KeyBank 2007 Annual Report Download - page 78

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
The table below shows selected financial data for each major business
group for the years ended December 31, 2007, 2006 and 2005. This
table is accompanied by supplementary information for each of the lines
of business that make up these groups. The information was derived from
the internal financial reporting system that management uses to monitor
and manage Key’s financial performance. U.S. generally accepted
accounting principles (“GAAP”) guide financial accounting, but there
is no authoritative guidance for “management accounting”— the way
management uses its judgment and experience to make reporting
decisions. Consequently, the line of business results Key reports may not
be comparable with line of business results presented by other companies.
The selected financial data are based on internal accounting policies
designed to compile results on a consistent basis and in a manner that reflects
the underlying economics of the businesses. According to Key’s policies:
• Net interest income is determined by assigning a standard cost for
funds used or a standard credit for funds provided based on their
assumed maturity, prepayment and/or repricing characteristics. The
net effect of this funds transfer pricing is charged to the lines of
business based on the total loan and deposit balances of each line.
• Indirect expenses, such as computer servicing costs and corporate
overhead, are allocated based on assumptions regarding the extent to
which each line actually uses the services.
• Key’s consolidated provision for loan losses is allocated among the
lines of business primarily based on their actual net charge-offs,
adjusted periodically for loan growth and changes in risk profile. The
amount of the consolidated provision is based on the methodology
that management uses to estimate Key’s consolidated allowance for
loan losses. This methodology is described in Note 1 (“Summary of
Year ended December 31, Community Banking National Banking
dollars in millions 2007 2006 2005 2007 2006 2005
SUMMARY OF OPERATIONS
Net interest income (TE) $1,672 $1,745 $1,698 $1,437 $1,406 $1,279
Noninterest income 1,037
c
953 945 905
d
1,014 934
Total revenue (TE)
a
2,709 2,698 2,643 2,342 2,420 2,213
Provision for loan losses 72 94 108 457 56 35
Depreciation and amortization expense 141 151 145 289 243 211
Other noninterest expense 1,635 1,778 1,734 1,067 996 945
Income (loss) from continuing operations before income taxes
and cumulative effect of accounting change (TE) 861 675 656 529 1,125 1,022
Allocated income taxes and TE adjustments 323 253 246 200 420 381
Income (loss) from continuing operations before cumulative
effect of accounting change 538 422 410 329 705 641
(Loss) income from discontinued operations, net of taxes ———(22) (143) 39
Income (loss) before cumulative effect of accounting change 538 422 410 307 562 680
Cumulative effect of accounting change, net of taxes ——— ———
Net income (loss) $ 538 $ 422 $ 410 $ 307 $ 562 $ 680
Percent of consolidated income from continuing operations 57% 35% 38% 35% 59% 59 %
Percent of total segments income from continuing operations 57 36 37 35 60 57
AVERAGE BALANCES
b
Loans and leases $26,806 $26,776 $27,073 $40,128 $37,778 $34,389
Total assets
a
29,569 29,828 30,138 50,583 47,959 43,843
Deposits 46,659 46,683 44,151 12,165 10,919 7,823
OTHER FINANCIAL DATA
Expenditures for additions to long-lived assets
a,b
$99 $69 $ 82 $74 $31 $ 27
Net loan charge-offs 96 98 114 179 72 201
Return on average allocated equity
b
21.62% 16.87% 16.49% 7.82% 18.20% 17.89%
Return on average allocated equity 21.62 16.87 16.49 7.30 13.64 17.63
Average full-time equivalent employees 8,897 9,693 9,382 3,965 4,247 4,224
a
Substantially all revenue generated by Key’s major business groups is derived from clients with residency in the United States. Substantially all long-lived assets, including premises and
equipment, capitalized software and goodwill held by Key’s major business groups are located in the United States.
b
From continuing operations.
c
Community Banking results for 2007 include a $171 million ($107 million after tax) gain from the February 9, 2007, sale of the McDonald Investments branch network. See Note 3 (“Acquisitions
and Divestitures”), which begins on page 74, for more information pertaining to this transaction.
d
National Banking results for 2007 include a $26 million ($17 million after tax) gain from the settlement of the residual value insurance litigation during the first quarter.
e
Other Segments’ results for 2007 include a $26 million ($16 million after tax) charge for litigation recorded during the second quarter. This charge and the litigation charge referred to in note (f)
below comprise the $42 million charge recorded in connection with the Honsador litigation disclosed in Note 18 (“Commitments, Contingent Liabilities and Guarantees”), which begins on
page 97. Results for 2007 also include a $49 million ($31 million after tax) loss recorded during the first quarter in connection with the repositioning of the securities portfolio.
f
Reconciling Items include gains of $27 million ($17 million after tax) recorded during the third quarter of 2007, $40 million ($25 million after tax) recorded during the second quarter of 2007
and $9 million ($6 million after tax) recorded during the second quarter of 2006, all related to MasterCard Incorporated shares. Results for 2007 also include a $64 million ($40 million after tax)
charge, representing the fair value of Key’s potential liability to Visa Inc., recorded during the fourth quarter, and a $16 million ($10 million after tax) charge for litigation recorded during the
second quarter.
TE = Taxable Equivalent
N/A = Not Applicable
N/M = Not Meaningful