KeyBank 2014 Annual Report Download - page 100

We may also manage the loan portfolio using portfolio swaps and bulk purchases and sales. Our overarching goal
is to manage the loan portfolio within a specified range of asset quality.
Allowance for loan and lease losses
At December 31, 2014, the ALLL was $794 million, or 1.38% of period-end loans, compared to $848 million, or
1.56%, at December 31, 2013. The allowance includes $40 million that was specifically allocated for impaired
loans of $302 million at December 31, 2014, compared to $42 million that was allocated for impaired loans of
$358 million one year ago. For more information about impaired loans, see Note 5 (“Asset Quality”). At
December 31, 2014, the ALLL was 190.0% of nonperforming loans, compared to 166.9% at December 31, 2013.
Selected asset quality statistics for each of the past five years are presented in Figure 36. The factors that drive
these statistics are discussed in the remainder of this section.
Figure 36. Selected Asset Quality Statistics from Continuing Operations
Year ended December 31,
dollars in millions 2014 2013 2012 2011 2010
Net loan charge-offs $ 113 $ 168 $ 345 $ 541 $ 1,570
Net loan charge-offs to average loans .20 % .32 % .69 % 1.11 % 2.91 %
Allowance for loan and lease losses $ 794 $ 848 $ 888 $ 1,004 $ 1,604
Allowance for credit losses (a) 830 885 917 1,049 1,677
Allowance for loan and lease losses to period-end loans 1.38 % 1.56 % 1.68 % 2.03 % 3.20 %
Allowance for credit losses to period-end loans 1.45 1.63 1.74 2.12 3.35
Allowance for loan and lease losses to nonperforming loans 190.0 166.9 131.8 138.1 150.2
Allowance for credit losses to nonperforming loans 198.6 174.2 136.1 144.3 157.0
Nonperforming loans at period end (b) $ 418 $ 508 $ 674 $ 727 $ 1,068
Nonperforming assets at period end 436 531 735 859 1,338
Nonperforming loans to period-end portfolio loans .73 % .93 % 1.28 % 1.47 % 2.13 %
Nonperforming assets to period-end portfolio loans plus
OREO and other nonperforming assets .76 .97 1.39 1.73 2.66
(a) Includes the ALLL plus the liability for credit losses on lending-related unfunded commitments.
(b) Loan balances exclude $13 million, $16 million, and $23 million of PCI loans at December 31, 2014, December 31, 2013, and
December 31, 2012, respectively.
We estimate the appropriate level of the ALLL on at least a quarterly basis. The methodology used is described
in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease
Losses.” Briefly, our general allowance applies expected loss rates to existing loans with similar risk
characteristics. We exercise judgment to assess any adjustment to the expected loss rates for the impact of factors
such as changes in economic conditions, lending policies including underwriting standards, and the level of
credit risk associated with specific industries and markets.
For all commercial and consumer loan TDRs, regardless of size, as well as impaired commercial loans with an
outstanding balance of $2.5 million and greater, we conduct further analysis to determine the probable loss
content and assign a specific allowance to the loan if deemed appropriate. We estimate the extent of the
individual impairment for commercial loans and TDRs by comparing the recorded investment of the loan with
the estimated present value of its future cash flows, the fair value of its underlying collateral, or the loan’s
observable market price. Secured consumer loan TDRs that are discharged through Chapter 7 bankruptcy and not
formally re-affirmed are adjusted to reflect the fair value of the underlying collateral, less costs to sell. Other
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 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 December 31,
2014, represents our best estimate of the probable credit losses inherent in the loan portfolio at that date.
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