KeyBank 2014 Annual Report Download - page 220

Guarantees
We are a guarantor in various agreements with third parties. The following table shows the types of guarantees
that we had outstanding at December 31, 2014. Information pertaining to the basis for determining the liabilities
recorded in connection with these guarantees is included in Note 1 (“Summary of Significant Accounting
Policies”) under the heading “Guarantees.”
December 31, 2014
in millions
Maximum Potential
Undiscounted
Future Payments
Liability
Recorded
Financial guarantees:
Standby letters of credit $ 11,566 $ 65
Recourse agreement with FNMA 1,432 4
Return guarantee agreement with LIHTC investors 4 4
Written put options (a) 2,263 149
Total $ 15,265 $ 222
(a) The maximum potential undiscounted future payments represent notional amounts of derivatives qualifying as guarantees.
We determine the payment/performance risk associated with each type of guarantee described below based on
the probability that we could be required to make the maximum potential undiscounted future payments shown in
the preceding table. We use a scale of low (0-30% probability of payment), moderate (31-70% probability of
payment), or high (71-100% probability of payment) to assess the payment/performance risk, and have
determined that the payment/performance risk associated with each type of guarantee outstanding at
December 31, 2014, is low.
Standby letters of credit. KeyBank issues standby letters of credit to address clients’ financing needs. These
instruments obligate us to pay a specified third party when a client fails to repay an outstanding loan or debt
instrument or fails to perform some contractual nonfinancial obligation. Any amounts drawn under standby
letters of credit are treated as loans to the client; they bear interest (generally at variable rates) and pose the same
credit risk to us as a loan. At December 31, 2014, our standby letters of credit had a remaining weighted-average
life of 3.1 years, with remaining actual lives ranging from less than one year to as many as 12 years.
Recourse agreement with FNMA. We participate as a lender in the FNMA Delegated Underwriting and
Servicing program. FNMA delegates responsibility for originating, underwriting, and servicing mortgages, and
we assume a limited portion of the risk of loss during the remaining term on each commercial mortgage loan that
we sell to FNMA. We maintain a reserve for such potential losses in an amount that we believe approximates the
fair value of our liability. At December 31, 2014, the outstanding commercial mortgage loans in this program had
a weighted-average remaining term of 7.5 years, and the unpaid principal balance outstanding of loans sold by us
as a participant was $4.7 billion. As shown in the preceding table, the maximum potential amount of
undiscounted future payments that we could be required to make under this program is equal to approximately
one-third of the principal balance of loans outstanding at December 31, 2014. If we are required to make a
payment, we would have an interest in the collateral underlying the related commercial mortgage loan; any loss
we incur could be offset by the amount of any recovery from the collateral.
Return guarantee agreement with LIHTC investors. KAHC, a subsidiary of KeyBank, offered limited
partnership interests to qualified investors. Partnerships formed by KAHC invested in low-income residential rental
properties that qualify for federal low-income housing tax credits under Section 42 of the Internal Revenue Code. In
certain partnerships, investors paid a fee to KAHC for a guaranteed return that is based on the financial performance
of the property and the property’s confirmed LIHTC status throughout a 15-year compliance period. Typically,
KAHC fulfills these guaranteed returns by distributing tax credits and deductions associated with the specific
properties. If KAHC defaults on its obligation to provide the guaranteed return, KeyBank is obligated to make any
necessary payments to investors. No recourse or collateral is available to offset our guarantee obligation other than
the underlying income stream from the properties and the residual value of the operating partnership interests.
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