Edgar Filing: KEYCORP /NEW/

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

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 June 30, 2015

Commission File Number 001-11302

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		840,860,998 Shares
Title of class		Outstanding at July 30, 2015

KEYCORP

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION


		Page Number
Item 1.	Financial Statements

	Consolidated Balance Sheets — June 30, 2015 (Unaudited), December 31, 2014, and June 30, 2014 (Unaudited)		5

	Consolidated Statements of Income (Unaudited) — Three and six months ended June 30, 2015, and June 30, 2014		6

	Consolidated Statements of Comprehensive Income (Unaudited) — Three and six months ended June 30, 2015, and June 30, 2014		7

	Consolidated Statements of Changes in Equity (Unaudited) — Six months ended June 30, 2015, and June 30, 2014		8

	Consolidated Statements of Cash Flows (Unaudited) — Six months ended June 30, 2015, and June 30, 2014		9

	Notes to Consolidated Financial Statements (Unaudited)

	Note 1. Basis of Presentation		10
	Note 2. Earnings Per Common Share		14
	Note 3. Loans and Loans Held for Sale		15
	Note 4. Asset Quality		17
	Note 5. Fair Value Measurements		32
	Note 6. Securities		48
	Note 7. Derivatives and Hedging Activities		52
	Note 8. Mortgage Servicing Assets		60
	Note 9. Variable Interest Entities		61
	Note 10. Income Taxes		63
	Note 11. Acquisitions and Discontinued Operations		64
	Note 12. Securities Financing Activities		72
	Note 13. Employee Benefits		74
	Note 14. Trust Preferred Securities Issued by Unconsolidated Subsidiaries		75
	Note 15. Contingent Liabilities and Guarantees		76
	Note 16. Accumulated Other Comprehensive Income		78
	Note 17. Shareholders’ Equity		81
	Note 18. Line of Business Results		82

	Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		86



Item 2.	Management’s Discussion & Analysis of Financial Condition & Results of Operations	87

	Introduction	87
	Terminology	87
	Selected financial data	88
	Forward-looking statements	89
	Economic overview	90
	Long-term financial goals	91
	Strategic developments	91
	Demographics	92
	Supervision and regulation	93

	Highlights of Our Performance	95
	Financial performance	95

	Results of Operations	99
	Net interest income	99
	Noninterest income	102
	Noninterest expense	105
	Income taxes	106

	Line of Business Results	107
	Key Community Bank summary of operations	107
	Key Corporate Bank summary of operations	108
	Other Segments	109

	Financial Condition	110
	Loans and loans held for sale	110
	Securities	116
	Other investments	119
	Deposits and other sources of funds	119
	Capital	120

	Risk Management	124
	Overview	124
	Market risk management	125
	Liquidity risk management	130
	Credit risk management	133
	Operational and compliance risk management	140

	Critical Accounting Policies and Estimates	141

	European Sovereign and Non-Sovereign Debt Exposures	142

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	143
Item 4.	Controls and Procedures	143



PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	143
Item 1A.	Risk Factors	143
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	144
Item 6.	Exhibits	144
	Signature	145
	Exhibits	146

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 10.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets


	June 30,			December 31,			June 30,
in millions, except per share data	2015			2014			2014
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from banks	$	693		$	653		$	604
Short-term investments		3,222			4,269			3,176
Trading account assets		674			750			890
Securities available for sale		14,244			13,360			12,224
Held-to-maturity securities (fair value: $4,992, $4,974, and $5,154)		5,022			5,015			5,233
Other investments		703			760			899
Loans, net of unearned income of $657, $682, and $709		58,264			57,381			55,600
Less: Allowance for loan and lease losses		796			794			814

Net loans		57,468			56,587			54,786
Loans held for sale		835			734			435
Premises and equipment		788			841			844
Operating lease assets		296			330			306
Goodwill		1,057			1,057			979
Other intangible assets		83			101			108
Corporate-owned life insurance		3,502			3,479			3,438
Derivative assets		536			609			549
Accrued income and other assets (including $1 of consolidated
LIHTC guaranteed funds VIEs, see Note 9)^(a)		3,314			2,952			3,090
Discontinued assets (including $179 of portfolio loans held for sale at fair value)		2,169			2,324			4,237

Total assets	$	94,606		$	93,821		$	91,798

LIABILITIES
Deposits in domestic offices:
NOW and money market deposit accounts	$	36,024		$	34,536		$	33,637
Savings deposits		2,370			2,371			2,450
Certificates of deposit ($100,000 or more)		2,032			2,040			2,743
Other time deposits		3,105			3,259			3,505

Total interest-bearing deposits		43,531			42,206			42,335
Noninterest-bearing deposits		26,640			29,228			24,781
Deposits in foreign office — interest-bearing		498			564			683

Total deposits		70,669			71,998			67,799
Federal funds purchased and securities sold under repurchase agreements		444			575			1,213
Bank notes and other short-term borrowings		528			423			521
Derivative liabilities		560			784			451
Accrued expense and other liabilities		1,537			1,621			1,400
Long-term debt		10,267			7,875			8,213
Discontinued liabilities		—			3			1,680

Total liabilities		84,005			83,279			81,277
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 2,900,234, 2,904,839, and 2,904,839 shares		290			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		3,898			3,986			3,987
Retained earnings		8,614			8,273			7,950
Treasury stock, at cost (173,362,345, 157,566,493, and 140,147,398 shares)		(2,884	)		(2,681	)		(2,452	)
Accumulated other comprehensive income (loss)		(345	)		(356	)		(289	)

Key shareholders’ equity		10,590			10,530			10,504
Noncontrolling interests		11			12			17

Total equity		10,601			10,542			10,521

Total liabilities and equity	$	94,606		$	93,821		$	91,798

(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 June 30,					Six months ended June 30,
dollars in millions, except per share amounts	2015		2014			2015		2014
INTEREST INCOME
Loans	$	532	$	526		$	1,055	$	1,045
Loans held for sale		12		5			19		9
Securities available for sale		72		71			142		143
Held-to-maturity securities		24		23			48		45
Trading account assets		5		7			10		13
Short-term investments		2		1			4		2
Other investments		5		6			10		12

Total interest income		652		639			1,288		1,269
INTEREST EXPENSE
Deposits		26		31			52		63
Federal funds purchased and securities sold under repurchase agreements		—		—			—		1
Bank notes and other short-term borrowings		2		2			4		4
Long-term debt		40		33			77		65

Total interest expense		68		66			133		133

NET INTEREST INCOME		584		573			1,155		1,136
Provision for credit losses		41		12			76		16

Net interest income after provision for credit losses		543		561			1,079		1,120
NONINTEREST INCOME
Trust and investment services income		111		94			220		192
Investment banking and debt placement fees		141		99			209		183
Service charges on deposit accounts		63		66			124		129
Operating lease income and other leasing gains		24		35			43		64
Corporate services income		43		41			86		83
Cards and payments income		47		43			89		81
Corporate-owned life insurance income		30		28			61		54
Consumer mortgage income		4		2			7		4
Mortgage servicing fees		9		11			22		26
Net gains (losses) from principal investing		11		27			40		51
Other income^(a)		5		9			24		23

Total noninterest income		488		455			925		890
NONINTEREST EXPENSE
Personnel		408		389			797		777
Net occupancy		66		68			131		132
Computer processing		42		41			80		79
Business services and professional fees		42		41			75		82
Equipment		22		24			44		48
Operating lease expense		12		10			23		20
Marketing		15		13			23		18
FDIC assessment		8		6			16		12
Intangible asset amortization		9		9			18		19
OREO expense, net		1		1			3		2
Other expense		86		85			170		162

Total noninterest expense		711		687			1,380		1,351

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		320		329			624		659
Income taxes		84		76			158		168

INCOME (LOSS) FROM CONTINUING OPERATIONS		236		253			466		491
Income (loss) from discontinued operations, net of taxes of $2, ($16), $5, and ($14) (see Note 11)		3		(28	)		8		(24	)

NET INCOME (LOSS)		239		225			474		467
Less: Net income (loss) attributable to noncontrolling interests		1		6			3		6

NET INCOME (LOSS) ATTRIBUTABLE TO KEY	$	238	$	219		$	471	$	461

Income (loss) from continuing operations attributable to Key common shareholders	$	230	$	242		$	452	$	474
Net income (loss) attributable to Key common shareholders		233		214			460		450
Per common share:
Income (loss) from continuing operations attributable to Key common shareholders	$	.27	$	.28		$	.53	$	.54
Income (loss) from discontinued operations, net of taxes		—		(.03	)		.01		(.03	)
Net income (loss) attributable to Key common shareholders ^(b)		.28		.24			.54		.51
Per common share — assuming dilution:
Income (loss) from continuing operations attributable to Key common shareholders	$	.27	$	.27		$	.52	$	.53
Income (loss) from discontinued operations, net of taxes		—		(.03	)		.01		(.03	)
Net income (loss) attributable to Key common shareholders ^(b)		.27		.24			.53		.51
Cash dividends declared per common share	$	.075	$	.065		$	.14	$	.12
Weighted-average common shares outstanding (000)		839,454		875,298			843,992		879,986
Effect of convertible preferred stock		—		20,602			—		—
Effect of common share options and other stock awards		6,858		6,237			7,695		6,698

Weighted-average common shares and potential common shares outstanding (000)^(c)		846,312		902,137			851,687		886,684

(a)	For each of the three months ended June 30, 2015, and June 30, 2014, net securities gains (losses) totaled less than $1 million. For the three months ended June 30, 2015, and June 30, 2014, we did not have any impairment losses related to securities.

(b)	EPS may not foot due to rounding.

(c)	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 June 30,						Six months ended June 30,
in millions	2015			2014			2015			2014
Net income (loss)	$	239		$	225		$	474		$	467
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale, net of income taxes of ($31), $17, $2, and $34		(51	)		28			4			57
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of ($10), $4, $9, and $3		(17	)		5			15			4
Foreign currency translation adjustments, net of income taxes of $0, $4, ($8), and $0		—			(1	)		(13	)		(3	)
Net pension and postretirement benefit costs, net of income taxes of $2, $1, $3, and $3		2			3			5			5

Total other comprehensive income (loss), net of tax		(66	)		35			11			63

Comprehensive income (loss)		173			260			485			530
Less: Comprehensive income attributable to noncontrolling interests		1			6			3			6

Comprehensive income (loss) attributable to Key	$	172		$	254		$	482		$	524

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Changes in Equity (Unaudited)


	Key Shareholders’ Equity
	Preferred			Common																	Accumulated
	Shares			Shares														Treasury			Other
dollars in millions, except per	Outstanding			Outstanding			Preferred			Common		Capital			Retained			Stock,			Comprehensive			Noncontrolling
share amounts	(000)			(000)			Stock			Shares		Surplus			Earnings			at Cost			Income (Loss)			Interests
BALANCE AT DECEMBER 31, 2013		2,905			890,724		$	291		$	1,017	$	4,022		$	7,606		$	(2,281	)	$	(352	)	$	17
Net income (loss)																461									6
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale, net of income taxes of $34																						57
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $3																						4
Foreign currency translation adjustments, net of income taxes of $0																						(3	)
Net pension and postretirement benefit costs, net of income taxes of $3																						5
Deferred compensation													2
Cash dividends declared on common shares ($.12 per share)																(106	)
Cash dividends declared on Noncumulative Series A Preferred Stock ($3.875 per share)																(11	)
Common shares repurchased					(17,669	)													(236	)
Common shares reissued (returned) for stock options and other employee benefit plans					3,768								(37	)					65
Net contribution from (distribution to) noncontrolling interests																									(6	)

BALANCE AT JUNE 30, 2014		2,905			876,823		$	291		$	1,017	$	3,987		$	7,950		$	(2,452	)	$	(289	)	$	17

BALANCE AT DECEMBER 31, 2014		2,905			859,403		$	291		$	1,017	$	3,986		$	8,273		$	(2,681	)	$	(356	)	$	12
Net income (loss)																471									3
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale, net of income taxes of $2																						4
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $9																						15
Foreign currency translation adjustments, net of income taxes of ($8)																						(13	)
Net pension and postretirement benefit costs, net of income taxes of $3																						5
Deferred compensation													12
Cash dividends declared on common shares ($.14 per share)																(119	)
Cash dividends declared on Noncumulative Series A Preferred Stock ($3.875 per share)																(11	)
Common shares repurchased					(22,881	)													(325	)
Series A Preferred Stock exchanged for common shares		(5	)		33			(1	)										1
Common shares reissued (returned) for stock options and other employee benefit plans					7,053								(100	)					121
Net contribution from (distribution to) noncontrolling interests																									(4	)

BALANCE AT JUNE 30, 2015		2,900			843,608		$	290		$	1,017	$	3,898		$	8,614		$	(2,884	)	$	(345	)	$	11

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Cash Flows (Unaudited)


	Six months ended June 30,
in millions	2015			2014
OPERATING ACTIVITIES
Net income (loss)	$	474		$	467
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses		76			16
Provision (credit) for losses on LIHTC guaranteed funds		—			(6	)
Depreciation, amortization and accretion expense, net		116			109
Increase in cash surrender value of corporate-owned life insurance		(50	)		(48	)
Stock-based compensation expense		33			21
FDIC reimbursement (payments), net of FDIC expense		(1	)		—
Deferred income taxes (benefit)		(27	)		9
Proceeds from sales of loans held for sale		3,726			1,570
Originations of loans held for sale, net of repayments		(3,756	)		(1,359	)
Net losses (gains) on sales of loans held for sale		(55	)		(40	)
Net losses (gains) from principal investing		(40	)		(51	)
Net losses (gains) and writedown on OREO		2			2
Net losses (gains) on leased equipment		(9	)		(34	)
Net securities losses (gains)		1			—
Net losses (gains) on sales of fixed assets		2			1
Net decrease (increase) in trading account assets		76			(152	)
Other operating activities, net		(509	)		(242	)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		59			263
INVESTING ACTIVITIES
Net decrease (increase) in short-term investments, excluding acquisitions		1,047			2,414
Purchases of securities available for sale		(2,451	)		(1,175	)
Proceeds from sales of securities available for sale		11			—
Proceeds from prepayments and maturities of securities available for sale		1,547			1,382
Proceeds from prepayments and maturities of held-to-maturity securities		566			391
Purchases of held-to-maturity securities		(575	)		(869	)
Purchases of other investments		(20	)		(26	)
Proceeds from sales of other investments		77			167
Proceeds from prepayments and maturities of other investments		5			1
Net decrease (increase) in loans, excluding acquisitions, sales and transfers		(1,128	)		(1,269	)
Proceeds from sales of portfolio loans		67			67
Proceeds from corporate-owned life insurance		26			18
Purchases of premises, equipment, and software		(17	)		(30	)
Proceeds from sales of premises and equipment		—			1
Proceeds from sales of OREO		10			10

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(835	)		1,082
FINANCING ACTIVITIES
Net increase (decrease) in deposits, excluding acquisitions		(1,329	)		(1,463	)
Net increase (decrease) in short-term borrowings		(26	)		(143	)
Net proceeds from issuance of long-term debt		2,750			608
Payments on long-term debt		(141	)		(26	)
Repurchase of common shares		(325	)		(236	)
Net proceeds from reissuance of common shares		17			19
Cash dividends paid		(130	)		(117	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		816			(1,358	)

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS		40			(13	)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD		653			617

CASH AND DUE FROM BANKS AT END OF PERIOD	$	693		$	604

Additional disclosures relative to cash flows:
Interest paid	$	128		$	133
Income taxes paid (refunded)		90			82
Noncash items:
Reduction of secured borrowing and related collateral	$	103		$	32
Loans transferred to portfolio from held for sale		—			10
Loans transferred to held for sale from portfolio		16			5
Loans transferred to OREO		12			9

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 “2014 Form 10-K” refer to our Form 10-K for the year ended December 31, 2014, which was filed with the U.S. Securities and Exchange Commission and is available on its website (www.sec.gov) and on our website (www.key.com/ir).


AICPA: American Institute of Certified Public Accountants.		LCR: Liquidity coverage ratio.
ALCO: Asset/Liability Management Committee.		LIBOR: London Interbank Offered Rate.
ALLL: Allowance for loan and lease losses.		LIHTC: Low-income housing tax credit.
A/LM: Asset/liability management.		Moody’s: Moody’s Investor Services, Inc.
AOCI: Accumulated other comprehensive income (loss).		MRM: Market Risk Management group.
APBO: Accumulated postretirement benefit obligation.		N/A: Not applicable.
Austin: Austin Capital Management, Ltd.		NASDAQ: The NASDAQ Stock Market LLC.
BHCs: Bank holding companies.		N/M: Not meaningful.
Board: KeyCorp Board of Directors.		NOW: Negotiable Order of Withdrawal.
CCAR: Comprehensive Capital Analysis and Review.		NYSE: New York Stock Exchange.
CMBS: Commercial mortgage-backed securities.		OCC: Office of the Comptroller of the Currency.
CMO: Collateralized mortgage obligation.		OCI: Other comprehensive income (loss).
Common shares: KeyCorp common shares, $1 par value.		OREO: Other real estate owned.
Dodd-Frank Act: Dodd-Frank Wall Street Reform and		OTTI: Other-than-temporary impairment.
Consumer Protection Act of 2010.		PBO: Projected benefit obligation.
EBITDA: Earnings before interest, taxes, depreciation, and		PCI: Purchased credit impaired.
amortization.		S&P: Standard and Poor’s Ratings Services, a Division of The
EPS: Earnings per share.		McGraw-Hill Companies, Inc.
ERM: Enterprise risk management.		SEC: U.S. Securities and Exchange Commission.
EVE: Economic value of equity.		Series A Preferred Stock: KeyCorp’s 7.750% Noncumulative
FASB: Financial Accounting Standards Board.		Perpetual Convertible Preferred Stock, Series A.
FDIC: Federal Deposit Insurance Corporation.		SIFIs: Systemically important financial institutions, including
Federal Reserve: Board of Governors of the Federal Reserve		BHCs with total consolidated assets of at least $50 billion
System.		and nonbank financial companies designated by FSOC for
FHLMC: Federal Home Loan Mortgage Corporation.		supervision by the Federal Reserve.
FNMA: Federal National Mortgage Association, or Fannie Mae.		TDR: Troubled debt restructuring.
FSOC: Financial Stability Oversight Council.		TE: Taxable-equivalent.
GAAP: U.S. generally accepted accounting principles.		U.S. Treasury: United States Department of the Treasury.
GNMA: Government National Mortgage Association.		VaR: Value at risk.
ISDA: International Swaps and Derivatives Association.		VEBA: Voluntary Employee Beneficiary Association.
KAHC: Key Affordable Housing Corporation.		Victory: Victory Capital Management and/or
KEF: Key Equipment Finance.		Victory Capital Advisors.
KREEC: Key Real Estate Equity Capital, Inc.		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 2014 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 2015

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 was effective for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us) and could be implemented using either a modified retrospective method or a prospective method. Early adoption was permitted. We elected to implement the new accounting guidance using a prospective approach. The adoption of this accounting guidance did not 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 was effective for interim and annual reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us) and was implemented using a cumulative-effect approach to transactions outstanding as of the effective date with no adjustment to prior periods. The disclosure for secured borrowings will be presented for annual periods beginning after December 15, 2014, and has been presented for interim periods beginning after March 15, 2015 (June 30, 2015, for us). Early adoption was not permitted. The adoption of this accounting guidance did not have a material effect 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 was effective prospectively for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us). Early adoption was permitted. The adoption of this accounting guidance did not 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 or the practical expedient method to the proportional amortization method. This accounting guidance was effective retrospectively for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us). Early adoption was permitted. We elected to amortize our LIHTCs under the practical expedient method to the proportional amortization method. As our LIHTCs were previously accounted for under the effective yield method and related amortization expense was previously classified as income taxes in our Consolidated Statements of Income, 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 our LIHTCs in Note 9.

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 was effective for reporting periods beginning after December 15, 2014 (effective January 1, 2015, for us) and could be implemented using either a modified retrospective method or prospective method. Early adoption was permitted. We elected to implement the new accounting guidance using a prospective approach. The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations. We provide the disclosure related to consumer residential mortgages required by this new accounting guidance in Note 4 (“Asset Quality”).

Accounting Guidance Pending Adoption at June 30, 2015

Fair value measurement. In May 2015, the FASB issued new disclosure guidance that eliminates the requirement to categorize investments measured using the net asset value practical expedient in the fair value hierarchy table. Entities will be required to disclose the fair value of investments measured using the net asset value practical expedient so that financial statement users can reconcile amounts reported in the fair value hierarchy table to amounts reported on the balance sheet. This disclosure will be presented for interim and annual reporting periods beginning after December 15, 2015 (March 31, 2016, for us) on a retrospective basis. Early adoption is permitted. The adoption of this disclosure guidance will not affect our financial condition or results of operations.

Cloud computing fees. In April 2015, the FASB issued new accounting guidance that clarifies a customer’s accounting for fees paid in a cloud computing arrangement. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. 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 prospective method or a retrospective 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.

Imputation of interest. In April 2015, the FASB issued new accounting guidance that requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2015 (effective January 1, 2016, for us) and should be implemented using a retrospective 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.

Consolidation. In February 2015, the FASB issued new accounting guidance that changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The new guidance amends the current accounting guidance to address limited partnerships and similar legal entities, certain investment funds, fees paid to a decision maker or service provider, and the impact of fee arrangements and related parties on the primary beneficiary determination. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2015 (effective January 1, 2016, for us) and should be implemented using a modified retrospective basis. Retrospective application to all relevant prior periods and early adoption is permitted. We are currently evaluating the impact that this accounting guidance may have on our financial condition or results of operations.

Derivatives and hedging. In November 2014, the FASB issued new accounting guidance that clarifies how current guidance should be interpreted when evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. An entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, when evaluating the nature of a host contract. This accounting guidance will be effective for interim and annual reporting periods beginning after December 15, 2015 (effective January 1, 2016, for us) and should be implemented using a modified retrospective basis. Retrospective application to all relevant prior periods and 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.

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.

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.

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. In July 2015, the FASB agreed to defer implementation of the new revenue recognition accounting guidance by one year; the FASB has not yet issued the guidance regarding the deferral of the effective date. Based on the FASB’s decision, the accounting guidance would be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018, for us). Under the issued accounting guidance, early adoption is not permitted; however, the FASB agreed to allow early adoption with the decision to defer the effective date for the accounting guidance. We have elected to implement this new accounting guidance using a cumulative-effect approach. Our preliminary analysis suggests that the adoption of this accounting guidance is not expected to have a material effect on our financial condition or results of operations. There are many aspects of this new accounting guidance that are still being interpreted, and the FASB has recently proposed updates to certain aspects of the guidance. Therefore, the results of our materiality analysis may change based on the conclusions reached as to the application of the new guidance.

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 June 30,					Six months ended June 30,
dollars in millions, except per share amounts	2015		2014			2015		2014
EARNINGS
Income (loss) from continuing operations	$	236	$	253		$	466	$	491
Less: Net income (loss) attributable to noncontrolling interests		1		6			3		6

Income (loss) from continuing operations attributable to Key		235		247			463		485
Less: Dividends on Series A Preferred Stock		5		5			11		11

Income (loss) from continuing operations attributable to Key common shareholders		230		242			452		474
Income (loss) from discontinued operations, net of taxes^(a)		3		(28	)		8		(24	)

Net income (loss) attributable to Key common shareholders	$	233	$	214		$	460	$	450

WEIGHTED-AVERAGE COMMON SHARES
Weighted-average common shares outstanding (000)		839,454		875,298			843,992		879,986
Effect of convertible preferred stock		—		20,602			—		—
Effect of common share options and other stock awards		6,858		6,237			7,695		6,698

Weighted-average common shares and potential common shares outstanding (000)^(b)		846,312		902,137			851,687		886,684

EARNINGS PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders	$	.27	$	.28		$	.53	$	.54
Income (loss) from discontinued operations, net of taxes^(a)		—		(.03	)		.01		(.03	)
Net income (loss) attributable to Key common shareholders^(c)		.28		.24			.54		.51
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	$	.27	$	.27		$	.52	$	.53
Income (loss) from discontinued operations, net of taxes^(a)		—		(.03	)		.01		(.03	)
Net income (loss) attributable to Key common shareholders — assuming dilution^(c)		.27		.24			.53		.51

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

(c)	EPS may not foot due to rounding.

3. Loans and Loans Held for Sale

Our loans by category are summarized as follows:


	June 30,		December 31,		June 30,
in millions	2015		2014		2014
Commercial, financial and agricultural^(a)	$	29,285	$	27,982	$	26,327
Commercial real estate:
Commercial mortgage		7,874		8,047		7,946
Construction		1,254		1,100		1,047

Total commercial real estate loans		9,128		9,147		8,993
Commercial lease financing^(b)		4,010		4,252		4,241

Total commercial loans		42,423		41,381		39,561
Residential — prime loans:
Real estate — residential mortgage		2,252		2,225		2,189
Home equity:
Key Community Bank		10,296		10,366		10,379
Other		236		267		300

Total home equity loans		10,532		10,633		10,679

Total residential — prime loans		12,784		12,858		12,868
Consumer other — Key Community Bank		1,595		1,560		1,514
Credit cards		753		754		718
Consumer other:
Marine		673		779		888
Other		36		49		51

Total consumer other		709		828		939

Total consumer loans		15,841		16,000		16,039

Total loans^{(c) (d)}	$	58,264	$	57,381	$	55,600

(a)	Loan balances include $89 million, $88 million, and $94 million of commercial credit card balances at June 30, 2015, December 31, 2014, and June 30, 2014, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $191 million, $302 million, and $375 million at June 30, 2015, December 31, 2014, and June 30, 2014, respectively. Principal reductions are based on the cash payments received from these related receivables. Additional information pertaining to this secured borrowing is included in Note 18 (“Long-Term Debt”) beginning on page 202 of our 2014 Form 10-K.

(c)

At June 30, 2015, total loans include purchased loans of $125 million, of which $12 million were PCI loans. At December 31, 2014, total loans include purchased loans of $138 million, of which $13 million were PCI loans. At June 30, 2014, total loans include purchased loans of $151 million, of which $15 million were PCI loans.

(d)

Total loans exclude loans of $2 billion at June 30, 2015, $2.3 billion at December 31, 2014, and $4.2 billion at June 30, 2014, related to the discontinued operations of the education lending business. Additional information pertaining to these loans is provided in Note 11 (“Acquisitions and Discontinued Operations”).

Our loans held for sale are summarized as follows:


in millions	June 30, 2015		December 31, 2014		June 30, 2014
Commercial, financial and agricultural	$	217	$	63	$	181
Real estate — commercial mortgage		576		638		221
Commercial lease financing		7		15		10
Real estate — residential mortgage		35		18		23

Total loans held for sale ^(a)	$	835	$	734	$	435

(a)	Total loans held for sale exclude loans held for sale of $179 million at June 30, 2015, related to the discontinued operations of the education lending business. Additional information pertaining to these loans is provided in Note 11.

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


	June 30,			December 31,			June 30,
in millions	2015			2014			2014
Balance at beginning of the period	$	1,649		$	784		$	401
New originations		1,650			2,465			978
Transfers from (to) held to maturity, net		6			2			(8	)
Loan sales		(2,466	)		(2,516	)		(934	)
Loan draws (payments), net		(4	)		(1	)		(2	)

Balance at end of period^(a)	$	835		$	734		$	435

(a)	Total loans held for sale exclude loans held for sale of $179 million at June 30, 2015, related to the discontinued operations of the education lending business. Additional information pertaining to these loans is provided in Note 11.

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.

Nonperforming loans are loans for which we do not accrue interest income, and include commercial and consumer loans and leases, as well as current year TDRs and nonaccruing TDR loans from prior years. Nonperforming loans do not include loans held for sale or PCI loans. Nonperforming assets include nonperforming loans, nonperforming loans held for sale, OREO, and other nonperforming assets.

Our nonperforming assets and past due loans were as follows:


	June 30,		December 31,		June 30,
in millions	2015		2014		2014
Total nonperforming loans^{(a), (b)}	$	419	$	418	$	396
Nonperforming loans held for sale		—		—		1
OREO^(c)		20		18		12
Other nonperforming assets		1		—		1

Total nonperforming assets	$	440	$	436	$	410

Nonperforming assets from discontinued operations — education lending^(d)	$	6	$	11	$	19

Restructured loans included in nonperforming loans	$	170	$	157	$	142
Restructured loans with an allocated specific allowance^(e)		79		82		59
Specifically allocated allowance for restructured loans^(f)		36		34		30

Accruing loans past due 90 days or more	$	66	$	96	$	83
Accruing loans past due 30 through 89 days		181		235		274

(a)	Loan balances exclude $12 million, $13 million, and $15 million of PCI loans at June 30, 2015, December 31, 2014, and June 30, 2014, respectively.

(b)	Includes carrying value of consumer residential mortgage loans in the process of foreclosure of approximately $116 million at June 30, 2015.

(c)	Includes carrying value of foreclosed residential real estate of approximately $15 million at June 30, 2015.

(d)	Restructured loans of approximately $19 million, $17 million, and $18 million are included in discontinued operations at June 30, 2015, December 31, 2014, and June 30, 2014, respectively. See Note 11 (“Acquisitions and Discontinued Operations”) for further discussion.

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

(f)	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 2012 acquisition date, 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 June 30, 2015, the outstanding unpaid principal balance and carrying value of all PCI loans was $18 million and $12 million, respectively. Changes in the accretable yield during the first six months of 2015 included accretion and net reclassifications of less than $1 million, resulting in an ending balance of $5 million at June 30, 2015.

At June 30, 2015, the approximate carrying amount of our commercial nonperforming loans outstanding represented 76% of their original contractual amount owed, total nonperforming loans outstanding represented 80% of their original contractual amount owed, and nonperforming assets in total were carried at 80% of their original contractual amount owed.

At June 30, 2015, our 20 largest nonperforming loans totaled $120 million, representing 29% of total loans on nonperforming status. At June 30, 2014, our 20 largest nonperforming loans totaled $55 million, representing 14% of total loans on nonperforming status.

Nonperforming loans and loans held for sale reduced expected interest income by $8 million for the six months ended June 30, 2015, and $16 million for the year ended December 31, 2014.

The following tables set forth a further breakdown of individually impaired loans as of June 30, 2015, December 31, 2014, and June 30, 2014:


June 30, 2015 in millions	Recorded		Unpaid Principal		Specific		Average Recorded
June 30, 2015 in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	9	$	56		—	$	15
Commercial real estate:
Commercial mortgage		10		14		—		12
Construction		7		7		—		7

Total commercial real estate loans		17		21		—		19

Total commercial loans		26		77		—		34

Real estate — residential mortgage		22		22		—		22
Home equity:
Key Community Bank		60		60		—		61
Other		2		2		—		2

Total home equity loans		62		62		—		63
Consumer other:
Marine		1		1		—		1

Total consumer other		1		1		—		1

Total consumer loans		85		85		—		86

Total loans with no related allowance recorded		111		162		—		120
With an allowance recorded:
Commercial, financial and agricultural		73		86	$	24		67
Commercial real estate:
Commercial mortgage		6		7		1		6

Total commercial real estate loans		6		7		1		6

Total commercial loans		79		93		25		73

Real estate — residential mortgage		33		33		5		33
Home equity:
Key Community Bank		53		53		17		51
Other		10		10		2		11

Total home equity loans		63		63		19		62
Consumer other — Key Community Bank		3		3		—		3
Credit cards		3		3		—		3
Consumer other:
Marine		40		40		3		40
Other		2		2		—		2

Total consumer other		42		42		3		42

Total consumer loans		144		144		27		143

Total loans with an allowance recorded		223		237		52		216

Total	$	334	$	399	$	52	$	336

(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, 2014 in millions	Recorded		Principal		Specific		Recorded
December 31, 2014 in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	6	$	17		—	$	8
Commercial real estate:
Commercial mortgage		15		20		—		19
Construction		5		6		—		7

Total commercial real estate loans		20		26		—		26

Total commercial loans		26		43		—		34

Real estate — residential mortgage		24		24		—		30
Home equity:
Key Community Bank		62		63		—		63
Other		1		1		—		2

Total home equity loans		63		64		—		65
Consumer other:
Marine		2		2		—		2

Total consumer other		2		2		—		2

Total consumer loans		89		90		—		97

Total loans with no related allowance recorded		115		133		—		131
With an allowance recorded:
Commercial, financial and agricultural		37		37	$	9		28
Commercial real estate:
Commercial mortgage		6		6		2		6
Construction		3		3		1		2

Total commercial real estate loans		9		9		3		8

Total commercial loans		46		46		12		36

Real estate — residential mortgage		31		31		5		25
Home equity:
Key Community Bank		46		46		16		43
Other		11		11		2		11

Total home equity loans		57		57		18		54
Consumer other — Key Community Bank		4		4		—		3
Credit cards		4		4		—		4
Consumer other:
Marine		43		43		5		45
Other		2		2		—		2

Total consumer other		45		45		5		47

Total consumer loans		141		141		28		133

Total loans with an allowance recorded		187		187		40		169

Total	$	302	$	320	$	40	$	300

(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
June 30, 2014 in millions	Recorded		Principal		Specific		Recorded
June 30, 2014 in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	12	$	18		—	$	23
Commercial real estate:
Commercial mortgage		23		28		—		23
Construction		6		17		—		6

Total commercial real estate loans		29		45		—		29

Total commercial loans		41		63		—		52

Real estate — residential mortgage		25		25		—		26
Home equity:
Key Community Bank		66		66		—		68
Other		2		2		—		2

Total home equity loans		68		68		—		70
Consumer other:
Marine		2		2		—		2

Total consumer other		2		2		—		2

Total consumer loans		95		95		—		98

Total loans with no related allowance recorded		136		158		—		150
With an allowance recorded:
Commercial, financial and agricultural		5		7	$	3		6
Commercial real estate:
Commercial mortgage		2		3		1		2
Construction		—		—		—		—

Total commercial real estate loans		2		3		1		2

Total commercial loans		7		10		4		8

Real estate — residential mortgage		29		29		5		28
Home equity:
Key Community Bank		37		37		15		36
Other		11		11		3		11

Total home equity loans		48		48		18		47
Consumer other — Key Community Bank		3		3		—		3
Credit cards		4		4		—		4
Consumer other:
Marine		48		48		5		49
Other		1		1		—		1

Total consumer other		49		49		5		50

Total consumer loans		133		133		28		132

Total loans with an allowance recorded		140		143		32		140

Total	$	276	$	301	$	32	$	290

(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 the six months ended June 30, 2015, and June 30, 2014, interest income recognized on the outstanding balances of accruing impaired loans totaled $3 million and $4 million, respectively.

At June 30, 2015, aggregate restructured loans (accrual and nonaccrual loans) totaled $300 million, compared to $270 million at December 31, 2014, and $266 million at June 30, 2014. We added $73 million in restructured loans during the first six months of 2015, which were offset by $43 million in payments and charge-offs.

A further breakdown of TDRs included in nonperforming loans by loan category as of June 30, 2015, follows:


			Pre-modification		Post-modification
			Outstanding		Outstanding
June 30, 2015	Number		Recorded		Recorded
dollars in millions	of Loans		Investment		Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		12	$	74	$	58
Commercial real estate:
Real estate — commercial mortgage		12		32		8

Total commercial real estate loans		12		32		8

Total commercial loans		24		106		66
Real estate — residential mortgage		352		21		21
Home equity:
Key Community Bank		1,076		77		70
Other		117		3		3

Total home equity loans		1,193		80		73
Consumer other — Key Community Bank		28		1		1
Credit cards		289		2		2
Consumer other:
Marine		104		8		7
Other		21		1		—

Total consumer other		125		9		7

Total consumer loans		1,987		113		104

Total nonperforming TDRs		2,011		219		170
Prior-year accruing:^(a)
Commercial, financial and agricultural		14		6		3
Commercial real estate:
Real estate — commercial mortgage		1		2		1

Total commercial real estate loans		1		2		1

Total commercial loans		15		8		4
Real estate — residential mortgage		491		36		36
Home equity:
Key Community Bank		807		48		42
Other		331		10		8

Total home equity loans		1,138		58		50
Consumer other — Key Community Bank		48		2		2
Credit cards		489		3		2
Consumer other:
Marine		419		60		34
Other		73		2		2

Total consumer other		492		62		36

Total consumer loans		2,658		161		126

Total prior-year accruing TDRs		2,673		169		130

Total TDRs		4,684	$	388	$	300

(a)	All TDRs that were restructured prior to January 1, 2015, and are fully accruing.

A further breakdown of TDRs included in nonperforming loans by loan category as of December 31, 2014, follows:


December 31, 2014 dollars in millions	Number of Loans		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		14	$	25	$	23
Commercial real estate:
Real estate — commercial mortgage		10		38		13
Real estate — construction		1		5		—

Total commercial real estate loans		11		43		13

Total commercial loans		25		68		36
Real estate — residential mortgage		453		27		27
Home equity:
Key Community Bank		1,184		79		72
Other		158		4		4

Total home equity loans		1,342		83		76
Consumer other — Key Community Bank		37		2		1
Credit cards		290		2		2
Consumer other:
Marine		206		17		14
Other		38		1		1

Total consumer other		244		18		15

Total consumer loans		2,366		132		121

Total nonperforming TDRs		2,391		200		157
Prior-year accruing:^(a)
Commercial, financial and agricultural		20		6		3
Commercial real estate:
Real estate — commercial mortgage		1		2		1

Total commercial real estate loans		1		2		1

Total commercial loans		21		8		4
Real estate — residential mortgage		381		29		29
Home equity:
Key Community Bank		674		41		36
Other		310		9		8

Total home equity loans		984		50		44
Consumer other — Key Community Bank		45		2		2
Credit cards		514		4		2
Consumer other:
Marine		373		54		31
Other		67		2		1

Total consumer other		440		56		32

Total consumer loans		2,364		141		109

Total prior-year accruing TDRs		2,385		149		113

Total TDRs		4,776	$	349	$	270

(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 June 30, 2014, follows:


June 30, 2014 dollars in millions	Number of Loans		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		24	$	20	$	10
Commercial real estate:
Real estate — commercial mortgage		11		40		14
Real estate — construction		3		15		2

Total commercial real estate loans		14		55		16

Total commercial loans		38		75		26
Real estate — residential mortgage		521		34		34
Home equity:
Key Community Bank		1,086		68		64
Other		126		4		3

Total home equity loans		1,212		72		67
Consumer other — Key Community Bank		33		1		1
Credit cards		60		—		—
Consumer other:
Marine		207		15		13
Other		36		1		1

Total consumer other		243		16		14

Total consumer loans		2,069		123		116

Total nonperforming TDRs		2,107		198		142
Prior-year accruing:^(a)
Commercial, financial and agricultural		32		7		3
Commercial real estate:
Real estate — commercial mortgage		4		17		9

Total commercial real estate loans		4		17		9

Total commercial loans		36		24		12
Real estate — residential mortgage		287		21		21
Home equity:
Key Community Bank		759		43		39
Other		322		10		8

Total home equity loans		1,081		53		47
Consumer other — Key Community Bank		54		2		2
Credit cards		653		5		3
Consumer other:
Marine		428		60		37
Other		73		2		2

Total consumer other		501		62		39

Total consumer loans		2,576		143		112

Total prior-year accruing TDRs		2,612		167		124

Total TDRs		4,719	$	365	$	266

(a)	All TDRs that were restructured prior to January 1, 2014, 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.

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 June 30, 2015, there were no significant commercial loan TDRs, and 65 consumer loan TDRs with a combined recorded investment of $3 million that experienced payment defaults from modifications resulting in TDR status during 2014. During the three months ended June 30, 2014, there were no significant commercial loan TDRs, and 107 consumer loan TDRs with a combined recorded investment of $4 million that experienced payment defaults from modifications resulting in TDR status during 2013. 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’ debts that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed.

The following table shows the post-modification outstanding recorded investment by concession type for our commercial and consumer accruing and nonaccruing TDRs and other selected financial data.


in millions	June 30, 2015		December 31, 2014		June 30, 2014
Commercial loans:
Interest rate reduction	$	60	$	13	$	27
Forgiveness of principal		2		2		5
Other		8		25		6

Total	$	70	$	40	$	38

Consumer loans:
Interest rate reduction	$	142	$	140	$	139
Forgiveness of principal		4		4		4
Other		84		86		85

Total	$	230	$	230	$	228

Total commercial and consumer TDRs^(a)	$	300	$	270	$	266
Total loans		58,264		57,381		55,600

(a)	Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs are $8 million, $5 million, and $1 million at June 30, 2015, December 31, 2014, and June 30, 2014, 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 116 of our 2014 Form 10-K.

At June 30, 2015, approximately $57.6 billion, or 98.8%, of our total loans were current, compared to $56.6 billion, or 98.7%, at December 31, 2014, and $54.8 billion, or 98.6%, at June 30, 2014. At June 30, 2015, total past due loans and nonperforming loans of $666 million represented approximately 1.2% of total loans, compared to $749 million, or 1.3%, at December 31, 2014, and $753 million, or 1.4% at June 30, 2014.

The following aging analysis of past due and current loans as of June 30, 2015, December 31, 2014, and June 30, 2014, provides further information regarding Key’s credit exposure.


June 30, 2015 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	$	29,137	$	26	$	5	$	17	$	100	$	148		—	$	29,285
Commercial real estate:
Commercial mortgage		7,823		6		2		17		26		51		—		7,874
Construction		1,242		—		—		—		12		12		—		1,254

Total commercial real estate loans		9,065		6		2		17		38		63		—		9,128
Commercial lease financing		3,967		20		3		2		18		43		—		4,010

Total commercial loans	$	42,169	$	52	$	10	$	36	$	156	$	254		—	$	42,423

Real estate — residential mortgage	$	2,155	$	13	$	3	$	3	$	67	$	86	$	11	$	2,252
Home equity:
Key Community Bank		10,043		43		22		11		176		252		1		10,296
Other		221		4		2		1		8		15		—		236

Total home equity loans		10,264		47		24		12		184		267		1		10,532
Consumer other — Key Community Bank		1,577		8		3		6		1		18		—		1,595
Credit cards		735		5		3		8		2		18		—		753
Consumer other:
Marine		651		10		3		1		8		22		—		673
Other		35		—		—		—		1		1		—		36

Total consumer other		686		10		3		1		9		23		—		709

Total consumer loans	$	15,417	$	83	$	36	$	30	$	263	$	412	$	12	$	15,841

Total loans	$	57,586	$	135	$	46	$	66	$	419	$	666	$	12	$	58,264


December 31, 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	$	27,858	$	19	$	14	$	32	$	59	$	124		—	$	27,982
Commercial real estate:
Commercial mortgage		7,981		6		10		16		34		66		—		8,047
Construction		1,084		2		—		1		13		16		—		1,100

Total commercial real estate loans		9,065		8		10		17		47		82		—		9,147
Commercial lease financing		4,172		30		21		11		18		80		—		4,252

Total commercial loans	$	41,095	$	57	$	45	$	60	$	124	$	286		—	$	41,381

Real estate — residential mortgage	$	2,111	$	12	$	7	$	4	$	79	$	102	$	12	$	2,225
Home equity:
Key Community Bank		10,098		46		22		14		185		267		1		10,366
Other		249		5		2		1		10		18		—		267

Total home equity loans		10,347		51		24		15		195		285		1		10,633
Consumer other — Key Community Bank		1,541		9		3		5		2		19		—		1,560
Credit cards		733		6		4		9		2		21		—		754
Consumer other:
Marine		746		11		5		2		15		33		—		779
Other		46		1		—		1		1		3		—		49

Total consumer other		792		12		5		3		16		36		—		828

Total consumer loans	$	15,524	$	90	$	43	$	36	$	294	$	463	$	13	$	16,000

Total loans	$	56,619	$	147	$	88	$	96	$	418	$	749	$	13	$	57,381


June 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	$	26,212	$	52	$	11	$	15	$	37	$	115		—	$	26,327
Commercial real estate:
Commercial mortgage		7,855		18		15		19		38		90	$	1		7,946
Construction		1,029		2		2		5		9		18		—		1,047

Total commercial real estate loans		8,884		20		17		24		47		108		1		8,993
Commercial lease financing		4,186		32		4		4		15		55		—		4,241

Total commercial loans	$	39,282	$	104	$	32	$	43	$	99	$	278	$	1	$	39,561

Real estate — residential mortgage	$	2,061	$	16	$	6	$	4	$	89	$	115	$	13	$	2,189
Home equity:
Key Community Bank		10,115		46		22		17		178		263		1		10,379
Other		281		5		2		1		11		19		—		300

Total home equity loans		10,396		51		24		18		189		282		1		10,679
Consumer other — Key Community Bank		1,493		9		4		6		2		21		—		1,514
Credit cards		698		6		4		9		1		20		—		718
Consumer other:
Marine		855		13		3		2		15		33		—		888
Other		47		1		1		1		1		4		—		51

Total consumer other		902		14		4		3		16		37		—		939

Total consumer loans	$	15,550	$	96	$	42	$	40	$	297	$	475	$	14	$	16,039

Total loans	$	54,832	$	200	$	74	$	83	$	396	$	753	$	15	$	55,600

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 $12 million and $15 million of PCI loans at June 30, 2015, and June 30, 2014, respectively, based on bond rating, regulatory classification, and payment activity as of June 30, 2015, and June 30, 2014, are as follows:

Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category^(a)


June 30, in millions
	Commercial, financial and agricultural				RE —Commercial				RE —Construction				Commercial Lease				Total
RATING^{(b), (c)}	2015		2014		2015		2014		2015		2014		2015		2014		2015		2014
AAA — AA	$	396	$	364	$	3	$	3	$	1	$	1	$	504	$	712	$	904	$	1,080
A		1,189		1,091		4		1		—		1		484		382		1,677		1,475
BBB — BB		25,931		23,534		7,318		7,412		1,084		907		2,853		2,968		37,186		34,821
B		653		545		278		287		138		99		103		99		1,172		1,030
CCC — C		1,116		793		271		242		31		39		66		80		1,484		1,154

Total	$	29,285	$	26,327	$	7,874	$	7,945	$	1,254	$	1,047	$	4,010	$	4,241	$	42,423	$	39,560

(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)}


June 30, in millions
	Residential — Prime
GRADE	2015		2014
Pass	$	12,506	$	12,554
Substandard		266		300

Total	$	12,772	$	12,854

Credit Risk Profile Based on Payment Activity^(a)


June 30, in millions	Consumer — Key Community Bank				Credit cards				Consumer —Marine				Consumer — Other				Total
June 30, in millions	2015		2014		2015		2014		2015		2014		2015		2014		2015		2014
Performing	$	1,594	$	1,512	$	751	$	717	$	665	$	873	$	35	$	50	$	3,045	$	3,152
Nonperforming		1		2		2		1		8		15		1		1		12		19

Total	$	1,595	$	1,514	$	753	$	718	$	673	$	888	$	36	$	51	$	3,057	$	3,171

(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 117 of our 2014 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 or 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 June 30, 2015, 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. Consumer loans generally 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 June 30, 2015, the ALLL was $796 million, or 1.37% of loans, compared to $814 million, or 1.46% of loans, at June 30, 2014. At June 30, 2015, the ALLL was 190% of nonperforming loans, compared to 205.6% at June 30, 2014.

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


	Three months ended June 30,						Six months ended June 30,
in millions	2015			2014			2015			2014
Balance at beginning of period — continuing operations	$	794		$	834		$	794		$	848
Charge-offs		(52	)		(56	)		(99	)		(113	)
Recoveries		16			26			35			63

Net loans and leases charged off		(36	)		(30	)		(64	)		(50	)
Provision for loan and lease losses from continuing operations		37			10			66			16
Foreign currency translation adjustment		1			—			—			—

Balance at end of period — continuing operations	$	796		$	814		$	796		$	814

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


in millions	December 31, 2014		Provision			Charge-offs			Recoveries		June 30, 2015
Commercial, financial and agricultural	$	391	$	49		$	(33	)	$	11	$	418
Real estate — commercial mortgage		148		(4	)		(2	)		2		144
Real estate — construction		28		3			(1	)		1		31
Commercial lease financing		56		(5	)		(3	)		5		53

Total commercial loans		623		43			(39	)		19		646
Real estate — residential mortgage		23		(1	)		(3	)		1		20
Home equity:
Key Community Bank		66		3			(15	)		3		57
Other		5		—			(3	)		2		4

Total home equity loans		71		3			(18	)		5		61
Consumer other — Key Community Bank		22		7			(12	)		4		21
Credit cards		33		13			(16	)		1		31
Consumer other:
Marine		21		—			(10	)		5		16
Other		1		1			(1	)		—		1

Total consumer other:		22		1			(11	)		5		17

Total consumer loans		171		23			(60	)		16		150

Total ALLL — continuing operations		794		66	^(a)		(99	)		35		796
Discontinued operations		29		1			(16	)		8		22

Total ALLL — including discontinued operations	$	823	$	67		$	(115	)	$	43	$	818

(a)	Excludes provision for losses on lending-related commitments of $10 million.


in millions	December 31, 2013		Provision			Charge-offs			Recoveries		June 30, 2014
Commercial, financial and agricultural	$	362	$	13		$	(23	)	$	21	$	373
Real estate — commercial mortgage		165		(5	)		(3	)		2		159
Real estate — construction		32		(11	)		(2	)		15		34
Commercial lease financing		62		(3	)		(5	)		6		60

Total commercial loans		621		(6	)		(33	)		44		626
Real estate — residential mortgage		37		(9	)		(5	)		2		25
Home equity:
Key Community Bank		84		9			(20	)		4		77
Other		11		1			(6	)		3		9

Total home equity loans		95		10			(26	)		7		86
Consumer other — Key Community Bank		29		8			(16	)		3		24
Credit cards		34		13			(18	)		1		30
Consumer other:
Marine		29		1			(14	)		5		21
Other		3		(1	)		(1	)		1		2

Total consumer other:		32		—			(15	)		6		23

Total consumer loans		227		22			(80	)		19		188

Total ALLL — continuing operations		848		16	^(a)		(113	)		63		814
Discontinued operations		39		9			(24	)		8		32

Total ALLL — including discontinued operations	$	887	$	25		$	(137	)	$	71	$	846

(a)	Excludes provision for losses on lending-related commitments.

Our ALLL from continuing operations decreased by $18 million, or 2.2%, from the second quarter of 2014 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 classified and nonperforming loans 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 2014 and into 2015 due to continued improved credit quality, 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 $334 million, with a corresponding allowance of $52 million at June 30, 2015. Loans outstanding collectively evaluated for impairment totaled $57.9 billion, with a corresponding allowance of $743 million at June 30, 2015. At June 30, 2015, PCI loans evaluated for impairment totaled $12 million, with a corresponding allowance of $1 million. There was no provision for loan and lease losses on these PCI loans during the six months ended June 30, 2015. At June 30, 2014, the loans outstanding individually evaluated for impairment totaled $276 million, with a corresponding allowance of $32 million. Loans outstanding collectively evaluated for impairment totaled $55.3 billion, with a corresponding allowance of $781 million at June 30, 2014. At June 30, 2014, PCI loans evaluated for impairment totaled $15 million, with a corresponding allowance of $1 million. There was no provision for loan and lease losses on these PCI loans during the six months ended June 30, 2014.

A breakdown of the individual and collective ALLL and the corresponding loan balances as of June 30, 2015, follows:


	Allowance						Outstanding
	Individually		Collectively		Purchased				Individually		Collectively		Purchased
June 30, 2015 in millions	Evaluated for		Evaluated for		Credit				Evaluated for		Evaluated for		Credit
June 30, 2015 in millions	Impairment		Impairment		Impaired		Loans		Impairment		Impairment		Impaired
Commercial, financial and agricultural	$	24	$	394		—	$	29,285	$	82	$	29,203		—
Commercial real estate:
Commercial mortgage		1		143		—		7,874		16		7,858		—
Construction		—		31		—		1,254		7		1,247		—

Total commercial real estate loans		1		174		—		9,128		23		9,105		—
Commercial lease financing		—		53		—		4,010		—		4,010		—

Total commercial loans		25		621		—		42,423		105		42,318		—
Real estate — residential mortgage		5		14	$	1		2,252		56		2,185	$	11
Home equity:
Key Community Bank		17		40		—		10,296		112		10,183		1
Other		2		2		—		236		12		224		—

Total home equity loans		19		42		—		10,532		124		10,407		1
Consumer other — Key Community Bank		—		21		—		1,595		3		1,592		—
Credit cards		—		31		—		753		3		750		—
Consumer other:
Marine		3		13		—		673		41		632		—
Other		—		1		—		36		2		34		—

Total consumer other		3		14		—		709		43		666		—

Total consumer loans		27		122		1		15,841		229		15,600		12

Total ALLL — continuing operations		52		743		1		58,264		334		57,918		12
Discontinued operations		1		21		—		1,962		19		1,943		—

Total ALLL — including discontinued operations	$	53	$	764	$	1	$	60,226	$	353	$	59,861	$	12

A breakdown of the individual and collective ALLL and the corresponding loan balances as of December 31, 2014, follows:


	Allowance						Outstanding
	Individually		Collectively		Purchased					Individually		Collectively			Purchased
December 31, 2014 in millions	Evaluated for		Evaluated for		Credit					Evaluated for		Evaluated for			Credit
December 31, 2014 in millions	Impairment		Impairment		Impaired		Loans			Impairment		Impairment			Impaired
Commercial, financial and agricultural	$	9	$	382		—	$	27,982		$	43	$	27,939			—
Commercial real estate:
Commercial mortgage		2		146		—		8,047			21		8,025		$	1
Construction		1		27		—		1,100			8		1,092			—

Total commercial real estate loans		3		173		—		9,147			29		9,117			1
Commercial lease financing		—		56		—		4,252			—		4,252			—

Total commercial loans		12		611		—		41,381			72		41,308			1
Real estate — residential mortgage		5		17	$	1		2,225			55		2,159			11
Home equity:
Key Community Bank		16		50		—		10,366			108		10,257			1
Other		2		3		—		267			12		255			—

Total home equity loans		18		53		—		10,633			120		10,512			1
Consumer other — Key Community Bank		—		22		—		1,560			4		1,556			—
Credit cards		—		33		—		754			4		750			—
Consumer other:
Marine		5		16		—		779			45		734			—
Other		—		1		—		49			2		47			—

Total consumer other		5		17		—		828			47		781			—

Total consumer loans		28		142		1		16,000			230		15,758			12

Total ALLL — continuing operations		40		753		1		57,381			302		57,066			13
Discontinued operations		1		28		—		2,295	^(a)		17		2,278	^(a)		—

Total ALLL — including discontinued operations	$	41	$	781	$	1	$	59,676		$	319	$	59,344		$	13

(a)	Amount includes $191 million of loans carried at fair value that are excluded from ALLL consideration.

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


	Allowance						Outstanding
	Individually		Collectively		Purchased				Individually		Collectively		Purchased
June 30, 2014 in millions	Evaluated for		Evaluated for		Credit				Evaluated for		Evaluated for		Credit
June 30, 2014 in millions	Impairment		Impairment		Impaired		Loans		Impairment		Impairment		Impaired
Commercial, financial and agricultural	$	3	$	370		—	$	26,327	$	17	$	26,310		—
Commercial real estate:
Commercial mortgage		1		158		—		7,946		25		7,920	$	1
Construction		—		34		—		1,047		6		1,041		—

Total commercial real estate loans		1		192		—		8,993		31		8,961		1
Commercial lease financing		—		60		—		4,241		—		4,241		—

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company