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 offers personal property and casualty insurance, such as home, auto, renters, watercraft, and umbrella. 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, insurance including Commercial Property and Casualty as well as Captive Insurance 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. 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 including merger-related charges.

The table on the following pages shows selected financial data for our major business segments for the years ended December 31, 2016, 2015, and, 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.”


•	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.



Year ended December 31,	Key Community Bank									Key Corporate Bank
dollars in millions	2016			2015			2014			2016			2015			2014
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,947		$	1,487		$	1,447		$	1,048		$	887		$	842
Noninterest income	925			788			769			1,014			926			807
Total revenue (TE) ^(a)	2,872			2,275			2,216			2,062			1,813			1,649
Provision for credit losses	147			70			59			120			103			14
Depreciation and amortization expense	75			56			65			60			43			31
Other noninterest expense	2,056			1,729			1,696			1,067			940			843
Income (loss) from continuing operations before income taxes (TE)	594			420			396			815			727			761
Allocated income taxes (benefit) and TE adjustments	221			156			147			183			190			215
Income (loss) from continuing operations	373			264			249			632			537			546
Income (loss) from discontinued operations, net of taxes	—			—			—			—			—			—
Net income (loss)	373			264			249			632			537			546
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			(2		)	1			2
Net income (loss) attributable to Key	$	373		$	264		$	249		$	634		$	536		$	544
AVERAGE BALANCES ^(b)
Loans and leases	$	37,613		$	30,834		$	30,105		$	31,935		$	25,865		$	22,978
Total assets ^(a)	40,284			32,948			32,241			37,801			31,546			28,070
Deposits	63,895			51,163			50,316			20,783			19,043			17,094
OTHER FINANCIAL DATA
Expenditures for additions to long-lived assets ^{(a), (b)}	$	1,478		$	75		$	45		$	340		$	16		$	102
Net loan charge-offs ^(b)	114			92			117			83			40			(18		)
Return on average allocated equity ^(b)	10.87		%	9.80		%	9.14		%	26.85		%	28.57		%	33.56		%
Return on average allocated equity	10.87			9.80			9.14			26.85			28.57			33.56
Average full-time equivalent employees ^(c)	8,928			7,520			7,761			2,248			2,100			1,975


(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
2016			2015			2014			2016			2015			2014			2016			2015			2014			2016			2015			2014

$	(44	)	$	(8	)	$	23		$	2,951		$	2,366		$	2,312		$	2		$	10		$	5		$	2,953		$	2,376		$	2,317
153			183			231			2,092			1,897			1,807			(21		)	(17		)	(10		)	2,071			1,880			1,797
109			175			254			5,043			4,263			4,119			(19		)	(7		)	(5		)	5,024			4,256			4,114
(4		)	(8		)	(15		)	263			165			58			3			1			(1		)	266			166			57
4			8			12			139			107			108			164			148			152			303			255			260
44			47			70			3,167			2,716			2,609			286			(131		)	(108		)	3,453			2,585			2,501
65			128			187			1,474			1,275			1,344			(472		)	(25		)	(48		)	1,002			1,250			1,296
(20		)	—			26			384			346			388			(171		)	(15		)	(38		)	213			331			350
85			128			161			1,090			929			956			(301		)	(10		)	(10		)	789			919			946
—			—			—			—			—			—			1			1			(39		)	1			1			(39		)
85			128			161			1,090			929			956			(300		)	(9		)	(49		)	790			920			907
2			3			5			—			4			7			(1		)	—			—			(1		)	4			7
$	83		$	125		$	156		$	1,090		$	925		$	949		$	(299	)	$	(9	)	$	(49	)	$	791		$	916		$	900

$	1,477		$	1,852		$	2,528		$	71,025		$	58,551		$	55,611		$	123		$	43		$	68		$	71,148		$	58,594		$	55,679
33,565			26,935			26,113			111,650			91,429			86,424			887			597			655			112,537			92,026			87,079
1,481			467			579			86,159			70,673			67,989			193			(43		)	(124		)	86,352			70,630			67,865

—			—			—			$	1,818		$	91		$	147		$	116		$	48		$	118		$	1,934		$	139		$	265
$	7		$	9		$	14		204			141			113			1			1			—			205			142			113
47.43		%	58.96		%	55.71		%	18.27		%	19.34		%	20.52		%	(4.49		)%	(.17		)%	(.17		)%	6.25		%	8.61		%	8.97		%
47.43			58.96			55.71			18.27			19.34			20.52			(4.48		)	(.15		)	(.84		)	6.25			8.61			8.59
10			14			42			11,186			9,634			9,778			4,514			3,849			4,075			15,700			13,483			13,853