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, 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		835,366,925 Shares
Title of class		Outstanding at October 29, 2015

KEYCORP

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION


		Page Number

Item 1.	Financial Statements

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

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

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

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

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

	Notes to Consolidated Financial Statements (Unaudited)

	Note 1. Basis of Presentation and Accounting Policies		10
	Note 2. Earnings Per Common Share		15
	Note 3. Loans and Loans Held for Sale		16
	Note 4. Asset Quality		18
	Note 5. Fair Value Measurements		33
	Note 6. Securities		49
	Note 7. Derivatives and Hedging Activities		53
	Note 8. Mortgage Servicing Assets		61
	Note 9. Variable Interest Entities		62
	Note 10. Income Taxes		64
	Note 11. Acquisitions and Discontinued Operations		65
	Note 12. Securities Financing Activities		73
	Note 13. Employee Benefits		75
	Note 14. Trust Preferred Securities Issued by Unconsolidated Subsidiaries		76
	Note 15. Contingent Liabilities and Guarantees		77
	Note 16. Accumulated Other Comprehensive Income		79
	Note 17. Shareholders’ Equity		82
	Note 18. Line of Business Results		83
	Note 19. Subsequent Event		87

	Report of Ernst & Young LLP, Independent Registered Public Accounting Firm		88


Item 2.	Management’s Discussion & Analysis of Financial Condition & Results of Operations	89

	Introduction	89
	Terminology	89
	Selected financial data	90
	Forward-looking statements	91
	Economic overview	92
	Long-term financial goals	93
	Strategic developments	93
	Demographics	94
	Supervision and regulation	95

	Highlights of Our Performance	97
	Financial performance	97

	Results of Operations	101
	Net interest income	101
	Noninterest income	104
	Noninterest expense	106
	Income taxes	108

	Line of Business Results	109
	Key Community Bank summary of operations	109
	Key Corporate Bank summary of operations	110
	Other Segments	111

	Financial Condition	112
	Loans and loans held for sale	112
	Securities	118
	Other investments	121
	Deposits and other sources of funds	121
	Capital	122

	Risk Management	126
	Overview	126
	Market risk management	127
	Liquidity risk management	132
	Credit risk management	135
	Operational and compliance risk management	142

	Critical Accounting Policies and Estimates	143

	European Sovereign and Non-Sovereign Debt Exposures	144

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	145
Item 4.	Controls and Procedures	145


	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	145
Item 1A.	Risk Factors	145
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	146
Item 6.	Exhibits	146
	Signature	147
	Exhibits	148

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 and Accounting Policies”) that begins on page 10.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets


in millions, except per share data	September 30, 2015			December 31, 2014			September 30, 2014
	(Unaudited)						(Unaudited)
ASSETS
Cash and due from banks	$	470		$	653		$	651
Short-term investments		1,964			4,269			2,342
Trading account assets		811			750			965
Securities available for sale		14,376			13,360			12,245
Held-to-maturity securities (fair value: $4,940, $4,974, and $4,911)		4,936			5,015			4,997
Other investments		691			760			822
Loans, net of unearned income of $645, $682, and $685		60,085			57,381			56,155
Less: Allowance for loan and lease losses		790			794			804

Net loans		59,295			56,587			55,351
Loans held for sale		916			734			784
Premises and equipment		771			841			832
Operating lease assets		315			330			304
Goodwill		1,060			1,057			1,051
Other intangible assets		74			101			126
Corporate-owned life insurance		3,516			3,479			3,456
Derivative assets		793			609			413
Accrued income and other assets (including $1, $1, and $1 of consolidated LIHTC guaranteed funds VIEs, see Note 9)^(a)		3,348			2,952			3,024
Discontinued assets (including $169 of portfolio loans held for sale at fair value and $191 and $201 of portfolio loans at fair value, see Note 11)		2,086			2,324			2,421

Total assets	$	95,422		$	93,821		$	89,784

LIABILITIES
Deposits in domestic offices:
NOW and money market deposit accounts	$	37,301		$	34,536		$	33,941
Savings deposits		2,338			2,371			2,390
Certificates of deposit ($100,000 or more)		2,001			2,040			2,533
Other time deposits		3,020			3,259			3,338

Total interest-bearing deposits		44,660			42,206			42,202
Noninterest-bearing deposits		25,985			29,228			25,697
Deposits in foreign office — interest-bearing		428			564			557

Total deposits		71,073			71,998			68,456
Federal funds purchased and securities sold under repurchase agreements		407			575			657
Bank notes and other short-term borrowings		677			423			996
Derivative liabilities		676			784			384
Accrued expense and other liabilities (including $1, $1, and $2 of consolidated LIHTC guaranteed funds VIEs, see Note 9)^(a)		1,562			1,621			1,613
Long-term debt		10,310			7,875			7,172
Discontinued liabilities		—			3			3

Total liabilities		84,705			83,279			79,281
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		3,914			3,986			3,984
Retained earnings		8,764			8,273			8,082
Treasury stock, at cost (181,685,035, 157,566,493, and 148,492,881 shares)		(3,008	)		(2,681	)		(2,563	)
Accumulated other comprehensive income (loss)		(272	)		(356	)		(325	)

Key shareholders’ equity		10,705			10,530			10,486
Noncontrolling interests		12			12			17

Total equity		10,717			10,542			10,503

Total liabilities and equity	$	95,422		$	93,821		$	89,784

(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	2015			2014			2015		2014
INTEREST INCOME
Loans	$	542		$	531		$	1,597	$	1,576
Loans held for sale		10			4			29		13
Securities available for sale		75			67			217		210
Held-to-maturity securities		24			25			72		70
Trading account assets		5			6			15		19
Short-term investments		1			2			5		4
Other investments		4			4			14		16

Total interest income		661			639			1,949		1,908
INTEREST EXPENSE
Deposits		27			28			79		91
Federal funds purchased and securities sold under repurchase agreements		—			1			—		2
Bank notes and other short-term borrowings		2			2			6		6
Long-term debt		41			33			118		98

Total interest expense		70			64			203		197

NET INTEREST INCOME		591			575			1,746		1,711
Provision for credit losses		45			19			121		35

Net interest income after provision for credit losses		546			556			1,625		1,676
NONINTEREST INCOME
Trust and investment services income		108			99			328		291
Investment banking and debt placement fees		109			88			318		271
Service charges on deposit accounts		68			68			192		197
Operating lease income and other leasing gains		15			17			58		81
Corporate services income		57			42			143		125
Cards and payments income		47			42			136		123
Corporate-owned life insurance income		30			26			91		80
Consumer mortgage income		3			3			10		7
Mortgage servicing fees		11			9			33		35
Net gains (losses) from principal investing		11			9			51		60
Other income^(a)		11			14			35		37

Total noninterest income		470			417			1,395		1,307
NONINTEREST EXPENSE
Personnel		426			405			1,223		1,182
Net occupancy		60			66			191		198
Computer processing		41			39			121		118
Business services and professional fees		40			36			115		118
Equipment		22			25			66		73
Operating lease expense		11			11			34		31
Marketing		17			15			40		33
FDIC assessment		8			9			24		21
Intangible asset amortization		9			10			27		29
OREO expense, net		2			1			5		3
Other expense		88			89			258		251

Total noninterest expense		724			706			2,104		2,057

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		292			267			916		926
Income taxes		72			64			230		232

INCOME (LOSS) FROM CONTINUING OPERATIONS		220			203			686		694
Income (loss) from discontinued operations, net of taxes of ($2), ($10), $3, and ($24) (see Note 11)		(3	)		(17	)		5		(41	)

NET INCOME (LOSS)		217			186			691		653
Less: Net income (loss) attributable to noncontrolling interests		(2	)		—			1		6

NET INCOME (LOSS) ATTRIBUTABLE TO KEY	$	219		$	186		$	690	$	647

Income (loss) from continuing operations attributable to Key common shareholders	$	216		$	197		$	668	$	671
Net income (loss) attributable to Key common shareholders		213			180			673		630
Per common share:
Income (loss) from continuing operations attributable to Key common shareholders	$	.26		$	.23		$	.79	$	.77
Income (loss) from discontinued operations, net of taxes		—			(.02	)		.01		(.05	)
Net income (loss) attributable to Key common shareholders ^(b)		.26			.21			.80		.72
Per common share — assuming dilution:
Income (loss) from continuing operations attributable to Key common shareholders	$	.26		$	.23		$	.78	$	.76
Income (loss) from discontinued operations, net of taxes		—			(.02	)		.01		(.05	)
Net income (loss) attributable to Key common shareholders ^(b)		.25			.21			.79		.71
Cash dividends declared per common share	$	.075		$	.065		$	.215	$	.185
Weighted-average common shares outstanding (000)		831,430			867,350			839,758		875,728
Effect of convertible preferred stock		—			—			—		—
Effect of common share options and other stock awards		7,450			6,772			7,613		6,723

Weighted-average common shares and potential common shares outstanding (000)^(c)		838,880			874,122			847,371		882,451

(a)	For each of the three months ended September 30, 2015, and September 30, 2014, net securities gains (losses) totaled less than $1 million. For the three months ended September 30, 2015, and September 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 September 30,						Nine months ended September 30,
in millions	2015			2014			2015			2014
Net income (loss)	$	217		$	186		$	691		$	653
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale, net of income taxes of $33, ($20), $35, and $14		54			(33	)		58			24
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $28, ($6), $37, and ($3)		48			(8	)		63			(4	)
Foreign currency translation adjustments, net of income taxes of ($3), ($3), ($11), and ($3)		(5	)		(9	)		(18	)		(12	)
Net pension and postretirement benefit costs, net of income taxes of ($15), $10, ($12), and $13		(24	)		14			(19	)		19

Total other comprehensive income (loss), net of tax		73			(36	)		84			27

Comprehensive income (loss)		290			150			775			680
Less: Comprehensive income attributable to noncontrolling interests		(2	)		—			1			6

Comprehensive income (loss) attributable to Key	$	292		$	150		$	774		$	674

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, 2013		2,905			890,724		$	291		$	1,017	$	4,022		$	7,606		$	(2,281	)	$	(352	)	$	17
Net income (loss)																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 $13																						19
Deferred compensation
Cash dividends declared on common shares ($.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

BALANCE AT DECEMBER 31, 2014		2,905			859,403		$	291		$	1,017	$	3,986		$	8,273		$	(2,681	)	$	(356	)	$	12
Net income (loss)																690									1
Other comprehensive income (loss):
Net unrealized gains (losses) on securities available for sale, net of income taxes of $35																						58
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $37																						63
Foreign currency translation adjustments, net of income taxes of ($11)																						(18	)
Net pension and postretirement benefit costs, net of income taxes of ($12)																						(19	)
Deferred compensation													13
Cash dividends declared on common shares ($.215 per share)																(182	)
Cash dividends declared on Noncumulative Series A Preferred Stock ($5.8125 per share)																(17	)
Common shares repurchased					(31,267	)													(448	)
Series A Preferred Stock exchanged for common shares		(5	)		33			(1	)										1
Common shares reissued (returned) for stock options and other employee benefit plans					7,116								(85	)					120
Net contribution from (distribution to) noncontrolling interests																									(1	)

BALANCE AT SEPTEMBER 30, 2015		2,900			835,285		$	290		$	1,017	$	3,914		$	8,764		$	(3,008	)	$	(272	)	$	12

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Cash Flows (Unaudited)


	Nine months ended September 30,
in millions	2015			2014
OPERATING ACTIVITIES
Net income (loss)	$	691		$	653
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses		121			35
Provision (credit) for losses on LIHTC guaranteed funds		—			(6	)
Depreciation, amortization and accretion expense, net		176			185
Increase in cash surrender value of corporate-owned life insurance		(75	)		(73	)
Stock-based compensation expense		47			31
FDIC reimbursement (payments), net of FDIC expense		(1	)		1
Deferred income taxes (benefit)		(70	)		(29	)
Proceeds from sales of loans held for sale		5,362			2,832
Originations of loans held for sale, net of repayments		(5,428	)		(2,951	)
Net losses (gains) on sales of loans held for sale		(75	)		(59	)
Net losses (gains) from principal investing		(51	)		(60	)
Net losses (gains) and writedown on OREO		2			3
Net losses (gains) on leased equipment		(8	)		(35	)
Net securities losses (gains)		1			—
Net losses (gains) on sales of fixed assets		6			5
Gain on sale of Victory		—			(10	)
Loss on sale of residual interests and deconsolidation of securitization trusts		—			40
Net decrease (increase) in trading account assets		(61	)		(227	)
Other operating activities, net		(388	)		130

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		249			465
INVESTING ACTIVITIES
Cash received (used) in acquisitions, net of cash acquired		—			(113	)
Proceeds from sale of residual interests		—			57
Proceeds from sale of Victory		—			10
Net decrease (increase) in short-term investments, excluding acquisitions		2,305			3,285
Purchases of securities available for sale		(3,314	)		(1,993	)
Proceeds from sales of securities available for sale		11			—
Proceeds from prepayments and maturities of securities available for sale		2,357			2,123
Proceeds from prepayments and maturities of held-to-maturity securities		846			628
Purchases of held-to-maturity securities		(770	)		(869	)
Purchases of other investments		(24	)		(42	)
Proceeds from sales of other investments		107			266
Proceeds from prepayments and maturities of other investments		2			3
Net decrease (increase) in loans, excluding acquisitions, sales and transfers		(3,061	)		(1,936	)
Proceeds from sales of portfolio loans		89			91
Proceeds from corporate-owned life insurance		38			24
Purchases of premises, equipment, and software		(40	)		(53	)
Proceeds from sales of premises and equipment		1			1
Proceeds from sales of OREO		16			13

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(1,437	)		1,495
FINANCING ACTIVITIES
Net increase (decrease) in deposits, excluding acquisitions		(925	)		(806	)
Net increase (decrease) in short-term borrowings		86			(224	)
Net proceeds from issuance of long-term debt		4,054			648
Payments on long-term debt		(1,582	)		(1,034	)
Repurchase of common shares		(448	)		(355	)
Net proceeds from reissuance of common shares		19			23
Cash dividends paid		(199	)		(178	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		1,005			(1,926	)

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS		(183	)		34
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD		653			617

CASH AND DUE FROM BANKS AT END OF PERIOD	$	470		$	651

Additional disclosures relative to cash flows:
Interest paid	$	221		$	250
Income taxes paid (refunded)		173			109
Noncash items:
Reduction of secured borrowing and related collateral	$	132		$	78
Loans transferred to portfolio from held for sale		1			10
Loans transferred to held for sale from portfolio		41			5
Loans transferred to OREO		16			16
LIHTC guaranteed funds put		—			7
Assets acquired		—			35
Liabilities assumed		—			22

See Notes to Consolidated Financial Statements (Unaudited).

Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation and Accounting Policies

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.		KREEC: Key Real Estate Equity Capital, Inc.
ALCO: Asset/Liability Management Committee.		LCR: Liquidity coverage ratio.
ALLL: Allowance for loan and lease losses.		LIBOR: London Interbank Offered Rate.
A/LM: Asset/liability management.		LIHTC: Low-income housing tax credit.
AOCI: Accumulated other comprehensive income (loss).		Moody’s: Moody’s Investor Services, Inc.
APBO: Accumulated postretirement benefit obligation.		MRM: Market Risk Management group.
Austin: Austin Capital Management, Ltd.		N/A: Not applicable.
BHCs: Bank holding companies.		NASDAQ: The NASDAQ Stock Market LLC.
Board: KeyCorp Board of Directors.		N/M: Not meaningful.
CCAR: Comprehensive Capital Analysis and Review.		NOW: Negotiable Order of Withdrawal.
CMBS: Commercial mortgage-backed securities.		NYSE: New York Stock Exchange.
CMO: Collateralized mortgage obligation.		OCC: Office of the Comptroller of the Currency.
Common shares: KeyCorp common shares, $1 par value.		OCI: Other comprehensive income (loss).
Dodd-Frank Act: Dodd-Frank Wall Street Reform and		OREO: Other real estate owned.
Consumer Protection Act of 2010.		OTTI: Other-than-temporary impairment.
EBITDA: Earnings before interest, taxes, depreciation, and		PBO: Projected benefit obligation.
amortization.		PCI: Purchased credit impaired.
EPS: Earnings per share.		S&P: Standard and Poor’s Ratings Services, a Division of The
ERM: Enterprise risk management.		McGraw-Hill Companies, Inc.
EVE: Economic value of equity.		SEC: U.S. Securities and Exchange Commission.
FASB: Financial Accounting Standards Board.		Series A Preferred Stock: KeyCorp’s 7.750% Noncumulative
FDIC: Federal Deposit Insurance Corporation.		Perpetual Convertible Preferred Stock, Series A.
Federal Reserve: Board of Governors of the Federal Reserve		SIFIs: Systemically important financial institutions, including
System.		BHCs with total consolidated assets of at least $50 billion
FHLB: Federal Home Loan Bank of Cincinnati.		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
KBCM: KeyBanc Capital Markets, Inc.		Victory Capital Advisors.
KCDC: Key Community Development Corporation.		VIE: Variable interest entity.
KEF: Key Equipment Finance.

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”).

Allowance for Loan and Lease Losses

In the third quarter of 2015, we enhanced the approach used to determine the commercial reserve factors used in estimating the commercial ALLL, which had the effect of capturing certain elements in the commercial quantitative reserve component that had formerly been included in the commercial qualitative component. Under the enhanced methodology, we began utilizing more refined commercial estimated loss rates that represent cumulative losses over the estimated average time period from the onset of credit deterioration to the initial loss recorded for an individual loan. In addition, we began utilizing an enhanced framework to quantify commercial ALLL adjustments resulting from qualitative factors that may not be fully captured within the statistical analysis of incurred loss. The impact of these changes was largely neutral to the total ALLL at September 30, 2015. However, because the quantitative reserve is allocated to the business segments at a loan level, while the qualitative portion is allocated at the portfolio level, the impact of the methodology enhancements on the allowance for each business segment and each portfolio caused the business segment and commercial portfolio reserves to increase or decrease accordingly. The impact of the increases and decreases on the business segment and commercial portfolio reserves was not significant.

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 September 30, 2015

Business combinations. In September 2015, the FASB issued new accounting guidance that obligates an acquirer in a business combination to recognize adjustments to provisional amounts in the reporting period that the amounts were determined, eliminating the requirement for retrospective adjustments. The acquirer should record in the current period any income effects that resulted from the change in provisional amounts, calculated as if the accounting were completed at the acquisition date. 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 the 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.

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. We have elected to implement this new accounting guidance using a prospective approach. 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. The adoption of this accounting guidance is not expected to have a material effect 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. We have elected to implement this new accounting guidance using a prospective approach. 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 can be implemented using either a retrospective method or a cumulative-effect approach. In August 2015, the FASB issued an update that defers the effective date of the revenue recognition guidance by one year. This new guidance will be effective for interim and annual reporting periods beginning after December 15, 2017 (effective January 1, 2018, for us). Early adoption is permitted but only for interim and annual reporting periods beginning after December 15, 2016. 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 issued and 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 September 30,						Nine months ended September 30,
dollars in millions, except per share amounts	2015			2014			2015		2014
EARNINGS
Income (loss) from continuing operations	$	220		$	203		$	686	$	694
Less: Net income (loss) attributable to noncontrolling interests		(2	)		—			1		6

Income (loss) from continuing operations attributable to Key		222			203			685		688
Less: Dividends on Series A Preferred Stock		6			6			17		17

Income (loss) from continuing operations attributable to Key common shareholders		216			197			668		671
Income (loss) from discontinued operations, net of taxes^(a)		(3	)		(17	)		5		(41	)

Net income (loss) attributable to Key common shareholders	$	213		$	180		$	673	$	630

WEIGHTED-AVERAGE COMMON SHARES
Weighted-average common shares outstanding (000)		831,430			867,350			839,758		875,728
Effect of convertible preferred stock		—			—			—		—
Effect of common share options and other stock awards		7,450			6,772			7,613		6,723

Weighted-average common shares and potential common shares outstanding (000)^(b)		838,880			874,122			847,371		882,451

EARNINGS PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders	$	.26		$	.23		$	.79	$	.77
Income (loss) from discontinued operations, net of taxes^(a)		—			(.02	)		.01		(.05	)
Net income (loss) attributable to Key common shareholders^(c)		.26			.21			.80		.72
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	$	.26		$	.23		$	.78	$	.76
Income (loss) from discontinued operations, net of taxes^(a)		—			(.02	)		.01		(.05	)
Net income (loss) attributable to Key common shareholders — assuming dilution^(c)		.25			.21			.79		.71

(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:


in millions	September 30, 2015		December 31, 2014		September 30, 2014
Commercial, financial and agricultural^(a)	$	31,095	$	27,982	$	26,683
Commercial real estate:
Commercial mortgage		8,180		8,047		8,276
Construction		1,070		1,100		1,036

Total commercial real estate loans		9,250		9,147		9,312
Commercial lease financing^(b)		3,929		4,252		4,135

Total commercial loans		44,274		41,381		40,130
Residential — prime loans:
Real estate — residential mortgage		2,267		2,225		2,213
Home equity:
Key Community Bank		10,282		10,366		10,380
Other		222		267		283

Total home equity loans		10,504		10,633		10,663

Total residential — prime loans		12,771		12,858		12,876
Consumer other — Key Community Bank		1,612		1,560		1,546
Credit cards		770		754		724
Consumer other:
Marine		620		779		828
Other		38		49		51

Total consumer other		658		828		879

Total consumer loans		15,811		16,000		16,025

Total loans^{(c) (d)}	$	60,085	$	57,381	$	56,155

(a)	Loan balances include $88 million, $88 million, and $90 million of commercial credit card balances at September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

(b)

Commercial lease financing includes receivables held as collateral for a secured borrowing of $162 million, $302 million, and $367 million at September 30, 2015, December 31, 2014, and September 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 September 30, 2015, total loans include purchased loans of $119 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 September 30, 2014, total loans include purchased loans of $143 million, of which $14 million were PCI loans.

(d)

Total loans exclude loans of $1.9 billion at September 30, 2015, $2.3 billion at December 31, 2014, and $2.4 billion at September 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	September 30, 2015		December 31, 2014		September 30, 2014
Commercial, financial and agricultural	$	74	$	63	$	30
Real estate — commercial mortgage		806		638		725
Commercial lease financing		10		15		10
Real estate — residential mortgage		26		18		19

Total loans held for sale ^(a)	$	916	$	734	$	784

(a)	Total loans held for sale exclude loans held for sale of $169 million at September 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:


in millions	September 30, 2015			December 31, 2014			September 30, 2014
Balance at beginning of the period	$	835		$	784		$	435
New originations		1,673			2,465			1,593
Transfers from (to) held to maturity, net		24			2			—
Loan sales		(1,616	)		(2,516	)		(1,243	)
Loan draws (payments), net		—			(1	)		(1	)

Balance at end of period^(a)	$	916		$	734		$	784

(a)	Total loans held for sale exclude loans held for sale of $169 million at September 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:


in millions	September 30, 2015		December 31, 2014		September 30, 2014
Total nonperforming loans^{(a), (b)}	$	400	$	418	$	401
Nonperforming loans held for sale		—		—		—
OREO^(c)		17		18		16
Other nonperforming assets		—		—		1

Total nonperforming assets	$	417	$	436	$	418

Nonperforming assets from discontinued operations—education lending^(d)	$	8	$	11	$	9

Restructured loans included in nonperforming loans	$	159	$	157	$	137
Restructured loans with an allocated specific allowance^(e)		71		82		115
Specifically allocated allowance for restructured loans^(f)		29		34		30

Accruing loans past due 90 days or more	$	54	$	96	$	71
Accruing loans past due 30 through 89 days		271		235		340

(a)	Loan balances exclude $12 million, $13 million, and $14 million of PCI loans at September 30, 2015, December 31, 2014, and September 30, 2014, respectively.

(b)	Includes carrying value of consumer residential mortgage loans in the process of foreclosure of approximately $114 million at September 30, 2015.

(c)	Includes carrying value of foreclosed residential real estate of approximately $13 million at September 30, 2015.

(d)	Restructured loans of approximately $20 million, $17 million, and $16 million are included in discontinued operations at September 30, 2015, December 31, 2014, and September 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 September 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 nine months of 2015 included accretion and net reclassifications of less than $1 million, resulting in an ending balance of $5 million at September 30, 2015.

At September 30, 2015, the approximate carrying amount of our commercial nonperforming loans outstanding represented 74% of their original contractual amount owed, total nonperforming loans outstanding represented 79% of their original contractual amount owed, and nonperforming assets in total were carried at 79% of their original contractual amount owed.

At September 30, 2015, our 20 largest nonperforming loans totaled $112 million, representing 28% of total loans on nonperforming status. At September 30, 2014, our 20 largest nonperforming loans totaled $72 million, representing 18% 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, 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 September 30, 2015, December 31, 2014, and September 30, 2014:


			Unpaid				Average
September 30, 2015	Recorded		Principal		Specific		Recorded
in millions	Investment ^(a)		Balance ^(b)		Allowance		Investment
With no related allowance recorded:
Commercial, financial and agricultural	$	30	$	54		—	$	19
Commercial real estate:
Commercial mortgage		9		12		—		10
Construction		5		5		—		6

Total commercial real estate loans		14		17		—		16

Total commercial loans		44		71		—		35

Real estate — residential mortgage		22		22		—		22
Home equity:
Key Community Bank		58		58		—		59
Other		2		2		—		2

Total home equity loans		60		60		—		61
Consumer other:
Marine		1		1		—		1

Total consumer other		1		1		—		1

Total consumer loans		83		83		—		84

Total loans with no related allowance recorded		127		154		—		119
With an allowance recorded:
Commercial, financial and agricultural		43		56	$	9		58
Commercial real estate:
Commercial mortgage		5		6		1		6

Total commercial real estate loans		5		6		1		6

Total commercial loans		48		62		10		64

Real estate — residential mortgage		33		33		5		33
Home equity:
Key Community Bank		54		54		17		53
Other		10		10		1		10

Total home equity loans		64		64		18		63
Consumer other — Key Community Bank		3		3		—		3
Credit cards		3		3		1		3
Consumer other:
Marine		38		38		2		39
Other		2		2		—		2

Total consumer other		40		40		2		41

Total consumer loans		143		143		26		143

Total loans with an allowance recorded		191		205		36		207

Total	$	318	$	359	$	36	$	326

(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	Recorded		Principal		Specific		Recorded
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
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.

For each of the nine months ended September 30, 2015, and September 30, 2014, interest income recognized on the outstanding balances of accruing impaired loans totaled $5 million.

At September 30, 2015, aggregate restructured loans (accrual and nonaccrual loans) totaled $287 million, compared to $270 million at December 31, 2014, and $264 million at September 30, 2014. We added $87 million in restructured loans during the first nine months of 2015, which were partially offset by $70 million in payments and charge-offs.

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


			Pre-modification		Post-modification
			Outstanding		Outstanding
September 30, 2015	Number		Recorded		Recorded
dollars in millions	of Loans		Investment		Investment
LOAN TYPE
Nonperforming:
Commercial, financial and agricultural		12	$	56	$	50
Commercial real estate:
Real estate — commercial mortgage		11		30		7

Total commercial real estate loans		11		30		7

Total commercial loans		23		86		57
Real estate — residential mortgage		356		21		21
Home equity:
Key Community Bank		1,093		79		70
Other		122		3		3

Total home equity loans		1,215		82		73
Consumer other — Key Community Bank		26		1		1
Credit cards		314		2		2
Consumer other:
Marine		92		6		5
Other		16		—		—

Total consumer other		108		6		5

Total consumer loans		2,019		112		102

Total nonperforming TDRs		2,042		198		159
Prior-year accruing:^(a)
Commercial, financial and agricultural		12		6		3
Commercial real estate:
Real estate — commercial mortgage		1		2		1

Total commercial real estate loans		1		2		1

Total commercial loans		13		8		4
Real estate — residential mortgage		499		36		36
Home equity:
Key Community Bank		794		49		42
Other		327		10		8

Total home equity loans		1,121		59		50
Consumer other — Key Community Bank		45		2		1
Credit cards		473		2		2
Consumer other:
Marine		398		59		33
Other		68		2		2

Total consumer other		466		61		35

Total consumer loans		2,604		160		124

Total prior-year accruing TDRs		2,617		168		128

Total TDRs		4,659	$	366	$	287

(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:


			Pre-modification		Post-modification
			Outstanding		Outstanding
December 31, 2014	Number		Recorded		Recorded
dollars in millions	of Loans		Investment		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 September 30, 2014, follows:


			Pre-modification		Post-modification
			Outstanding		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.

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 September 30, 2015, there were no significant commercial loan TDRs, and 61 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 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. 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	September 30, 2015		December 31, 2014		September 30, 2014
Commercial loans:
Interest rate reduction	$	58	$	13	$	24
Forgiveness of principal		2		2		5
Other		1		25		6

Total	$	61	$	40	$	35

Consumer loans:
Interest rate reduction	$	139	$	140	$	140
Forgiveness of principal		4		4		4
Other		83		86		85

Total	$	226	$	230	$	229

Total commercial and consumer TDRs^(a)	$	287	$	270	$	264
Total loans		60,085		57,381		56,155

(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 September 30, 2015, December 31, 2014, and September 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 September 30, 2015, approximately $59.3 billion, or 98.8%, of our total loans were current, compared to $56.6 billion, or 98.7%, at December 31, 2014, and $55.3 billion, or 98.5%, at September 30, 2014. At September 30, 2015, total past due loans and nonperforming loans of $724 million represented approximately 1.2% of total loans, compared to $749 million, or 1.3%, at December 31, 2014, and $813 million, or 1.5% at September 30, 2014.

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


							90 and				Total Past
			30-59		60-89		Greater				Due and		Purchased
September 30, 2015			Days Past		Days Past		Days Past		Nonperforming		Nonperforming		Credit		Total
in millions	Current		Due		Due		Due		Loans		Loans		Impaired		Loans
LOAN TYPE
Commercial, financial and agricultural	$	30,901	$	58	$	30	$	17	$	89	$	194		—	$	31,095
Commercial real estate:
Commercial mortgage		8,127		18		7		5		23		53		—		8,180
Construction		1,060		1		—		—		9		10		—		1,070

Total commercial real estate loans		9,187		19		7		5		32		63		—		9,250
Commercial lease financing		3,875		29		3		1		21		54		—		3,929

Total commercial loans	$	43,963	$	106	$	40	$	23	$	142	$	311		—	$	44,274

Real estate — residential mortgage	$	2,171	$	11	$	4	$	3	$	67	$	85	$	11	$	2,267
Home equity:
Key Community Bank		10,027		49		20		11		174		254		1		10,282
Other		208		4		2		1		7		14		—		222

Total home equity loans		10,235		53		22		12		181		268		1		10,504
Consumer other — Key Community Bank		1,595		7		4		5		1		17		—		1,612
Credit cards		750		6		4		8		2		20		—		770
Consumer other:
Marine		601		10		2		1		6		19		—		620
Other		34		1		1		1		1		4		—		38

Total consumer other		635		11		3		2		7		23		—		658

Total consumer loans	$	15,386	$	88	$	37	$	30	$	258	$	413	$	12	$	15,811

Total loans	$	59,349	$	194	$	77	$	53	$	400	$	724	$	12	$	60,085


							90 and				Total Past
			30-59		60-89		Greater				Due and		Purchased
December 31, 2014			Days Past		Days Past		Days Past		Nonperforming		Nonperforming		Credit		Total
in millions	Current		Due		Due		Due		Loans		Loans		Impaired		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


							90 and				Total Past
			30-59		60-89		Greater				Due and		Purchased
September 30, 2014			Days Past		Days Past		Days Past		Nonperforming		Nonperforming		Credit		Total
in millions	Current		Due		Due		Due		Loans		Loans		Impaired		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

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 $14 million of PCI loans at September 30, 2015, and September 30, 2014, respectively, based on bond rating, regulatory classification, and payment activity as of September 30, 2015, and September 30, 2014, 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)}	2015		2014		2015		2014		2015		2014		2015		2014		2015		2014
AAA — AA	$	384	$	342	$	3	$	2		—	$	1	$	501	$	528	$	888	$	873
A		1,439		1,147		4		2		—		—		478		596		1,921		1,745
BBB — BB		27,438		23,822		7,690		7,736	$	935		895		2,808		2,848		38,871		35,301
B		639		594		272		298		89		100		88		75		1,088		1,067
CCC — C		1,195		778		211		238		46		40		54		88		1,506		1,144

Total	$	31,095	$	26,683	$	8,180	$	8,276	$	1,070	$	1,036	$	3,929	$	4,135	$	44,274	$	40,130

(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	2015		2014
Pass	$	12,496	$	12,576
Substandard		263		287

Total	$	12,759	$	12,863

Credit Risk Profile Based on Payment Activity^(a)


September 30,	Consumer — Key Community Bank				Credit cards				Consumer — Marine				Consumer — Other				Total
in millions	2015		2014		2015		2014		2015		2014		2015		2014		2015		2014
Performing	$	1,611	$	1,544	$	768	$	723	$	614	$	812	$	37	$	50	$	3,030	$	3,129
Nonperforming		1		2		2		1		6		16		1		1		10		20

Total	$	1,612	$	1,546	$	770	$	724	$	620	$	828	$	38	$	51	$	3,040	$	3,149

(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 qualitative 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.

In the third quarter of 2015, we enhanced the approach used to determine the commercial reserve factors used in estimating the commercial ALLL, which had the effect of capturing certain elements in the commercial quantitative reserve component that had formerly been included in the commercial qualitative component. Under the enhanced methodology, we began utilizing more refined commercial estimated loss rates that represent cumulative losses over the estimated average time period from the onset of credit deterioration to the initial loss recorded for an individual loan. In addition, we began utilizing an enhanced framework to quantify commercial ALLL adjustments resulting from qualitative factors that may not be fully captured within the statistical analysis of incurred loss. The impact of these changes was largely neutral to the total ALLL at September 30, 2015. However, because the quantitative reserve is allocated to the business segments at a loan level, while the qualitative portion is allocated at the portfolio level, the impact of the methodology enhancements on the allowance for each portfolio caused the commercial portfolio ALLL to increase or decrease accordingly. The impact of the increases and decreases on the commercial portfolio ALLL was not significant.

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 September 30, 2015, represents our best estimate of the probable credit losses inherent in the loan portfolio at that date.

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 net realizable value 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, 2015, the ALLL was $790 million, or 1.31% of loans, compared to $804 million, or 1.43% of loans, at September 30, 2014. At September 30, 2015, the ALLL was 197.5% of nonperforming loans, compared to 200.5% at September 30, 2014.

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


	Three months ended September 30,						Nine months ended September 30,
in millions	2015			2014			2015			2014
Balance at beginning of period — continuing operations	$	796		$	814		$	794		$	848
Charge-offs		(53	)		(49	)		(152	)		(162	)
Recoveries		12			18			47			81

Net loans and leases charged off		(41	)		(31	)		(105	)		(81	)
Provision for loan and lease losses from continuing operations		36			21			102			37
Foreign currency translation adjustment		(1	)		—			(1	)		—

Balance at end of period — continuing operations	$	790		$	804		$	790		$	804

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


in millions	December 31, 2014		Provision			Charge-offs			Recoveries		September 30, 2015
Commercial, financial and agricultural	$	391	$	93		$	(59	)	$	13	$	438
Real estate — commercial mortgage		148		(9	)		(2	)		2		139
Real estate — construction		28		(3	)		(1	)		1		25
Commercial lease financing		56		(13	)		(5	)		7		45

Total commercial loans		623		68			(67	)		23		647
Real estate — residential mortgage		23		(1	)		(4	)		1		19
Home equity:
Key Community Bank		66		4			(21	)		5		54
Other		5		(1	)		(4	)		4		4

Total home equity loans		71		3			(25	)		9		58
Consumer other — Key Community Bank		22		11			(18	)		5		20
Credit cards		33		20			(23	)		2		32
Consumer other:
Marine		21		—			(14	)		6		13
Other		1		—			(1	)		1		1

Total consumer other:		22		—			(15	)		7		14

Total consumer loans		171		33			(85	)		24		143

Total ALLL — continuing operations		794		101	^(a)		(152	)		47		790
Discontinued operations		29		9			(25	)		10		23

Total ALLL — including discontinued operations	$	823	$	110		$	(177	)	$	57	$	813

(a)	Includes a $1 million foreign currency translation adjustment. Excludes a provision for losses on lending-related commitments of $19 million.


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	^(a)		(162	)		81		804
Discontinued operations		39		15			(34	)		11		31

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

(a)	Excludes a credit for losses on lending-related commitments of $2 million.

Our ALLL from continuing operations decreased by $14 million, or 1.7%, from the third 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 $318 million, with a corresponding allowance of $36 million at September 30, 2015. Loans outstanding collectively evaluated for impairment totaled $59.8 billion, with a corresponding allowance of $753 million at September 30, 2015. At September 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 nine months ended September 30, 2015. At September 30, 2014, the loans outstanding individually evaluated for impairment totaled $299 million, with a corresponding allowance of $38 million. 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.

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


	Allowance						Outstanding
	Individually		Collectively		Purchased				Individually		Collectively		Purchased
September 30, 2015	Evaluated for		Evaluated for		Credit				Evaluated for		Evaluated for		Credit
in millions	Impairment		Impairment		Impaired		Loans		Impairment		Impairment		Impaired
Commercial, financial and agricultural	$	9	$	429		—	$	31,095	$	72	$	31,023		—
Commercial real estate:
Commercial mortgage		1		138		—		8,180		15		8,165		—
Construction		—		25		—		1,070		5		1,065		—

Total commercial real estate loans		1		163		—		9,250		20		9,230		—
Commercial lease financing		—		45		—		3,929		—		3,929		—

Total commercial loans		10		637		—		44,274		92		44,182		—
Real estate — residential mortgage		5		13	$	1		2,267		56		2,200	$	11
Home equity:
Key Community Bank		17		37		—		10,282		113		10,168		1
Other		2		2		—		222		11		211		—

Total home equity loans		19		39		—		10,504		124		10,379		1
Consumer other — Key Community Bank		—		20		—		1,612		3		1,609		—
Credit cards		—		32		—		770		3		767		—
Consumer other:
Marine		2		11		—		620		38		582		—
Other		—		1		—		38		2		36		—

Total consumer other		2		12		—		658		40		618		—

Total consumer loans		26		116		1		15,811		226		15,573		12

Total ALLL — continuing operations		36		753		1		60,085		318		59,755		12
Discontinued operations		2		21		—		1,891		20		1,871		—

Total ALLL — including discontinued operations	$	38	$	774	$	1	$	61,976	$	338	$	61,626	$	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	Evaluated for		Evaluated for		Credit					Evaluated for		Evaluated for			Credit
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

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