Edgar Filing: KEYCORP /NEW/

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

September 30, 2014

Commission File Number 1-11302

LOGO

Exact name of registrant as specified in its charter:

Ohio

34-6542451

State or other jurisdiction of

incorporation or organization

I.R.S. Employer

Identification Number:


127 Public Square, Cleveland, Ohio		44114-1306
Address of principal executive offices:		Zip Code:

(216) 689-3000

Registrant’s telephone number, including area code:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Common Shares with a par value of $1 each		866,324,529 Shares
Title of class		Outstanding at October 31, 2014

KEYCORP

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements	Page Number
	Consolidated Balance Sheets — September 30, 2014 (Unaudited), December 31, 2013, and September 30, 2013 (Unaudited)		1

	Consolidated Statements of Income (Unaudited) — Three and nine months ended September 30, 2014, and September 30, 2013		2

	Consolidated Statements of Comprehensive Income (Unaudited) — Three and nine months ended September 30, 2014, and September 30, 2013		3

	Consolidated Statements of Changes in Equity (Unaudited) — Nine months ended September 30, 2014, and September 30, 2013		4

	Consolidated Statements of Cash Flows (Unaudited) — Nine months ended September 30, 2014, and September 30, 2013		5

	Notes to Consolidated Financial Statements (Unaudited)		6

	Note 1. Basis of Presentation		6

	Note 2. Earnings Per Common Share		10

	Note 3. Loans and Loans Held for Sale		11

	Note 4. Asset Quality		13

	Note 5. Fair Value Measurements		28

	Note 6. Securities		45

	Note 7. Derivatives and Hedging Activities		49

	Note 8. Mortgage Servicing Assets		57

	Note 9. Variable Interest Entities		58

	Note 10. Income Taxes		60

	Note 11. Acquisitions and Discontinued Operations		61


	Note 12. Securities Financing Activities	70

	Note 13. Employee Benefits	72

	Note 14. Trust Preferred Securities Issued by Unconsolidated Subsidiaries	73

	Note 15. Contingent Liabilities and Guarantees	74

	Note 16. Accumulated Other Comprehensive Income	77

	Note 17. Shareholders’ Equity	80

	Note 18. Line of Business Results	81

	Report of Independent Registered Public Accounting Firm	85

Item 2.	Management’s Discussion & Analysis of Financial Condition & Results of Operations	86

	Introduction
	Terminology	86
	Selected financial data	87
	Forward-looking statements	88
	Economic overview	89
	Long-term financial goals	90
	Strategic developments	90
	Demographics	91
	Supervision and regulation	93
	Regulatory reform developments	93
	Regulatory capital rules	93
	Liquidity coverage ratio	94

	Highlights of Our Performance	95
	Financial performance	95

	Results of Operations	100
	Net interest income	100
	Noninterest income	103
	Trust and investment services income	105
	Investment banking and debt placement fees	105
	Service charges on deposit accounts	105
	Operating lease income and other leasing gains	105
	Cards and payments income	105
	Consumer mortgage income	106
	Mortgage servicing fees	106
	Other income	106
	Noninterest expense	106
	Personnel	107
	Operating lease expense	107
	Other expense	107


		Income taxes			107

		Line of Business Results			108
		Key Community Bank summary of operations			108
		Key Corporate Bank summary of operations			109
		Other Segments			110

		Financial Condition			111
		Loans and loans held for sale			111
		Commercial loan portfolio			111
		*Commercial, financial and agricultural*			111
		*Commercial real estate loans*			112
		*Commercial lease financing*			113
		Commercial loan modification and restructuring			113
		*Extensions*			114
		*Guarantors*			115
		Consumer loan portfolio			115
		Loans held for sale			116
		Loan sales			116
		Securities			117
		Securities available-for-sale			118
		Held-to-maturity securities			119
		Other investments			120
		Deposits and other sources of funds			120
		Capital			121
		CCAR and capital actions			121
		Dividends			121
		Common shares outstanding			121
		Capital adequacy			122

		Risk Management			125
		Overview			125
		Market risk management			126
		Trading market risk			126
		*Management of trading risks*			126
		*Covered positions*			126
		*VaR and stressed VaR*			127
		*Internal capital adequacy assessment*			128
		Nontrading market risk			128
		*Net interest income simulation analysis*			129
		*Economic value of equity modeling*			130
		*Management of interest rate exposure*			130
		Liquidity risk management			131
		Governance structure			131
		Factors affecting liquidity			131
		Managing liquidity risk			132
		Final U.S. liquidity coverage ratio			132
		Long-term liquidity strategy			133


	Sources of liquidity	133
	Liquidity programs	133
	Liquidity for KeyCorp	133
	Our liquidity position and recent activity	133
	Credit risk management	134
	Credit policy, approval, and evaluation	134
	Allowance for loan and lease losses	135
	Net loan charge-offs	137
	Nonperforming assets	139
	Operational and compliance risk management	141
	Cybersecurity	142

	Critical Accounting Policies and Estimates	142

	European Sovereign and Non-Sovereign Debt Exposures	143

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	144
Item 4.	Controls and Procedures	144

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	144
Item 1A.	Risk Factors	144
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	145
Item 6.	Exhibits	145
	Signature	146
	Exhibits

Throughout the Notes to Consolidated Financial Statements (Unaudited) and Management’s Discussion & Analysis of Financial Condition & Results of Operations, we use certain acronyms and abbreviations as defined in Note 1 (“Basis of Presentation”) that begins on page 11.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets


in millions, except per share data	September 30, 2014			December 31, 2013			September 30, 2013
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from banks	$	651		$	617		$	748
Short-term investments		2,342			5,590			3,535
Trading account assets		965			738			806
Securities available for sale		12,245			12,346			12,606
Held-to-maturity securities (fair value: $4,911, $4,617, and $4,730)		4,997			4,756			4,835
Other investments		822			969			1,007
Loans, net of unearned income of $685, $805, and $827		56,155			54,457			53,597
Less: Allowance for loan and lease losses		804			848			868

Net loans		55,351			53,609			52,729
Loans held for sale		784			611			699
Premises and equipment		832			885			890
Operating lease assets		304			305			293
Goodwill		1,051			979			979
Other intangible assets		126			127			137
Corporate-owned life insurance		3,456			3,408			3,384
Derivative assets		413			407			475
Accrued income and other assets (including $1 of consolidated LIHTC guaranteed funds VIEs, see Note 9)^(a)		3,024			3,015			2,747
Discontinued assets (including $201 of loans in portfolio at fair value)		2,421			4,572			4,838

Total assets	$	89,784		$	92,934		$	90,708


LIABILITIES
Deposits in domestic offices:
NOW and money market deposit accounts	$	33,941		$	33,952		$	33,132
Savings deposits		2,390			2,472			2,489
Certificates of deposit ($100,000 or more)		2,533			2,631			2,698
Other time deposits		3,338			3,648			3,833

Total interest-bearing deposits		42,202			42,703			42,152
Noninterest-bearing deposits		25,697			26,001			25,778
Deposits in foreign office — interest-bearing		557			558			605

Total deposits		68,456			69,262			68,535
Federal funds purchased and securities sold under repurchase agreements		657			1,534			1,455
Bank notes and other short-term borrowings		996			343			466
Derivative liabilities		384			414			450
Accrued expense and other liabilities		1,613			1,557			1,375
Long-term debt		7,172			7,650			6,154
Discontinued liabilities		3			1,854			2,037

Total liabilities		79,281			82,614			80,472

EQUITY
Preferred stock, $1 par value, authorized 25,000,000 shares:
7.75% Noncumulative Perpetual Convertible Preferred Stock, Series A, $100 liquidation preference; authorized 7,475,000 shares; issued 2,904,839, 2,904,839, and 2,904,839 shares		291			291			291
Common shares, $1 par value; authorized 1,400,000,000 shares; issued 1,016,969,905, 1,016,969,905, and 1,016,969,905 shares		1,017			1,017			1,017
Capital surplus		3,984			4,022			4,029
Retained earnings		8,082			7,606			7,431
Treasury stock, at cost (148,492,881, 126,245,538, and 119,148,654 shares)		(2,563	)		(2,281	)		(2,193	)
Accumulated other comprehensive income (loss)		(325	)		(352	)		(369	)

Key shareholders’ equity		10,486			10,303			10,206
Noncontrolling interests		17			17			30

Total equity		10,503			10,320			10,236

Total liabilities and equity	$	89,784		$	92,934		$	90,708

(a)	The assets of the VIEs can only be used by the particular VIE, and there is no recourse to Key with respect to the liabilities of the consolidated LIHTC VIEs.

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Income (Unaudited)


	Three months ended September 30,						Nine months ended September 30,
dollars in millions, except per share amounts	2014			2013			2014			2013
INTEREST INCOME
Loans	$	531		$	532		$	1,576		$	1,619
Loans held for sale		4			5			13			14
Securities available for sale		67			76			210			236
Held-to-maturity securities		25			22			70			60
Trading account assets		6			5			19			15
Short-term investments		2			1			4			4
Other investments		4			6			16			23

Total interest income		639			647			1,908			1,971

INTEREST EXPENSE
Deposits		28			37			91			124
Federal funds purchased and securities sold under repurchase agreements		1			1			2			2
Bank notes and other short-term borrowings		2			2			6			5
Long-term debt		33			29			98			98

Total interest expense		64			69			197			229


NET INTEREST INCOME		575			578			1,711			1,742
Provision (credit) for loan and lease losses		21			28			37			111

Net interest income (expense) after provision for loan and lease losses		554			550			1,674			1,631

NONINTEREST INCOME
Trust and investment services income		99			100			291			295
Investment banking and debt placement fees		88			86			271			249
Service charges on deposit accounts		68			73			197			213
Operating lease income and other leasing gains		17			44			81			91
Corporate services income		42			44			125			132
Cards and payments income		42			43			123			122
Corporate-owned life insurance income		26			26			80			87
Consumer mortgage income		3			3			7			16
Mortgage servicing fees		9			15			35			36
Net gains (losses) from principal investing		9			17			60			32
Other income^(a)		14			8			37			40

Total noninterest income		417			459			1,307			1,313

NONINTEREST EXPENSE
Personnel		405			414			1,182			1,211
Net occupancy		66			66			198			202
Computer processing		39			38			118			116
Business services and professional fees		36			37			118			109
Equipment		25			25			73			78
Operating lease expense		11			14			31			37
Marketing		15			16			33			33
FDIC assessment		9			7			21			23
Intangible asset amortization		10			12			29			34
Provision (credit) for losses on lending-related commitments		(2	)		3			(2	)		11
OREO expense, net		1			1			3			5
Other expense		89			83			251			249

Total noninterest expense		704			716			2,055			2,108

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		267			293			926			836
Income taxes		64			59			232			201

INCOME (LOSS) FROM CONTINUING OPERATIONS		203			234			694			635
Income (loss) from discontinued operations, net of taxes of ($10), $21, ($24), and $29 (see Note 11)^(b)		(17	)		37			(41	)		45

NET INCOME (LOSS)^(b)		186			271			653			680
Less: Net income (loss) attributable to noncontrolling interests		—			(1	)		6			—

NET INCOME (LOSS) ATTRIBUTABLE TO KEY^(b)	$	186		$	272		$	647		$	680


Income (loss) from continuing operations attributable to Key common shareholders	$	197		$	229		$	671		$	618
Net income (loss) attributable to Key common shareholders^(b)		180			266			630			663

Per common share:
Income (loss) from continuing operations attributable to Key common shareholders	$	.23		$	.25		$	.77		$	.68
Income (loss) from discontinued operations, net of taxes ^(b)		(.02	)		.04			(.05	)		.05
Net income (loss) attributable to Key common shareholders ^(b), (c)		.21			.29			.72			.73

Per common share — assuming dilution:
Income (loss) from continuing operations attributable to Key common shareholders	$	.23		$	.25		$	.76		$	.67
Income (loss) from discontinued operations, net of taxes ^(b)		(.02	)		.04			(.05	)		.05
Net income (loss) attributable to Key common shareholders ^{(b), (c)}		.21			.29			.71			.72

Cash dividends declared per common share	$	.065		$	.055		$	.185		$	.16

Weighted-average common shares outstanding (000)		867,350			901,904			875,728			911,918
Effect of convertible preferred stock		—			—			—			—
Effect of common share options and other stock awards		6,772			6,349			6,723			5,661

Weighted-average common shares and potential common shares outstanding (000)^(d)		874,122			908,253			882,451			917,579

(a)	For each of the three months ended September 30, 2014, and September 30, 2013, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2014, and September 30, 2013, we did not have any impairment losses related to securities.

(b)

For the three and nine months ended September 30, 2014, income (loss) from discontinued operations, net of taxes; consolidated net income (loss); earnings per common share from discontinued operations, net of taxes; and consolidated earnings per common share have been revised from our financial results reported on Form 8-K on October 15, 2014. For further information regarding these changes, see KeyCorp’s Form 8-K filed on November 4, 2014.

(c)	EPS may not foot due to rounding.

(d)	Assumes conversion of common share options and other stock awards and/or convertible preferred stock, as applicable.

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Comprehensive Income (Unaudited)


	Three months ended September 30,						Nine months ended September 30,
in millions	2014			2013			2014			2013
Net income (loss)^(a)	$	186		$	271		$	653		$	680
Other comprehensive income (loss), net of tax:

Net unrealized gains (losses) on securities available for sale, net of income taxes of ($20), ($48), $14, and ($135)		(33	)		(81	)		24			(228	)
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of ($6), $6, ($3), and ($17)		(8	)		10			(4	)		(29	)
Foreign currency translation adjustments, net of income taxes of ($3), $1, ($3), and ($3)		(9	)		2			(12	)		(12	)
Net pension and postretirement benefit costs, net of income taxes of $10, $12, $13, and $16		14			18			19			24

Total other comprehensive income (loss), net of tax		(36	)		(51	)		27			(245	)

Comprehensive income (loss)		150			220			680			435
Less: Comprehensive income attributable to noncontrolling interests		—			(1	)		6			—

Comprehensive income (loss) attributable to Key	$	150		$	221		$	674		$	435

(a)

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Changes in Equity (Unaudited)


	Key Shareholders’ Equity
dollars in millions, except per share amounts	Preferred Shares Outstanding (000)		Common Shares Outstanding (000)			Preferred Stock		Common Shares		Capital Surplus			Retained Earnings			Treasury Stock, at Cost			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests
BALANCE AT DECEMBER 31, 2012		2,905		925,769		$	291	$	1,017	$	4,126		$	6,913		$	(1,952	)	$	(124	)	$	38
Net income (loss)														680									—
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale, net of income taxes of ($135)																				(228	)
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of ($17)																				(29	)
Foreign currency translation adjustments, net of income taxes of ($3)																				(12	)
Net pension and postretirement benefit costs, net of income taxes of $16																				24
Deferred compensation											3
Cash dividends declared on common shares ($.16 per share)														(145	)
Cash dividends declared on Noncumulative Series A Preferred Stock ($5.8125 per share)														(17	)
Common shares repurchased				(33,940	)												(375	)
Common shares reissued (returned) for stock options and other employee benefit plans				5,992							(100	)					134
Net contribution from (distribution to) noncontrolling interests																							(8	)

BALANCE AT SEPTEMBER 30, 2013		2,905		897,821		$	291	$	1,017	$	4,029		$	7,431		$	(2,193	)	$	(369	)	$	30

BALANCE AT DECEMBER 31, 2013		2,905		890,724		$	291	$	1,017	$	4,022		$	7,606		$	(2,281	)	$	(352	)	$	17

Net income (loss)^(a)														647									6
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale, net of income taxes of $14																				24
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of ($3)																				(4	)
Foreign currency translation adjustments, net of income taxes of ($3)																				(12	)
Net pension and postretirement benefit costs, net of income taxes of $13																				19
Cash dividends declared on common shares ($.185 per share)														(161	)
Cash dividends declared on Noncumulative Series A Preferred Stock ($5.8125 per share)														(17	)
Common shares repurchased				(26,499	)												(355	)
Common shares reissued (returned) for stock options and other employee benefit plans				4,252							(38	)					73
LIHTC guaranteed funds put														7
Net contribution from (distribution to) noncontrolling interests																							(6	)

BALANCE AT SEPTEMBER 30, 2014		2,905		868,477		$	291	$	1,017	$	3,984		$	8,082		$	(2,563	)	$	(325	)	$	17

(a)

For the nine months ended September 30, 2014, income (loss) from discontinued operations, net of taxes; consolidated net income (loss); earnings per common share from discontinued operations, net of taxes; and consolidated earnings per common share have been revised from our financial results reported on Form 8-K on October 15, 2014. For further information regarding these changes, see KeyCorp’s Form 8-K filed on November 4, 2014.

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Cash Flows (Unaudited)


	Nine months ended September 30,
in millions	2014			2013
OPERATING ACTIVITIES
Net income (loss)^(a)	$	653		$	680
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision (credit) for loan and lease losses		37			111
Provision (credit) for losses on lending-related commitments		(2	)		11
Provision (credit) for losses on LIHTC guaranteed funds		(6	)		4
Depreciation, amortization and accretion expense, net		174			168
Increase in cash surrender value of corporate-owned life insurance		(73	)		(74	)
Stock-based compensation expense		31			27
FDIC reimbursement (payments), net of FDIC expense		1			296
Deferred income taxes (benefit)		(29	)		(4	)
Proceeds from sales of loans held for sale		2,832			3,815
Originations of loans held for sale, net of repayments		(2,951	)		(3,779	)
Net losses (gains) on sales of loans held for sale		(59	)		(85	)
Net losses (gains) from principal investing		(60	)		(32	)
Net losses (gains) and writedown on OREO		3			5
Net losses (gains) on leased equipment		(35	)		(36	)
Net losses (gains) on sales of fixed assets		5			9
Gain on sale of Victory		(10	)		(146	)
Loss on sale of residual interests and deconsolidation of securitization trusts		40			—
Net decrease (increase) in trading account assets		(227	)		(201	)
Other operating activities, net		141			99

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		465			868
INVESTING ACTIVITIES
Cash received (used) in acquisitions, net of cash acquired		(113	)		817
Proceeds from sale of residual interests		57			—
Proceeds from sale of Victory		10			131
Net decrease (increase) in short-term investments, excluding acquisitions		3,285			405
Purchases of securities available for sale		(1,993	)		(4,628	)
Proceeds from sales of securities available for sale		—			29
Proceeds from prepayments and maturities of securities available for sale		2,123			3,725
Proceeds from prepayments and maturities of held-to-maturity securities		628			667
Purchases of held-to-maturity securities		(869	)		(1,572	)
Purchases of other investments		(42	)		(30	)
Proceeds from sales of other investments		266			39
Proceeds from prepayments and maturities of other investments		3			82
Net decrease (increase) in loans, excluding acquisitions, sales and transfers		(1,936	)		(1,098	)
Proceeds from sales of portfolio loans		91			150
Proceeds from corporate-owned life insurance		24			23
Purchases of premises, equipment, and software		(53	)		(60	)
Proceeds from sales of premises and equipment		1			8
Proceeds from sales of other real estate owned		13			19

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		1,495			(1,293	)
FINANCING ACTIVITIES
Net increase (decrease) in deposits, excluding acquisitions		(806	)		1,605
Net increase (decrease) in short-term borrowings		(224	)		26
Net proceeds from issuance of long-term debt		648			1,013
Payments on long-term debt		(1,034	)		(1,540	)
Repurchase of common shares		(355	)		(375	)
Net proceeds from reissuance of common shares		23			22
Cash dividends paid		(178	)		(162	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(1,926	)		589

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS		34			164
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD		617			584

CASH AND DUE FROM BANKS AT END OF PERIOD	$	651		$	748

Additional disclosures relative to cash flows:
Interest paid	$	250		$	271
Income taxes paid (refunded)		109			114
Noncash items:
Assets acquired	$	35		$	41
Liabilities assumed		22			—
Reduction of secured borrowing and related collateral		78			—
LIHTC guaranteed funds put		7			—
Loans transferred to portfolio from held for sale		10			2
Loans transferred to held for sale from portfolio		5			53
Loans transferred to other real estate owned		16			16

(a)

See Notes to Consolidated Financial Statements (Unaudited).

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

As used in these Notes, references to “Key,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of KeyCorp and its subsidiaries. KeyCorp refers solely to the parent holding company, and KeyBank refers to KeyCorp’s subsidiary, KeyBank National Association.

The acronyms and abbreviations identified below are used in the Notes to Consolidated Financial Statements (Unaudited) as well as in the Management’s Discussion & Analysis of Financial Condition & Results of Operations. You may find it helpful to refer back to this page as you read this report.

References to our “2013 Form 10-K” refer to our Form 10-K for the year ended December 31, 2013, that has been filed with the U.S. Securities and Exchange Commission and is available on its website (www.sec.gov) or on our website (www.key.com/ir).

AICPA: American Institute of Certified Public Accountants.

ALCO: Asset/Liability Management Committee.

ALLL: Allowance for loan and lease losses.

A/LM: Asset/liability management.

AOCI: Accumulated other comprehensive income (loss).

APBO: Accumulated postretirement benefit obligation.

Austin: Austin Capital Management, Ltd.

BHCs: Bank holding companies.

CCAR: Comprehensive Capital Analysis and Review.

CMBS: Commercial mortgage-backed securities.

CMO: Collateralized mortgage obligation.

Common shares: KeyCorp common shares, $1 par value.

Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

EPS: Earnings per share.

ERISA: Employee Retirement Income Security Act of 1974.

ERM: Enterprise risk management.

EVE: Economic value of equity.

FASB: Financial Accounting Standards Board.

FDIC: Federal Deposit Insurance Corporation.

Federal Reserve: Board of Governors of the Federal Reserve System.

FHLMC: Federal Home Loan Mortgage Corporation.

FNMA: Federal National Mortgage Association.

FOMC: Federal Open Market Committee of the Federal Reserve Board.

FSOC: Financial Stability Oversight Council.

GAAP: U.S. generally accepted accounting principles.

GNMA: Government National Mortgage Association.

ISDA: International Swaps and Derivatives Association.

KAHC: Key Affordable Housing Corporation.

KEF: Key Equipment Finance.

KREEC: Key Real Estate Equity Capital, Inc.

LIBOR: London Interbank Offered Rate.

LIHTC: Low-income housing tax credit.

Moody’s: Moody’s Investor Services, Inc.

MSRs: Mortgage servicing rights.

N/A: Not applicable.

NASDAQ: The NASDAQ Stock Market LLC.

N/M: Not meaningful.

NOW: Negotiable Order of Withdrawal.

NYSE: New York Stock Exchange.

OCC: Office of the Comptroller of the Currency.

OCI: Other comprehensive income (loss).

OREO: Other real estate owned.

OTTI: Other-than-temporary impairment.

QSPE: Qualifying special purpose entity.

PBO: Projected benefit obligation.

PCI: Purchased credit impaired.

S&P: Standard and Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc.

SEC: U.S. Securities & Exchange Commission.

Series A Preferred Stock: KeyCorp’s 7.750% Noncumulative Perpetual Convertible Preferred Stock, Series A.

SIFIs: Systemically important financial institutions, including

BHCs with total consolidated assets of at least $50 billion and nonbank financial companies designated by FSOC for supervision by the Federal Reserve.

TDR: Troubled debt restructuring.

TE: Taxable-equivalent.

U.S. Treasury: United States Department of the Treasury.

VaR: Value at risk.

VEBA: Voluntary Employee Beneficiary Association.

Victory: Victory Capital Management and/or

Victory Capital Advisors.

VIE: Variable interest entity.

The consolidated financial statements include the accounts of KeyCorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Some previously reported amounts have been reclassified to conform to current reporting practices.

The consolidated financial statements include any voting rights entities in which we have a controlling financial interest. In accordance with the applicable accounting guidance for consolidations, we consolidate a VIE if we have: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly impact the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., we are considered to be the primary beneficiary). Variable interests can include equity interests, subordinated debt, derivative contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements, and financial instruments. See Note 9 (“Variable Interest Entities”) for information on our involvement with VIEs.

We use the equity method to account for unconsolidated investments in voting rights entities or VIEs if we have significant influence over the entity’s operating and financing decisions (usually defined as a voting or economic interest of 20% to 50%, but not controlling). Unconsolidated investments in voting rights entities or VIEs in which we have a voting or economic interest of less than 20% generally are carried at cost. Investments held by our registered broker-dealer and investment company subsidiaries (principal investing entities and Real Estate Capital line of business) are carried at fair value.

We believe that the unaudited consolidated interim financial statements reflect all adjustments of a normal recurring nature and disclosures that are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. The interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our 2013 Form 10-K.

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users, or filed with the SEC.

Offsetting Derivative Positions

In accordance with the applicable accounting guidance, we take into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related cash collateral when recognizing derivative assets and liabilities. Additional information regarding derivative offsetting is provided in Note 7 (“Derivatives and Hedging Activities”).

Accounting Guidance Adopted in 2014

Presentation of unrecognized tax benefits. In July 2013, the FASB issued new accounting guidance that requires unrecognized tax benefits to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if certain criteria are met. This accounting guidance was applied prospectively to unrecognized tax benefits that existed at the effective date. It was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (effective January 1, 2014, for us). The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations. We provide additional information regarding the presentation of our unrecognized tax benefits in Note 10 (“Income Taxes”).

Investment companies. In June 2013, the FASB issued new accounting guidance that modifies the criteria used in defining an investment company. It also sets forth certain measurement and disclosure requirements for an investment company. This accounting guidance was effective for interim and annual reporting periods in fiscal years that begin after December 15, 2013 (effective January 1, 2014, for us). The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations. We provide the disclosures required by this new accounting guidance in Note 5 (“Fair Value Measurements”).

Liquidation basis of accounting. In April 2013, the FASB issued new accounting guidance that specifies when and how an entity should prepare its financial statements using the liquidation basis of accounting when liquidation is imminent as defined in the guidance and describes the related disclosures that should be made. This new accounting guidance was effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein (effective January 1, 2014, for us). Entities should apply the requirements prospectively from the day that liquidation becomes imminent.

Reporting of cumulative translation adjustments upon the derecognition of certain investments. In March 2013, the FASB issued new accounting guidance that addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. This accounting guidance was effective prospectively for reporting periods beginning after December 15, 2013 (effective January 1, 2014, for us). The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations.

Accounting Guidance Pending Adoption at September 30, 2014

Going concern. In August 2014, the FASB issued new accounting guidance that requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. Disclosure is required when conditions or events raise substantial doubt about an entity’s ability to continue as a going concern. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2016 (effective January 1, 2017, for us). Early adoption is permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

Troubled debt restructurings. In August 2014, the FASB issued new accounting guidance that clarifies how to account for certain government-guaranteed mortgage loans upon foreclosure. This accounting guidance will be effective for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us) and can be implemented using either a modified retrospective method or a prospective method. Early adoption is permitted. We are currently evaluating the impact that this accounting guidance may have on our financial condition or results of operations.

Consolidation. In August 2014, the FASB issued new accounting guidance that clarifies how to measure the financial assets and the financial liabilities of a consolidated collateralized financing entity. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2015 (effective January 1, 2016, for us) and can be implemented using either a retrospective method or a cumulative-effect approach. Early adoption is permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

Stock-based compensation. In June 2014, the FASB issued new accounting guidance that clarifies how to account for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2015 (effective January 1, 2016, for us) and can be implemented using either a retrospective method or a prospective method. Early adoption is permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

Transfers and servicing of financial assets. In June 2014, the FASB issued new accounting guidance that applies secured borrowing accounting to repurchase-to-maturity transactions and linked repurchase financings and expands disclosure requirements. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us) and needs to be implemented using a cumulative-effect approach to transactions outstanding as of the effective date with no adjustment to prior periods. The disclosure related to certain sales transactions will be presented for interim and annual periods beginning after December 15, 2014 (March 31, 2015, for us). The disclosure for secured borrowings will be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015 (June 30, 2015, for us). Early adoption is not permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

Revenue recognition. In May 2014, the FASB issued new accounting guidance that revises the criteria for determining when to recognize revenue from contracts with customers and expands disclosure requirements. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2016 (effective January 1, 2017, for us) and can be implemented using either a retrospective method or a cumulative-effect approach. Early adoption is not permitted. We are currently evaluating the impact that this accounting guidance may have on our financial condition or results of operations.

Discontinued operations. In April 2014, the FASB issued new accounting guidance that revises the criteria for determining when disposals should be reported as discontinued operations and modifies the disclosure requirements. This accounting guidance will be effective prospectively for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us). Early adoption is permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

Investments in qualified affordable housing projects. In January 2014, the FASB issued new accounting guidance that modifies the conditions that must be met to make an election to account for investments in qualified affordable housing projects using the proportional amortization method. This accounting guidance will be effective retrospectively for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us). Early adoption is permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

Troubled debt restructurings. In January 2014, the FASB issued new accounting guidance that clarifies the definition of when an in substance repossession or foreclosure occurs for purposes of creditor reclassification of residential real estate collateralized consumer mortgage loans by derecognizing the loan and recognizing the collateral asset. This accounting guidance will be effective for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us) and can be implemented using either a modified retrospective method or prospective method. Early adoption is permitted. The adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations.

2. Earnings Per Common Share

Basic earnings per share is the amount of earnings (adjusted for dividends declared on our preferred stock) available to each common share outstanding during the reporting periods. Diluted earnings per share is the amount of earnings available to each common share outstanding during the reporting periods adjusted to include the effects of potentially dilutive common shares. Potentially dilutive common shares include incremental shares issued for the conversion of our convertible Series A Preferred Stock, stock options, and other stock-based awards. Potentially dilutive common shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive. For diluted earnings per share, net income available to common shareholders can be affected by the conversion of our convertible Series A Preferred Stock. Where the effect of this conversion would be dilutive, net income available to common shareholders is adjusted by the amount of preferred dividends associated with our Series A Preferred Stock.

Our basic and diluted earnings per common share are calculated as follows:


	Three months ended September 30,						Nine months ended September 30,
dollars in millions, except per share amounts	2014			2013			2014			2013
EARNINGS
Income (loss) from continuing operations	$	203		$	234		$	694		$	635
Less: Net income (loss) attributable to noncontrolling interests		—			(1	)		6			—
Income (loss) from continuing operations attributable to Key		203			235			688			635
Less: Dividends on Series A Preferred Stock		6			6			17			17
Income (loss) from continuing operations attributable to Key common shareholders		197			229			671			618
Income (loss) from discontinued operations, net of taxes^{(a), (b)}		(17	)		37			(41	)		45

Net income (loss) attributable to Key common shareholders^(b)	$	180		$	266		$	630		$	663

WEIGHTED-AVERAGE COMMON SHARES
Weighted-average common shares outstanding (000)		867,350			901,904			875,728			911,918
Effect of convertible preferred stock		—			—			—			—
Effect of common share options and other stock awards		6,772			6,349			6,723			5,661

Weighted-average common shares and potential common shares outstanding (000)^(c)		874,122			908,253			882,451			917,579

EARNINGS PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders	$	.23		$	.25		$	.77		$	.68
Income (loss) from discontinued operations, net of taxes^{(a), (b)}		(.02	)		.04			(.05	)		.05
Net income (loss) attributable to Key common shareholders^{(b), (d)}		.21			.29			.72			.73

Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	$	.23		$	.25		$	.76		$	.67
Income (loss) from discontinued operations, net of taxes^{(a), (b)}		(.02	)		.04			(.05	)		.05
Net income (loss) attributable to Key common shareholders — assuming dilution^(b), (d)		.21			.29			.71			.72

(a)

In April 2009, we decided to wind down the operations of Austin, a subsidiary that specialized in managing hedge fund investments for institutional customers. In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. In February 2013, we decided to sell Victory to a private equity fund. As a result of these decisions, we have accounted for these businesses as discontinued operations. For further discussion regarding the income (loss) from discontinued operations, see Note 11 (“Acquisitions and Discontinued Operations”).

(b)

(c)	Assumes conversion of common share options and other stock awards and/or convertible preferred stock, as applicable.

(d)	EPS may not foot due to rounding.

3. Loans and Loans Held for Sale

Our loans by category are summarized as follows:


in millions	September 30, 2014		December 31, 2013		September 30, 2013
Commercial, financial and agricultural^(a)	$	26,683	$	24,963	$	24,317
Commercial real estate:
Commercial mortgage		8,276		7,720		7,544
Construction		1,036		1,093		1,058
Total commercial real estate loans		9,312		8,813		8,602
Commercial lease financing^(b)		4,135		4,551		4,550
Total commercial loans		40,130		38,327		37,469
Residential — prime loans:
Real estate — residential mortgage		2,213		2,187		2,198
Home equity:
Key Community Bank		10,380		10,340		10,285
Other		283		334		353
Total home equity loans		10,663		10,674		10,638
Total residential — prime loans		12,876		12,861		12,836
Consumer other — Key Community Bank		1,546		1,449		1,440
Credit cards		724		722		698
Consumer other:
Marine		828		1,028		1,083
Other		51		70		71
Total consumer other		879		1,098		1,154
Total consumer loans		16,025		16,130		16,128

Total loans^{(c) (d)}	$	56,155	$	54,457	$	53,597

(a)	Loan balances include $90 million, $94 million, and $96 million of commercial credit card balances at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

(b)

Commercial lease financing includes receivables of $367 million and $58 million held as collateral for a secured borrowing at September 30, 2014, and December 31, 2013, respectively. Principal reductions are based on the cash payments received from these related receivables. We expect to record additional commercial lease financing receivables held as collateral for a secured borrowing through the fourth quarter of 2014. Additional information pertaining to this secured borrowing is included in Note 18 (“Long-Term Debt”) beginning on page 200 of our 2013 Form 10-K.

(c)

At September 30, 2014, total loans include purchased loans of $143 million, of which $14 million were PCI loans. At December 31, 2013, total loans include purchased loans of $166 million, of which $16 million were PCI loans. At September 30, 2013, total loans include purchased loans of $176 million, of which $18 million were PCI loans.

(d)	Total loans exclude loans of $2.4 billion at September 30, 2014, $4.5 billion at December 31, 2013, and $4.7 billion at September 30, 2013, related to the discontinued operations of the education lending business.

Our loans held for sale are summarized as follows:


in millions	September 30, 2014		December 31, 2013		September 30, 2013

Commercial, financial and agricultural	$	30	$	278	$	68
Real estate — commercial mortgage		725		307		608
Commercial lease financing		10		9		—
Real estate — residential mortgage		19		17		23

Total loans held for sale	$	784	$	611	$	699

Our quarterly summary of changes in loans held for sale follows:


in millions	September 30, 2014			December 31, 2013			September 30, 2013
Balance at beginning of the period	$	435		$	699		$	402
New originations		1,593			1,669			1,467
Transfers from held to maturity, net		—			1			15
Loan sales		(1,243	)		(1,750	)		(1,181	)
Loan draws (payments), net		(1	)		(8	)		(4	)

Balance at end of period	$	784		$	611		$	699

4. Asset Quality

We assess the credit quality of the loan portfolio by monitoring net credit losses, levels of nonperforming assets and delinquencies, and credit quality ratings as defined by management.

Our nonperforming assets and past due loans were as follows:


in millions	September 30, 2014		December 31, 2013		September 30, 2013
Total nonperforming loans^(a)	$	401	$	508	$	541
Nonperforming loans held for sale		—		1		13
OREO		16		15		15
Other nonperforming assets		1		7		10

Total nonperforming assets	$	418	$	531	$	579

Nonperforming assets from discontinued operations - education lending^(b)	$	9	$	25	$	23

Restructured loans included in nonperforming loans	$	136	$	214	$	228
Restructured loans with an allocated specific allowance^(c)		115		71		104
Specifically allocated allowance for restructured loans^(d)		30		35		46

Accruing loans past due 90 days or more	$	71	$	71	$	90
Accruing loans past due 30 through 89 days		340		318		288

(a)	Loan balances exclude $14 million, $16 million, and $18 million of PCI loans at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

(b)	Includes restructured loans of approximately $16 million, $13 million, and $11 million at September 30, 2014, December 31, 2013, and September 30, 2013, respectively. See Note 11 (“Acquisitions and Discontinued Operations”) for further discussion.

(c)	Included in individually impaired loans allocated a specific allowance.

(d)	Included in allowance for individually evaluated impaired loans.

We evaluate purchased loans for impairment in accordance with the applicable accounting guidance. Purchased loans that have evidence of deterioration in credit quality since origination and for which it is probable, at acquisition, that all contractually required payments will not be collected are deemed PCI and initially recorded at fair value without recording an allowance for loan losses. At the date of acquisition, the estimated gross contractual amount receivable of all PCI loans totaled $41 million. The estimated cash flows not expected to be collected (the nonaccretable amount) were $11 million, and the accretable amount was approximately $5 million. The difference between the fair value and the cash flows expected to be collected from the purchased loans is accreted to interest income over the remaining term of the loans.

At September 30, 2014, the outstanding unpaid principal balance and carrying value of all PCI loans was $21 million and $14 million, respectively. Changes in the accretable yield during 2014 included accretion and net reclassifications of less than $1 million, resulting in an ending balance of $5 million at September 30, 2014.

At September 30, 2014, the approximate carrying amount of our commercial nonperforming loans outstanding represented 62% of their original contractual amount, total nonperforming loans outstanding represented 74% of their original contractual amount owed, and nonperforming assets in total were carried at 74% of their original contractual amount.

At September 30, 2014, our twenty largest nonperforming loans totaled $72 million, representing 18% of total loans on nonperforming status. At September 30, 2013, the twenty largest nonperforming loans totaled $119 million, representing 22% of total loans on nonperforming status.

Nonperforming loans and loans held for sale reduced expected interest income by $12 million for the nine months ended September 30, 2014, and $23 million for the year ended December 31, 2013.

The following tables set forth a further breakdown of individually impaired loans as of September 30, 2014, December 31, 2013, and September 30, 2013:


			Unpaid				Average
September 30, 2014	Recorded		Principal		Specific		Recorded
in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	11	$	20		—	$	12
Commercial real estate:
Commercial mortgage		22		27		—		23
Construction		9		20		—		7

Total commercial real estate loans		31		47		—		30

Total commercial loans		42		67		—		42

Real estate — residential mortgage		36		36		—		30

Home equity:
Key Community Bank		64		64		—		65
Other		2		2		—		2

Total home equity loans		66		66		—		67
Consumer other:
Marine		2		2		—		2

Total consumer other		2		2		—		2

Total consumer loans		104		104		—		99

Total loans with no related allowance recorded		146		171		—		141

With an allowance recorded:
Commercial, financial and agricultural		20		21	$	7		12
Commercial real estate:
Commercial mortgage		7		7		2		5

Total commercial real estate loans		7		7		2		5

Total commercial loans		27		28		9		17

Real estate — residential mortgage		19		19		4		24

Home equity:
Key Community Bank		41		41		16		39
Other		11		11		2		11

Total home equity loans		52		52		18		50

Consumer other — Key Community Bank		3		3		—		3
Credit cards		3		3		1		3
Consumer other:
Marine		46		46		5		47
Other		2		2		1		2

Total consumer other		48		48		6		49

Total consumer loans		125		125		29		129

Total loans with an allowance recorded		152		153		38		146

Total	$	298	$	324	$	38	$	287

(a)	The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on our consolidated balance sheet.

(b)	The Unpaid Principal Balance represents the customer’s legal obligation to us.


			Unpaid				Average
December 31, 2013	Recorded		Principal		Specific		Recorded
in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	33	$	69		—	$	33
Commercial real estate:
Commercial mortgage		21		25		—		55
Construction		48		131		—		48

Total commercial real estate loans		69		156		—		103

Total commercial loans		102		225		—		136

Real estate — residential mortgage		27		27		—		24

Home equity:
Key Community Bank		67		67		—		66
Other		2		2		—		2

Total home equity loans		69		69		—		68

Consumer other:
Marine		3		3		—		2

Total consumer other		3		3		—		2

Total consumer loans		99		99		—		94

Total loans with no related allowance recorded		201		324		—		230

With an allowance recorded:
Commercial, financial and agricultural		17		20	$	8		25
Commercial real estate:
Commercial mortgage		6		6		2		7
Construction		2		12		—		1

Total commercial real estate loans		8		18		2		8

Total commercial loans		25		38		10		33

Real estate — residential mortgage		29		29		9		23

Home equity:
Key Community Bank		35		35		10		29
Other		10		11		1		9

Total home equity loans		45		46		11		38

Consumer other — Key Community Bank		3		3		1		2
Credit cards		5		5		1		3
Consumer other:
Marine		49		49		10		55
Other		1		1		—		1

Total consumer other		50		50		10		56

Total consumer loans		132		133		32		122

Total loans with an allowance recorded		157		171		42		155

Total	$	358	$	495	$	42	$	385

(a)	The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on our consolidated balance sheet.

(b)	The Unpaid Principal Balance represents the customer’s legal obligation to us.


			Unpaid				Average
September 30, 2013	Recorded		Principal		Specific		Recorded
in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	58	$	116		—	$	74
Commercial real estate:
Commercial mortgage		43		80		—		66
Construction		41		124		—		45

Total commercial real estate loans		84		204		—		111

Total commercial loans		142		320		—		185

Real estate — residential mortgage		16		16		—		16

Home equity:
Key Community Bank		69		69		—		69
Other		2		2		—		2

Total home equity loans		71		71		—		71

Consumer other:
Marine		3		3		—		3

Total consumer other		3		3		—		3

Total consumer loans		90		90		—		90

Total loans with no related allowance recorded		232		410		—		275

With an allowance recorded:
Commercial, financial and agricultural		50		51	$	17		36
Commercial real estate:
Commercial mortgage		3		3		1		4
Construction		3		13		—		2

Total commercial real estate loans		6		16		1		6

Total commercial loans		56		67		18		42

Real estate — residential mortgage		20		20		6		20

Home equity:
Key Community Bank		33		33		10		32
Other		11		11		2		10

Total home equity loans		44		44		12		42

Consumer other — Key Community Bank		3		3		—		3
Credit cards		6		6		1		5
Consumer other:
Marine		49		49		10		50
Other		1		1		—		1

Total consumer other		50		50		10		51

Total consumer loans		123		123		29		121

Total loans with an allowance recorded		179		190		47		163

Total	$	411	$	600	$	47	$	438

(a)	The Recorded Investment represents the face amount of the loan increased or decreased by applicable accrued interest, net deferred loan fees and costs, and unamortized premium or discount, and reflects direct charge-offs. This amount is a component of total loans on our consolidated balance sheet.

(b)	The Unpaid Principal Balance represents the customer’s legal obligation to us.

For each of the nine months ended September 30, 2014, and September 30, 2013, interest income recognized on the outstanding balances of accruing impaired loans totaled $5 million.

At September 30, 2014, aggregate restructured loans (accrual and nonaccrual loans) totaled $264 million, compared to $338 million at December 31, 2013, and $349 million at September 30, 2013. We added $58 million in restructured loans during the first nine months of 2014, which were offset by $132 million in payments and charge-offs.

A further breakdown of TDRs included in nonperforming loans by loan category as of September 30, 2014, follows:


			Pre-modification Outstanding		Post-modification Outstanding
September 30, 2014	Number		Recorded		Recorded
dollars in millions	of loans		Investment		Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		20	$	16	$	9
Commercial real estate:
Real estate — commercial mortgage		12		39		14
Real estate — construction		3		15		1

Total commercial real estate loans		15		54		15

Total commercial loans		35		70		24
Real estate — residential mortgage		464		28		28
Home equity:
Key Community Bank		1,125		70		64
Other		133		4		4

Total home equity loans		1,258		74		68
Consumer other — Key Community Bank		31		1		1
Credit cards		156		1		1
Consumer other:
Marine		211		16		14
Other		40		1		1

Total consumer other		251		17		15

Total consumer loans		2,160		121		113

Total nonperforming TDRs		2,195		191		137

Prior-year accruing^(a)
Commercial, financial and agricultural		25		6		3
Commercial real estate:
Real estate — commercial mortgage		4		18		8

Total commercial real estate loans		4		18		8

Total commercial loans		29		24		11
Real estate — residential mortgage		359		28		28
Home equity:
Key Community Bank		731		45		40
Other		325		10		8

Total home equity loans		1,056		55		48
Consumer other — Key Community Bank		53		2		2
Credit cards		564		4		3
Consumer other:
Marine		402		58		34
Other		72		2		1

Total consumer other		474		60		35

Total consumer loans		2,506		149		116

Total prior-year accruing TDRs		2,535		173		127

Total TDRs		4,730	$	364	$	264

(a)	All TDRs that were restructured prior to January 1, 2014, and are fully accruing.

A further breakdown of TDRs included in nonperforming loans by loan category as of December 31, 2013, follows:


December 31, 2013 dollars in millions	Number of loans		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		33	$	72	$	34
Commercial real estate:
Real estate — commercial mortgage		11		41		14
Real estate — construction		6		19		4

Total commercial real estate loans		17		60		18

Total commercial loans		50		132		52
Real estate — residential mortgage		676		43		43
Home equity:
Key Community Bank		1,708		91		86
Other		227		6		6

Total home equity loans		1,935		97		92
Consumer other — Key Community Bank		49		2		1
Credit cards		629		5		4
Consumer other:
Marine		360		24		21
Other		50		1		1

Total consumer other		410		25		22

Total consumer loans		3,699		172		162

Total nonperforming TDRs		3,749		304		214

Prior-year accruing^(a)
Commercial, financial and agricultural		50		7		3
Commercial real estate:
Real estate — commercial mortgage		4		18		10
Real estate — construction		1		23		42

Total commercial real estate loans		5		41		52

Total commercial loans		55		48		55
Real estate — residential mortgage		119		12		12
Home equity:
Key Community Bank		161		17		17
Other		212		7		6

Total home equity loans		373		24		23
Consumer other — Key Community Bank		31		1		1
Credit cards		240		2		1
Consumer other:
Marine		272		51		31
Other		54		1		1

Total consumer other		326		52		32

Total consumer loans		1,089		91		69

Total prior-year accruing TDRs		1,144		139		124

Total TDRs		4,893	$	443	$	338

(a)	All TDRs that were restructured prior to January 1, 2013, and are fully accruing.

A further breakdown of TDRs included in nonperforming loans by loan category as of September 30, 2013, follows:


September 30, 2013 dollars in millions	Number of loans		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		39	$	96	$	63
Commercial real estate:
Real estate — commercial mortgage		14		51		17
Real estate — construction		6		19		4

Total commercial real estate loans		20		70		21

Total commercial loans		59		166		84
Real estate — residential mortgage		401		24		24
Home equity:
Key Community Bank		1,677		89		85
Other		237		6		6

Total home equity loans		1,914		95		91
Consumer other — Key Community Bank		40		2		1
Credit cards		689		5		5
Consumer other:
Marine		346		42		22
Other		46		1		1

Total consumer other		392		43		23

Total consumer loans		3,436		169		144

Total nonperforming TDRs		3,495		335		228

Prior-year accruing^(a)
Commercial, financial and agricultural		68		9		4
Commercial real estate:
Real estate — commercial mortgage		3		17		12
Real estate — construction		1		23		35

Total commercial real estate loans		4		40		47

Total commercial loans		72		49		51
Real estate — residential mortgage		118		13		13
Home equity:
Key Community Bank		162		18		17
Other		214		6		6

Total home equity loans		376		24		23
Consumer other — Key Community Bank		32		1		1
Credit cards		267		2		2
Consumer other:
Marine		276		32		30
Other		56		1		1

Total consumer other		332		33		31

Total consumer loans		1,125		73		70

Total prior-year accruing TDRs		1,197		122		121

Total TDRs		4,692	$	457	$	349

(a)	All TDRs that were restructured prior to January 1, 2013, and are fully accruing.

We classify loan modifications as TDRs when a borrower is experiencing financial difficulties and we have granted a concession without commensurate financial, structural, or legal consideration. All commercial and consumer loan TDRs, regardless of size, are individually evaluated for impairment to determine the probable loss content and are assigned a specific loan allowance if deemed appropriate. This designation has the effect of moving the loan from the general reserve methodology (i.e., collectively evaluated) to the specific reserve methodology (i.e., individually evaluated) and may impact the ALLL through a charge-off or increased loan loss provision. These components affect the ultimate allowance level. Additional information regarding TDRs for discontinued operations is provided in Note 11 (“Acquisitions and Discontinued Operations”).

Commercial loan TDRs are considered defaulted when principal and interest payments are 90 days past due. Consumer loan TDRs are considered defaulted when principal and interest payments are more than 60 days past due. During the three months ended September 30, 2014, there were no significant commercial loan TDRs, and 93 consumer loan TDRs with a combined recorded investment of $4 million that experienced payment defaults from modifications resulting in TDR status during 2013. During the three months ended September 30, 2013, there were no significant commercial loan TDRs, and 138

consumer loan TDRs with a combined recorded investment of $7 million that experienced payment defaults from modifications resulting in TDR status during 2012. As TDRs are individually evaluated for impairment under the specific reserve methodology, subsequent defaults do not generally have a significant additional impact on the ALLL.

Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Our concession types are primarily interest rate reductions, forgiveness of principal, and other modifications. The commercial TDR other concession category includes modification of loan terms, covenants, or conditions. The consumer TDR other concession category primarily includes those borrowers that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed.

The following table shows the concession types for our commercial and consumer accruing and nonaccruing TDRs and other selected financial data.


	September 30,		December 31,		September 30,
in millions	2014		2013		2013
Commercial loans:
Interest rate reduction	$	24	$	95	$	104
Forgiveness of principal		5		5		5
Other		6		7		26

Total	$	35	$	107	$	135

Consumer loans:
Interest rate reduction	$	140	$	130	$	110
Forgiveness of principal		4		5		5
Other		85		96		99

Total	$	229	$	231	$	214

Total commercial and consumer TDRs^(a)	$	264	$	338	$	349
Total loans		56,155		54,457		53,597

(a)	Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs are $1 million, $15 million, and $26 million at September 30, 2014, December 31, 2013, and September 30, 2013, respectively.

Our policies for determining past due loans, placing loans on nonaccrual, applying payments on nonaccrual loans, and resuming accrual of interest for our commercial and consumer loan portfolios are disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Nonperforming Loans” beginning on page 117 of our 2013 Form 10-K.

At September 30, 2014, approximately $55.3 billion, or 98.5%, of our total loans were current. At September 30, 2014, total past due loans and nonperforming loans of $813 million represented approximately 1.5% of total loans.

The following aging analysis of past due and current loans as of September 30, 2014, December 31, 2013, and September 30, 2013, provides further information regarding Key’s credit exposure.


September 30, 2014 in millions	Current		30-59 Days Past Due		60-89 Days Past Due		90 and Greater Days Past Due		Nonperforming Loans		Total Past Due and Nonperforming Loans		Purchased Credit Impaired		Total Loans
LOAN TYPE
Commercial, financial and agricultural	$	26,534	$	50	$	34	$	18	$	47	$	149		—	$	26,683
Commercial real estate:
Commercial mortgage		8,201		17		7		9		41		74	$	1		8,276
Construction		1,017		3		2		—		14		19		—		1,036

Total commercial real estate loans		9,218		20		9		9		55		93		1		9,312
Commercial lease financing		4,017		74		24		6		14		118		—		4,135

Total commercial loans	$	39,769	$	144	$	67	$	33	$	116	$	360	$	1	$	40,130

Real estate — residential mortgage	$	2,091	$	17	$	7	$	5	$	81	$	110	$	12	$	2,213
Home equity:
Key Community Bank		10,124		46		19		16		174		255		1		10,380
Other		266		4		2		1		10		17		—		283

Total home equity loans		10,390		50		21		17		184		272		1		10,663
Consumer other — Key Community Bank		1,528		7		3		6		2		18		—		1,546
Credit cards		705		5		4		9		1		19		—		724
Consumer other:
Marine		796		11		4		1		16		32		—		828
Other		49		1		—		—		1		2		—		51

Total consumer other		845		12		4		1		17		34		—		879

Total consumer loans	$	15,559	$	91	$	39	$	38	$	285	$	453	$	13	$	16,025

Total loans	$	55,328	$	235	$	106	$	71	$	401	$	813	$	14	$	56,155


December 31, 2013 in millions	Current		30-59 Days Past Due		60-89 Days Past Due		90 and Greater Days Past Due		Nonperforming Loans		Total Past Due and Nonperforming Loans		Purchased Credit Impaired		Total Loans
LOAN TYPE
Commercial, financial and agricultural	$	24,823	$	39	$	8	$	16	$	77	$	140		—	$	24,963
Commercial real estate:
Commercial mortgage		7,638		20		7		17		37		81	$	1		7,720
Construction		1,068		10		—		1		14		25		—		1,093

Total commercial real estate loans		8,706		30		7		18		51		106		1		8,813
Commercial lease financing		4,463		32		33		4		19		88		—		4,551

Total commercial loans	$	37,992	$	101	$	48	$	38	$	147	$	334	$	1	$	38,327

Real estate — residential mortgage	$	2,038	$	19	$	5	$	4	$	107	$	135	$	14	$	2,187
Home equity:
Key Community Bank		10,038		51		31		14		205		301		1		10,340
Other		308		6		4		1		15		26		—		334

Total home equity loans		10,346		57		35		15		220		327		1		10,674
Consumer other — Key Community Bank		1,426		8		5		7		3		23		—		1,449
Credit cards		698		11		5		4		4		24		—		722
Consumer other:
Marine		979		15		6		2		26		49		—		1,028
Other		65		2		1		1		1		5		—		70

Total consumer other		1,044		17		7		3		27		54		—		1,098

Total consumer loans	$	15,552	$	112	$	57	$	33	$	361	$	563	$	15	$	16,130

Total loans	$	53,544	$	213	$	105	$	71	$	508	$	897	$	16	$	54,457


September 30, 2013 in millions	Current		30-59 Days Past Due		60-89 Days Past Due		90 and Greater Days Past Due		Nonperforming Loans		Total Past Due and Nonperforming Loans		Purchased Credit Impaired		Total Loans
LOAN TYPE
Commercial, financial and agricultural	$	24,161	$	33	$	9	$	12	$	102	$	156		—	$	24,317
Commercial real estate:
Commercial mortgage		7,429		22		2		31		58		113	$	2		7,544
Construction		1,038		3		—		—		17		20		—		1,058

Total commercial real estate loans		8,467		25		2		31		75		133		2		8,602
Commercial lease financing		4,472		41		7		8		22		78		—		4,550

Total commercial loans	$	37,100	$	99	$	18	$	51	$	199	$	367	$	2	$	37,469

Real estate — residential mortgage	$	2,045	$	22	$	9	$	10	$	98	$	139	$	14	$	2,198
Home equity:
Key Community Bank		9,994		50		29		12		198		289		2		10,285
Other		327		8		3		2		13		26		—		353

Total home equity loans		10,321		58		32		14		211		315		2		10,638
Consumer other — Key Community Bank		1,419		8		5		6		2		21		—		1,440
Credit cards		675		7		4		8		4		23		—		698
Consumer other:
Marine		1,034		17		6		1		25		49		—		1,083
Other		66		2		1		—		2		5		—		71

Total consumer other		1,100		19		7		1		27		54		—		1,154

Total consumer loans	$	15,560	$	114	$	57	$	39	$	342	$	552	$	16	$	16,128

Total loans	$	52,660	$	213	$	75	$	90	$	541	$	919	$	18	$	53,597

The prevalent risk characteristic for both commercial and consumer loans is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Evaluation of this risk is stratified and monitored by the loan risk rating grades assigned for the commercial loan portfolios and the regulatory risk ratings assigned for the consumer loan portfolios.

Most extensions of credit are subject to loan grading or scoring. Loan grades are assigned at the time of origination, verified by credit risk management, and periodically re-evaluated thereafter. This risk rating methodology blends our judgment with quantitative modeling. Commercial loans generally are assigned two internal risk ratings. The first rating reflects the probability that the borrower will default on an obligation; the second rating reflects expected recovery rates on the credit facility. Default probability is determined based on, among other factors, the financial strength of the borrower, an assessment of the borrower’s management, the borrower’s competitive position within its industry sector, and our view of industry risk in the context of the general economic outlook. Types of exposure, transaction structure, and collateral, including credit risk mitigants, affect the expected recovery assessment.

Credit quality indicators for loans are updated on an ongoing basis. Bond rating classifications are indicative of the credit quality of our commercial loan portfolios and are determined by converting our internally assigned risk rating grades to bond rating categories. Payment activity and the regulatory classifications of pass and substandard are indicators of the credit quality of our consumer loan portfolios.

Credit quality indicators for our commercial and consumer loan portfolios, excluding $14 million and $18 million of PCI loans at September 30, 2014, and September 30, 2013, respectively, based on bond rating, regulatory classification, and payment activity as of September 30, 2014, and September 30, 2013, are as follows:

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category^(a)


September 30, in millions
	Commercial, financial and agricultural				RE — Commercial				RE — Construction				Commercial Lease				Total
RATING^{(b), (c)}	2014		2013		2014		2013		2014		2013		2014		2013		2014		2013
AAA — AA	$	342	$	292	$	2		—	$	1	$	1	$	528	$	454	$	873	$	747
A		1,147		774		2	$	73		—		1		596		866		1,745		1,714
BBB — BB		23,822		21,837		7,735		6,867		895		879		2,848		3,021		35,300		32,604
B		594		487		298		294		100		26		75		133		1,067		940
CCC — C		778		927		238		308		40		151		88		76		1,144		1,462

Total	$	26,683	$	24,317	$	8,275	$	7,542	$	1,036	$	1,058	$	4,135	$	4,550	$	40,129	$	37,467

(a)	Credit quality indicators are updated on an ongoing basis and reflect credit quality information as of the dates indicated.

(b)	Our bond rating to internal loan grade conversion system is as follows: AAA - AA = 1, A = 2, BBB - BB = 3 - 13, B = 14 - 16, and CCC - C = 17 - 20.

(c)	Our internal loan grade to regulatory-defined classification is as follows: Pass = 1-16, Special Mention = 17, Substandard = 18, Doubtful = 19, and Loss = 20.

Consumer Credit Exposure

Credit Risk Profile by Regulatory Classifications^{(a), (b)}


September 30, in millions
	Residential — Prime
GRADE	2014		2013
Pass	$	12,576	$	12,487
Substandard		287		333

Total	$	12,863	$	12,820

Credit Risk Profile Based on Payment Activity^(a)


September 30,	Consumer — Key Community Bank				Credit cards				Consumer — Marine				Consumer — Other				Total
in millions	2014		2013		2014		2013		2014		2013		2014		2013		2014		2013
Performing	$	1,544	$	1,438	$	723	$	694	$	812	$	1,058	$	50	$	69	$	3,129	$	3,259
Nonperforming		2		2		1		4		16		25		1		2		20		33

Total	$	1,546	$	1,440	$	724	$	698	$	828	$	1,083	$	51	$	71	$	3,149	$	3,292

(a)	Credit quality indicators are updated on an ongoing basis and reflect credit quality information as of the dates indicated.

(b)	Our past due payment activity to regulatory classification conversion is as follows: pass = less than 90 days; and substandard = 90 days and greater plus nonperforming loans.

We determine the appropriate level of the ALLL on at least a quarterly basis. The methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses” beginning on page 118 of our 2013 Form 10-K. We apply expected loss rates to existing loans with similar risk characteristics as noted in the credit quality indicator table above and exercise judgment to assess the impact of factors such as changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets.

For all commercial and consumer loan TDRs, regardless of size, as well as impaired commercial loans with an outstanding balance of $2.5 million and greater, we conduct further analysis to determine the probable loss content and assign a specific allowance to the loan if deemed appropriate. We estimate the extent of the individual impairment for commercial loans and TDRs by comparing the recorded investment of the loan with the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market price. Secured consumer loan TDRs that are discharged through Chapter 7 bankruptcy and not formally re-affirmed are adjusted to reflect the fair value of the underlying collateral, less costs to sell. Non-Chapter 7 consumer loan TDRs are combined in homogenous pools and assigned a specific allocation based on the estimated present value of future cash flows using the loan’s effective interest rate. A specific allowance also may be assigned — even when sources of repayment appear sufficient — if we remain uncertain about whether the loan will be repaid in full. On at least a quarterly basis, we evaluate the appropriateness of our loss estimation methods to reduce differences between estimated incurred losses and actual losses. The ALLL at September 30, 2014, represents our best estimate of the probable credit losses inherent in the loan portfolio at that date.

Although quantitative modeling factors such as default probability and expected recovery rates are constantly changing as the financial strength of the borrower and overall economic conditions change, we have not changed the accounting policies or methodology that we use to estimate the ALLL.

Commercial loans generally are charged off in full or charged down to the fair value of the underlying collateral when the borrower’s payment is 180 days past due. Most consumer loans are charged off when payments are 120 days past due. Home equity and residential mortgage loans generally are charged down to the fair value of the underlying collateral when payment is 180 days past due. Credit card loans, and similar unsecured products, are charged off when payments are 180 days past due.

At September 30, 2014, the ALLL was $804 million, or 1.43% of loans, compared to $868 million, or 1.62% of loans, at September 30, 2013. At September 30, 2014, the ALLL was 200.5% of nonperforming loans, compared to 160.4% at September 30, 2013.

A summary of the ALLL for the periods indicated is presented in the table below:


	Three months ended September 30,						Nine months ended September 30,
in millions	2014			2013			2014			2013
Balance at beginning of period — continuing operations	$	814		$	876		$	848		$	888
Charge-offs		(49	)		(78	)		(162	)		(242	)
Recoveries		18			41			81			111

Net loans and leases charged off		(31	)		(37	)		(81	)		(131	)
Provision for loan and lease losses from continuing operations		21			28			37			111
Foreign currency translation adjustment		—			1			—			—

Balance at end of period — continuing operations	$	804		$	868		$	804		$	868

The changes in the ALLL by loan category for the periods indicated are as follows:


in millions	December 31, 2013		Provision			Charge-offs			Recoveries		September 30, 2014
Commercial, financial and agricultural	$	362	$	32		$	(35	)	$	27	$	386
Real estate — commercial mortgage		165		(7	)		(3	)		4		159
Real estate — construction		32		(16	)		(4	)		16		28
Commercial lease financing		62		(9	)		(6	)		8		55

Total commercial loans		621		—			(48	)		55		628
Real estate — residential mortgage		37		(10	)		(7	)		2		22
Home equity:
Key Community Bank		84		9			(29	)		7		71
Other		11		(1	)		(8	)		4		6

Total home equity loans		95		8			(37	)		11		77
Consumer other — Key Community Bank		29		14			(23	)		4		24
Credit cards		34		24			(27	)		1		32
Consumer other:
Marine		29		1			(18	)		7		19
Other		3		—			(2	)		1		2

Total consumer other:		32		1			(20	)		8		21

Total consumer loans		227		37			(114	)		26		176

Total ALLL — continuing operations		848		37			(162	)		81		804
Discontinued operations		39		15			(34	)		11		31

Total ALLL — including discontinued operations	$	887	$	52		$	(196	)	$	92	$	835


in millions	December 31, 2012		Provision			Charge-offs			Recoveries		September 30, 2013
Commercial, financial and agricultural	$	327	$	57		$	(44	)	$	30	$	370
Real estate — commercial mortgage		198		(28	)		(18	)		20		172
Real estate — construction		41		(17	)		(2	)		14		36
Commercial lease financing		55		24			(25	)		10		64

Total commercial loans		621		36			(89	)		74		642
Real estate — residential mortgage		30		17			(13	)		1		35
Home equity:
Key Community Bank		105		19			(50	)		8		82
Other		25		—			(16	)		5		14

Total home equity loans		130		19			(66	)		13		96
Consumer other — Key Community Bank		38		8			(24	)		5		27
Credit cards		26		30			(25	)		3		34
Consumer other:
Marine		39		1			(22	)		13		31
Other		4		—			(3	)		2		3

Total consumer other:		43		1			(25	)		15		34

Total consumer loans		267		75			(153	)		37		226

Total ALLL — continuing operations		888		111			(242	)		111		868
Discontinued operations		55		11			(42	)		14		38

Total ALLL — including discontinued operations	$	943	$	122		$	(284	)	$	125	$	906

Our ALLL from continuing operations decreased by $64 million, or 7.4%, from the third quarter of 2013 primarily because of the improvement in the credit quality of our loan portfolios. The quality of new loan originations as well as decreasing levels of criticized, classified, and nonperforming loans and net loan charge-offs has also resulted in a reduction in our general allowance. Our general allowance applies expected loss rates to our existing loans with similar risk characteristics as well as any adjustments to reflect our current assessment of qualitative factors such as changes in economic conditions, underwriting standards, and concentrations of credit. Our delinquency trends declined during 2013 and into 2014 due to a modest level of loan growth, relatively stable economic conditions, and continued run-off in our exit loan portfolio, reflecting our effort to maintain a moderate enterprise risk tolerance.

For continuing operations, the loans outstanding individually evaluated for impairment totaled $299 million, with a corresponding allowance of $38 million at September 30, 2014. Loans outstanding collectively evaluated for impairment totaled $55.8 billion, with a corresponding allowance of $765 million at September 30, 2014. At September 30, 2014, PCI loans evaluated for impairment totaled $14 million, with a corresponding allowance of $1 million. There was no provision for loan and lease losses on these PCI loans during the nine months ended September 30, 2014. At September 30, 2013, the loans outstanding individually evaluated for impairment totaled $411 million, with a corresponding allowance of $47 million. Loans outstanding collectively evaluated for impairment totaled $53.2 billion, with a corresponding allowance of $820 million at September 30, 2013. At September 30, 2013, PCI loans evaluated for impairment totaled $18 million, with a corresponding allowance of $1 million. There was no provision for loan and lease losses on these PCI loans during the nine months ended September 30, 2013.

A breakdown of the individual and collective ALLL and the corresponding loan balances as of September 30, 2014, follows:


	Allowance						Outstanding
September 30, 2014 in millions	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit Impaired		Loans		Individually Evaluated for Impairment		Collectively Evaluated for Impairment		Purchased Credit Impaired
Commercial, financial and agricultural	$	7	$	379		—	$	26,683	$	31	$	26,652		—
Commercial real estate:
Commercial mortgage		2		157		—		8,276		29		8,246	$	1
Construction		—		28		—		1,036		10		1,026		—

Total commercial real estate loans		2		185		—		9,312		39		9,272		1

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