KeyBank 2007 Annual Report Download - page 33

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MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES
Investments branch network operation. Excluding the increase
attributable to the sale of the McDonald Investments branch network,
Key’s noninterest income rose by $77 million, or 4%, from the 2006
level. As shown in Figure 10, the improvement reflected growth in net
gains from principal investing, income from deposit service charges, and
operating lease revenue. Trust and investment services income was up
$57 million, excluding the impact of the above sale. Additionally,
results for 2007 included $67 million in gains related to the sale of
MasterCard Incorporated shares and a $26 million gain from the
settlement of the automobile residual value insurance litigation. These
positive results were offset in part by the adverse effects of market
volatility on several of Key’s capital markets-driven businesses and a $49
million loss recorded in 2007 in connection with the repositioning of the
securities portfolio.
FIGURE 10. NONINTEREST INCOME
Year ended December 31, Change 2007 vs 2006
dollars in millions 2007 2006 2005 Amount Percent
Trust and investment services income $ 490 $ 553 $ 542 $ (63) (11.4)%
Service charges on deposit accounts 337 304 304 33 10.9
Investment banking and capital markets income 117 230 229 (113) (49.1)
Operating lease income 272 229 191 43 18.8
Letter of credit and loan fees 192 188 181 4 2.1
Corporate-owned life insurance income 121 105 109 16 15.2
Electronic banking fees 99 105 96 (6) (5.7)
Net (losses) gains from loan securitizations and sales (17) 76 69 (93) N/M
Net securities (losses) gains (35) 1 1 (36) N/M
Net gains from principal investing 134 53 56 81 152.8
Gain from sale of McDonald Investments branch network 171 — — 171 N/M
Other income:
Insurance income 55 64 51 (9) (14.1)
Loan securitization servicing fees 21 20 19 1 5.0
Credit card fees 13 17 14 (4) (23.5)
Gains related to MasterCard Incorporated shares 67 9 — 58 644.4
Litigation settlement — automobile residual
value insurance 26 — — 26 N/M
Miscellaneous income 166 173 205 (7) (4.0)
Total other income 348 283 289 65 23.0
Total noninterest income $2,229 $2,127 $2,067 $ 102 4.8%
N/M = Not Meaningful
In 2006, the growth in noninterest income was driven by increases of $38
million in operating lease revenue, $13 million in insurance income, $11
million in income from trust and investment services, and $9 million in
both electronic banking fees and gains associated with the sale of
MasterCard shares. These positive results were moderated by a $32
million decrease in “miscellaneous income,” due largely to a $24
million charge recorded during the fourth quarter of 2006 in connection
with the redemption of certain trust preferred securities.
The following discussion explains the composition of certain elements
of Key’s noninterest income and the factors that caused those elements
to change.
Trust and investment services income. Trust and investment services
generally are Key’s largest source of noninterest income. The primary
components of revenue generated by these services are shown in
Figure 11. Income from trust and investment services declined from
2006 because the sale of the McDonald Investments branch network
resulted in reduced brokerage commissions. Excluding McDonald
Investment’s results of operations, income from brokerage commissions
and fees was up $10 million from the 2006 level. As shown in Figure
11, both personal and institutional asset management and custody fees
also increased.
FIGURE 11. TRUST AND INVESTMENT SERVICES INCOME
Year ended December 31, Change 2007 vs 2006
dollars in millions 2007 2006 2005 Amount Percent
Brokerage commissions and fee income $125 $235 $247 $(110) (46.8)%
Personal asset management and custody fees 165 156 153 9 5.8
Institutional asset management and custody fees 200 162 142 38 23.5
Total trust and investment services income $490 $553 $542 $ (63) (11.4)%