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 12-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 seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. 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 is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. Key Corporate Bank also delivers many of its product capabilities to clients of Key Community Bank.

Other Segments

Other Segments consist 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. 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 major business segments for the three- and nine- month periods ended September 30, 2015, and September 30, 2014.

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” beginning on page 117 of our 2014 Form 10-K.

In the third quarter of 2015, we enhanced the approach used to determine the commercial reserve factors used in estimating the quantitative component of the commercial ALLL. In addition, we began utilizing an enhanced framework to quantify commercial ALLL adjustments resulting from qualitative factors not fully captured within the statistical analysis of incurred loss. The enhancements of the methodology are described in Note 1 (“Basis of Presentation and Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.” As a result of the methodology enhancements, the current period provision for credit losses within each business segment has increased or decreased accordingly. The impact of the increases and decreases on the business segment provision for credit losses was not significant.

•

Income taxes are allocated based on the 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.


Three months ended September 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2015			2014			2015			2014
SUMMARY OF OPERATIONS
Net interest income (TE)	$	379		$	359		$	220		$	215
Noninterest income		200			199			234			185

Total revenue (TE)^(a)		579			558			454			400
Provision for credit losses		18			21			30			2
Depreciation and amortization expense		14			16			11			8
Other noninterest expense		434			425			235			205

Income (loss) from continuing operations before income taxes (TE)		113			96			178			185
Allocated income taxes and TE adjustments		42			36			42			51

Income (loss) from continuing operations		71			60			136			134
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		71			60			136			134
Less: Net income (loss) attributable to noncontrolling interests		—			—			(2	)		—

Net income (loss) attributable to Key	$	71		$	60		$	138		$	134

AVERAGE BALANCES^(b)
Loans and leases	$	31,039		$	30,103		$	26,425		$	23,215
Total assets^(a)		33,090			32,173			32,163			28,268
Deposits		51,234			50,303			18,809			17,599
OTHER FINANCIAL DATA
Net loan charge-offs^(b)	$	21		$	28		$	20		$	(1	)
Return on average allocated equity^(b)		10.49	%		8.89	%		28.65	%		31.59	%
Return on average allocated equity		10.49			8.89			28.65			31.59
Average full-time equivalent employees^(c)		7,326			7,573			2,173			1,998

Nine months ended September 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2015			2014			2015			2014
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,098		$	1,084		$	661		$	621
Noninterest income		589			574			671			566

Total revenue (TE) ^(a)		1,687			1,658			1,332			1,187
Provision for credit losses		50			48			77			7
Depreciation and amortization expense		42			49			31			22
Other noninterest expense		1,297			1,274			681			599

Income (loss) from continuing operations before income taxes (TE)		298			287			543			559
Allocated income taxes and TE adjustments		111			107			143			158

Income (loss) from continuing operations		187			180			400			401
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		187			180			400			401
Less: Net income (loss) attributable to noncontrolling interests		—			—			(1	)		2

Net income (loss) attributable to Key	$	187		$	180		$	401		$	399

AVERAGE BALANCES ^(b)
Loans and leases	$	30,804		$	29,979		$	25,488		$	22,702
Total assets ^(a)		32,853			32,063			31,236			27,829
Deposits		50,808			50,151			19,029			16,655
OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	69		$	89		$	28		$	(15	)
Return on average allocated equity ^(b)		9.27	%		8.81	%		28.82	%		33.74	%
Return on average allocated equity		9.27			8.81			28.82			33.74
Average full-time equivalent employees ^(c)		7,392			7,613			2,096			1,952

(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
2015			2014			2015			2014			2015			2014			2015			2014
$	(4	)	$	6		$	595		$	580		$	3		$	1		$	598		$	581
	39			38			473			422			(3	)		(5	)		470			417

	35			44			1,068			1,002			—			(4	)		1,068			998
	(4	)		(4	)		44			19			1			—			45			19
	2			3			27			27			35			38			62			65
	13			17			682			647			(20	)		(6	)		662			641

	24			28			315			309			(16	)		(36	)		299			273
	(2	)		1			82			88			(3	)		(18	)		79			70

	26			27			233			221			(13	)		(18	)		220			203
	—			—			—			—			(3	)		(17	)		(3	)		(17	)

	26			27			233			221			(16	)		(35	)		217			186
	—			—			(2	)		—			—			—			(2	)		—

$	26		$	27		$	235		$	221		$	(16	)	$	(35	)	$	219		$	186

$	1,780		$	2,396		$	59,244		$	55,714		$	37		$	82		$	59,281		$	55,796
	26,871			26,017			92,124			86,458			527			665			92,651			87,123
	455			564			70,498			68,466			(29	)		(130	)		70,469			68,336
$	1		$	4		$	42		$	31		$	(1	)		—		$	41		$	31
	33.27	%		24.63	%		19.00	%		18.28	%		(.90	)%		(1.26	)%		8.30	%		7.69	%
	33.27			24.63			19.00			18.28			(1.11	)		(2.45	)		8.19			7.05
	14			34			9,513			9,605			4,042			4,300			13,555			13,905

Other Segments						Total Segments						Reconciling Items						Key
2015			2014			2015			2014			2015			2014			2015			2014
	—		$	21		$	1,759		$	1,726		$	7		$	3		$	1,766		$	1,729
$	146			174			1,406			1,314			(11	)		(7	)		1,395			1,307

	146			195			3,165			3,040			(4	)		(4	)		3,161			3,036
	(7	)		(19	)		120			36			1			(1	)		121			35
	6			9			79			80			112			115			191			195
	38			54			2,016			1,927			(103	)		(65	)		1,913			1,862

	109			151			950			997			(14	)		(53	)		936			944
	7			27			261			292			(11	)		(42	)		250			250

	102			124			689			705			(3	)		(11	)		686			694
	—			—			—			—			5			(41	)		5			(41	)

	102			124			689			705			2			(52	)		691			653
	2			4			1			6			—			—			1			6

$	100		$	120		$	688		$	699		$	2		$	(52	)	$	690		$	647

$	1,908		$	2,639		$	58,200		$	55,320		$	63		$	68		$	58,263		$	55,388
	26,617			25,944			90,706			85,836			618			676			91,324			86,512
	454			591			70,291			67,397			(62	)		(138	)		70,229			67,259
$	8		$	8		$	105		$	82			—		$	(1	)	$	105		$	81
	40.39	%		36.38	%		18.81	%		19.66	%		(.05	)%		(.26	)%		6.48	%		6.59	%
	40.39			36.38			18.81			19.66			.07			(1.22	)		6.52			6.20
	15			50			9,503			9,615			4,022			4,327			13,525			13,942