10. Goodwill and Other Intangible Assets
Goodwill represents the amount by which the cost of net assets acquired in a business combination exceeds their fair value. Other intangible assets are primarily the net present value of future economic benefits to be derived from the purchase of credit card receivable assets and core deposits. Additional information pertaining to our accounting policy for goodwill and other intangible assets is summarized in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Goodwill and Other Intangible Assets.”
Our annual goodwill impairment testing is performed as of October 1 each year. On that date in 2013, we determined that the estimated fair value of the Key Community Bank unit was 23% greater than its carrying amount; in 2012, the excess was 10%. If actual results, market conditions, and economic conditions were to differ from the assumptions and data used in this goodwill impairment testing, the estimated fair value of the Key Community Bank unit could change. The carrying amount of the Key Community Bank and Key Corporate Bank units represents the average equity based on risk-weighted regulatory capital for goodwill impairment testing and management reporting purposes. There has been no goodwill associated with our Key Corporate Bank unit since the first quarter of 2009, when we recorded a $223 million pre-tax impairment charge and wrote off all of the remaining goodwill that had been assigned to that unit.
Based on our quarterly review of impairment indicators during 2013 and 2012, it was not necessary to perform further reviews of goodwill recorded in our Key Community Bank unit. We will continue to monitor the Key Community Bank unit as appropriate since it is particularly dependent upon economic conditions that impact consumer credit risk and behavior.
Changes in the carrying amount of goodwill by reporting unit are presented in the following table.
| in millions | Key Community Bank |
Key Corporate Bank |
Total | |||||||||
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BALANCE AT DECEMBER 31, 2011 |
$ | 917 | — | $ | 917 | |||||||
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Impairment losses based on results of interim impairment testing |
— | — | — | |||||||||
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Acquisition of Western New York branches |
62 | — | 62 | |||||||||
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BALANCE AT DECEMBER 31, 2012 |
979 | — | 979 | |||||||||
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Impairment losses based on results of interim impairment testing |
— | — | — | |||||||||
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BALANCE AT DECEMBER 31, 2013 |
$ | 979 | — | $ | 979 | |||||||
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The acquisition of 37 retail banking branches in Western New York during 2012 resulted in a $62 million increase in the goodwill at the Key Community Bank unit. Additional information regarding the acquisition is provided in Note 13 (“Acquisitions and Discontinued Operations”).
As of December 31, 2013, we expected goodwill in the amount of $129 million to be deductible for tax purposes in future periods.
Accumulated impairment losses related to the Key Corporate Bank reporting unit totaled $665 million at December 31, 2013, 2012, and 2011. There were no accumulated impairment losses related to the Key Community Bank unit at December 31, 2013, 2012, and 2011.
The following table shows the gross carrying amount and the accumulated amortization of intangible assets subject to amortization.
| 2013 | 2012 | |||||||||||||||
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December 31, in millions |
Gross Carrying Amount |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization |
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Intangible assets subject to amortization: |
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Core deposit intangibles |
$ | 105 | $ | 70 | $ | 105 | $ | 56 | ||||||||
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PCCR intangibles (a) |
136 | 44 | 136 | 14 | ||||||||||||
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Other intangible assets (b) |
135 | 135 | 135 | 135 | ||||||||||||
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Total |
$ | 376 | $ | 249 | $ | 376 | $ | 205 | ||||||||
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| (a) | PCCR intangible assets related to the 2012 acquisition of credit card receivables from Elan Financial Services, Inc. ($135 million of PCCR at acquisition date) and Western New York Branches ($1 million of PCCR at acquisition date). |
| (b) | Carrying amount and accumulated amortization excludes $18 million and $25 million at December 31, 2013, and December 31, 2012, respectively, related to the discontinued operations of Austin and the sale of Victory. |
As a result of the Western New York branches acquisition on July 13, 2012, a core deposit intangible asset was recognized at its acquisition date fair value of $40 million. This core deposit intangible asset is being amortized on an accelerated basis over its useful life of 7 years. A second closing of this acquisition on September 14, 2012, relating exclusively to the purchase of credit card receivables, resulted in a PCCR intangible asset of $1 million that is being amortized on an accelerated basis over its useful life of 8 years.
As a result of the purchase of Key-branded credit card assets from Elan Financial Services, Inc. on August 1, 2012, a PCCR intangible asset was recognized at its acquisition date fair value of $135 million. This PCCR asset is being amortized on an accelerated basis over its useful life of 8 years.
Additional information regarding these acquisitions is provided in Note 13.
Intangible asset amortization expense was $44 million for 2013, $23 million for 2012 and $4 million for 2011. Estimated amortization expense for intangible assets for each of the next five years is as follows: 2014 — $37 million; 2015 — $31 million; 2016 — $24 million; 2017 — $18 million; and 2018 — $11 million.