19. 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 primarily through its 15-state branch network.

Individuals are provided with 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 policies. 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 with deposit, investment and credit products, and business advisory services. Mid-sized businesses are provided with 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, our principal investing unit, 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 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,” i.e., the way we apply 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 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 109 of our 2016 Form 10-K;


•	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%; and


•	Capital is assigned to each line of business based on economic equity.

The development and application of 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.

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, 2017, and September 30, 2016.



Three months ended September 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2017			2016			2017			2016
SUMMARY OF OPERATIONS
Net interest income (TE)	$	670		$	533		$	291		$	278
Noninterest income	289			250			269			278
Total revenue (TE) ^(a)	959			783			560			556
Provision for credit losses	59			39			(11		)	23
Depreciation and amortization expense	30			17			25			15
Other noninterest expense	613			573			278			295
Income (loss) from continuing operations before income taxes (TE)	257			154			268			223
Allocated income taxes and TE adjustments	96			57			78			63
Income (loss) from continuing operations	161			97			190			160
Income (loss) from discontinued operations, net of taxes	—			—			—			—
Net income (loss)	161			97			190			160
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—
Net income (loss) attributable to Key	$	161		$	97		$	190		$	160

AVERAGE BALANCES ^(b)
Loans and leases	$	47,595		$	41,548		$	38,040		$	34,561
Total assets ^(a)	51,708			44,218			45,276			40,584
Deposits	79,563			69,397			21,559			22,708
OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	41		$	31		$	(9	)	$	12
Return on average allocated equity ^(b)	13.27		%	10.84		%	26.92		%	26.89		%
Return on average allocated equity	13.27			10.84			26.92			26.89
Average full-time equivalent employees ^(c)	11,032			9,805			2,460			2,330




Nine months ended September 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2017			2016			2017			2016
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,973		$	1,324		$	907		$	716
Noninterest income	901			652			827			716
Total revenue (TE) ^(a)	2,874			1,976			1,734			1,432
Provision for credit losses	152			92			26			110
Depreciation and amortization expense	86			42			68			41
Other noninterest expense	1,835			1,429			836			764
Income (loss) from continuing operations before income taxes (TE)	801			413			804			517
Allocated income taxes and TE adjustments	298			154			212			114
Income (loss) from continuing operations	503			259			592			403
Income (loss) from discontinued operations, net of taxes	—			—			—			—
Net income (loss)	503			259			592			403
Less: Net income (loss) attributable to noncontrolling interests	—			—			(1		)	(1		)
Net income (loss) attributable to Key	$	503		$	259		$	593		$	404

AVERAGE BALANCES^(b)
Loans and leases	$	47,376		$	34,450		$	37,823		$	30,312
Total assets ^(a)	51,421			36,707			44,526			35,984
Deposits	79,438			58,704			21,237			19,980
OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	131		$	72		$	24		$	57
Return on average allocated equity ^(b)	14.13		%	11.55		%	27.69		%	24.87		%
Return on average allocated equity	14.13			11.55			27.69			24.87
Average full-time equivalent employees ^(c)	10,912			8,177			2,403			2,199


(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
2017			2016			2017			2016			2017			2016			2017			2016

$	(7	)	$	(13	)	$	954		$	798		$	8		$	(10	)	$	962		$	788
37			29			595			557			(3		)	(8		)	592			549
30			16			1,549			1,355			5			(18		)	1,554			1,337
2			(3		)	50			59			1			—			51			59
1			1			56			33			41			44			97			77
10			8			901			876			(6		)	129			895			1,005
17			10			542			387			(31		)	(191		)	511			196
(5		)	(6		)	169			114			(21		)	(90		)	148			24
22			16			373			273			(10		)	(101		)	363			172
—			—			—			—			1			1			1			1
22			16			373			273			(9		)	(100		)	364			173
(1		)	—			(1		)	—			1			1			—			1
$	23		$	16		$	374		$	273		$	(10	)	$	(101	)	$	364		$	172


$	1,175		$	1,442		$	86,810		$	77,551		$	4		$	146		$	86,814		$	77,697
36,810			31,328			133,794			116,130			562			7,339			134,356			123,469
2,010			1,064			103,132			93,169			(27		)	1,749			103,105			94,918

—			—			$	32		$	43		—			$	1		$	32		$	44
65.65		%	38.34		%	19.14		%	17.82		%	(.58		)%	(5.44		)%	9.45		%	5.02		%
65.65			38.34			19.14			17.82			(.53		)	(5.39		)	9.48			5.05
2			4			13,494			12,139			5,054			4,940			18,548			17,079




Other Segments						Total Segments						Reconciling Items						Key
2017			2016			2017			2016			2017			2016			2017			2016

$	(15	)	$	(33	)	$	2,865		$	2,007		$	13		$	(2	)	$	2,878		$	2,005
109			101			1,837			1,469			(15		)	(16		)	1,822			1,453
94			68			4,702			3,476			(2		)	(18		)	4,700			3,458
2			(2		)	180			200			—			—			180			200
2			4			156			87			127			116			283			203
30			25			2,701			2,218			16			115			2,717			2,333
60			41			1,665			971			(145		)	(249		)	1,520			722
(13		)	(15		)	497			253			(72		)	(88		)	425			165
73			56			1,168			718			(73		)	(161		)	1,095			557
—			—			—			—			6			5			6			5
73			56			1,168			718			(67		)	(156		)	1,101			562
1			1			—			—			1			—			1			—
$	72		$	55		$	1,168		$	718		$	(68	)	$	(156	)	$	1,100		$	562


$	1,263		$	1,521		$	86,462		$	66,283		$	23		$	92		$	86,485		$	66,375
36,489			29,732			132,436			102,423			766			2,764			133,202			105,187
2,030			931			102,705			79,615			(46		)	579			102,659			80,194

$	1		$	5		$	156		$	134		$	1		(1		)	$	157		$	133
65.93		%	42.71		%	20.10		%	17.97		%	(1.33		)%	(3.28		)%	9.62		%	6.26		%
65.93			42.71			20.10			17.97			(1.22		)	(3.18		)	9.67			6.31
2			6			13,317			10,382			5,110			4,260			18,427			14,642