23. 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.

On April 8, 2014, we announced a new leadership structure for Key Community Bank: Community Bank Co-President, Commercial & Private Banking and Community Bank Co-President, Consumer & Small Business. In this structure, the Community Bank Co-Presidents work as a team to lead the Key Community Bank, which continues to operate as one business segment.

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, Community Development, 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 years ended December 31, 2014, 2013, and 2012.

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 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 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	2014			2013			2012			2014			2013			2012
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,448		$	1,532		$	1,537		$	830		$	785		$	781
Noninterest income		769			784			771			800			751			718
Total revenue (TE) ^(a)		2,217			2,316			2,308			1,630			1,536			1,499
Provision (credit) for loan and lease losses		74			155			150			(2	)		(3	)		30
Depreciation and amortization expense		65			76			55			31			28			35
Other noninterest expense		1,705			1,759			1,845			817			771			758
Income (loss) from continuing operations before income taxes (TE)		373			326			258			784			740			676
Allocated income taxes (benefit) and TE adjustments		139			121			96			285			265			248
Income (loss) from continuing operations		234			205			162			499			475			428
Income (loss) from discontinued operations, net of taxes		—			—			—			—			—			—
Net income (loss)		234			205			162			499			475			428
Less: Net income (loss) attributable to noncontrolling interests		—			—			—			2			—			3
Net income (loss) attributable to Key	$	234		$	205		$	162		$	497		$	475		$	425

AVERAGE BALANCES ^(b)
Loans and leases	$	30,105		$	29,311		$	27,202		$	22,452		$	19,822		$	18,328
Total assets ^(a)		32,231			31,634			29,622			26,312			23,628			22,252
Deposits		50,325			49,804			48,708			16,793			15,696			12,572
OTHER FINANCIAL DATA
Expenditures for additions to long-lived assets ^{(a), (b)}	$	8		$	6		$	318		$	9		$	9		$	10
Net loan charge-offs ^(b)		117			147			195			(19	)		3			63
Return on average allocated equity ^(b)		8.60	%		6.98	%		5.63	%		32.42	%		30.55	%		25.79	%
Return on average allocated equity		8.60			6.98			5.63			32.42			30.55			25.79
Average full-time equivalent employees ^(c)		7,563			8,243			8,828			1,923			1,839			1,856

(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
2014			2013			2012			2014			2013			2012			2014			2013			2012			2014			2013			2012

$	34		$	30			$ (38	)	$	2,312		$	2,347		$	2,280		$	5			1			$ 8		$	2,317		$	2,348		$	2,288
	237			233			391			1,806			1,768			1,880			(9	)	$	(2	)		(24	)		1,797			1,766			1,856
	271			263			353			4,118			4,115			4,160			(4	)		(1	)		(16	)		4,114			4,114			4,144
	(14	)		(24	)		50			58			128			230			1			2			(1	)		59			130			229
	12			15			19			108			119			109			152			141			141			260			260			250
	73			87			117			2,595			2,617			2,720			(96	)		(57	)		(152	)		2,499			2,560			2,568
	200			185			167			1,357			1,251			1,101			(61	)		(87	)		(4	)		1,296			1,164			1,097
	(31	)		(35	)		(41	)		393			351			303			(43	)		(57	)		(48	)		350			294			255
	231			220			208			964			900			798			(18	)		(30	)		44			946			870			842
	—			—			—			—			—			—			(39	)		40			23			(39	)		40			23
	231			220			208			964			900			798			(57	)		10			67			907			910			865
	5			—			4			7			—			7			—			—			—			7			—			7
$	226		$	220		$	204		$	957		$	900		$	791		$	(57	)	$	10		$	67		$	900		$	910		$	858


$	3,053		$	3,865		$	4,783		$	55,610		$	52,998		$	50,313		$	69		$	56		$	49		$	55,679		$	53,054		$	50,362
	27,883			28,403			28,354			86,426			83,665			80,228			653			512			614			87,079			84,177			80,842
	871			731			705			67,989			66,231			61,985			(124	)		(354	)		(150	)		67,865			65,877			61,835

	—			—			—		$	17		$	15		$	328		$	118		$	73		$	76		$	135		$	88		$	404
$	15		$	18		$	87			113			168			345			—			—			—			113			168			345
	38.83	%		31.84	%		24.91	%		19.79	%		17.36	%		14.80	%		(.32	)%		(.59	)%		.92	%		8.97	%		8.47	%		8.23	%
	38.83			31.84			24.91			19.79			17.36			14.80			(1.01	)		.20			1.40			8.60			8.86			8.46
	95			122			126			9,581			10,204			10,810			4,272			4,579			4,779			13,853			14,783			15,589