KeyBank 2014 Annual Report Download - page 154

Credit Risk Profile Based on Payment Activity (a)
December 31,
in millions
Consumer — Key
Community Bank Credit cards Consumer — Marine Consumer — Other Total
2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Performing $ 1,558 $ 1,446 $ 752 $ 718 $ 764 $ 1,002 $48$69$ 3,122 $ 3,235
Nonperforming 232415 26 1120 34
Total $ 1,560 $ 1,449 $ 754 $ 722 $ 779 $ 1,028 $49$70$ 3,142 $ 3,269
(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.” We apply expected loss rates to existing loans with similar risk characteristics as noted in the credit
quality indicator table above and exercise judgment to assess the impact of factors such as changes in economic
conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated
with specific industries and markets.
For all commercial and consumer loan TDRs, regardless of size, as well as impaired commercial loans with an
outstanding balance of $2.5 million or greater, we conduct further analysis to determine the probable loss content
and assign a specific allowance to the loan if deemed appropriate. We estimate the extent of the individual
impairment for commercial loans and TDRs by comparing the recorded investment of the loan with the estimated
present value of its future cash flows, the fair value of its underlying collateral, or the loan’s observable market
price. Secured consumer loan TDRs that are discharged through Chapter 7 bankruptcy and not formally re-
affirmed are adjusted to reflect the fair value of the underlying collateral, less costs to sell. Non-Chapter 7
consumer loan TDRs are combined in homogenous pools and assigned a specific allocation based on the
estimated present value of future cash flows using the loan’s effective interest rate. A specific allowance also
may be assigned — even when sources of repayment appear sufficient — if we remain uncertain about whether
the loan will be repaid in full. On at least a quarterly basis, we evaluate the appropriateness of our loss estimation
methods to reduce differences between estimated incurred losses and actual losses. The ALLL at December 31,
2014, represents our best estimate of the probable credit losses inherent in the loan portfolio at that date.
Although quantitative modeling factors such as default probability and expected recovery rates are constantly
changing as the financial strength of the borrower and overall economic conditions change, we have not changed
the accounting policies or methodology that we use to estimate the ALLL.
Commercial loans generally are charged off in full or charged down to the fair value of the underlying collateral
when the borrower’s payment is 180 days past due. Most consumer loans are charged off when payments are 120
days past due. Home equity and residential mortgage loans generally are charged down to the fair value of the
underlying collateral when payment is 180 days past due. Credit card loans, and similar unsecured products, are
charged off when payments are 180 days past due.
At December 31, 2014, the ALLL was $794 million, or 1.38% of loans, compared to $848 million, or 1.56% of
loans, at December 31, 2013. At December 31, 2014, the ALLL was 190% of nonperforming loans, compared to
166.9% at December 31, 2013.
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