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 nine- month periods ended September 30, 2013 and 2012.

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 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 September 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2013			2012			2013			2012
SUMMARY OF OPERATIONS
Net interest income (TE)	$	357		$	376		$	188		$	189
Noninterest income		194			199			189			181

Total revenue (TE) ^(a)		551			575			377			370
Provision (credit) for loan and lease losses		24			123			13			(3	)
Depreciation and amortization expense		19			16			10			12
Other noninterest expense		422			462			207			189

Income (loss) from continuing operations before income taxes (TE)		86			(26	)		147			172
Allocated income taxes and TE adjustments		32			(10	)		51			63

Income (loss) from continuing operations		54			(16	)		96			109
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		54			(16	)		96			109
Less: Net income (loss) attributable to noncontrolling interests		—			—			—			—

Net income (loss) attributable to Key	$	54		$	(16	)	$	96		$	109

AVERAGE BALANCES ^(b)
Loans and leases	$	29,495		$	27,764		$	20,586		$	18,893
Total assets ^(a)		31,679			30,305			24,487			22,912
Deposits		49,652			49,269			16,125			12,879
OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	27		$	91		$	7		$	8
Return on average allocated equity ^(b)		7.49	%		(2.25	)%		23.31	%		26.06	%
Return on average allocated equity		7.49			(2.25	)		23.31			26.06
Average full-time equivalent employees ^(c)		7,990			9,064			2,018			2,009


Nine months ended September 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2013			2012			2013			2012
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,075		$	1,089		$	565		$	575
Noninterest income		582			556			567			543

Total revenue (TE) ^(a)		1,657			1,645			1,132			1,118
Provision (credit) for loan and lease losses		123			124			7			14
Depreciation and amortization expense		58			35			33			43
Other noninterest expense		1,280			1,333			596			593

Income (loss) from continuing operations before income taxes (TE)		196			153			496			468
Allocated income taxes and TE adjustments		73			57			179			171

Income (loss) from continuing operations		123			96			317			297
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		123			96			317			297
Less: Net income (loss) attributable to noncontrolling interests		—			—			—			3

Net income (loss) attributable to Key	$	123		$	96		$	317		$	294

AVERAGE BALANCES ^(b)
Loans and leases	$	29,213		$	26,720		$	20,256		$	18,677
Total assets ^(a)		31,575			29,076			24,108			22,826
Deposits		49,492			48,242			15,241			12,287
OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	116		$	184			—		$	43
Return on average allocated equity ^(b)		5.74	%		4.56	%		26.07	%		22.48	%
Return on average allocated equity		5.74			4.56			26.07			22.48
Average full-time equivalent employees ^(c)		8,336			8,756			1,968			2,023

(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		$	11		$	585		$	576		$	(1	)	$	2		$	584		$	578
	74			146			457			526			2			(8	)		459			518

	114			157			1,042			1,102			1			(6	)		1,043			1,096
	(8	)		(11	)		29			109			(1	)		—			28			109
	2			2			31			30			33			34			64			64
	14			33			643			684			9			(36	)		652			648

	106			133			339			279			(40	)		(4	)		299			275
	15			27			98			80			(33	)		(23	)		65			57

	91			106			241			199			(7	)		19			234			218
	—			—			—			—			37			3			37			3

	91			106			241			199			30			22			271			221
	(1	)		2			(1	)		2			—			—			(1	)		2

$	92		$	104		$	242		$	197		$	30		$	22		$	272		$	219


$	3,123		$	3,980		$	53,204		$	50,637		$	67		$	58		$	53,271		$	50,695
	26,899			27,020			83,065			80,237			444			568			83,509			80,805
	754			669			66,531			62,817			(548	)		(141	)		65,983			62,676

$	3		$	9		$	37		$	108			—		$	1		$	37		$	109
	55.73	%		53.32	%		18.65	%		14.87	%		(.55	)%		1.53	%		9.11	%		8.41	%
	55.73			53.32			18.65			14.87			2.34			1.77			10.54			8.52
	55			53			10,063			11,126			4,492			4,707			14,555			15,833


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

$	120		$	10		$	1,760		$	1,674		$	(1	)	$	7		$	1,759		$	1,681
	163			336			1,312			1,435			1			(18	)		1,313			1,417

	283			346			3,072			3,109			—			(11	)		3,072			3,098
	(19	)		35			111			173			—			(1	)		111			172
	5			7			96			85			99			98			195			183
	49			82			1,925			2,008			(12	)		(107	)		1,913			1,901

	248			222			940			843			(87	)		(1	)		853			842
	18			15			270			243			(52	)		(47	)		218			196

	230			207			670			600			(35	)		46			635			646
	—			—			—			—			45			16			45			16

	230			207			670			600			10			62			680			662
	—			4			—			7			—			—			—			7

$	230		$	203		$	670		$	593		$	10		$	62		$	680		$	655


$	3,342		$	4,408		$	52,811		$	49,805		$	56		$	55		$	52,867		$	49,860
	27,210			28,120			82,893			80,022			534			682			83,427			80,704
	713			743			65,446			61,272			(417	)		(143	)		65,029			61,129

$	15		$	61		$	131		$	288			—		$	(1	)	$	131		$	287
	44.83	%		33.44	%		17.30	%		14.74	%		(.91	)%		1.29	%		8.23	%		8.43	%
	44.83			33.44			17.30			14.74			.26			1.74			8.82			8.64
	53			53			10,357			10,832			4,623			4,757			14,980			15,565