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 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 102 of our 2017 Form 10-K.


•	Income taxes are allocated based on the statutory federal income tax rate of 21% for periods after December 31, 2017, and 35% for periods prior to December 31, 2017. Income taxes are allocated based on a blended state income tax rate (net of the federal income tax benefit) of 2.7% for periods after December 31, 2017, and 2.2% for periods prior to December 31, 2017; 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-month periods ended March 31, 2018, and March 31, 2017.




Three months ended March 31,	Key Community Bank						Key Corporate Bank
dollars in millions	2018			2017			2018			2017
SUMMARY OF OPERATIONS
Net interest income (TE)	$	688		$	628		$	272		$	304
Noninterest income	285			277			287			274
Total revenue (TE) ^(a)	973			905			559			578
Provision for credit losses	48			46			14			18
Depreciation and amortization expense	29			28			33			20
Other noninterest expense	639			597			281			284
Income (loss) from continuing operations before income taxes (TE)	257			234			231			256
Allocated income taxes and TE adjustments	61			87			24			76
Income (loss) from continuing operations	196			147			207			180
Income (loss) from discontinued operations, net of taxes	—			—			—			—
Net income (loss)	196			147			207			180
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—
Net income (loss) attributable to Key	$	196		$	147		$	207		$	180

AVERAGE BALANCES^(b)
Loans and leases	$	47,680		$	47,085		$	38,260		$	37,688
Total assets ^(a)	51,681			51,063			45,549			44,124
Deposits	79,945			79,148			20,815			21,002
OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	42		$	43		$	11		$	14
Return on average allocated equity ^(b)	16.48		%	12.56		%	29.46		%	24.94		%
Return on average allocated equity	16.48			12.56			29.46			24.94
Average full-time equivalent employees ^(c)	10,988			10,804			2,543			2,384


(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
2018			2017			2018			2017			2018			2017			2018			2017

$	(14	)	$	(4	)	$	946		$	928		$	6		$	1		$	952		$	929
36			33			608			584			(7		)	(7		)	601			577
22			29			1,554			1,512			(1		)	(6		)	1,553			1,506
(2		)	(1		)	60			63			1			—			61			63
1			1			63			49			40			44			103			93
8			10			928			891			(25		)	29			903			920
15			19			503			509			(17		)	(79		)	486			430
(4		)	(4		)	81			159			(11		)	(54		)	70			105
19			23			422			350			(6		)	(25		)	416			325
—			—			—			—			2			—			2			—
19			23			422			350			(4		)	(25		)	418			325
—			2			—			2			—			(1		)	—			1
$	19		$	21		$	422		$	348		$	(4	)	$	(24	)	$	418		$	324


$	993		$	1,328		$	86,933		$	86,101		$	(6	)	$	32		$	86,927		$	86,133
37,253			36,549			134,483			131,736			432			1,005			134,915			132,741
1,718			2,030			102,478			102,180			78			(102		)	102,556			102,078

1			$	1		$	54		$	58		—			—			$	54		$	58
59.27		%	55.66		%	21.94		%	18.04		%	(.34		)%	(1.32		)%	11.33		%	8.65		%
59.27			55.66			21.94			18.04			(.23		)	(1.32		)	11.39			8.65
2			3			13,533			13,191			5,007			5,195			18,540			18,386