Line of Business Results

12 Months Ended

Dec. 31, 2018

24. Line of Business Results

The specific lines of business that constitute each of the major business segments (operating segments) are described below.

Key Community Bank

Key Community Bank serves individuals and small to mid-sized businesses through its 15-state branch network.

Individuals are provided branch-based deposit and investment products, personal finance services, and loans, including residential mortgages, home equity, credit card, and various types of installment loans. Key Community Bank also purchases retail auto sales contracts via a network of auto dealerships. The auto dealerships finance the sale of automobiles as the initial lender and then assign the contracts to us pursuant to dealer agreements. In addition, financial, estate and retirement planning, asset management services, and Delaware Trust capabilities are offered to assist high-net-worth clients with their banking, trust, portfolio management, life insurance, charitable giving, and related needs.

Small businesses are provided deposit, investment and credit products, and business advisory services. Mid-sized businesses are provided products and services, some of which are delivered by Key Corporate Bank, that include commercial lending, cash management, equipment leasing, investment, and employee benefit programs, succession planning, access to capital markets, derivatives, and foreign exchange.

Key Corporate Bank

Key Corporate Bank is a full-service corporate and investment bank focused principally on serving the needs of middle market clients in seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. Key Corporate Bank delivers a broad suite of banking and capital markets products to its clients, including syndicated finance, debt and equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance. Key Corporate Bank is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. Key Corporate Bank delivers many of its product capabilities to clients of Key Community Bank.

Other Segments

Other Segments consists of Corporate Treasury, Principal Investing, and various exit portfolios.

Reconciling Items

Total assets included under “Reconciling Items” primarily represent the unallocated portion of nonearning assets of corporate support functions. Reconciling Items also includes intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations, including merger-related charges and certain impacts of tax reform.

The table on the following pages shows selected financial data for our major business segments for the years ended December 31, 2018, 2017, and 2016.

The information was derived from the internal financial reporting system that we use to monitor and manage our financial performance. GAAP guides financial accounting, but there is no authoritative guidance for “management accounting” — the way we use our judgment and experience to make reporting decisions. Consequently, the line of business results we report may not be comparable to line of business results presented by other companies.

The selected financial data is 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. In accordance with our 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.


•	Indirect expenses, such as computer servicing costs and corporate overhead, are allocated based on assumptions regarding the extent that each line of business actually uses the services.

•

The consolidated provision for credit losses is allocated among the lines of business primarily based on their actual net loan charge-offs, adjusted periodically for loan growth and changes in risk profile. The amount of the consolidated provision is based on the methodology that we use to estimate our consolidated ALLL. This methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.


•	Income taxes are allocated based on the 2018 statutory federal income tax rate of 21% and a blended state income tax rate (net of the federal income tax benefit) of 2.7%. Prior to 2018, income taxes were allocated based on the previous statutory federal income tax rate of 35% and a blended state income tax rate (net of the federal income tax benefit) of 2.2%.


•	Capital is assigned to each line of business based on economic equity.

Developing and applying the methodologies that we use to allocate items among our lines of business is a dynamic process. Accordingly, financial results may be revised periodically to reflect enhanced alignment of expense base allocation drivers, changes in the risk profile of a particular business, or changes in our organizational structure.



Year ended December 31,	Key Community Bank									Key Corporate Bank
dollars in millions	2018			2017			2016			2018			2017			2016
SUMMARY OF OPERATIONS
Net interest income (TE)	$	2,873		$	2,652		$	1,953		$	1,094		$	1,193		$	1,049
Noninterest income	1,098			1,143			906			1,161			1,148			1,013
Total revenue (TE) ^(a)	3,971			3,795			2,859			2,255			2,341			2,062
Provision for credit losses	177			209			143			74			20			127
Depreciation and amortization expense	110			116			76			135			96			60
Other noninterest expense	2,451			2,424			2,048			1,147			1,158			1,073
Income (loss) from continuing operations before income taxes (TE)	1,233			1,046			592			899			1,067			802
Allocated income taxes (benefit) and TE adjustments	291			388			220			110			249			178
Income (loss) from continuing operations	942			658			372			789			818			624
Income (loss) from discontinued operations, net of taxes	—			—			—			—			—			—
Net income (loss)	942			658			372			789			818			624
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—			—			(2		)
Net income (loss) attributable to Key	$	942		$	658		$	372		$	789		$	818		$	626
AVERAGE BALANCES ^(b)
Loans and leases	$	47,877		$	47,399		$	37,624		$	39,536		$	37,716		$	31,925
Total assets ^(a)	51,774			51,370			40,300			47,126			44,505			37,797
Deposits	81,868			79,669			63,875			21,183			21,318			20,780
OTHER FINANCIAL DATA
Expenditures for additions to long-lived assets ^{(a), (b)}	$	2,352		$	2,438		$	1,478		$	538		$	559		$	340
Net loan charge-offs ^(b)	161			166			114			73			40			83
Return on average allocated equity ^(b)	19.50		%	13.71		%	10.96		%	27.01		%	28.82		%	26.89		%
Return on average allocated equity	19.50			13.71			10.96			27.01			28.82			26.89
Average full-time equivalent employees ^(c)	10,501			10,587			8,794			2,528			2,407			2,244


(a)	Substantially all revenue generated by our major business segments is derived from clients that reside in the United States. Substantially all long-lived assets, including premises and equipment, capitalized software, and goodwill held by our major business segments, are located in the United States.


(b)	From continuing operations.


(c)	The number of average full-time equivalent employees was not adjusted for discontinued operations.



Other Segments									Total Segments									Reconciling Items									Key
2018			2017			2016			2018			2017			2016			2018			2017			2016			2018			2017			2016

$	(55	)	$	(35	)	$	(45	)	$	3,912		$	3,810		$	2,957		$	28		$	20		$	(4	)	$	3,940		$	3,830		$	2,953
206			208			170			2,465			2,499			2,089			50			(21		)	(18		)	2,515			2,478			2,071
151			173			125			6,377			6,309			5,046			78			(1		)	(22		)	6,455			6,308			5,024
(5		)	—			(4		)	246			229			266			—			—			—			246			229			266
1			3			4			246			215			140			154			169			163			400			384			303
53			101			61			3,651			3,683			3,182			(76		)	31			271			3,575			3,714			3,453
102			69			64			2,234			2,182			1,458			—			(201		)	(456		)	2,234			1,981			1,002
(8		)	(48		)	(22		)	393			589			376			(18		)	101			(163		)	375			690			213
110			117			86			1,841			1,593			1,082			18			(302		)	(293		)	1,859			1,291			789
—			—			—			—			—			—			7			7			1			7			7			1
110			117			86			1,841			1,593			1,082			25			(295		)	(292		)	1,866			1,298			790
—			3			2			—			3			—			—			(1		)	(1		)	—			2			(1		)
$	110		$	114		$	84		$	1,841		$	1,590		$	1,082		$	25		$	(294	)	$	(291	)	$	1,866		$	1,296		$	791

$	916		$	1,225		$	1,486		$	88,329		$	86,340		$	71,035		$	9		$	25		$	113		$	88,338		$	86,365		$	71,148
37,551			37,158			31,938			136,451			133,033			110,035			361			686			2,502			136,812			133,719			112,537
1,956			1,988			1,213			105,007			102,975			85,868			44			(29		)	484			105,051			102,946			86,352

$	10		19			—			$	2,900		$	3,016		$	1,818		$	101		$	81		$	116		$	3,001		$	3,097		$	1,934
(1		)	$	1		$	7		233			207			204			1			1			1			234			208			205
88.00		%	73.55		%	48.84		%	23.37		%	20.41		%	18.36		%	.25		%	(4.05		)%	(4.32		)%	12.29		%	8.47		%	6.25		%
88.00			73.55			48.84			23.37			20.41			18.36			.34			(3.96		)	(4.31		)	12.33			8.51			6.25
130			338			147			13,159			13,332			11,185			5,021			5,083			4,515			18,180			18,415			15,700