KeyBank 2014 Annual Report Download - page 112

(d) Other assets deducted from Tier 1 capital and net risk-weighted assets consist of disallowed intangible assets (excluding goodwill) and
deductible portions of nonfinancial equity investments. There were no disallowed deferred tax assets at any quarter-end during 2014 and
2013.
(e) For the three months ended December 31, 2014, September 30, 2014, June 30, 2014, and March 31, 2014, average intangible assets
exclude $69 million, $76 million, $82 million, and $89 million, respectively, of average purchased credit card receivables. For the three
months ended December 31, 2013, September 30, 2013, June 30, 2013, and March 31, 2013, average intangible assets exclude $96
million, $103 million, $110 million, and $118 million, respectively, of average purchased credit card receivables.
Critical Accounting Policies and Estimates
Our business is dynamic and complex. Consequently, we must exercise judgment in choosing and applying
accounting policies and methodologies. These choices are critical; not only are they necessary to comply with
GAAP, they also reflect our view of the appropriate way to record and report our overall financial performance.
All accounting policies are important, and all policies described in Note 1 (“Summary of Significant Accounting
Policies”) should be reviewed for a greater understanding of how we record and report our financial performance.
In our opinion, some accounting policies are more likely than others to have a critical effect on our financial
results and to expose those results to potentially greater volatility. These policies apply to areas of relatively
greater business importance, or require us to exercise judgment and to make assumptions and estimates that
affect amounts reported in the financial statements. Because these assumptions and estimates are based on
current circumstances, they may prove to be inaccurate, or we may find it necessary to change them.
As described below, we rely heavily on the use of judgment, assumptions and estimates to make a number of
core decisions. We have reviewed these critical accounting estimates and related disclosures with the Audit
Committee.
Allowance for loan and lease losses
The loan portfolio is the largest category of assets on our balance sheet. We consider a variety of data to
determine probable losses incurred in the loan portfolio and to establish an allowance that is sufficient to absorb
those losses. For example, we apply expected loss rates to existing loans with similar risk characteristics and
exercise judgment to assess the impact of factors such as changes in economic conditions, underwriting
standards, and concentrations of credit. Other considerations include expected cash flows and estimated collateral
values.
For all commercial and consumer TDRs, regardless of size, as well as all other impaired commercial loans with
an outstanding balances of $2.5 million or greater, we conduct further analysis to determine the probable loss and
assign a specific allowance to the loan if deemed appropriate. For example, a specific allowance may be assigned
— even when sources of repayment appear sufficient — if we remain uncertain that an impaired loan will be
repaid in full.
We continually assess the risk profile of the loan portfolio and adjust the ALLL when appropriate. The economic
and business climate in any given industry or market is difficult to gauge and can change rapidly, and the effects
of those changes can vary by borrower. However, since our total loan portfolio is well diversified in many
respects, and the risk profile of certain segments of the loan portfolio may be improving while the risk profile of
others is deteriorating, we may decide to change the level of the allowance for one segment of the portfolio
without changing it for any other segment.
In addition to adjusting the ALLL to reflect market conditions, we also may adjust the allowance because of
unique events that are likely to cause actual losses to vary abruptly and significantly from expected losses. For
example, class action lawsuits brought against an industry segment (e.g., one that used asbestos in its product)
can cause a precipitous deterioration in the risk profile of borrowers doing business in that segment. Conversely,
the dismissal of such lawsuits can improve the risk profile. In either case, historical loss rates for that industry
segment would not have provided a precise basis for determining the appropriate level of allowance.
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