KeyBank 2007 Annual Report Download - page 67

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES
ORGANIZATION
KeyCorp is one of the nation’s largest bank-based financial services
companies, with consolidated total assets of $100.0 billion at December
31, 2007. Through KeyBank National Association and certain other
subsidiaries, KeyCorp provides a wide range of retail and commercial
banking, commercial leasing, investment management, consumer finance,
and investment banking products and services to individual, corporate
and institutional clients through two major business groups: Community
Banking and National Banking. As of December 31, 2007, KeyBank
National Association operated 955 full service retail banking branches
in thirteen states, a telephone banking call center services group and
1,443 automated teller machines in fifteen states. Additional information
pertaining to KeyCorp’s two business groups appears in Note 4 (“Line
of Business Results”), which begins on page 75.
As used in these Notes:
•KeyCorp refers solely to the parent holding company;
•KeyCorp refers to KeyCorp’s subsidiary bank, KeyBank National
Association; and
•Key refers to the consolidated entity consisting of KeyCorp and its
subsidiaries.
USE OF ESTIMATES
Key’s accounting policies conform to U.S. generally accepted accounting
principles and prevailing practices within the financial services industry.
Management must make certain estimates and judgments when
determining the amounts presented in Key’s consolidated financial
statements and the related notes. If these estimates prove to be inaccurate,
actual results could differ from those reported.
BASIS OF PRESENTATION
Consolidation. 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 entity in
which Key has a controlling financial interest. In accordance with
Financial Accounting Standards Board (“FASB”) Revised Interpretation
No. 46, “Consolidation of Variable Interest Entities,” a variable interest
entity (“VIE”) is consolidated if Key has a variable interest in the
entity and is exposed to the majority of its expected losses and/or
residual returns (i.e., Key is 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 8 (“Loan Securitizations, Servicing and
Variable Interest Entities”), which begins on page 81, for information
on Key’s involvement with VIEs.
Management uses the equity method to account for unconsolidated
investments in voting rights entities or VIEs in which Key has significant
influence over operating and financing decisions (usually defined as a
voting or economic interest of 20% to 50%, but not a controlling
interest). Unconsolidated investments in voting rights entities or VIEs
in which Key has a voting or economic interest of less than 20%
generally are carried at cost. Investments held by KeyCorp’s registered
broker/dealer and investment company subsidiaries (primarily principal
investments) are carried at fair value.
Qualifying special purpose entities (“SPEs”), including securitization
trusts, established by Key under the provisions of Statement of Financial
Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,” are not
consolidated. Information on SFAS No. 140 is included in this note under
the heading “Loan Securitizations” on page 67.
BUSINESS COMBINATIONS
Key accounts for its business combinations using the purchase method
of accounting. Under this method of accounting, the acquired company’s
net assets are recorded at fair value at the date of acquisition and the
results of operations of the acquired company are combined with Key’s
results from that date forward. Purchase premiums and discounts,
including intangible assets with finite lives, are amortized over the
remaining useful lives of the related assets or liabilities. The difference
between the purchase price and the fair value of the net assets acquired
(including intangible assets with finite lives) is recorded as goodwill. Key’s
accounting policy for intangible assets is summarized in this note under
the heading “Goodwill and Other Intangible Assets” on page 68.
STATEMENTS OF CASH FLOWS
Cash and due from banks are considered “cash and cash equivalents”
for financial reporting purposes.
TRADING ACCOUNT ASSETS
These are debt and equity securities, and commercial loans that Key
purchases and holds with the intent of selling them in the near term.
Trading account assets are reported at fair value. Realized and unrealized
gains and losses on trading account assets are reported in “investment
banking and capital markets income” on the income statement.
SECURITIES
Securities available for sale. These are securities that Key intends to hold
for an indefinite period of time but that may be sold in response to
changes in interest rates, prepayment risk, liquidity needs or other
factors. Securities available for sale are reported at fair value. Unrealized
gains and losses (net of income taxes) deemed temporary are recorded
in shareholders’ equity as a component of “accumulated other
comprehensive income (loss)” on the balance sheet. Unrealized losses on
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES