18. 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 13-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. 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, 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 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 six industry sectors: consumer, energy, healthcare, industrial, public sector and real estate. Key Corporate Bank delivers a broad product 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 also delivers many of its product capabilities to clients of Key Community Bank.

Other Segments

Other Segments consist of Corporate Treasury, Community Development, 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. 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 includes 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 pages shows selected financial data for our two major business segments for the three- and six- month periods ended June 30, 2013, and 2012.

The information was derived from the internal financial reporting system 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 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. 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 to which each line of business actually uses the services.

The consolidated provision for loan and lease 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 allowance for loan and lease losses. This methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses” on page 120 of our 2012 Form 10-K.

Income taxes are allocated based on the statutory federal income tax rate of 35% (adjusted for tax-exempt interest income, income from corporate-owned life insurance and tax credits associated with investments in low-income housing projects) 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 regulatory requirements.

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.


Three months ended June 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2013			2012			2013			2012

SUMMARY OF OPERATIONS
Net interest income (TE)	$	357		$	356		$	189		$	190
Noninterest income		198			181			187			181

Total revenue (TE) ^(a)		555			537			376			371
Provision (credit) for loan and lease losses		41			(4)			(10)			4
Depreciation and amortization expense		19			9			11			15
Other noninterest expense		437			446			191			198

Income (loss) from continuing operations before income taxes (TE)		58			86			184			154
Allocated income taxes and TE adjustments		22			32			67			56

Income (loss) from continuing operations		36			54			117			98
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		36			54			117			98
Less: Net income (loss) attributable to noncontrolling interests		—			—			—			3

Net income (loss) attributable to Key	$	36		$	54		$	117		$	95


AVERAGE BALANCES ^(b)
Loans and leases	$	29,161		$	26,413		$	20,133		$	18,541
Total assets ^(a)		31,570			28,695			23,965			22,709
Deposits		49,473			47,946			15,606			12,414

OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	42		$	46		$	(6)		$	9
Return on average allocated equity ^(b)		5.02	%		7.82	%		28.79	%		22.00 %
Return on average allocated equity		5.02			7.82			28.79			22.00
Average full-time equivalent employees ^(c)		8,437			8,742			1,950			2,028


Six months ended June 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2013			2012			2013			2012

SUMMARY OF OPERATIONS
Net interest income (TE)	$	719		$	713		$	376		$	386
Noninterest income		385			356			380			364

Total revenue (TE) ^(a)		1,104			1,069			756			750
Provision (credit) for loan and lease losses		99			—			(6)			17
Depreciation and amortization expense		39			19			23			31
Other noninterest expense		858			873			389			405

Income (loss) from continuing operations before income taxes (TE)		108			177			350			297
Allocated income taxes and TE adjustments		40			66			128			108

Income (loss) from continuing operations		68			111			222			189
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		68			111			222			189
Less: Net income (loss) attributable to noncontrolling interests		—			—			—			3

Net income (loss) attributable to Key	$	68		$	111		$	222		$	186


AVERAGE BALANCES ^(b)
Loans and leases	$	29,069		$	26,193		$	20,089		$	18,568
Total assets ^(a)		31,522			28,454			23,915			22,783
Deposits		49,411			47,723			14,792			11,987

OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	89		$	92		$	(7)		$	34
Return on average allocated equity ^(b)		4.77	%		7.93	%		27.58	%		20.91 %
Return on average allocated equity		4.77			7.93			27.58			20.91
Average full-time equivalent employees ^(c)		8,632			8,724			1,938			2,025

(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 has not been adjusted for discontinued operations.


Other Segments						Total Segments						Reconciling Items						Key
2013			2012			2013			2012			2013			2012			2013			2012


$	40		$	(4)		$	586		$	542			—		$	2		$	586		$	544
	46			98			431			460		$	(2)			(3)			429			457

	86			94			1,017			1,002			(2)			(1)			1,015			1,001
	(4)			21			27			21			1			—			28			21
	2			2			32			26			33			33			65			59
	17			23			645			667			1			(33)			646			634

	71			48			313			288			(37)			(1)			276			287
	1			(3)			90			85			(13)			(25)			77			60

	70			51			223			203			(24)			24			199			227
	—			—			—			—			5			14			5			14

	70			51			223			203			(19)			38			204			241
	—			2			—			5			—			—			—			5

$	70		$	49		$	223		$	198		$	(19)		$	38		$	204		$	236



$	3,348		$	4,425		$	52,642		$	49,379		$	54		$	67		$	52,696		$	49,446
	27,936			28,797			83,471			80,201			577			679			84,048			80,880
	758			811			65,837			61,171			(396)			(108)			65,441			61,063


$	9		$	22		$	45		$	77			—			—		$	45		$	77
	40.63	%		24.21	%		17.22	%		14.94	%		(1.88)	%		2.02	%		7.74	%		8.84	%
	40.63			24.21			17.22			14.94			(1.49)			3.20			7.93			9.40
	54			54			10,441			10,824			4,558			4,631			14,999			15,455


Other Segments						Total Segments						Reconciling Items						Key
2013			2012			2013			2012			2013			2012			2013			2012


$	79		$	(1)		$	1,174		$	1,098		$	1		$	5		$	1,175		$	1,103
	90			189			855			909			(1)			(10)			854			899

	169			188			2,029			2,007			—			(5)			2,029			2,002
	(12)			46			81			63			2			—			83			63
	3			5			65			55			66			76			131			131
	36			48			1,283			1,326			(22)			(85)			1,261			1,241

	142			89			600			563			(46)			4			554			567
	3			(13)			171			161			(18)			(22)			153			139

	139			102			429			402			(28)			26			401			428
	—			—			—			—			8			13			8			13

	139			102			429			402			(20)			39			409			441
	1			2			1			5			—			—			1			5

$	138		$	100		$	428		$	397		$	(20)		$	39		$	408		$	436



$	3,454		$	4,624		$	52,612		$	49,385		$	49		$	53		$	52,661		$	49,438
	27,369			28,676			82,806			79,913			579			739			83,385			80,652
	692			780			64,895			60,490			(352)			(143)			64,543			60,347


$	12		$	51		$	94		$	177			—		$	1		$	94		$	178
	39.64	%		24.26	%		16.60	%		14.70	%		(1.10)	%		1.13	%		7.81	%		8.47	%
	39.64			24.26			16.60			14.70			(.79)			1.70			7.96			8.73
	52			53			10,622			10,802			4,575			4,628			15,197			15,430