KeyBank 2006 Annual Report Download - page 35

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35
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
In 2005, personnel expense grew by $55 million and total nonpersonnel
expense was up $115 million. The increase in nonpersonnel expense
reflected higher costs associated with net occupancy, computer
processing, professional fees, franchise and business taxes, and
“miscellaneous expense.”
The following discussion explains the composition of certain elements
of Key’s noninterest expense and the factors that caused those elements
to change.
Personnel. As shown in Figure 13, personnel expense, the largest
categoryof Key’snoninterest expense, rose by $104 million, or 7%, in
2006 and $55 million, or 4%, in 2005. The 2006 increase was
attributable to higher costs from business expansion through acquisitions,
variable incentive compensation related to the improvement in Key’s
fee-based businesses, and employee benefits. In 2005, the increase
resulted from growth in all personnel expense components, due in
part to the impact of normal salary increases, increased business activity,
and expansion through acquisitions such as American Express Business
Finance Corporation in December 2004.
Year ended December 31, Change 2006 vs 2005
dollars in millions 2006 2005 2004 Amount Percent
Personnel $1,692 $1,588 $1,533 $104 6.5%
Net occupancy 250 276 232 (26) (9.4)
Computer processing 212 209 187 3 1.4
Operating lease expense 184 158 151 26 16.5
Professional fees 134 126 110 8 6.3
Equipment 102 110 118 (8) (7.3)
Marketing 97 88 81 9 10.2
Other expense:
Postage and delivery 50 50 51 — —
Franchise and business taxes 22 34 16 (12) (35.3)
Telecommunications 28 30 29 (2) (6.7)
OREO expense, net 68 17 (2) (25.0)
Credit for losses on lending-related commitments (6) (7) (4) 1 14.3
Miscellaneous expense 378 384 363 (6) (1.6)
Total other expense 478 499 472 (21) (4.2)
Total noninterest expense $3,149 $3,054 $2,884 $ 95 3.1%
Average full-time equivalent employees
a
20,006 19,485 19,576 521 2.7%
a
The number of average full-time equivalent employees has not been adjusted for discontinued operations.
FIGURE 12. NONINTEREST EXPENSE
Year ended December 31, Change 2006 vs 2005
dollars in millions 2006 2005 2004 Amount Percent
Salaries $ 940 $ 873 $ 848 $ 67 7.7%
Incentive compensation 388 367 366 21 5.7
Employee benefits 287 254 248 33 13.0
Stock-based compensation
a
64 79 61 (15) (19.0)
Severance 13 15 10 (2) (13.3)
Total personnel expense $1,692 $1,588 $1,533 $104 6.5%
a
Excludes directors’ stock-based compensation of $.1 million in 2006, $2 million in 2005 and $1 million in 2004 reported as “miscellaneous expense” in Figure 12.
FIGURE 13. PERSONNEL EXPENSE
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