Business Segment Reporting

12 Months Ended

Dec. 31, 2019

25. Business Segment Reporting

Key previously reported its results of operations through two reportable business segments, Key Community Bank and Key Corporate Bank. In the first quarter of 2019, Key underwent a company-wide organizational change, resulting in the realignment of its businesses into two reportable business segments, Consumer Bank and Commercial Bank, with the remaining operations that do not meet the criteria for disclosure as a separate

reportable business recorded in Other. The new business segment structure aligns with how management reviews performance and makes decisions by client, segment and business unit. Prior period information was restated to conform to the new business segment structure. Additionally, goodwill was reallocated to the new segments on a relative fair value basis. On March 31, 2019, the Consumer Bank was allocated goodwill in the amount of $1.6 billion and the Commercial Bank was allocated goodwill in the amount of $912 million.

The following is a description of the segments and their primary businesses at December 31, 2019.

Consumer Bank

The Consumer Bank serves individuals and small businesses throughout our 15-state branch footprint by offering a variety of deposit and investment products, personal finance and financial wellness services, lending, mortgage and home equity, student loan refinancing, credit card, treasury services, and business advisory services. The Consumer 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, wealth management and investment services are offered to assist institutional, non-profit, and high-net-worth clients with their banking, trust, portfolio management, charitable giving, and related needs.

Commercial Bank

The Commercial Bank is an aggregation of our Institutional and Commercial operating segments. The Commercial operating segment is a full-service corporate 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. The Commercial operating segment is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. The Institutional operating segment 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.

Other

Other includes various corporate treasury activities such as management of our investment securities portfolio, long-term debt, short-term liquidity and funding activities, and balance sheet risk management, our principal investing unit, and various exit portfolios as well as reconciling items, which primarily represent the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also include intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations.

The table on the following page shows selected financial data for our major business segments for the years ended December 31, 2019, 2018, and 2017.

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 2019 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,	Consumer Bank									Commercial Bank
dollars in millions	2019			2018			2017			2019			2018			2017
SUMMARY OF OPERATIONS
Net interest income (TE)	$	2,366		$	2,306		$	2,133		$	1,621		$	1,657		$	1,708
Noninterest income	922			915			976			1,390			1,328			1,272
Total revenue (TE) ^(a)	3,288			3,221			3,109			3,011			2,985			2,980
Provision for credit losses	188			147			145			118			102			84
Depreciation and amortization expense	97			103			108			135			139			103
Other noninterest expense	2,078			2,143			2,167			1,388			1,430			1,393
Income (loss) from continuing operations before income taxes (TE)	925			828			689			1,370			1,314			1,400
Allocated income taxes (benefit) and TE adjustments	219			196			255			223			207			373
Income (loss) from continuing operations	706			632			434			1,147			1,107			1,027
Income (loss) from discontinued operations, net of taxes	—			—			—			—			—			—
Net income (loss)	706			632			434			1,147			1,107			1,027
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—			—			—
Net income (loss) attributable to Key	$	706		$	632		$	434		$	1,147		$	1,107		$	1,027
AVERAGE BALANCES ^(b)
Loans and leases	$	32,536		$	31,307		$	32,092		$	57,988		$	55,828		$	52,783
Total assets ^(a)	36,096			34,523			35,360			66,122			63,684			59,956
Deposits	72,544			68,821			66,711			36,212			33,675			33,781
OTHER FINANCIAL DATA
Expenditures for additions to long-lived assets ^{(a), (b)}	$	150		$	(38	)	$	90		$	(8	)	$	(17	)	$	69
Net loan charge-offs ^(b)	157			149			152			128			85			55
Return on average allocated equity ^(b)	21.30		%	19.24		%	13.19		%	24.99		%	24.94		%	23.91		%
Return on average allocated equity	21.30			19.24			13.19			24.99			24.94			23.91
Average full-time equivalent employees ^(c)	9,292			9,957			9,990			2,232			2,449			2,331



Year ended December 31,	Other										Key
dollars in millions	2019				2018			2017			2019			2018			2017
SUMMARY OF OPERATIONS
Net interest income (TE)	$	(46	)		$	(23	)	$	(11	)	$	3,941		$	3,940		$	3,830
Noninterest income	147				272			230			2,459			2,515			2,478
Total revenue (TE) ^(a)	101				249			219			6,400			6,455			6,308
Provision for credit losses	139				(3		)	—			445			246			229
Depreciation and amortization expense	142				158			173			374			400			384
Other noninterest expense	61				2			154			3,527			3,575			3,714
Income (loss) from continuing operations before income taxes (TE)	(241		)		92			(108		)	2,054			2,234			1,981
Allocated income taxes (benefit) and TE adjustments	(96		)		(28		)	62			346			375			690
Income (loss) from continuing operations	(145		)		120			(170		)	1,708			1,859			1,291
Income (loss) from discontinued operations, net of taxes	9				7			7			9			7			7
Net income (loss)	(136		)		127			(163		)	1,717			1,866			1,298
Less: Net income (loss) attributable to noncontrolling interests	—				—			2			—			—			2
Net income (loss) attributable to Key	$	(136	)	^(d)	$	127		$	(165	)	$	1,717		$	1,866		$	1,296
AVERAGE BALANCES ^(b)
Loans and leases	$	987			$	1,203		$	1,490		$	91,511		$	88,338		$	86,365
Total assets ^(a)	40,961				38,605			38,403			143,179			136,812			133,719
Deposits	1,274				2,555			2,454			110,030			105,051			102,946
OTHER FINANCIAL DATA
Expenditures for additions to long-lived assets ^{(a), (b)}	$	103			$	103		$	108		$	245		$	48		$	267
Net loan charge-offs ^(b)	139				—			1			424			234			208
Return on average allocated equity ^(b)	(1.66		)%		1.62		%	(2.25		)%	10.27		%	12.29		%	8.47		%
Return on average allocated equity	(1.56		)		1.71			(2.16		)	10.32			12.33			8.51
Average full-time equivalent employees ^(c)	5,521				5,774			6,094			17,045			18,180			18,415


(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.

(d)

Other segments included $106 million provision for credit loss, net of tax, related to a previously disclosed fraud incident.