KeyBank 2013 Annual Report Download - page 173

December 31, 2012
Fair Value
in millions
Carrying
Amount Level 1 Level 2 Level 3
Netting
Adjustment Total
ASSETS
Cash and short-term investments (a) $ 4,525 $ 4,254 $ 271 — — $ 4,525
Trading account assets (b) 605 2 600 $ 3 — 605
Securities available for sale (b) 12,094 43 12,051 — — 12,094
Held-to-maturity securities (c) 3,931 — 3,992 — — 3,992
Other investments (b) 1,064 — 396 668 — 1,064
Loans, net of allowance (d) 51,934 — — 51,046 — 51,046
Loans held for sale (b) 599 — — 599 — 599
Mortgage servicing assets (e) 204 — — 238 — 238
Derivative assets (b) 693 54 1,883 26 $ (1,270) (f) 693
LIABILITIES
Deposits with no stated maturity (a) $ 58,132 — $ 58,132 — — $ 58,132
Time deposits (e) 7,861 $ 408 7,612 — — 8,020
Short-term borrowings (a) 1,896 — 1,896 — — 1,896
Long-term debt (e) 6,847 2,807 4,585 — — 7,392
Derivative liabilities (b) 584 54 1,331 $ 2 $ (803) (f) 584
Valuation Methods and Assumptions
(a) Fair value equals or approximates carrying amount. The fair value of deposits with no stated maturity does not take into consideration the
value ascribed to core deposit intangibles.
(b) Information pertaining to our methodology for measuring the fair values of these assets and liabilities is included in the sections entitled
“Qualitative Disclosures of Valuation Techniques” and “Assets Measured at Fair Value on a Nonrecurring Basis” in this note.
(c) Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant
industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark
securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure they are reasonable and
consistent with the values placed on similar securities traded in the secondary markets.
(d) The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual
terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account
the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental
liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a
benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their
fair value.
(e) Fair values of mortgage servicing assets, time deposits, and long-term debt are based on discounted cash flows utilizing relevant market
inputs.
(f) Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in
accordance with applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting
agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position
with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.
We use valuation methods based on exit market prices in accordance with applicable accounting guidance. We
determine fair value based on assumptions pertaining to the factors that a market participant would consider in
valuing the asset. A substantial portion of our fair value adjustments are related to liquidity. During 2013, the fair
values of our loan portfolios have generally remained stable, primarily due to increasing liquidity in the loan
markets. If we were to use different assumptions, the fair values shown in the preceding table could change.
Also, because the applicable accounting guidance for financial instruments excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements, the fair value amounts shown in the table
above do not, by themselves, represent the underlying value of our company as a whole.
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