KeyBank 2006 Annual Report Download - page 23

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23
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
HIGHLIGHTS OF KEY’S 2006 PERFORMANCE
Financial performance
Key’s 2006 income from continuing operations, before the cumulative
effect of a change in accounting principle, was $1.193 billion, or
$2.91 per diluted common share, representing the highest level of
earnings in the company’s history. These results compare to $1.090
billion, or $2.63 per share, for 2005, and $907 million, or $2.18 per
share, for 2004.
In November 2006, Key sold the nonprime mortgage loan portfolio held
by the Champion Mortgage finance business, and announced a separate
agreement to sell Champion’s origination platform. As a result of these
actions, Key has applied discontinued operations accounting to this
business for all periods presented in this report. For more detailed
information regarding the Champion divestiture, including the gain
resulting from the sale, see Note 3 (“Acquisitions and Divestitures”),
which begins on page 75.
Key’s net income was $1.055 billion, or $2.57 per diluted common share,
for 2006, compared to $1.129 billion, or $2.73 per share, for 2005, and
$954 million, or $2.30 per share, for 2004.
Figure 1 summarizes Key’s continuing and discontinued operating
results and related performance ratios for 2006, 2005 and 2004. Key’s
financial performance for each of the past six years is summarized in
Figure 2 on page 24.
Year ended December 31,
dollars in millions, except per share amounts 2006 2005 2004
SUMMARY OF OPERATIONS
Income from continuing operations beforecumulative
effect of accounting change $1,193 $1,090 $907
Income (loss) from discontinued operations, net of taxes (143)
a
39 47
Cumulative effect of accounting change, net of taxes 5——
Net income $1,055 $1,129 $954
PER COMMON SHARE — ASSUMING DILUTION
b
Income from continuing operations before cumulative
effect of accounting change $2.91 $2.63 $2.18
Income (loss) from discontinued operations (.35)
a
.09 .11
Cumulative effect of accounting change .01 ——
Net income $2.57 $2.73 $2.30
PERFORMANCE RATIOS
From continuing operations:
Return on average total assets 1.30% 1.24% 1.09%
Return on average equity 15.43 14.88 13.07
From consolidated operations:
Return on average total assets 1.12% 1.24% 1.10%
Return on average equity 13.64 15.42 13.75
a
Includes a net after-tax charge of $165 million, or $.40 per share, consisting of: (1) a $170 million, or $.42 per share, write-off of goodwill associated with Key’s 1997 acquisition of Champion
and (2) a net after-tax credit of $5 million, or $.01 per share, from the net gain on sale of the Champion Mortgage loan portfolio and disposal transaction costs.
b
Earnings per share may not foot due to rounding.
FIGURE 1. RESULTS OF OPERATIONS
Key’s top four priorities for 2006 were to profitably grow revenue,
institutionalize a culture of compliance and accountability, maintain a
strong credit culture and improve operating leverage so that revenue
growth would outpace expense growth. During 2006:
• Total revenue, which includes both net interest income and noninterest
income, rose by $219 million, or 5%, due largely to solid commercial
loan growth, higher income from fee-based businesses and growth in
average core deposits, which increased by 8% from the 2005 level. The
growth in Key’scommercial loan portfolio was geographically broad-
based and spread among a number of industrysectors. The increase
in fee income was attributable to a variety of sources, including
trust and investment services, investment banking, operating leases,
electronic banking and several other revenue components.
• Key continued to strengthen its compliance and operations infra-
structure, which is designed to detect and prevent money laundering in
accordance with the requirements of the Bank Secrecy Act.
•Asset quality remained solid. Both nonperforming assets and net
loan charge-offs were down from the respective amounts reported one
year ago. During 2006, net loan charge-offs represented .26% of Key’s
average total loans from continuing operations. These favorable
results reflected an improved economic environment and efforts to
improve Key’s credit-risk profile by focusing on higher-return,
relationship-oriented businesses.
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