Hyle.

I would say that most of our hedging thus far has been done on large exposures and industry concentrations, and as a consequence those are all well-performing assets, so I wouldn't say that it's had a material impact on any of that.

What we have done is sold some assets in the secondary loan market that we think are -- would have been deteriorating -- they were still performing -- and all of those sales have been in the 90's.

And any gain on the sales of those loans?

One or two modest gains, but pretty modest.

And then just a more general question, you guys gave guidance for EPS, which would come out to about 5% EPS growth if you take the mid point, and that would be below your long term target of 8% to 10%.

If you could just detail maybe the few key reasons why you think growth might be below the long-term targets this year?

Mike, this is Jeff Weeden.

I think if you look at the breakdown of the guidance that we have provided, it's from continuing operations.

I think if we look at what we've talked about for growth overall in the average earning assets, or specifically loan growth categories, and look at a margin that for the foreseeable future we see it being relatively stable, but at a lower level than when we experienced for all of 2006.

It's really part of the reason, and as well as some of the credit.

We're giving guidance from credit from about 26 basis points is what we experienced in 2006, guiding up into the mid to upper-30 basis points.

And then lastly, can you differentiate by region -- Northwest, Rocky, Great Lakes, Northeast -- as to what you're seeing in terms of credit quality and growth?

Well, Beth can comment on the growth.

She mentioned it a little bit ago, but --

Yes, Mike, in terms of growth, again, we -- on the commercial middle market side, as I just said, we've seen strength all year long in the west and a good finish to the year in our Northeast markets.

In the small business lending area, while we have a very slow growth in our commercial middle market in the Great Lakes, that has been a good market on the small end of the business spectrum.

And then retail and consumer loans are really been impect -- impacted by the yield curve.

Our primary product there being a variable equity loan, and that book has run down over the course of the year pretty uniformly across the country.

On the credit me --

On the credit quality side -- this is Chuck Hyle, I would say that on the commercial side very little geographic differentiation.

On the consumer side not a whole lot, but maybe a slight weakness in the Rockies and a little bit in the Midwest, but really not very material at all.

Great.

Thank you.

[OPERATOR INSTRUCTIONS] We have a question now from Paul Delaney of Morgan Stanley.

Good morning.

Good morning.

Jeff, a quick question for you. [inaudible] banking capital markets income was up nicely in the quarter, and then compensation, personnel was also up by a similar amount.

Are you able to sort of split out how much that personnel increase was for sort of capital markets-related performance compensation versus the balance for the rest of the bank, just roughly?

We haven't provided that.

I think the best way to look at it, though, would be to go to the line of business reporting.

If you look at the national banking results on the very last page of the press release, you'll see that their noninterest expense increased.

A large portion of that's going to be the compensation tied to the significant increase that they experienced in revenue growth in the current quarter.

Okay.

That's a large portion of it, but then the overall performance of the Company, too, we trued up accruals at the end of the year.

And then, Beth, I was just wondering if you could talk a little bit more about what you're seeing on deposit competition?

It seems like the increases and rates paid on deposits seem to be slowing, so I was just wondering if you'd give us more color there.

Yes, Paul.

I would underscore that -- that we have -- still continue a highly-competitive deposit pricing market, but in the fourth quarter we did not see further upward on pressure on rates coming out of the third quarter.

With the Fed sort of pausing since the end of June, rates are at a historically high level but they have not continued to increase over the quarter.

Great.

Thank you.

That does conclude our question and answer session for today.

At this time I'd like the turn the conference back over to Mr. Meyer for any closing or final remarks.

Thank you, operator.

Again, just in summary, KeyCorp ended 2006 in a very strong position, not only from the strategic priorities and our financial results.

But as has been alluded to by a number of questions and comments that Jeff made, our balance sheet in terms of our capital structure, in terms of our loan loss reserve really is in a very strong position as we enter 2007.

So we're optimistic that a lot of the strategy initiatives that we put in place will continue as we go into 2007.

With that I want to thank you for your time this morning and we'll conclude our call.

That does conclude today's conference.

We thank you for your participation.

Please have a good day.