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 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, some of which are delivered by Key Corporate Bank, 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

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 expense.

The table on the following pages shows selected financial data for our major business segments for the three- and six- month periods ended June 30, 2016, and June 30, 2015.

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” beginning on page 122 of our 2015 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%.

•

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.


Three months ended June 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2016			2015			2016			2015
SUMMARY OF OPERATIONS
Net interest income (TE)	$	391		$	362		$	222		$	228
Noninterest income		207			198			230			250

Total revenue (TE)^(a)		598			560			452			478
Provision for credit losses		25			3			30			41
Depreciation and amortization expense		12			14			13			11
Other noninterest expense		432			433			246			245

Income (loss) from continuing operations before income taxes (TE)		129			110			163			181
Allocated income taxes and TE adjustments		48			41			29			50

Income (loss) from continuing operations		81			69			134			131
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		81			69			134			131
Less: Net income (loss) attributable to noncontrolling interests		—			—			(1	)		—

Net income (loss) attributable to Key	$	81		$	69		$	135		$	131

AVERAGE BALANCES^(b)
Loans and leases	$	30,936		$	30,707		$	28,607		$	25,298
Total assets^(a)		32,963			32,809			33,909			31,173
Deposits		53,794			50,765			19,129			19,709

OTHER FINANCIAL DATA
Net loan charge-offs^(b)	$	17		$	20		$	27		$	12
Return on average allocated equity^(b)		11.99	%		10.34	%		26.23	%		29.24	%
Return on average allocated equity		11.99			10.34			26.24			29.24
Average full-time equivalent employees^(c)		7,331			7,574			2,138			2,058

Six months ended June 30,	Key Community Bank						Key Corporate Bank
dollars in millions	2016			2015			2016			2015
SUMMARY OF OPERATIONS
Net interest income (TE)	$	790		$	720		$	440		$	442
Noninterest income		403			388			437			438

Total revenue (TE) ^(a)		1,193			1,108			877			880
Provision for credit losses		66			32			73			47
Depreciation and amortization expense		25			29			26			20
Other noninterest expense		856			855			469			455

Income (loss) from continuing operations before income taxes (TE)		246			192			309			358
Allocated income taxes and TE adjustments		92			72			57			99

Income (loss) from continuing operations		154			120			252			259
Income (loss) from discontinued operations, net of taxes		—			—			—			—

Net income (loss)		154			120			252			259
Less: Net income (loss) attributable to noncontrolling interests		—			—			(2	)		1

Net income (loss) attributable to Key	$	154		$	120		$	254		$	258

AVERAGE BALANCES ^(b)
Loans and leases	$	30,863		$	30,684		$	28,164		$	25,012
Total assets ^(a)		32,910			32,789			33,661			30,709
Deposits		53,299			50,591			18,602			19,142

OTHER FINANCIAL DATA
Net loan charge-offs ^(b)	$	40		$	49		$	45		$	8
Return on average allocated equity ^(b)		11.47	%		8.94	%		24.80	%		28.45	%
Return on average allocated equity		11.47			8.94			24.78			28.45
Average full-time equivalent employees ^(c)		7,353			7,608			2,132			2,057

(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			2016			2015			2016			2015			2016			2015
$	(11	)	$	(1	)	$	602		$	589		$	3		$	2		$	605		$	591
	42			44			479			492			(6	)		(4	)		473			488

	31			43			1,081			1,081			(3	)		(2	)		1,078			1,079
	(3	)		(2	)		52			42			—			(1	)		52			41
	1			2			26			27			36			38			62			65
	10			10			688			688			1			(42	)		689			646

	23			33			315			324			(40	)		3			275			327
	(2	)		1			75			92			2			(1	)		77			91

	25			32			240			232			(42	)		4			198			236
	—			—			—			—			3			3			3			3

	25			32			240			232			(39	)		7			201			239
	1			1			—			1			(1	)		—			(1	)		1

$	24		$	31		$	240		$	231		$	(38	)	$	7		$	202		$	238


$	1,519		$	1,903		$	61,062		$	57,908		$	86		$	70		$	61,148		$	57,978
	30,121			27,025			96,993			91,007			420			651			97,413			91,658
	972			442			73,895			70,916			9			(78	)		73,904			70,838


	—		$	3		$	44		$	35			(1	)	$	1		$	43		$	36
	57.46	%		56.52	%		19.48	%		19.74	%		(2.66	)%		.27	%		7.18	%		8.90	%
	56.12			55.51			19.47			19.72			(2.47	)		.48			7.29			9.01
	4			14			9,473			9,646			3,946			3,809			13,419			13,455

Other Segments						Total Segments						Reconciling Items						Key
2016			2015			2016			2015			2016			2015			2016			2015

	(20	)	$	3		$	1,210		$	1,165		$	7		$	3		$	1,217		$	1,168
$	72			106			912			932			(8	)		(7	)		904			925

	52			109			2,122			2,097			(1	)		(4	)		2,121			2,093
	2			(4	)		141			75			—			1			141			76
	3			5			54			54			72			75			126			129
	19			22			1,344			1,332			(16	)		(81	)		1,328			1,251

	28			86			583			636			(57	)		1			526			637
	(11	)		10			138			181			3			(10	)		141			171

	39			76			445			455			(60	)		11			385			466
	—			—			—			—			4			8			4			8

	39			76			445			455			(56	)		19			389			474
	1			2			(1	)		3			—			—			(1	)		3

$	38		$	74		$	446		$	452		$	(56	)	$	19		$	390		$	471


$	1,561		$	1,973		$	60,588		$	57,669		$	64		$	77		$	60,652		$	57,746
	28,925			26,486			95,496			89,984			449			664			95,945			90,648
	864			454			72,765			70,187			(14	)		(80	)		72,751			70,107


$	5		$	7		$	90		$	64		$	(1	)		—		$	89		$	64
	43.92	%		66.03	%		18.18	%		19.14	%		(1.97	)%		.38	%		7.02	%		8.82	%
	42.69			64.88			18.16			19.12			(1.84	)		.66			7.09			8.97
	6			15			9,491			9,680			3,920			3,832			13,411			13,512