KeyBank 2013 Annual Report Download - page 141

underlying guarantees. We account for our release from risk under a particular guarantee when the guarantee
expires or is settled, or by a systematic and rational amortization method, depending on the risk profile of the
guarantee.
Additional information regarding guarantees is included in Note 20 (“Commitments, Contingent Liabilities and
Guarantees”) under the heading “Guarantees.”
Revenue Recognition
We recognize revenues as they are earned based on contractual terms, as transactions occur, or as services are
provided and collectibility is reasonably assured. Our principal source of revenue is interest income, which is
recognized on an accrual basis primarily according to nondiscretionary formulas in written contracts, such as
loan agreements or securities contracts.
Stock-Based Compensation
Stock-based compensation is measured using the fair value method of accounting. The measured cost is
recognized over the period during which the recipient is required to provide service in exchange for the award.
We estimate expected forfeitures when stock-based awards are granted and record compensation expense only
for awards that are expected to vest.
We recognize compensation cost for stock-based, mandatory deferred incentive compensation awards using the
accelerated method of amortization over a period of approximately five years (the current year performance
period and a four-year vesting period, which generally starts in the first quarter following the performance
period) for awards granted in 2012 and after, and over a period of approximately four years (the current year
performance period and a three-year vesting period, which generally starts in the first quarter following the
performance period) for awards granted prior to 2012.
Employee stock options typically become exercisable at the rate of 25% per year for options granted in 2011 and
after, or 33-1/3% per year for options granted prior to 2011, beginning one year after the grant date. Options
expire no later than ten years after their grant date. We recognize stock-based compensation expense for stock
options with graded vesting using an accelerated method of amortization.
We use shares repurchased under our annual capital plan submitted to our regulators (treasury shares) for share
issuances under all stock-based compensation programs other than the discounted stock purchase plan. Shares
issued under the discounted stock purchase plan are purchased on the open market.
We estimate the fair value of options granted using the Black-Scholes option-pricing model, as further described
in Note 15 (“Stock-Based Compensation”).
Marketing Costs
We expense all marketing-related costs, including advertising costs, as incurred.
Accounting Guidance Adopted in 2013
Benchmark interest rate. In July 2013, the FASB issued new accounting guidance allowing entities to
designate the Federal Funds Effective Swap Rate (which is the Overnight Index Swap rate, or OIS rate, in the
U.S.) as a benchmark interest rate, in addition to U.S. Treasury and LIBOR rates, for hedge accounting purposes.
This new accounting guidance was effective prospectively for qualifying new or redesignated hedging
relationships entered into on or after July 17, 2013 (effective July 17, 2013, for us). Note 8 (“Derivatives and
Hedging Activities”) provides information regarding our use of derivatives and hedge accounting.
126