21. 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 14-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

Real Estate Capital and Corporate Banking Services consists of two business units, Real Estate Capital and Corporate Banking Services.

Real Estate Capital is a national business that provides construction and interim lending, permanent debt placements and servicing, equity and investment banking, and other commercial banking products and services to developers, brokers and owner-investors. This unit deals primarily with nonowner-occupied properties (i.e., generally properties in which at least 50% of the debt service is provided by rental income from nonaffiliated third parties). Real Estate Capital emphasizes providing clients with finance solutions through access to the capital markets.

Corporate Banking Services provides cash management, interest rate derivatives, and foreign exchange products and services to clients served by both the Key Community Bank and Key Corporate Bank groups. Through its Public Sector and Financial Institutions businesses, Corporate Banking Services also provides a full array of commercial banking products and services to government and not-for-profit entities and community banks. A variety of commercial payment products are provided through the Enterprise Commercial Payments Group.

Equipment Finance meets the equipment financing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with financing options for their clients. Lease financing receivables and related revenues are assigned to other lines of business (primarily Institutional and Capital Markets and Commercial Banking) if those businesses are principally responsible for maintaining the relationship with the client.

Institutional and Capital Markets, through its KeyBanc Capital Markets unit, provides commercial lending, treasury management, investment banking, derivatives, foreign exchange, equity and debt underwriting and trading, and syndicated finance products and services to large corporations and middle-market companies.

Institutional and Capital Markets, through its Victory Capital Management unit, also manages or offers advice regarding investment portfolios for a national client base, including corporations, labor unions, not-for-profit organizations, governments and individuals. These portfolios may be managed in separate accounts, common funds or the Victory family of mutual funds.

Other Segments

Other Segments consist 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.

The table on the following pages shows selected financial data for our two major business segments for 2012, 2011, and 2010. This table is accompanied by supplementary information for our Key Corporate Bank business segment.

The information was derived from the internal financial reporting system 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 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.”

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 based on our assessment of economic risk factors (primarily credit, operating, and market risk) directly attributable to each line of business.

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 accounting enhancements, 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	2012			2011			2010			2012			2011			2010
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,436		$	1,488		$	1,618		$	740		$	711		$	802
Noninterest income		773			746			772			869			867			839
Total revenue (TE) ^(a)		2,209			2,234			2,390			1,609			1,578			1,641
Provision (credit) for loan and lease losses		156			160			413			24			(198	)		(28	)
Depreciation and amortization expense		55			38			37			46			71			94
Other noninterest expense		1,920			1,787			1,780			818			809			905
Income (loss) from continuing operations before income taxes (TE)		78			249			160			721			896			670
Allocated income taxes (benefit) and TE adjustments		(28	)		37			5			265			327			244
Income (loss) from continuing operations		106			212			155			456			569			426
Income (loss) from discontinued operations, net of taxes		—			—			—			—			—			—
Net income (loss)		106			212			155			456			569			426
Less: Net income (loss) attributable to noncontrolling interests		—			—			—			3			1			(1	)
Net income (loss) attributable to Key	$	106		$	212		$	155		$	453		$	568		$	427


AVERAGE BALANCES ^(b)
Loans and leases	$	27,830		$	26,308		$	27,044		$	18,871		$	17,403		$	20,372
Total assets ^(a)		31,519			29,744			30,254			22,989			21,548			24,349
Deposits		48,925			47,893			49,653			12,631			10,795			12,235
Net loan charge-offs ^(b)	$	204		$	286			509		$	64		$	138			607
Return on average allocated equity ^(b)		3.60	%		6.62	%		4.38	%		25.74	%		25.04	%		13.56	%
Return on average allocated equity		3.60			6.62			4.38			25.74			25.04			13.56
Average full-time equivalent employees ^(c)		8,927			8,540			8,310			2,134			2,149			2,100

(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
2012			2011			2010			2012			2011			2010			2012			2011			2010			2012			2011			2010

$	105		$	73		$	95		$	2,281		$	2,272		$	2,515		$	7		$	20			$ 22		$	2,288		$	2,292		$	2,537
	344			234			327			1,986			1,847			1,938			(19	)		(39	)		16			1,967			1,808			1,954
	449			307			422			4,267			4,119			4,453			(12	)		(19	)		38			4,255			4,100			4,491
	50			(17	)		260			230			(55	)		645			(1	)		(5	)		(7	)		229			(60	)		638
	9			18			38			110			127			169			140			143			161			250			270			330
	65			81			157			2,803			2,677			2,842			(146	)		(157	)		(138	)		2,657			2,520			2,704
	325			225			(33	)		1,124			1,370			797			(5	)		—			22			1,119			1,370			819
	76			39			(63	)		313			403			186			(50	)		(9	)		26			263			394			212
	249			186			30			811			967			611			45			9			(4	)		856			976			607
	—			—			—			—			—			—			9			(44	)		(23	)		9			(44	)		(23	)
	249			186			30			811			967			611			54			(35	)		(27	)		865			932			584
	4			11			31			7			12			30			—			—			—			7			12			30
$	245		$	175		$	(1	)	$	804		$	955		$	581		$	54		$	(35	)	$	(27	)	$	858		$	920		$	554



$	3,612		$	4,842		$	6,513		$	50,313		$	48,553		$	53,929		$	49		$	53		$	42		$	50,362		$	48,606		$	53,971
	25,733			29,672			30,823			80,241			80,964			85,426			650			1,129			2,048			80,891			82,093			87,474
	428			725			1,597			61,984			59,413			63,485			(149	)		(150	)		(93	)		61,835			59,263			63,392
	$ 77		$	117		$	454		$	345		$	541		$	1,570			—		$	—		$	—		$	345		$	541		$	1,570
	37.01	%		21.85	%		(0.09	)%		14.99	%		15.23	%		7.49	%		.94	%		.23	%		(0.13	)%		8.37	%		9.51	%		5.30	%
	37.01			21.85			(0.09	)		14.99			15.23			7.49			1.13			(.91	)		(0.86	)		8.46			9.08			5.08
	5			24			187			11,066			10,713			10,597			4,523			4,668			5,013			15,589			15,381			15,610

Supplementary information (Key Corporate Bank lines of business)


Year ended December 31,	Real Estate Capital and Corporate Banking Services									Equipment Finance									Institutional and Capital Markets
dollars in millions	2012			2011			2010			2012			2011			2010			2012			2011			2010
Total revenue (TE)	$	701		$	679		$	702		$	232		$	256		$	250		$	676		$	643		$	689
Provision (credit) for loan and lease losses		15			(109	)		34			(2	)		(79	)		(15	)		11			(10	)		(47	)
Noninterest expense		251			259			394			145			191			201			468			430			404
Net income (loss) attributable to Key		269			333			173			56			90			40			128			145			214
Average loans and leases		7,503			7,704			10,865			4,982			4,617			4,557			6,386			5,082			4,950
Average loans held for sale		361			190			178			16			5			5			123			107			131
Average deposits		9,440			7,775			9,764			7			9			4			3,184			3,011			2,467
Net loan charge-offs		57			119			509			11			11			67			(4	)		8			31
Net loan charge-offs to average loans		.76	%		1.54	%		4.68	%		.22	%		.24	%		1.47	%		(.06	)%		.16	%		.63	%
Nonperforming assets at period end	$	136		$	209		$	442		$	26		$	41		$	68		$	13		$	44		$	65
Return on average allocated equity		32.93	%		27.70	%		9.21	%		22.31	%		27.36	%		10.64	%		18.50	%		19.67	%		23.94	%
Average full-time equivalent employees		950			948			924			384			436			452			800			765			724