KeyBank 2015 Annual Report Download - page 178

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with GAAP. The
adjustments to fair value generally result from the application of accounting guidance that requires assets and
liabilities to be recorded at the lower of cost or fair value, or assessed for impairment. There were no liabilities
measured at fair value on a nonrecurring basis at December 31, 2015, and December 31, 2014. The following
table presents our assets measured at fair value on a nonrecurring basis at December 31, 2015, and December 31,
2014:
December 31, 2015 December 31, 2014
in millions Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
ASSETS MEASURED ON A NONRECURRING BASIS
Impaired loans ————— —$5$5
Loans held for sale (a) ————————
Accrued income and other assets — —$7$7 ——77
Total assets on a nonrecurring basis at fair value — —$7$7 ——$12$12
(a) During 2015, we transferred $62 million of commercial and consumer loans and leases at their current fair value from held-for-sale status
to the held-to-maturity portfolio, compared to $11 million during 2014.
Impaired loans. We typically adjust the carrying amount of our impaired loans when there is evidence of
probable loss and the expected fair value of the loan is less than its contractual amount. The amount of the
impairment may be determined based on the estimated present value of future cash flows, the fair value of the
underlying collateral, or the loan’s observable market price. Impaired loans with a specifically allocated
allowance based on cash flow analysis or the value of the underlying collateral are classified as Level 3 assets.
Impaired loans with a specifically allocated allowance based on an observable market price that reflects recent
sale transactions for similar loans and collateral are classified as Level 2 assets.
The evaluations for impairment are prepared by the responsible relationship managers in our Asset Recovery
Group and are reviewed and approved by the Asset Recovery Group Executive. The Asset Recovery Group is
part of the Risk Management Group and reports to our Chief Credit Officer. These evaluations are performed in
conjunction with the quarterly ALLL process.
Loans are evaluated for impairment on a quarterly basis. Loans included in the previous quarter’s review are re-
evaluated, and if their values have changed materially, the underlying information (loan balance and in most
cases, collateral value) is compared. Material differences are evaluated for reasonableness, and the relationship
managers and their senior managers consider these differences and determine if any adjustment is necessary. The
inputs are developed and substantiated on a quarterly basis based on current borrower developments, market
conditions, and collateral values.
The following two internal methods are used to value impaired loans:
/Cash flow analysis considers internally developed inputs, such as discount rates, default rates, costs of
foreclosure, and changes in collateral values.
/The fair value of the collateral, which may take the form of real estate or personal property, is based on
internal estimates, field observations, and assessments provided by third-party appraisers. We perform or
reaffirm appraisals of collateral-dependent impaired loans at least annually. Appraisals may occur more
frequently if the most recent appraisal does not accurately reflect the current market, the debtor is seriously
delinquent or chronically past due, or there has been a material deterioration in the performance of the project
or condition of the property. Adjustments to outdated appraisals that result in an appraisal value less than the
carrying amount of a collateral-dependent impaired loan are reflected in the ALLL.
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