Item 1. Financial Statements

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Item 1. Financial Statements

Consolidated Balance Sheets


Dollars in millions, except per share data	June 30, 2023		December 31, 2022
	(Unaudited)
ASSETS
Cash and due from banks	$	758	$	887
Short-term investments	8,959		2,432
Trading account assets	1,177		829
Securities available for sale	37,908		39,117
Held-to-maturity securities (fair value: $8,575 and $8,113)	9,189		8,710
Other investments	1,474		1,308
Loans, net of unearned income of $361 and $368	119,011		119,394
Less: Allowance for loan and lease losses	(1,480)		(1,337)
Net loans	117,531		118,057
Loans held for sale (a)	1,130		963
Premises and equipment	652		636
Goodwill	2,752		2,752
Other intangible assets	75		94
Corporate-owned life insurance	4,378		4,369
Accrued income and other assets	8,668		9,223
Discontinued assets	386		436
Total assets	$	195,037	$	189,813
LIABILITIES
Deposits in domestic offices:





Interest-bearing deposits	$	111,766	$	101,761
Noninterest-bearing deposits	33,366		40,834
Total deposits	145,132		142,595
Federal funds purchased and securities sold under repurchase agreements	1,702		4,077
Bank notes and other short-term borrowings	6,949		5,386
Accrued expense and other liabilities	5,339		4,994
Long-term debt	22,071		19,307
Total liabilities	181,193		176,359
EQUITY
Preferred stock	2,500		2,500
Common Shares, $1 par value; authorized 2,100,000,000 shares; issued 1,256,702,081 shares	1,257		1,257
Capital surplus	6,231		6,286
Retained earnings	15,759		15,616
Treasury stock, at cost (320,968,822 and 323,377,500 shares)	(5,859)		(5,910)
Accumulated other comprehensive income (loss)	(6,044)		(6,295)


Total equity	13,844		13,454
Total liabilities and equity	$	195,037	$	189,813

(a)Total loans held for sale include real estate — residential mortgage loans held for sale at fair value of $67 million at June 30, 2023, and $24 million at December 31, 2022.

See Notes to Consolidated Financial Statements (Unaudited).

Consolidated Statements of Income


Dollars in millions, except per share amounts	Three months ended June 30,				Six months ended June 30,
(Unaudited)	2023		2022		2023		2022
INTEREST INCOME
Loans	$	1,576	$	923	$	3,052	$	1,760
Loans held for sale	17		10		30		22
Securities available for sale	194		188		388		361
Held-to-maturity securities	81		48		155		94
Trading account assets	15		7		27		13
Short-term investments	111		13		153		17
Other investments	16		4		29		6
Total interest income	2,010		1,193		3,834		2,273
INTEREST EXPENSE
Deposits	531		20		881		34
Federal funds purchased and securities sold under repurchase agreements	48		6		70		6
Bank notes and other short-term borrowings	104		9		182		12
Long-term debt	349		61		624		110
Total interest expense	1,032		96		1,757		162
NET INTEREST INCOME	978		1,097		2,077		2,111
Provision for credit losses	167		45		306		128
Net interest income after provision for credit losses	811		1,052		1,771		1,983
NONINTEREST INCOME
Trust and investment services income	126		137		254		273
Investment banking and debt placement fees	120		149		265		312
Cards and payments income	85		85		166		165
Service charges on deposit accounts	69		96		136		187
Corporate services income	86		96		162		187
Commercial mortgage servicing fees	50		45		96		81
Corporate-owned life insurance income	32		35		61		66
Consumer mortgage income	14		14		25		35
Operating lease income and other leasing gains	23		28		48		60
Other income	4		3		4		(2)
Total noninterest income	609		688		1,217		1,364
NONINTEREST EXPENSE
Personnel	622		607		1,323		1,237
Net occupancy	65		78		135		151
Computer processing	95		78		187		155
Business services and professional fees	41		52		86		105
Equipment	22		26		44		49
Operating lease expense	21		27		41		55
Marketing	29		34		50		62



Other expense	181		176		386		334
Total noninterest expense	1,076		1,078		2,252		2,148
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	344		662		736		1,199
Income taxes	58		132		139		222
INCOME (LOSS) FROM CONTINUING OPERATIONS	286		530		597		977
Income (loss) from discontinued operations	1		3		2		4
NET INCOME (LOSS)	287		533		599		981
Less: Net income (loss) attributable to noncontrolling interests	—		—		—		—
NET INCOME (LOSS) ATTRIBUTABLE TO KEY	$	287	$	533	$	599	$	981
Income (loss) from continuing operations attributable to Key common shareholders	$	250	$	504	$	525	$	924
Net income (loss) attributable to Key common shareholders	251		507		527		928
Per Common Share:
Income (loss) from continuing operations attributable to Key common shareholders	$	.27	$	.54	$	.57	$	1.00
Income (loss) from discontinued operations, net of taxes	—		—		—		—
Net income (loss) attributable to Key common shareholders (a)	.27		.55		.57		1.00
Per Common Share — assuming dilution:
Income (loss) from continuing operations attributable to Key common shareholders	$	.27	$	.54	$	.56	$	.99
Income (loss) from discontinued operations, net of taxes	—		—		—		—
Net income (loss) attributable to Key common shareholders (a)	.27		.54		.57		1.00

Weighted-average Common Shares outstanding (000)	926,741		924,302		926,807		923,717

Effect of Common Share options and other stock awards	3,713		7,506		5,513		9,087
Weighted-average Common Shares and potential Common Shares outstanding (000) (b)	930,454		931,808		932,320		932,805

(a)EPS may not foot due to rounding.

(b)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.

See Notes to Consolidated Financial Statements (Unaudited).

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Consolidated Statements of Comprehensive Income


Dollars in millions	Three months ended June 30,				Six months ended June 30,
(Unaudited)	2023		2022		2023		2022
Net income (loss)	$	287	$	533	$	599	$	981
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale, net of income taxes of $131, $309, $(50), and $871	(416)		(980)		159		(2,764)
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $49, $82, $(28), and $259	(156)		(260)		89		(821)

Net pension and postretirement benefit costs, net of income taxes of $(1), $(1), $(1), and $(2)	2		3		3		5
Total other comprehensive income (loss), net of tax	(570)		(1,237)		251		(3,580)
Comprehensive income (loss)	(283)		(704)		850		(2,599)
Less: Comprehensive income attributable to noncontrolling interests	—		—		—		—
Comprehensive income (loss) attributable to Key	$	(283)	$	(704)	$	850	$	(2,599)

See Notes to Consolidated Financial Statements (Unaudited).

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Consolidated Statements of Changes in Equity


	Key Shareholders’ Equity
Dollars in millions, except per share amounts (Unaudited)	Preferred Shares Outstanding (000)	Common Shares Outstanding (000)	Preferred Stock		Common Shares		Capital Surplus		Retained Earnings		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
BALANCE AT DECEMBER 31, 2022	1,996	933,325	$	2,500	$	1,257	$	6,286	$	15,616	$	(5,910)	$	(6,295)	$	13,454
Net income (loss)									599						599
Other comprehensive income (loss)													251		251
Deferred compensation							(5)								(5)
Cash dividends declared
Common Shares ($.410 per share)									(384)						(384)
Series D Preferred Stock ($25.00 per depositary share)									(13)						(13)
Series E Preferred Stock ($.765626 per depositary share)									(15)						(15)
Series F Preferred Stock ($.706250 per depositary share)									(12)						(12)
Series G Preferred Stock ($.703126 per depositary share)									(13)						(13)
Series H Preferred Stock ($.775000 per depositary share)									(19)						(19)
Open market Common Share repurchases		(2,550)					—				(38)				(38)
Employee equity compensation program Common Share repurchases		(1,821)					—				(34)				(34)
Common shares reissued (returned) for stock options and other employee benefit plans		6,779					(50)				123				73



BALANCE AT JUNE 30, 2023	1,996	935,733	$	2,500	$	1,257	$	6,231	$	15,759	$	(5,859)	$	(6,044)	$	13,844

BALANCE AT MARCH 31, 2023	1,996	935,229	$	2,500	$	1,257	$	6,207	$	15,700	$	(5,868)	$	(5,474)	$	14,322


Net income (loss)									287						287
Other comprehensive income (loss)													(570)		(570)
Deferred compensation							1								1
Cash dividends declared
Common Shares ($.205 per share)									(192)						(192)
Series D Preferred Stock ($12.50 per depositary share)									(6)						(6)
Series E Preferred Stock ($.382813 per depositary share)									(7)						(7)
Series F Preferred Stock ($.353125 per depositary share)									(6)						(6)
Series G Preferred Stock ($.351563 per depositary share)									(7)						(7)
Series H Preferred Stock ($.387500 per depositary share)									(10)						(10)


Employee equity compensation program Common Share repurchases		(38)					—				—				—
Common shares reissued (returned) for stock options and other employee benefit plans		542					23				9				32


BALANCE AT JUNE 30, 2023	1,996	935,733	$	2,500	$	1,257	$	6,231	$	15,759	$	(5,859)	$	(6,044)	$	13,844


	Key Shareholders’ Equity
Dollars in millions, except per share amounts (Unaudited)	Preferred Shares Outstanding (000)	Common Shares Outstanding (000)	Preferred Stock		Common Shares		Capital Surplus		Retained Earnings		Treasury Stock, at Cost		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity
BALANCE AT DECEMBER 31, 2021	1,396	928,850	$	1,900	$	1,257	$	6,278	$	14,553	$	(5,979)	$	(586)	$	17,423


Net income (loss)									981						981
Other comprehensive income (loss)													(3,580)		(3,580)
Deferred compensation							(6)								(6)
Cash dividends declared
Common Shares ($.585 per share)									(364)						(364)
Series D Preferred Stock ($37.50 per depositary share)									(12)						(12)
Series E Preferred Stock ($1.148439 per depositary share)									(16)						(16)
Series F Preferred Stock ($1.059375 per depositary share)									(12)						(12)
Series G Preferred Stock ($1.054689 per depositary share)									(12)						(12)

Employee equity compensation program Common Share repurchases		(1,731)					—				(44)				(44)
Common shares reissued (returned) for stock options and other employee benefit plans		5,524					(31)				100				69




BALANCE AT JUNE 30, 2022	1,396	932,643	$	1,900	$	1,257	$	6,241	$	15,118	$	(5,923)	$	(4,166)	$	14,427

BALANCE AT MARCH 31, 2022	1,396	932,398	$	1,900	$	1,257	$	6,214	$	14,793	$	(5,927)	$	(2,929)	$	15,308
Net income (loss)									533						533
Other comprehensive income (loss)													(1,237)		(1,237)
Deferred compensation															—
Cash dividends declared
Common Shares ($.195 per share)									(182)						(182)
Series D Preferred Stock ($12.50 per depositary share)									(6)						(6)
Series E Preferred Stock ($.382813 per depositary share)									(8)						(8)
Series F Preferred Stock ($.353125 per depositary share)									(6)						(6)
Series G Preferred Stock ($.351563 per depositary share)									(6)						(6)


Employee equity compensation program Common Share repurchases		(24)					—				—				—
Common shares reissued (returned) for stock options and other employee benefit plans		269					27				4				31


BALANCE AT JUNE 30, 2022	1,396	932,643	$	1,900	$	1,257	$	6,241	$	15,118	$	(5,923)	$	(4,166)	$	14,427

See Notes to Consolidated Financial Statements (Unaudited).

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Consolidated Statements of Cash Flows


Dollars in millions	Six months ended June 30,
(Unaudited)	2023		2022
OPERATING ACTIVITIES
Net income (loss)	$	599	$	981
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses	306		128
Depreciation and amortization expense, net	71		74
Accretion of acquired loans	11		16
Increase in cash surrender value of corporate-owned life insurance	(52)		(54)
Stock-based compensation expense	63		59
Deferred income taxes (benefit)	29		99
Proceeds from sales of loans held for sale	3,353		6,855
Originations of loans held for sale, net of repayments	(3,549)		(5,414)
Net losses (gains) on sales of loans held for sale	(37)		(81)
Net losses (gains) on leased equipment	(3)		(1)
Net securities losses (gains)	7		—
Net losses (gains) on sales of fixed assets	13		(4)
Net decrease (increase) in trading account assets	(348)		(108)


Other operating activities, net	837		(1,747)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	1,300		803
INVESTING ACTIVITIES
Purchases of intangibles assets via acquisitions	—		(12)
Cash received (used) in acquisitions, net of cash acquired	—		(58)
Net decrease (increase) in short-term investments, excluding acquisitions	(6,527)		8,554
Purchases of securities available for sale	(289)		(3,969)
Proceeds from sales of securities available for sale	511		—
Proceeds from prepayments and maturities of securities available for sale	1,172		2,797
Proceeds from prepayments and maturities of held-to-maturity securities	708		1,321
Purchases of held-to-maturity securities	(1,179)		(1,964)
Purchases of other investments	(533)		(369)
Proceeds from sales of other investments	354		8
Proceeds from prepayments and maturities of other investments	5		6
Net decrease (increase) in loans, excluding acquisitions, sales and transfers	303		(10,580)
Proceeds from sales of portfolio loans	89		81
Proceeds from corporate-owned life insurance	43		39
Purchases of premises, equipment, and software	(74)		(42)
Proceeds from sales of premises and equipment	2		11
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(5,415)		(4,177)
FINANCING ACTIVITIES
Net increase (decrease) in deposits	2,537		(6,707)
Net increase (decrease) in short-term borrowings	(812)		5,282
Net proceeds from issuance of long-term debt	5,240		12,101
Payments on long-term debt	(2,452)		(7,081)

Open market common share repurchases	(38)		—
Employee equity compensation program Common Share repurchases	(34)		(44)

Net proceeds from reissuance of Common Shares	1		5
Cash dividends paid	(456)		(417)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	3,986		3,139
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS	(129)		(235)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD	887		913
CASH AND DUE FROM BANKS AT END OF PERIOD	$	758	$	678
Additional disclosures relative to cash flows:
Interest paid	$	1,360	$	169
Income taxes paid (refunded)	140		131
Noncash items:
Reduction of secured borrowing and related collateral	$	3	$	4
Loans transferred to portfolio from held for sale	83		57
Loans transferred to held for sale from portfolio	19		—
Loans transferred to OREO	4		3
CMBS risk retentions	—		6
ABS risk retentions	7		9

See Notes to Consolidated Financial Statements (Unaudited).

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Notes to Consolidated Financial Statements (Unaudited)

1. Basis of Presentation and Accounting Policies

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 related to derivative valuations and reserves have been reclassified from Other Income to Corporate Services Income to conform to current reporting practices.

The consolidated financial statements include any voting rights entities in which we have a controlling financial interest. In accordance with the applicable accounting guidance for consolidations, we consolidate a VIE if we have: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly affect the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., we are 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 11 (“Variable Interest Entities”) for information on our involvement with VIEs.

We use the equity method to account for unconsolidated investments in voting rights entities or VIEs if we have significant influence over the entity’s operating and financing decisions (usually defined as a voting or economic interest of 20% to 50%, but not controlling). Unconsolidated investments in voting rights entities or VIEs in which we have a voting or economic interest of less than 20% are carried at the cost measurement alternative or at fair value. Investments held by our registered broker-dealer and investment company subsidiaries (principal investing entities and Real Estate Capital line of business) are carried at fair value.

The unaudited consolidated interim financial statements reflect all adjustments of a normal recurring nature and disclosures that are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. The interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our 2022 Form 10-K.

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users or filed with the SEC.

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Accounting Guidance Adopted in 2023


Standard	Date of Adoption	Description	Effect on Financial Statements or Other Significant Matters
ASU 2021-08, Business Combinations (Topic 805)	January 1, 2023 Early adoption is permitted.	At the acquisition date, an acquirer must account for any acquired revenue contracts in accordance with Topic 606 as if it had originated the contracts (i.e. measure contract assets and liabilities, generally consistent with acquiree's financial statements). The guidance should be applied on a prospective basis.	The adoption of this guidance did not have an impact on Key’s financial condition or results of operations.
ASU 2022-01, Derivatives and Hedging (Topic 815)	January 1, 2023 Early adoption is permitted.	This guidance allows entities to apply the same portfolio hedging method to both prepayable and nonprepayable financial assets. It also allows multiple hedged layers to be designated for a single closed portfolio of financial assets or one or more beneficial interests secured by a portfolio of financial instruments. If a breach is anticipated, an entity is required to partially or fully dedesignate a hedged layer or layers until a breach is no longer anticipated. There are additional requirements and enhanced disclosures related to basis adjustments. The guidance should be applied on a prospective, retrospective or modified retrospective basis depending on the amendment.	The adoption of this guidance did not have an impact on Key’s financial condition or results of operations.
ASU 2022-02, Financial Instruments —Credit Losses (Topic 326)	January 1, 2023 Early adoption is permitted	The amendments eliminate TDR guidance and instead require entities to apply the loan refinancing and restructuring guidance to determine whether a modification results in a new loan or is a continuation of an existing loan. Entities must disclose current-period gross write-offs on an amortized cost basis by credit quality indicator and class of financing receivable by year of origination. The guidance should be applied on a prospective basis except for amendments related to recognition and measurement of TDRs, where a modified retrospective transition method is optional.	As part of the adoption of this guidance, Key elected to discontinue use of a discounted cash flow (DCF) methodology and apply its portfolio-based allowance approach to non-collateral dependent modified loans. The adoption did not result in a material impact on Key’s financial condition or results of operations. Additionally, disclosures for gross charges-offs and loan modifications made to borrowers experiencing financial difficulty have been included in Note 4 (Asset Quality).
ASU 2023-02, Investments—Equity Method and Joint Ventures (Topic 323)	January 1, 2023 Early adoption is permitted.	Reporting entities may elect to account for their tax equity investments, not limited to LIHTC structures, using the proportional amortization method as long as certain criteria are met. Entities must make an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis. Also, LIHTC investments not accounted for using the proportional amortization method will no longer be allowed to use the delayed equity contribution guidance. Further, accounting guidance in ASC 323-740 is now only applicable to tax equity investments accounted for using the proportional amortization method. The guidance should be applied on a modified retrospective or retrospective basis.	The guidance did not have a material impact on Key’s financial condition or results of operations. Key adopted this guidance on a modified retrospective basis.

The following are additional disclosures about our significant accounting policies updated during the six months ended June 30, 2023.

Loans

Effective January 1, 2023, we adopted the provisions of ASU 2022-02, Financial Instruments —Credit Losses (Topic

326), which eliminated the accounting for troubled debt restructurings while expanding loan modification and vintage disclosure requirements. Under this guidance we assess all loan modifications to determine whether one is granted to a borrower experiencing financial difficulty, regardless of whether the modification loan terms include a concession. Modifications granted to borrowers experiencing financial difficulty may be in the form an interest rate reduction, payment delay, other modifications, or some combination thereof. A borrower is considered to be experiencing financial difficulty when there is significant doubt about the borrower’s ability to make required payments on the loan or to get equivalent financing from another creditor at a market rate for a similar loan.

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Prior to the adoption of ASU 2022-02, a TDR occurred when a loan to a borrower experiencing financial difficulty was restricted with a concession provided that a creditor would not otherwise consider.

Nonperforming Loans

Nonperforming loans are loans for which we do not accrue interest income and may include both commercial and consumer loans and leases, modified loans to borrowers experiencing financial difficulty, and nonaccruing TDR loans prior to the adoption of ASU 2022-02. Nonperforming loans do not include loans held for sale. Once a loan is designated nonaccrual, the interest accrued but not collected is reversed against interest income, and payments subsequently received are applied to principal until qualifying for return to accrual.

Allowance for Loan and Lease Losses

We estimate the ALLL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The ALLL is measured on a collective (pool) basis when similar risk characteristics exist. Our portfolio segments include commercial and consumer. Each of these two segments comprises multiple loan classes. Classes are characterized by similarities in initial measurement, risk attributes, and the manner in which we monitor and assess credit risk. The commercial segment is composed of commercial and industrial, commercial real estate, and commercial lease financing loan classes. The consumer lending segment is composed of residential mortgage, home equity, consumer direct, credit card, student lending and consumer indirect loan classes.

The ALLL represents our current estimate of lifetime credit losses inherent in our loan portfolio at the balance sheet date. In determining the ALLL, we estimate expected future losses for the loan's entire contractual term adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications.

The ALLL is the sum of three components: (i) asset specific/ individual loan reserves; (ii) quantitative (formulaic or pooled) reserves; and (iii) qualitative (judgmental) reserves.

Asset Specific / Individual Component

Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. We have elected to apply the practical expedient to measure expected credit losses of a collateral dependent asset using the fair value of the collateral, less any costs to sell, when foreclosure is not probable, when repayment of the loan is expected to be provided substantially through the operation or sale of the collateral, and the borrower is experiencing financial difficulty.

Individual reserves are determined as follows:

For commercial non-accruing loans greater than or equal to a defined dollar threshold, individual reserves are determined based on an analysis of the present value of the loan's expected future cash flows or the fair value of the collateral less costs to sell.
For commercial non-accruing loans below the defined dollar threshold, an established LGD percentage is multiplied by the loan balance and the results are aggregated for purposes of measuring specific reserve impairment.
The population of individually assessed consumer loans includes loans deemed collateral dependent. These loans are written down based on the collateral's fair market value less costs to sell.

Quantitative Component

We use a non-DCF factor-based approach to estimate expected credit losses that include component PD/LGD/EAD

models as well as less complex estimation methods for smaller loan portfolios.

PD: This component model is used to estimate the likelihood that a borrower will cease making payments as agreed. The major contributors to this are the borrower credit attributes and macro-economic trends. The objective of the PD model is to produce default likelihood forecasts based on the observed loan-level information and projected paths of macroeconomic variables.
LGD: This component model is used to estimate the loss on a loan once a loan is in default.

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EAD: Estimates the loan balance at the time the borrower stops making payments. For all term loans, an amortization based formulaic approach is used for account level EAD estimates. We calculate EAD using a portfolio specific method in each of our revolving product portfolios. For line products that are unconditionally cancellable, the balances will either use a paydown curve or be held flat through the life of the loan.

Qualitative Component

The ALLL also includes identified qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, and other relevant factors to ensure the ALLL reflects our best estimate of current expected credit losses. While our reserve methodologies strive to reflect all relevant risk factors, there continues to be uncertainty associated with, but not limited to, potential imprecision in the estimation process due to the inherent time lag of obtaining information and normal variations between estimates and actual outcomes. We provide additional reserves that are designed to provide coverage for losses attributable to such risks. The ALLL also includes factors that may not be directly measured in the determination of individual or collective reserves. Such qualitative factors may include:

The nature and volume of the institution’s financial assets;
The existence, growth, and effect of any concentrations of credit;
The volume and severity of past due financial assets, the volume of nonaccrual assets, and the volume and severity of adversely classified or graded assets;
The value of the underlying collateral for loans that are not collateral dependent;
The institution’s lending policies and procedures, including changes in underwriting standards and practices for collections, write-offs, and recoveries;
The quality of the institution’s credit review function;
The experience, ability, and depth of the institution’s lending, investment, collection, and other relevant management and staff;
The effect of other external factors such as the regulatory, legal and technological environments; competition; and events such as natural disasters; and
Actual and expected changes in international, national, regional, and local economic and business conditions and developments in which the institution operates that affect the collectability of financial assets.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between financial statement asset and liability amounts and their respective tax bases and are measured using enacted tax laws and rates that are expected to apply in the periods in which the deferred tax assets or liabilities are expected to be realized. Deferred tax assets are also recorded for any tax attributes, such as tax credit and net operating loss carryforwards. The net balance of deferred tax assets and liabilities is reported in “Accrued income and other assets” or “Accrued expense and other liabilities” in the consolidated balance sheets, as appropriate. Subsequent changes in the tax laws require adjustment to these assets and liabilities with the cumulative effect included in the provision for income taxes for the period in which the change is enacted. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized.

We use the proportional amortization method for LIHTC and NMTC investments, whereby the associated investment tax credits are recognized as a reduction to tax expense. Certain federal tax credits that are nonrefundable and transferable under applicable regulations are accounted for as government grants and recorded as a reduction to the amortized cost or net investment in the applicable asset generating the credit, generally within “Accrued income and other assets” or “Loans, net of unearned income”. Amounts are amortized through depreciation or as an adjustment to yield over the estimated life of the asset. Any gain or loss on the transfer of a tax credit is recorded within “Other income”.

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2. Earnings Per Common Share

Basic earnings per share is the amount of earnings (adjusted for dividends declared on our preferred stock) available to each Common Share outstanding during the reporting periods. Diluted earnings per share is the amount of earnings available to each Common Share outstanding during the reporting periods adjusted to include the effects of potentially dilutive Common Shares. Potentially dilutive Common Shares include stock options and other stock-based awards. Potentially dilutive Common Shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive.

Our basic and diluted earnings per Common Share are calculated as follows:


	Three months ended June 30,				Six months ended June 30,
Dollars in millions, except per share amounts	2023		2022		2023		2022
EARNINGS
Income (loss) from continuing operations	$	286	$	530	$	597	$	977
Less: Net income (loss) attributable to noncontrolling interests	—		—		—		—
Income (loss) from continuing operations attributable to Key	286		530		597		977
Less: Dividends on Preferred Stock	36		26		72		53
Income (loss) from continuing operations attributable to Key common shareholders	250		504		525		924
Income (loss) from discontinued operations, net of taxes	1		3		2		4
Net income (loss) attributable to Key common shareholders	$	251	$	507	$	527	$	928
WEIGHTED-AVERAGE COMMON SHARES
Weighted-average Common Shares outstanding (000)	926,741		924,302		926,807		923,717
Effect of Common Share options and other stock awards	3,713		7,506		5,513		9,087
Weighted-average Common Shares and potential Common Shares outstanding (000) (a)	930,454		931,808		932,320		932,805
EARNINGS PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders	$	.27	$	.54	$	.57	$	1.00
Income (loss) from discontinued operations, net of taxes	—		—		—		—
Net income (loss) attributable to Key common shareholders (b)	.27		.55		.57		1.00

Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	$	.27	$	.54	$	.56	$	.99
Income (loss) from discontinued operations, net of taxes — assuming dilution	—		—		—		—
Net income (loss) attributable to Key common shareholders — assuming dilution (b)	.27		.54		.57		1.00

(a)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.

(b)EPS may not foot due to rounding.

3. Loan Portfolio

Loan Portfolio by Portfolio Segment and Financing Receivable (a)


Dollars in millions	June 30, 2023		December 31, 2022
Commercial and industrial (b)	$	60,059	$	59,647
Commercial real estate:
Commercial mortgage	16,048		16,352
Construction	2,646		2,530
Total commercial real estate loans	18,694		18,882
Commercial lease financing (c)	3,801		3,936
Total commercial loans	82,554		82,465
Residential — prime loans:
Real estate — residential mortgage	21,637		21,401
Home equity loans	7,529		7,951
Total residential — prime loans	29,166		29,352
Consumer direct loans	6,257		6,508
Credit cards	1,001		1,026
Consumer indirect loans	33		43
Total consumer loans	36,457		36,929
Total loans (d)	$	119,011	$	119,394

(a)Accrued interest of $500 million and $417 million at June 30, 2023, and December 31, 2022, respectively, presented in "Accrued income and other assets" on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

(b)Loan balances include $200 million and $172 million of commercial credit card balances at June 30, 2023, and December 31, 2022, respectively.

(c)Commercial lease financing includes receivables held as collateral for a secured borrowing of $5 million and $8 million at June 30, 2023, and December 31, 2022, respectively. Principal reductions are based on the cash payments received from these related receivables. Additional information pertaining to this secured borrowing is included in Note 20 (“Long-Term Debt”) beginning on page 164 of our 2022 Form 10-K.

(d)Total loans exclude loans of $381 million at June 30, 2023, and $434 million at December 31, 2022, related to the discontinued operations of the education lending business.

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4. Asset Quality

ALLL

We estimate the appropriate level of the ALLL on at least a quarterly basis. The methodology is described in Note 1 ("Summary of Significant Accounting Policies") under the heading "Allowance for Loan and Lease Losses" beginning on page 107 of our 2022 Form 10-K.

The ALLL at June 30, 2023, represents our current estimate of lifetime credit losses inherent in the loan portfolio at that date. The changes in the ALLL by loan category for the periods indicated are as follows:

Three months ended June 30, 2023:


Dollars in millions	March 31, 2023		Provision			Charge-offs		Recoveries		June 30, 2023
Commercial and Industrial	$	605	$	21		$	(42)	$	15	$	599
Commercial real estate:
Real estate — commercial mortgage	218		105			(9)		1		315
Real estate — construction	28		11			—		—		39
Total commercial real estate loans	246		116			(9)		1		354
Commercial lease financing	33		(1)			(1)		2		33
Total commercial loans	884		136			(52)		18		986
Real estate — residential mortgage	212		(12)			(1)		1		200
Home equity loans	96		1			(2)		1		96
Consumer direct loans	116		18			(11)		2		125
Credit cards	71		8			(9)		2		72
Consumer indirect loans	1		1			(1)		—		1
Total consumer loans	496		16			(24)		6		494
Total ALLL — continuing operations	1,380		152		(a)	(76)		24		1,480
Discontinued operations	19		—			(2)		1		18
Total ALLL — including discontinued operations	$	1,399	$	152		$	(78)	$	25	$	1,498

(a)Excludes a provision for losses on lending-related commitments of $15 million.

Three months ended June 30, 2022:


Dollars in millions	March 31, 2022		Provision			Charge-offs		Recoveries		June 30, 2022
Commercial and Industrial	$	489	$	45		$	(39)	$	8	$	503
Commercial real estate:
Real estate — commercial mortgage	172		(14)			(3)		1		156
Real estate — construction	25		(5)			—		1		21
Total commercial real estate loans	197		(19)			(3)		2		177
Commercial lease financing	31		(3)			—		1		29
Total commercial loans	717		23			(42)		11		709
Real estate — residential mortgage	108		11			2		1		122
Home equity loans	104		(10)			—		1		95
Consumer direct loans	111		10			(10)		1		112
Credit cards	63		3			(8)		1		59
Consumer indirect loans	2		1			(1)		—		2
Total consumer loans	388		15			(17)		4		390
Total ALLL — continuing operations	1,105		38		(a)	(59)		15		1,099
Discontinued operations	27		(3)			(1)		1		24
Total ALLL — including discontinued operations	$	1,132	$	35		$	(60)	$	16	$	1,123

(a)Excludes a provision for losses on lending-related commitments of $7 million.

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Six months ended June 30, 2023:


in millions	December 31, 2022		Provision			Charge-offs		Recoveries		June 30, 2023
Commercial and Industrial	$	601	$	52		$	(77)	$	23	$	599
Commercial real estate:
Real estate — commercial mortgage	203		125			(14)		1		315
Real estate — construction	28		11			—		—		39
Total commercial real estate loans	231		136			(14)		1		354
Commercial lease financing	32		(2)			—		3		33
Total commercial loans	864		186			(91)		27		986
Real estate — residential mortgage	196		3			(1)		2		200
Home equity loans	98		(1)			(3)		2		96
Consumer direct loans	111		32			(22)		4		125
Credit cards	66		21			(18)		3		72
Consumer indirect loans	2		(1)			(1)		1		1
Total consumer loans	473		54			(45)		12		494
Total ALLL — continuing operations	1,337		240		(a)	(136)		39		1,480
Discontinued operations	21		(1)			(3)		1		18
Total ALLL — including discontinued operations	$	1,358	$	239		$	(139)	$	40	$	1,498

(a)Excludes a provision for losses on lending-related commitments of $66 million.

Six months ended June 30, 2022:


Dollars in millions	December 31, 2021		Provision			Charge-offs		Recoveries		June 30, 2022
Commercial and Industrial	$	445	$	108		$	(69)	$	19	$	503
Commercial real estate:
Real estate — commercial mortgage	182		(21)			(7)		2		156
Real estate — construction	29		(9)			—		1		21
Total commercial real estate loans	211		(30)			(7)		3		177
Commercial lease financing	32		(2)			(2)		1		29
Total commercial loans	688		76			(78)		23		709
Real estate — residential mortgage	95		23			3		1		122
Home equity loans	110		(16)			(1)		2		95
Consumer direct loans	105		21			(17)		3		112
Credit cards	61		10			(15)		3		59
Consumer indirect loans	2		1			(2)		1		2
Total consumer loans	373		39			(32)		10		390
Total ALLL — continuing operations	1,061		115		(a)	(110)		33		1,099
Discontinued operations	28		(2)			(3)		1		24
Total ALLL — including discontinued operations	$	1,089	$	113		$	(113)	$	34	$	1,123

(a)Excludes a provision for losses on lending-related commitments of $13 million.

As described in Note 1 ("Summary of Significant Accounting Policies"), under the heading “Allowance for Loan and Lease Losses” beginning on page 107 of our 2022 Form 10-K, we estimate the ALLL using relevant available information, from internal and external sources, relating to past events, current economic and portfolio conditions, and reasonable and supportable forecasts. In our estimation of expected credit losses, we use a two year reasonable and supportable period across all products. Following this two year period in which supportable forecasts can be generated, for all modeled loan portfolios, we revert expected credit losses to a level that is consistent with our historical information by reverting the macroeconomic variables (model inputs) to their long run average. We revert to historical loss rates for less complex estimation methods for smaller portfolios. A 20-year fixed length look back period is used to calculate the long run average of the macroeconomic variables. A four quarter reversion period is used where the macroeconomic variables linearly revert to their long run average following the two year reasonable and supportable period.

We develop our reasonable and supportable forecasts using relevant data including, but not limited to, changes in economic output, unemployment rates, property values, and other factors associated with the credit losses on financial assets. Some macroeconomic variables apply to all portfolio segments, while others are more portfolio specific. The following table discloses key macroeconomic variables for each loan portfolio.

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Segment	Portfolio	Key Macroeconomic Variables (a)
Commercial	Commercial and industrial	BBB corporate bond rate (spread), fixed investment, business bankruptcies, GDP, industrial production, and unemployment rate, Producer Price Index
Commercial real estate	Property & real estate price indices, unemployment rate, business bankruptcies, GDP, SOFR
Commercial lease financing	BBB corporate bond rate (spread), GDP, and unemployment rate
Consumer	Real estate — residential mortgage	GDP, home price index, unemployment rate, and 30 year mortgage rate
Home equity	Home price index, unemployment rate, and 30 year mortgage rate
Consumer direct	Unemployment rate and U.S. household income
Consumer indirect	Unemployment rate
Credit cards	Unemployment rate and U.S. household income
Discontinued operations	Unemployment rate

(a)Variables include all transformations and interactions with other risk drivers. Additionally, variables may have varying impacts at different points in the economic cycle.

In addition to macroeconomic drivers, portfolio attributes such as remaining term, outstanding balance, risk ratings, utilization, FICO, LTV, and delinquency also drive ALLL changes. Our ALLL models were designed to capture the correlation between economic and portfolio changes. As such, evaluating shifts in individual portfolio attributes and macroeconomic variables in isolation may not be indicative of past or future performance.

Economic Outlook

As of June 30, 2023, economic uncertainty was elevated due to cooling, but still high, inflationary pressures and rising interest rates. Unemployment rates are still expected to remain at relatively low levels, but job growth is moderating. Inflation, in the United States, is starting to ease as the restrictive monetary policy and higher interest rates are making an impact. Commercial real estate values are under pressure, with office being the most vulnerable market. We utilized the Moody’s May 2023 Consensus forecast as our baseline forecast to estimate our expected credit losses as of June 30, 2023. We determined such forecast to be a reasonable view of the outlook for the economy given all available information at quarter end.

The baseline scenario reflects slow economic growth over the next two years in markets in which we operate. U.S. GDP is expected to grow at an annual rate of approximately 1.3% and 0.9% for 2023 and 2024, respectively. The national unemployment rate forecast is expected to reach 4.2% by the fourth quarter of 2023. The U.S. Consumer Price Index annualized rate is forecasted at 4% and 2.5% for 2023 and 2024, respectively. The national home price index is expected to decline approximately 6% over 2023, while the commercial real estate price index is forecasted to drop approximately 5% in 2023 and 9% over 2024.

As a result of the current economic uncertainty, our future loss estimates may vary considerably from our June 30, 2023 assumptions.

Commercial Loan Portfolio

The ALLL from continuing operations for the commercial segment increased by $102 million, or 11.5%, from March 31, 2023. The overall increase in the commercial allowance is driven by changes in the economic outlook and portfolio activity.

The reserves levels are reflective of low economic growth expectations in 2023, primarily related to the high inflation and elevated interest rate environment. The reserve increase from prior quarter is concentrated in the commercial real estate portfolio, reflecting economic deterioration largely within the office sector. Reserve levels also reflect changes in portfolio factors, including the impact of current economic conditions on risk ratings.

Consumer Loan Portfolio

The ALLL from continuing operations for the consumer segment decreased by $2 million, or 0.4%, from March 31, 2023. The overall stability in the consumer allowance is driven by improvement in the economic forecast, offset by credit quality normalization post-pandemic.

Current reserve levels reflect favorable changes economic outlook quarter-over-quarter for the home price environment. Improvement in the unemployment outlook also impacted reserves for all consumer segments.

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Credit Risk Profile

The prevalent risk characteristic for both commercial and consumer loans is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Evaluation of this risk is stratified and monitored by the loan risk rating grades assigned for the commercial loan portfolios and the refreshed FICO score assigned for the consumer loan portfolios. The internal risk grades assigned to loans follow our definitions of Pass and Criticized, which are consistent with published definitions of regulatory risk classifications. Loans with a pass rating represent those loans not classified on our rating scale for credits, as minimal credit risk has been identified. Criticized loans are those loans that either have a potential weakness deserving management's close attention or have a well-defined weakness that may put full collection of contractual cash flows at risk. Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that a debtor will repay its debts. The scores are obtained from a nationally recognized consumer rating agency and are presented in the tables below at the dates indicated.

All extensions of credit are subject to loan grading or scoring. Loan grades are assigned at the time of origination, verified by credit risk management, and periodically re-evaluated thereafter. This risk rating methodology blends our judgment with quantitative modeling. Commercial loans generally are assigned two internal risk ratings. The first rating reflects the probability that the borrower will default on an obligation; the second rating reflects expected recovery rates on the credit facility. Default probability is determined based on, among other factors, the financial strength of the borrower, an assessment of the borrower’s management, the borrower’s competitive position within its industry sector, and our view of industry risk in the context of the general economic outlook. Types of exposure, transaction structure, and collateral, including credit risk mitigants, affect the expected recovery assessment.

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Commercial Credit Exposure

Credit Risk Profile by Creditworthiness Category and Vintage (a)


As of June 30, 2023	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and Internal Risk Rating
Dollars in millions	2023		2022		2021		2020		2019		Prior		Total
Commercial and Industrial
Risk Rating:
Pass	$	3,242	$	10,905	$	7,306	$	3,039	$	2,367	$	4,060	$	26,548	$	152	$	57,619
Criticized (Accruing)	31		222		436		176		114		396		857		20		2,252
Criticized (Nonaccruing)	4		34		5		3		34		23		85		—		188
Total commercial and industrial	3,277		11,161		7,747		3,218		2,515		4,479		27,490		172		60,059
Current period gross write-offs	—		—		5		4		1		7		25		—		42
Real estate — commercial mortgage
Risk Rating:
Pass	719		4,249		3,460		842		1,656		2,934		1,031		68		14,959
Criticized (Accruing)	3		373		186		26		135		211		90		—		1,024
Criticized (Nonaccruing)	—		—		1		21		1		12		30		—		65
Total real estate — commercial mortgage	722		4,622		3,647		889		1,792		3,157		1,151		68		16,048
Current period gross write-offs	—		—		—		1		—		8		—		—		9
Real estate — construction
Risk Rating:
Pass	61		876		988		315		203		89		11		6		2,549
Criticized (Accruing)	—		5		23		17		—		50		—		2		97
Criticized (Nonaccruing)	—		—		—		—		—		—		—		—		—
Total real estate — construction	61		881		1,011		332		203		139		11		8		2,646
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Commercial lease financing
Risk Rating:
Pass	287		973		668		436		390		956		—		—		3,710
Criticized (Accruing)	22		35		4		9		8		12		—		—		90
Criticized (Nonaccruing)	—		—		—		—		—		1		—		—		1
Total commercial lease financing	309		1,008		672		445		398		969				—		3,801
Current period gross write-offs	—		—		—		—		—		1		—		—		1
Total commercial loans	$	4,369	$	17,672	$	13,077	$	4,884	$	4,908	$	8,744	$	28,652	$	248	$	82,554
Total commercial loan current period gross write-offs	$	—	$	—	$	5	$	5	$	1	$	16	$	25	$	—	$	52


As of December 31, 2022	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and Internal Risk Rating
Dollars in millions	2022		2021		2020		2019		2018		Prior		Total
Commercial and Industrial
Risk Rating:
Pass	$	11,580	$	8,636	$	3,540	$	2,839	$	1,787	$	3,307	$	25,565	$	138	$	57,392
Criticized (Accruing)	40		357		131		160		227		205		936		25		2,081
Criticized (Nonaccruing)	34		2		5		4		22		20		87		—		174
Total commercial and industrial	11,654		8,995		3,676		3,003		2,036		3,532		26,588		163		59,647
Real estate — commercial mortgage
Risk Rating:
Pass	4,786		3,817		992		1,853		788		2,578		1,068		67		15,949
Criticized (Accruing)	6		13		20		48		73		175		47		—		382
Criticized (Nonaccruing)	—		—		1		1		1		15		3		—		21
Total real estate — commercial mortgage	4,792		3,830		1,013		1,902		862		2,768		1,118		67		16,352
Real estate — construction
Risk Rating:
Pass	698		895		445		262		107		48		1		—		2,456
Criticized (Accruing)	5		1		5		32		25		4		—		2		74
Criticized (Nonaccruing)	—		—		—		—		—		—		—		—		—
Total real estate — construction	703		896		450		294		132		52		1		2		2,530
Commercial lease financing
Risk Rating:
Pass	1,039		743		509		467		174		947		—		—		3,879
Criticized (Accruing)	15		1		9		12		9		10		—		—		56
Criticized (Nonaccruing)	—		—		—		—		—		1		—		—		1
Total commercial lease financing	1,054		744		518		479		183		958		—		—		3,936
Total commercial loans	$	18,203	$	14,465	$	5,657	$	5,678	$	3,213	$	7,310	$	27,707	$	232	$	82,465

**(a)**Accrued interest of $365 million and $314 million as of June 30, 2023, and December 31, 2022, respectively, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in these tables.

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Consumer Credit Exposure

Credit Risk Profile by FICO Score and Vintage (a)


As of June 30, 2023	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and FICO Score
Dollars in millions	2023		2022		2021		2020		2019		Prior		Total
Real estate — residential mortgage
FICO Score:
750 and above	$	621	$	6,003	$	8,037	$	2,517	$	611	$	979	$	—	$	—	$	18,768
660 to 749	188		885		830		239		100		271		—		—		2,513
Less than 660	7		55		37		17		16		134		—		—		266
No Score	1		65		1		1		—		21		1		—		90
Total real estate — residential mortgage	817		7,008		8,905		2,774		727		1,405		1		—		21,637
Current period gross write-offs	—		—		—		—		—		1		—		—		1
Home equity loans
FICO Score:
750 and above	—		108		1,436		542		146		486		2,135		373		5,226
660 to 749	11		73		255		172		71		189		916		121		1,808
Less than 660	1		10		30		24		18		82		291		32		488
No Score	1		—		—		—		—		2		4		—		7
Total home equity loans	13		191		1,721		738		235		759		3,346		526		7,529
Current period gross write-offs	1		—		—		—		—		—		—		1		2
Consumer direct loans
FICO Score:
750 and above	143		1,264		1,549		741		314		118		98		—		4,227
660 to 749	127		418		376		191		99		60		199		—		1,470
Less than 660	13		61		61		31		17		13		55		—		251
No Score	20		45		20		16		11		19		178		—		309
Total consumer direct loans	303		1,788		2,006		979		441		210		530		—		6,257
Current period gross write-offs	—		3		3		1		1		—		3		—		11
Credit cards
FICO Score:
750 and above	—		—		—		—		—		—		499		—		499
660 to 749	—		—		—		—		—		—		400		—		400
Less than 660	—		—		—		—		—		—		101		—		101
No Score	—		—		—		—		—		—		1		—		1
Total credit cards	—		—		—		—		—		—		1,001		—		1,001
Current period gross write-offs	—		—		—		—		—		—		9		—		9
Consumer indirect loans
FICO Score:
750 and above	—		1		—		—		—		16		—		—		17
660 to 749	—		—		—		—		—		12		—		—		12
Less than 660	—		—		—		—		—		4		—		—		4
No Score	—		—		—		—		—		—		—		—		—
Total consumer indirect loans	—		1		—		—		—		32		—		—		33
Current period gross write-offs	—		—		—		—		—		1		—		—		1
Total consumer loans	$	1,133	$	8,988	$	12,632	$	4,491	$	1,403	$	2,406	$	4,878	$	526	$	36,457
Total consumer loan current period gross write-offs	$	1	$	3	$	3	$	1	$	1	$	2	$	12	$	1	$	24

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As of December 31, 2022	Term Loans												Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term Loans Amortized Cost Basis
	Amortized Cost Basis by Origination Year and FICO Score
Dollars in millions	2022		2021		2020		2019		2018		Prior		Total
Real estate — residential mortgage
FICO Score:
750 and above	$	5,205	$	8,702	$	2,584	$	636	$	64	$	978	$	—	$	—	$	18,169
660 to 749	1,286		919		282		106		28		260		—		—		2,881
Less than 660	41		42		17		14		15		130		—		—		259
No Score	62		1		1		1		1		25		1		—		92
Total real estate — residential mortgage	6,594		9,664		2,884		757		108		1,393		1		—		21,401
Home equity loans
FICO Score:
750 and above	146		1,044		736		207		74		617		2,238		398		5,460
660 to 749	83		291		194		79		32		187		974		126		1,966
Less than 660	11		31		25		17		10		81		300		37		512
No Score	7		—		—		—		—		2		4		—		13
Total home equity loans	247		1,366		955		303		116		887		3,516		561		7,951
Consumer direct loans
FICO Score:
750 and above	1,291		1,632		811		351		45		97		102		—		4,329
660 to 749	526		434		229		120		26		41		206		—		1,582
Less than 660	58		63		32		23		7		9		57		—		249
No Score	59		32		22		11		9		22		193		—		348
Total consumer direct loans	1,934		2,161		1,094		505		87		169		558		—		6,508
Credit cards
FICO Score:
750 and above	—		—		—		—		—		—		524		—		524
660 to 749	—		—		—		—		—		—		402		—		402
Less than 660	—		—		—		—		—		—		99		—		99
No Score	—		—		—		—		—		—		1		—		1
Total credit cards	—		—		—		—		—		—		1,026		—		1,026
Consumer indirect loans
FICO Score:
750 and above	—		2		—		—		—		19		—		—		21
660 to 749	—		—		—		—		—		15		—		—		15
Less than 660	—		—		—		—		—		7		—		—		7
No Score	—		—		—		—		—		—		—		—		—
Total consumer indirect loans	—		2		—		—		—		41		—		—		43
Total consumer loans	$	8,775	$	13,193	$	4,933	$	1,565	$	311	$	2,490	$	5,101	$	561	$	36,929

**(a)**Accrued interest of $135 million and $103 million as of June 30, 2023, and December 31, 2022, respectively, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in this table.

Nonperforming and Past Due Loans

Our policies for determining past due loans, placing loans on nonaccrual, applying payments on nonaccrual loans, and resuming accrual of interest for our commercial and consumer loan portfolios are disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Nonperforming Loans” beginning on page 106 of our 2022 Form 10-K.

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The following aging analysis of past due and current loans as of June 30, 2023, and December 31, 2022, provides further information regarding Key’s credit exposure.

Aging Analysis of Loan Portfolio(a)


As of June 30, 2023	Current (b)		30-59 Days Past Due (b)		60-89 Days Past Due (b)		90 and Greater Days Past Due (b)		Non-performing Loans		Total Past Due and Non-performing Loans (b)		Total Loans (c)
Dollars in millions
LOAN TYPE
Commercial and industrial	$	59,794	$	17	$	19	$	41	$	188	$	265	$	60,059
Commercial real estate:
Commercial mortgage	15,964		7		2		10		65		84		16,048
Construction	2,646		—		—		—		—		—		2,646
Total commercial real estate loans	18,610		7		2		10		65		84		18,694
Commercial lease financing	3,778		22		—		—		1		23		3,801
Total commercial loans	$	82,182	$	46	$	21	$	51	$	254	$	372	$	82,554
Real estate — residential mortgage	$	21,553	$	6	$	5	$	—	$	73	$	84	$	21,637
Home equity loans	7,395		24		7		6		97		134		7,529
Consumer direct loans	6,227		11		9		7		3		30		6,257
Credit cards	979		6		4		9		3		22		1,001
Consumer indirect loans	32		—		—		—		1		1		33
Total consumer loans	$	36,186	$	47	$	25	$	22	$	177	$	271	$	36,457
Total loans	$	118,368	$	93	$	46	$	73	$	431	$	643	$	119,011

(a)Amounts in table represent amortized cost and exclude loans held for sale.

(b)Accrued interest of $500 million presented in “Accrued income and other assets” on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

(c)Net of unearned income, net of deferred fees and costs, and unamortized discounts and premiums.


As of December 31, 2022	Current (b)		30-59 Days Past Due (b)		60-89 Days Past Due (b)		90 and Greater Days Past Due (b)		Non-performing Loans		Total Past Due and Non-performing Loans (b)		Total Loans (c)
Dollars in millions
LOAN TYPE
Commercial and industrial	$	59,366	$	43	$	33	$	31	$	174	$	281	$	59,647
Commercial real estate:
Commercial mortgage	16,305		16		2		8		21		47		16,352
Construction	2,530		—		—		—		—		—		2,530
Total commercial real estate loans	18,835		16		2		8		21		47		18,882
Commercial lease financing	3,928		3		1		3		1		8		3,936
Total commercial loans	$	82,129	$	62	$	36	$	42	$	196	$	336	$	82,465
Real estate — residential mortgage	$	21,307	$	13	$	3	$	1	$	77	$	94	$	21,401
Home equity loans	7,804		27		8		5		107		147		7,951
Consumer direct loans	6,478		15		7		5		3		30		6,508
Credit cards	1,007		5		4		7		3		19		1,026
Consumer indirect loans	42		—		—		—		1		1		43
Total consumer loans	$	36,638	$	60	$	22	$	18	$	191	$	291	$	36,929
Total loans	$	118,767	$	122	$	58	$	60	$	387	$	627	$	119,394

(a)Amounts in table represent amortized cost and exclude loans held for sale.

(b)Accrued interest of $417 million presented in “Accrued income and other assets” on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.

(c)Net of unearned income, net of deferred fees and costs, and unamortized discounts and premiums.

At June 30, 2023, the approximate carrying amount of our commercial nonperforming loans outstanding represented 60% of their original contractual amount owed, total nonperforming loans outstanding represented 70% of their original contractual amount owed, and nonperforming assets in total were carried at 75% of their original contractual amount owed.

Nonperforming loans reduced expected interest income by $8 million and $16 million for the three and six months ended June 30, 2023, respectively, and $4 million and $9 million for the three and six months ended June 30, 2022, respectively.

The amortized cost basis of nonperforming loans on nonaccrual status for which there is no related allowance for credit losses was $226 million at June 30, 2023.

Collateral-dependent Financial Assets

We classify financial assets as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of the collateral. Our commercial loans have collateral that includes cash, accounts receivable, inventory, commercial machinery, commercial properties,

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commercial real estate construction projects, enterprise value, and stock or ownership interests in the borrowing entity. When appropriate we also consider the enterprise value of the borrower as a repayment source for collateral-dependent loans. Our consumer loans have collateral that includes residential real estate, automobiles, boats, and RVs.

At June 30, 2023 and June 30, 2022, the recorded investment of consumer residential mortgage loans in the process of foreclosure was approximately $94 million and $155 million, respectively.

There were no significant changes in the extent to which collateral secures our collateral-dependent financial assets during the three months ended June 30, 2023.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023 Key adopted the provision of ASU 2022-02, which eliminated the accounting for TDRs while expanding loan modification and vintage disclosure requirements. As part of our loss mitigation activities, we may agree to modify the contractual terms of a loan to a borrower experiencing financial difficulty. Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Such modifications may include an extension of maturity date, interest rate reduction, an other than insignificant payment delay, other modifications, or some combination thereof. Many factors can go into what is considered an other than insignificant payment delay such as the significance of the restricted payment amount relative to the normal loan payment or the relative significance of the delay to the original loan terms. Generally, Key considers any delay in payment of greater than 90 days in the last 12 months to be significant. The ALLL for loans modified for borrowers experiencing financial difficulty is determined based on Key’s ALLL policy as described within Note 1 (“Basis of Presentation and Accounting Policies”).

Modifications for Borrowers Experiencing Financial Difficulty

The Bank’s strategy in working with commercial borrowers is to allow them time to improve their financial position through loan modification. Commercial borrowers that are rated substandard or worse in accordance with the regulatory definition, or that cannot otherwise restructure at market terms and conditions, are considered to be experiencing financial difficulty. A modification of a loan is subject to the normal underwriting standards and processes for other similar credit extensions, both new and existing. The modified loan is evaluated to determine if it is a new loan or a continuation of the prior loan.

Consumer loans in which a borrower requires a modification as a result of negative changes to their financial condition or to avoid default, generally indicate the borrower is experiencing financial difficulty. The primary modifications made to consumer loans are amortization, maturity date and interest rate changes. Consumer borrowers identified as experiencing financial difficulty are generally unable to refinance their loans through the Company’s normal origination channel or through other independent sources.

The following table shows the amortized cost basis at the end of the reporting period of the loans modified to borrowers experiencing financial difficulty, disaggregated by class of loan and type of concession granted. The table does not include those modifications that only resulted in an insignificant payment delay. The table does not include consumer loans that are still within a trial modification period. Trial modifications may be done for consumer borrowers where a trial payment plan period is offered in advance of a permanent loan modification. As of June 30, 2023, there were 93 loans totaling $10 million in a trial modification period.

Commitments outstanding to lend additional funds to borrowers experiencing financial difficulty whose loans were modified were $38 million at June 30, 2023.

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As of June 30, 2023	Interest Rate Reduction		Term Extension	Other		Combination	Total
Dollars in millions	Amortized Cost Basis			Amortized Cost Basis			Amortized Cost Basis		Amortized Cost Basis		Amortized Cost Basis		% of Total Loan Type
LOAN TYPE
Commercial and Industrial	$	—		$	144		$	19	$	5	$	168	0.28	%
Commercial real estate:
Commercial mortgage	—			7			—		—		7		0.04
Construction	—			—			—		—		—		—
Total commercial real estate loans	—			7			—		—		7		0.04
Commercial lease financing	—			—			—		—		—		—
Total commercial loans	$	—		$	151		$	19	$	5	$	175	0.21	%
Real estate — residential mortgage	—			—			1		5		6		0.03
Home equity loans	1			—			1		3		5		0.07
Consumer direct loans	—			1			—		1		2		0.03
Credit cards	—			—			—		2		2		0.20
Consumer indirect loans	—			—			—		—		—		—
Total consumer loans	1			1			2		11		15		0.04
Total loans	$	1		$	152		$	21	$	16	$	190	0.16	%

Combination modifications consist primarily of loans modified with both an interest rate reduction and a term extension.

Financial Effects of Modifications to Borrowers Experiencing Financial Difficulty

The following table summarizes the financial impacts of loan modifications made to specific loans during the three and six months ended June 30, 2023.


Three months ended June 30, 2023	Weighted-average Interest Rate Reduction		Weighted-average Term Extension (in years)
LOAN TYPE
Commercial and Industrial	(2.02)	%	0.17
Commercial mortgage	—	%	0.09


Real estate — residential mortgage	(2.15)	%	6.11
Home equity loans	(4.16)	%	6.78
Consumer direct loans	(4.54)	%	0.66
Credit cards	(9.36)	%	0.25
Consumer indirect loans	(0.66)	%	0.38


Six months ended June 30, 2023	Weighted-average Interest Rate Reduction		Weighted-average Term Extension (in years)
LOAN TYPE
Commercial and Industrial	(3.85)	%	0.31
Commercial mortgage	—	%	1.01


Real estate — residential mortgage	(2.06)	%	6.36
Home equity loans	(4.26)	%	6.65
Consumer direct loans	(4.05)	%	0.72
Credit cards	(12.82)	%	0.50
Consumer indirect loans	(0.66)	%	0.42

Amortized Cost Basis of Modified Loans That Subsequently Defaulted

As of June 30, 2023, there were $7 million of Commercial and Industrial loans that were modified for borrowers experiencing financial difficulty that received term extension modifications and subsequently defaulted during the period.

Key closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified for borrowers experiencing financial difficulty since the adoption of ASU 2022-02 on January 1, 2023.

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As of June 30, 2023	Current		30-89 Days Past Due		90 and Greater Days Past Due		Total
Dollars in millions
LOAN TYPE
Commercial and Industrial	$	156	$	5	$	7	$	168
Commercial real estate
Commercial mortgage	7		—		—		7
Construction	—		—		—		—
Total commercial real estate loans	163		5		7		175
Commercial lease financing	—		—		—		—
Total commercial loans	163		5		7		175
Real estate — residential mortgage	5		—		1		6
Home equity loans	5		—		—		5
Consumer direct loans	2		—		—		2
Credit cards	2		—		—		2
Consumer indirect loans	—		—		—		—
Total consumer loans	$	14	$	—	$	1	$	15
Total loans	$	177	$	5	$	8	$	190

Liability for Credit Losses on Off Balance Sheet Exposures

The liability for credit losses on off balance sheet exposure is included in “accrued expense and other liabilities” on the balance sheet. This includes credit risk for recourse associated with loans sold under the Fannie Mae Delegated Underwriting and Servicing program and credit losses inherent in unfunded lending-related commitments, such as letters of credit and unfunded loan commitments, and certain financial guarantees.

Changes in the liability for credit losses on off balance sheet exposures are summarized as follows:


	Three months ended June 30,				Six months ended June 30,
Dollars in millions	2023		2022		2023		2022



Balance at beginning of period	$	276	$	166	$	225	$	160
Provision (credit) for losses on off balance sheet exposures	15		7		66		13
Balance at end of period	$	291	$	173	$	291	$	173

TDR Disclosures Prior to the Adoption of ASU 2022-02

Prior to our adoption of ASU 2022-02, we accounted for a modification to the contractual terms of a loan that resulted in granting a concession to a borrower experiencing financial difficulties as a TDR. On January 1, 2023, we adopted ASU 2022-02, which eliminated TDR accounting prospectively for all modifications occurring on or after January 1, 2023. See Note 1 (“Summary of Significant Accounting Policies”) in our 2022 Form 10-K for more information on TDR accounting and disclosure requirements and Note 1 (“Summary of Significant Accounting Policies”) under the heading “Basis of Presentation” in this report for more information on our adoption of ASU 2022-02.

Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs were $1 million at June 30, 2022.

The consumer TDR other concession category in the table below primarily includes those borrowers’ debts that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed.

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The following table shows the post-modification outstanding recorded investment by concession type for our commercial and consumer accruing and nonaccruing TDRs that occurred during the period indicated:


	Three Months Ended June 30,		Six Months Ended June 30,
Dollars in millions	2022		2022
Commercial loans:


Extension of Maturity Date	$	—	$	—
Payment or Covenant Modification/Deferment	—		1
Bankruptcy Plan Modification	—		—
Increase in new commitment or new money	—		—
Total	$	—	$	1
Consumer loans:
Interest rate reduction	$	3	$	4

Other	6		15
Total	$	9	$	19
Total TDRs	$	9	$	20

The following table summarizes the change in the post-modification outstanding recorded investment of our accruing and nonaccruing TDRs during the period indicated:


	Three Months Ended June 30,		Six Months Ended June 30,
Dollars in millions	2022		2022
Balance at beginning of the period	$	219	$	220
Additions	11		22
Payments	(12)		(24)
Charge-offs	(2)		(2)
Balance at end of period	$	216	$	216

A further breakdown of TDRs included in nonperforming loans by loan category for the period indicated are as follows:


	June 30, 2022
		Number of Loans		Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Dollars in millions
LOAN TYPE
Nonperforming:
Commercial and industrial		$	40	$	25	$	12
Commercial real estate:
Commercial mortgage		3		50		23
Total commercial real estate loans		3		50		23
Total commercial loans		43		75		35
Real estate — residential mortgage		224		27		25
Home equity loans		486		32		29
Consumer direct loans		172		2		2
Credit cards		345		2		2
Consumer indirect loans		20		2		1
Total consumer loans		1,247		65		59
Total nonperforming TDRs		1,290		140		94
Prior-year accruing:(a)
Commercial and industrial		11		—		—
Commercial real estate
Commercial mortgage		1		—		—
Total commercial real estate loans		1		—		—
Total commercial loans		12		—		—
Real estate — residential mortgage		457		42		35
Home equity loans		1,612		99		76
Consumer direct loans		253		4		3
Credit cards		607		4		2
Consumer indirect loans		113		12		6
Total consumer loans		3,042		161		122
Total prior-year accruing TDRs		3,054		161		122
Total TDRs		$	4,344	$	301	$	216

(a)All TDRs that were restructured prior to January 1, 2022 are fully accruing.

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Commercial loan TDRs are considered defaulted when principal and interest payments are 90 days past due. Consumer loan TDRs are considered defaulted when principal and interest payments are more than 60 days past due. During the three months ended June 30, 2022, there was one commercial loan TDR and 52 consumer loan TDRs with a combined recorded investment of $2 million that experienced payment defaults after modifications resulting in TDR status during 2021.

During the six months ended June 30, 2022, there were five commercial loan TDRs and 90 consumer loan TDRs with a combined recorded investment of $10 million that experienced payment defaults after modifications resulting in TDR status during 2021.

5. Fair Value Measurements

In accordance with GAAP, Key measures certain assets and liabilities at fair value. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in our principal market. Additional information regarding our accounting policies for determining fair value is provided in Note 6 (“Fair Value Measurements”) and Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements” of our 2022 Form 10-K.

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Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis in accordance with GAAP. For more information on the valuation techniques used to measure classes of assets and liabilities reported at fair value on a recurring basis as well as the classification of each in the valuation hierarchy, refer to Note 6 (“Fair Value Measurements” in our 2022 Form 10-K. The following tables present these assets and liabilities at June 30, 2023, and December 31, 2022.


	June 30, 2023								December 31, 2022
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Dollars in millions
ASSETS MEASURED ON A RECURRING BASIS



Trading account assets:
U.S. Treasury, agencies and corporations	$	—	$	854	$	—	$	854	$	—	$	698	$	—	$	698
States and political subdivisions	—		78		—		78		—		33		—		33

Other mortgage-backed securities	—		242		—		242		—		84		—		84
Other securities	—		1		—		1		—		—		—		—
Total trading account securities	—		1,175		—		1,175		—		815		—		815
Commercial loans	—		2		—		2		—		14		—		14
Total trading account assets	—		1,177		—		1,177		—		829		—		829
Securities available for sale:
U.S. Treasury, agencies and corporations	—		9,489		—		9,489		—		9,415		—		9,415
States and political subdivisions	—		—		—		—		—		—		—		—
Agency residential collateralized mortgage obligations	—		15,615		—		15,615		—		16,433		—		16,433
Agency residential mortgage-backed securities	—		3,749		—		3,749		—		3,920		—		3,920
Agency commercial mortgage-backed securities	—		9,055		—		9,055		—		9,349		—		9,349
Other securities	—		—		—		—		—		—		—		—
Total securities available for sale	$	—	$	37,908	$	—	$	37,908	$	—	$	39,117	$	—	$	39,117
Other investments:
Principal investments:
Direct	$	—	$	—	$	1	$	1	$	—	$	—	$	1	$	1
Indirect (measured at NAV) (a)	—		—		—		18		—		—		—		34
Total principal investments	—		—		1		19		—		—		1		35
Equity investments:
Direct	—		—		2		2		4		—		2		6
Direct (measured at NAV) (a)	—		—		—		34		—		—		—		32
Indirect (measured at NAV) (a)	—		—		—		4		—		—		—		4
Total equity investments	—		—		2		40		4		—		2		42
Total other investments	—		—		3		59		4		—		3		77
Loans, net of unearned income (residential)	—		—		9		9		—		—		9		9
Loans held for sale (residential)	—		67		—		67		—		24		—		24
Derivative assets:
Interest rate	—		202		5		207		—		301		2		303
Foreign exchange	123		18		—		141		112		23		—		136
Commodity	—		867		—		867		—		1,328		—		1,328
Credit	—		—		—		—		—		—		1		1
Other	—		7		1		8		—		13		—		13
Derivative assets	123		1,094		6		1,223		112		1,666		3		1,781
Netting adjustments (b)	—		—		—		(967)		—		—		—		(757)
Total derivative assets	123		1,094		6		256		112		1,666		3		1,024

Total assets on a recurring basis at fair value	$	123	$	40,246	$	18	$	39,476	$	116	$	41,636	$	15	$	41,080
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions	$	11	$	688	$	—	$	699	$	126	$	509	$	—	$	635
Derivative liabilities:
Interest rate	—		1,321		—		1,321		—		1,307		—		1,307
Foreign exchange	105		18		—		123		107		24		—		131
Commodity	—		842		—		842		—		1,304		—		1,304
Credit	—		9		—		9		—		—		3		3
Other	—		4		—		4		—		5		—		5
Derivative liabilities	105		2,194		—		2,299		107		2,640		3		2,750
Netting adjustments (b)	—		—		—		(751)		—		—		—		(1,262)
Total derivative liabilities	105		2,194		—		1,548		107		2,640		3		1,488

Total liabilities on a recurring basis at fair value	$	116	$	2,882	$	—	$	2,247	$	233	$	3,149	$	3	$	2,123

(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(b)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the 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.

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The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at June 30, 2023, as well as financial support provided for the three and six months ended June 30, 2023, and June 30, 2022.


					Financial support provided
					Three months ended June 30,								Six months ended June 30,
	June 30, 2023				2023				2022					2023				2022
Dollars in millions	Fair Value		Unfunded Commit-ments		Funded Commit-ments		Funded Other		Funded Commit-ments		Funded Other			Funded Commit-ments		Funded Other		Funded Commit-ments		Funded Other
INVESTMENT TYPE
Direct investments	$	1	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—
Indirect investments (measured at NAV) (a)	18		1		—		—		—		—			—		—		—		—
Total	$	19	$	1	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—

(a) Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. At June 30, 2023, no significant liquidation of the underlying investments has been communicated to Key. The purpose of funding our capital commitments to these investments is to allow the funds to make additional follow-on investments and pay fund expenses until the fund dissolves. We, and all other investors in the fund, are obligated to fund the full amount of our respective capital commitments to the fund based on our and their respective ownership percentages, as noted in the applicable Limited Partnership Agreement.

Changes in Level 3 Fair Value Measurements

The following table shows the components of the change in the fair values of our Level 3 financial instruments measured at fair value on a recurring basis for the three and six months ended June 30, 2023, and June 30, 2022.


Dollars in millions	Beginning of Period Balance		Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings			Purchases		Sales		Settlements		Transfers Other		Transfers into Level 3			Transfers out of Level 3			End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Six months ended June 30, 2023




Other investments
Principal investments
Direct (a)	$	1	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	1	$	—
Other indirect	—		—		—			—		—		—		—		—			—			—		—
Equity investments
Direct (a)	2		—		—			—		—		—		—		—			—			2		—

Loans, net of unearned income (residential)	9		—		—			—		—		—		—		—			—			9		—
Derivative instruments (b)
Interest rate	2		—		(17)		(c)	18		—		—		—		(2)		(d)	4		(d)	5		—
Credit	(2)		—		—		(c)	—		2		—		—		—			—			—		—
Other (e)	—		—		—		(c)	—		—		—		1		—			—			1		—
Three months ended June 30, 2023




Other investments
Principal investments
Direct (a)	$	1	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	1	$	—
Other indirect	—		—		—			—		—		—		—		—			—			—		—
Equity investments
Direct (a)	2		—		—			—		—		—		—		—			—			2		—

Loans, net of unearned income (residential)	9		—		—			—		—		—		—		—			—			9		—
Derivative instruments (b)
Interest rate	13		—		(23)		(c)	—		1		—		—		5		(d)	9		(d)	5		—
Credit	(2)		—		—		(c)	—		2		—		—		—			—			—		—
Other (e)	1		—		—		(c)	—		—		—		—		—			—			1		—

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Dollars in millions	Beginning of Period Balance		Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings			Purchases		Sales		Settlements		Transfers Other		Transfers into Level 3			Transfers out of Level 3			End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Six months ended June 30, 2022




Other investments
Principal investments
Direct (a)	$	1	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	1	$	—
Equity investments
Direct (a)	9		—		(3)			—		—		—		—		—			—			6		(3)

Loans, net of unearned income (residential)	11		—		—			—		—		—		—		—			—			11		—
Derivative instruments (b)
Interest rate	33		—		(55)		(c)	4		(2)		—		—		30		(d)	(13)		(d)	(3)		—
Credit	(6)		—		3		(c)	—				—		—		—						(3)		—
Other (e)	5		—		(1)		(c)	—		—		—		(3)		—			—			1		—
Three months ended June 30, 2022




Other investments
Principal investments
Direct (a)	$	1	$	—	$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	1	$	—
Equity investments
Direct (a)	7				(1)			—		—		—		—		—			—			6		(1)

Loans, net of unearned income (residential)	11		—		—			—		—		—		—		—			—			11		—
Derivative instruments (b)
Interest rate	43		—		(44)		(c)	2		(1)						1		(d)	(4)		(d)	(3)		—
Credit	(5)		—		2		(c)	—		—		—		—		—			—			(3)		—
Other (e)	(2)		—		(1)		(c)	—				—		4		—			—			1		—

(a)Realized and unrealized gains and losses on principal investments and other equity investments are reported in “other income” on the income statement.

(b)Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.

(c)Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.

(d)Certain instruments previously classified as Level 2 were transferred to Level 3 because Level 3 unobservable inputs became significant. Certain derivatives previously classified as Level 3 were transferred to Level 2 because Level 3 unobservable inputs became less significant.

(e)Amounts represent Level 3 interest rate lock commitments.

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. For more information on the valuation techniques used to measure classes of assets and liabilities measured at fair value on a nonrecurring basis, refer to Note 6 (“Fair Value Measurements”) in our 2022 Form 10-K. There were no liabilities measured at fair value on a nonrecurring basis at June 30, 2023, and December 31, 2022.

The following table presents our assets measured at fair value on a nonrecurring basis at June 30, 2023, and December 31, 2022:


	June 30, 2023								December 31, 2022
Dollars in millions	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
ASSETS MEASURED ON A NONRECURRING BASIS
Collateral-dependent loans	$	—	$	—	$	68	$	68	$	—	$	—	$	17	$	17


Accrued income and other assets	—		—		15		15		—		—		14		14
Total assets on a nonrecurring basis at fair value	$	—	$	—	$	83	$	83	$	—	$	—	$	31	$	31

We have other investments in equity securities that do not have readily determinable fair values and do not qualify for the practical expedient to measure the investment using a net asset value per share. We have elected to measure these securities at cost less impairment plus or minus adjustments due to observable orderly transactions. Impairment is recorded when there is evidence that the expected fair value of the investment has declined to below the recorded cost. At each reporting period, we assess if these investments continue to qualify for this measurement alternative. At June 30, 2023, and December 31, 2022, the carrying amount of equity investments under this method was $288 million and $249 million, respectively. No impairment was recorded for the three months ended June 30, 2023.

Quantitative Information about Level 3 Fair Value Measurements

The range and weighted-average of the significant unobservable inputs used to fair value our material Level 3

recurring and nonrecurring assets at June 30, 2023, and December 31, 2022, along with the valuation

techniques used, are shown in the following table:

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	Level 3 Asset (Liability)				Valuation Technique	Significant Unobservable Input	Range (Weighted-Average) (a), (b)
Dollars in millions	June 30, 2023		December 31, 2022		June 30, 2023	December 31, 2022
Recurring















Loans, net of unearned income (residential)	$	9	$	9	Market comparable pricing	Comparability factor	62.91 - 86.12% (71.79%)	61.00-86.58% (72.21%)
Derivative instruments:
Interest rate	5		2		Discounted cash flows	Probability of default	.02 - 100% (9.50%)	.02 - 100% (8.00%)

						Loss given default	0 - 1 (.494)	0 - 1 (.492)







Insignificant level 3 assets, net of liabilities(c)	4		1
Nonrecurring
Collateral-dependent loans	68		17		Fair value of collateral	Discount rate	0 - 10.00% (2.00%)	0 - 85.00% (34.00%)


Accrued income and other assets:

OREO and other Level 3 assets (d)	15		14		Appraised value	Appraised value	N/M	N/M

(a)The weighted average of significant unobservable inputs is calculated using a weighting relative to fair value.

(b)For significant unobservable inputs with no range, a single figure is reported to denote the single quantitative factor used.

(c)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain equity investments and certain financial derivative assets and liabilities.

(d)Excludes amounts pertaining to mortgage servicing assets. No mortgage servicing assets required nonrecurring valuation adjustments as of June 30, 2023, and December 31, 2022. Refer to Note 8 (“Mortgage Servicing Assets”) for significant unobservable inputs pertaining to these assets.

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Fair Value Disclosures of Financial Instruments

The Levels in the fair value hierarchy ascribed to our financial instruments and the related carrying amounts at June 30, 2023, and December 31, 2022, are shown in the following tables. Assets and liabilities are further arranged by measurement category.


	June 30, 2023
			Fair Value
Dollars in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment			Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)	$	1,177	$	—	$	1,177	$	—	$	—	$	—		$	1,177
Other investments (b)	1,474		—		—		1,418		56		—			1,474
Loans, net of unearned income (residential) (d)	9		—		—		9		—		—			9
Loans held for sale (residential) (b)	67		—		67		—		—		—			67
Derivative assets - trading (b)	250		123		1,059		6		—		(938)		(f)	250
Fair value - OCI
Securities available for sale (b)	37,908		—		37,908		—		—		—			37,908
Derivative assets - hedging (b)(g)	6		—		35		—		—		(29)		(f)	6
Amortized cost
Held-to-maturity securities (c)	9,189		—		8,575		—		—		—			8,575
Loans, net of unearned income (d)	117,522		—		—		111,904		—		—			111,904
Loans held for sale (b)	1,063		—		—		1,063		—		—			1,063
Other

Cash and other short-term investments (a)	9,717		9,717		—		—		—		—			9,717
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)	$	1,552	$	105	$	2,182	$	1	$	—	$	(736)	(f)	$	1,552
Fair value - OCI
Derivative liabilities - hedging (b)(g)	(4)		—		11		—		—		(15)		(f)	(4)
Amortized cost
Time deposits (e)	15,905		—		16,020		—		—		—			16,020
Short-term borrowings (a)	8,651		11		8,640		—		—		—			8,651
Long-term debt (e)	22,071		11,547		9,207		—		—		—			20,754
Other
Deposits with no stated maturity (a)	129,227		—		129,227		—		—		—			129,227


	December 31, 2022
			Fair Value
Dollars in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment			Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)	$	829	$	—	$	829	$	—	$	—	$	—		$	829
Other investments (b)	1,308		4		—		1,234		70		—			1,308
Loans, net of unearned income (residential) (d)	9		—		—		9		—		—			9
Loans held for sale (residential) (b)	24		—		24		—		—		—			24
Derivative assets - trading (b)	927		$	112	1,552		3		—		(740)		(f)	927
Fair value - OCI
Securities available for sale (b)	39,117		—		39,117		—		—		—			39,117
Derivative assets - hedging (b)(g)	97		—		114		—		—		(17)		(f)	97
Amortized cost
Held-to-maturity securities (c)	8,710		—		8,113		—		—		—			8,113
Loans, net of unearned income (d)	118,048		—		—		112,590		—		—			112,590
Loans held for sale (b)	939		—		—		939		—		—			939
Other

Cash and other short-term investments (a)	3,319		3,319		—		—		—		—			3,319
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)	$	1,485	$	107	$	2,637	$	3	$	—	$	(1,262)	(f)	$	1,485
Fair value - OCI
Derivative liabilities - hedging (b)(g)	3		—		3		—		—		—		(f)	3
Amortized cost
Time deposits (e)	7,373		—		7,392		—		—		—			7,392
Short-term borrowings (a)	9,463		126		9,337		—		—		—			9,463
Long-term debt (e)	19,307		12,196		6,685		—		—		—			18,881
Other
Deposits with no stated maturity (a)	135,222		—		135,222		—		—		—			135,222

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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 and Liabilities Measured at Fair Value on a Nonrecurring Basis” within our 2022 Form 10-K Note 6 (“Fair Value Measurements”). Investments accounted for under the cost method (or cost less impairment adjusted for observable price changes for certain equity investments) are classified as Level 3 assets. These investments are not actively traded in an open market as sales for these types of investments are rare. The carrying amount of the investments carried at cost are adjusted for declines in value if they are considered to be other-than-temporary (or due to observable orderly transactions of the same issuer for equity investments eligible for the cost less impairment measurement alternative). These adjustments are included in “other income” on the income statement.

(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 that 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 time deposits and long-term debt classified as Level 2 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 the 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.

(g)Derivative assets-hedging and derivative liabilities-hedging includes both cash flow and fair value hedges. Additional information regarding our accounting policies for cash flow and fair value hedges is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging” beginning on page 111 of our 2022 Form 10-K.

Discontinued assets — education lending business**.** Our discontinued assets include government-guaranteed and private education loans originated through our education lending business that was discontinued in September 2009. This portfolio consists of loans recorded at carrying value with appropriate valuation reserves. All of these loans were excluded from the table above as follows:

Loans at carrying value, net of allowance, of $381 million ($324 million at fair value) at June 30, 2023, and $434 million ($357 million at fair value) at December 31, 2022.

These loans and securities are classified as Level 3 because we rely on unobservable inputs when determining fair value since observable market data is not available.

6. Securities

The amortized cost, unrealized gains and losses, and approximate fair value of our securities available for sale and held-to-maturity securities are presented in the following tables. Gross unrealized gains and losses represent the difference between the amortized cost and the fair value of securities on the balance sheet as of the dates indicated. Accordingly, the amount of these gains and losses may change in the future as market conditions change.


	June 30, 2023								December 31, 2022
Dollars in millions	Amortized Cost (a)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost (b)		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
SECURITIES AVAILABLE FOR SALE
U.S. Treasury, agencies, and corporations	$	10,009	$	—	$	520	$	9,489	$	10,044	$	—	$	629	$	9,415

Agency residential collateralized mortgage obligations	19,306		—		3,691		15,615		20,180		—		3,747		16,433
Agency residential mortgage-backed securities	4,415		—		666		3,749		4,616		—		696		3,920
Agency commercial mortgage-backed securities	10,406		—		1,351		9,055		10,712		2		1,365		9,349
Other securities	—		—		—		—		—		—		—		—
Total securities available for sale	$	44,136	$	—	$	6,228	$	37,908	$	45,552	$	2	$	6,437	$	39,117

HELD-TO-MATURITY SECURITIES


Agency residential collateralized mortgage obligations	$	5,431	$	3	$	320	$	5,114	$	4,586	$	5	$	283	$	4,308
Agency residential mortgage-backed securities	173		—		15		158		181		—		16		165
Agency commercial mortgage-backed securities	2,533		1		229		2,305		2,522		1		208		2,315
Asset-backed securities (c)	1,037		—		53		984		1,407		—		96		1,311
Other securities	15		—		1		14		14		—		—		14
Total held-to-maturity securities	$	9,189	$	4	618		$	8,575	$	8,710	$	6	$	603	$	8,113

(a)Amortized cost amounts exclude accrued interest receivable which is recorded within Other Assets on the balance sheet. At June 30, 2023, accrued interest receivable on available for sale securities and held-to-maturity securities totaled $63 million and $27 million, respectively.

(b)Amortized cost amounts exclude accrued interest receivable which is recorded within Other Assets on the balance sheet. At December 31, 2022, accrued interest receivable on available for sale securities and held-to-maturity securities totaled $67 million and $88 million, respectively.

(c)Consists primarily of $1.0 billion of securities as of June 30, 2023, and $1.4 billion of securities as of December 31, 2022, related to the purchase of senior notes from a securitization collateralized by sold indirect auto loans.

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The following table summarizes securities in an unrealized loss position for which an allowance for credit losses has not been recorded as of June 30, 2023, and December 31, 2022.


	Duration of Unrealized Loss Position
	Less than 12 Months					12 Months or Longer					Total
Dollars in millions	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
June 30, 2023
Securities available for sale:
U.S Treasury, agencies, and corporations	$	—	$	—		$	9,489	$	520		$	9,489	$	520

Agency residential collateralized mortgage obligations	92		5			15,523		3,686			15,615		3,691
Agency residential mortgage-backed securities	330		16			3,416		650			3,746		666
Agency commercial mortgage-backed securities	2,200		142			6,855		1,209			9,055		1,351

Held-to-maturity securities:


Agency residential collateralized mortgage obligations	3,456		150			1,310		170			4,766		320
Agency residential mortgage-backed securities	44		2			114		13			158		15
Agency commercial mortgage-backed securities	376		47			1,880		182			2,256		229
Asset-backed securities	—		—			985		53			985		53
Other securities	10		—		(a)	5		1			15		1
Total securities in an unrealized loss position	$	6,508	$	362		$	39,577	$	6,484		$	46,085	$	6,846
December 31, 2022
Securities available for sale:
U.S. Treasury, agencies, and corporations	$	494	$	48		$	8,920	$	581		$	9,414	$	629

Agency residential collateralized mortgage obligations	3,114		377			13,317		3,370			16,431		3,747
Agency residential mortgage-backed securities	579		31			3,338		665			3,917		696
Agency commercial mortgage-backed securities	4,511		282			4,791		1,083			9,302		1,365

Held-to-maturity securities:


Agency residential collateralized mortgage obligations	2,659		178			726		105			3,385		283
Agency residential mortgage-backed securities	165		16			—		—			165		16
Agency commercial mortgage-backed securities	2,243		208			—		—			2,243		208
Asset-backed securities	1		—		(b)	1,309		96			1,310		96
Other securities	10		—		(b)	4		—		(b)	14		—
Total securities in an unrealized loss position	$	13,776	$	1,140		$	32,405	$	5,900		$	46,181	$	7,040

(a)At June 30, 2023, gross unrealized losses totaled less than $1 million for other securities held-to-maturity with a loss duration of less than 12 months.

(b)At December 31, 2022, gross unrealized losses totaled less than $1 million for asset-back securities and other securities held-to-maturity with a loss duration of less than 12 months. At December 31, 2022, gross unrealized losses totaled less than $1 million for agency residential mortgage-backed securities held-to-maturity with a loss duration of 12 months or longer.

Based on our evaluation at June 30, 2023, an allowance for credit losses has not been recorded nor have unrealized losses been recognized into income. The issuers of the securities are of high credit quality and have a history of no credit losses, management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely attributed to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments.

At June 30, 2023, securities available for sale and held-to-maturity securities totaling $40.4 billion were pledged to secure securities sold under repurchase agreements, to secure public and trust deposits, to facilitate access to secured funding, and for other purposes required or permitted by law.

The following table shows our securities by remaining maturity. CMOs, other mortgage-backed securities, and asset-backed securities in the available for sale portfolio and held-to-maturity portfolio are presented based on their expected average lives. The remaining securities, in both the available-for-sale and held-to-maturity portfolios, are presented based on their remaining contractual maturity. Actual maturities may differ from expected or contractual maturities since borrowers have the right to prepay obligations with or without prepayment penalties.


June 30, 2023	Securities Available for Sale				Held to Maturity Securities
Dollars in millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	3,398	$	3,290	$	18	$	18
Due after one through five years	13,420		12,304		5,185		4,869
Due after five through ten years	18,805		15,667		2,737		2,513
Due after ten years	8,513		6,647		1,249		1,175
Total	$	44,136	$	37,908	$	9,189	$	8,575

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7. Derivatives and Hedging Activities

We are a party to various derivative instruments, mainly through our subsidiary, KeyBank. The primary derivatives that we use are interest rate swaps, caps, floors, forwards, and futures; foreign exchange contracts; commodity derivatives; and credit derivatives. Generally, these instruments help us manage exposure to interest rate risk, mitigate the credit risk inherent in our loan portfolio, hedge against changes in foreign currency exchange rates, and facilitate client financing and hedging needs.

At June 30, 2023, after taking into account the effects of bilateral collateral and master netting agreements, we had $6 million of derivative assets and $4 million of derivative liabilities in a positive fair value position that relate to contracts designated as hedging instruments. As a result of bilateral collateral and master netting agreements, which are applied at the counterparty level, we could have derivative contracts with negative fair values included in derivative assets and contracts with positive fair values included in derivative liabilities related to counterparties with which we have both hedging and trading derivatives. As of the same date, after taking into account the effects of bilateral collateral and master netting agreements and a reserve for potential future losses, we had derivative assets of $250 million and derivative liabilities of $1.6 billion that were not designated as hedging instruments. These positions are primarily comprised of derivative contracts entered into for client accommodation purposes.

Additional information regarding our accounting policies for derivatives is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging” beginning on page 111 of our 2022 Form 10-K. Our derivative strategies and related risk management objectives are described in Note 8 (“Derivatives and Hedging Activities”) beginning on page 137 of our 2022 Form 10-K.

Fair Values, Volume of Activity, and Gain/Loss Information Related to Derivative Instruments

The following table summarizes the fair values of our derivative instruments on a gross and net basis as of June 30, 2023, and December 31, 2022. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable 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. Securities collateral related to legally enforceable master netting agreements is not offset on the balance sheet. Our derivative instruments are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the Consolidated Balance Sheets, as follows:


	June 30, 2023						December 31, 2022
			Fair Value(a)						Fair Value(a)
Dollars in millions	Notional Amount(e)		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate	$	80,392	$	35	$	11	$	41,200	$	114	$	3


Derivatives not designated as hedging instruments:
Interest rate	186,746		172		1,310		80,772		189		1,304
Foreign exchange	9,707		141		123		9,507		136		131
Commodity	14,576		867		842		16,176		1,328		1,304
Credit	150		—		9		95		1		3
Other (b)	2,659		8		4		940		13		5
Total derivatives not designated as hedging instruments:	213,838		1,188		2,288		107,490		1,667		2,747
Netting adjustments (c)	—		(967)		(751)		—		(757)		(1,262)
Net derivatives in the balance sheet	294,230		256		1,548		148,690		1,024		1,488
Other collateral (d)	—		—		(16)		—		—		(5)
Net derivative amounts	$	294,230	$	256	$	1,532	$	148,690	$	1,024	$	1,483

(a)We take into account bilateral collateral and master netting agreements that allow us to settle all derivative contracts held with a single counterparty on a net basis, and to offset the net derivative position with the related cash collateral when recognizing derivative assets and liabilities. As a result, we could have derivative contracts with negative fair values included in derivative assets and contracts with positive fair values included in derivative liabilities.

(b)Other derivatives include interest rate lock commitments related to our residential and commercial banking activities, forward sale commitments related to our residential mortgage banking activities, forward purchase and sales contracts consisting of contractual commitments associated with “to be announced” securities and when-issued securities, and other customized derivative contracts.

(c)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. Excess collateral that has not been offset against net derivative instrument positions totaled $163 million of cash collateral and $248 million of securities collateral posted as well as $45 million of cash collateral and $179 million of securities collateral held.

(d)Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.

(e)Notional values as of June 30, 2023 reflect the impact of LIBOR transition and include $127 billion of short-dated swaps, with the majority expected to mature prior to September 30, 2023

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Fair value hedges. During the six months ended June 30, 2023, we did not exclude any portion of fair value hedging instruments from the assessment of hedge effectiveness.

The following tables summarize the amounts that were recorded on the balance sheet as of June 30, 2023, and December 31, 2022, related to cumulative basis adjustments for fair value hedges.


	June 30, 2023
Dollars in millions	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	8,618	$	(598)
Interest rate contracts	Securities Available for Sale(c)	1,705		61



	December 31, 2022
	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	10,411	$	(552)
Interest rate contracts	Securities Available for Sale(c)	405		48

(a)The carrying amount represents the portion of the asset or liability designated as the hedged item.

(b)Basis adjustments related to de-designated hedged items that no longer qualify as fair value hedges reduced the hedge accounting basis adjustment by $6 million and $6 million at June 30, 2023, and December 31, 2022, respectively.

(c)Certain amounts are designed as fair value hedges under the last-of-layer method. The carrying amount represents the amortized costs basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the relationship. At June 30, 2023, and December 31, 2022, the amortized costs of the closed portfolios in these hedging relationships was $688 million and $708 million, respectively.

Cash flow hedges. During the six-month period ended June 30, 2023, we did not exclude any portion of cash flow hedging instruments from the assessment of hedge effectiveness.

Considering the interest rates, yield curves, and notional amounts as of June 30, 2023, we expect to reclassify an estimated $640 million of after-tax net losses on derivative instruments designated as cash flow hedges from AOCI to income during the next 12 months. In addition, we expect to reclassify approximately $3 million of net losses related to terminated cash flow hedges from AOCI to income during the next 12 months. These reclassified amounts could differ from actual amounts recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to June 30, 2023. As of June 30, 2023, the maximum length of time over which we hedge forecasted transactions is 4.52 years.

The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the three- and six-month periods ended June 30, 2023, and June 30, 2022.


	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships
Dollars in millions	Interest expense – long-term debt		Interest income – loans		Interest Income - securities		Investment banking and debt placement fees
Three months ended June 30, 2023
Total amounts presented in the consolidated statement of income	$	(349)	$	1,576	$	194	$	120

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	377	$	—	$	(24)	$	—
Recognized on derivatives designated as hedging instruments	(427)		—		32		—
Net income (expense) recognized on fair value hedges	$	(50)	$	—	$	8	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(1)	$	(245)	$	—	$	—
Net income (expense) recognized on cash flow hedges	$	(1)	$	(245)	$	—	$	—

Three months ended June 30, 2022
Total amounts presented in the consolidated statement of income	$	(61)	$	923	$	188	$	149

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	145	$	—	$	(51)	$	—
Recognized on derivatives designated as hedging instruments	(126)		—		52		—
Net income (expense) recognized on fair value hedges	$	19	$	—	$	1	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(1)	$	19	$	—	$	5

Net income (expense) recognized on cash flow hedges	$	(1)	$	19	$	—	$	5

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	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships
Dollars in millions	Interest expense – long-term debt		Interest income – loans		Interest Income - Securities		Investment banking and debt placement fees
Six months ended June 30, 2023
Total amounts presented in the consolidated statement of income	$	(624)	$	3,052	$	388	$	265

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	223	$	—	$	(18)	$	—
Recognized on derivatives designated as hedging instruments	(320)		—		30		—
Net income (expense) recognized on fair value hedges	$	(97)	$	—	$	12	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(1)	$	(460)	$	—	$	—
Net income (expense) recognized on cash flow hedges	$	(1)	$	(460)	$	—	$	—

Six months ended June 30, 2022
Total amounts presented in the consolidated statement of income	$	(110)	$	1,760	$	361	$	312

Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	385	$	—	$	(328)	$	—
Recognized on derivatives designated as hedging instruments	(342)		—		334		—
Net income (expense) recognized on fair value hedges	$	43	$	—	$	6	$	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(2)	$	82	$	—	$	7

Net income (expense) recognized on cash flow hedges	$	(2)	$	82	$	—	$	7

The following tables summarize the pre-tax net gains (losses) on our cash flow hedges for the three- and six-month periods ended June 30, 2023, and June 30, 2022, and where they are recorded on the income statement. The table includes net gains (losses) recognized in OCI during the period and net gains (losses) reclassified from OCI into income during the current period.


Dollars in millions	Net Gains (Losses) Recognized in OCI		Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income
Three months ended June 30, 2023
Cash Flow Hedges
Interest rate	$	(465)	Interest income — Loans	$	(245)
Interest rate	(4)		Interest expense — Long-term debt	(1)
Interest rate	2		Investment banking and debt placement fees	—


Total	$	(467)		$	(246)
Three months ended June 30, 2022
Cash Flow Hedges
Interest rate	$	(241)	Interest income — Loans	$	19
Interest rate	1		Interest expense — Long-term debt	(1)
Interest rate	3		Investment banking and debt placement fees	5


Total	$	(237)		$	23


Dollars in millions	Net Gains (Losses) Recognized in OCI		Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income(a)
Six months ended June 30, 2023
Cash Flow Hedges
Interest rate	$	(356)	Interest income — Loans	$	(460)
Interest rate	(5)		Interest expense — Long-term debt	(1)
Interest rate	1		Investment banking and debt placement fees	—


Total	$	(360)		$	(461)
Six months ended June 30, 2022
Cash Flow Hedges
Interest rate	$	(911)	Interest income — Loans	$	82
Interest rate	4		Interest expense — Long-term debt	(2)
Interest rate	12		Investment banking and debt placement fees	7


Total	$	(895)		$	87

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Nonhedging instruments

The following table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the three- and six-month periods ended June 30, 2023, and June 30, 2022, and where they are recorded on the income statement.


	Three months ended June 30, 2023								Three months ended June 30, 2022
Dollars in millions	Corporate services income		Consumer mortgage income		Other income		Total			Corporate services income		Consumer mortgage income		Other income		Total
NET GAINS (LOSSES)
Interest rate	$	13	$	—	$	1	$	13		$	14	$	—	$	(2)	$	12
Foreign exchange	13		—		—		13			13		—		—		13
Commodity	7		—		—		7			5		—		—		5
Credit	2		—		(17)		(16)			1		—		(7)		(6)
Other	—		2		(3)		(1)			—		2		8		10
Total net gains (losses)	$	35	$	2	$	(20)	$	17		$	33	$	2	$	(1)	$	34


	Six months ended June 30, 2023								Six months ended June 30, 2022
Dollars in millions	Corporate services income		Consumer mortgage income		Other income		Total			Corporate services income		Consumer mortgage income		Other income		Total
NET GAINS (LOSSES)
Interest rate	$	25	$	—	$	(1)	$	24		$	27	$	—	$	7	$	34
Foreign exchange	26		—		—		26			25		—		—		25
Commodity	14		—		—		14			10		—		—		10
Credit	2		—		(31)		(29)			3		—		(17)		(14)
Other	—		3		(5)		(2)			—		(2)		15		13
Total net gains (losses)	$	67	$	3	$	(37)	$	33		$	65	$	(2)	$	5	$	68

Counterparty Credit Risk

We hold collateral in the form of cash and highly rated securities issued by the U.S. Treasury, government-sponsored enterprises, or GNMA. Cash collateral of $328 million was netted against derivative assets on the balance sheet at June 30, 2023, compared to $10 million of cash collateral netted against derivative assets at December 31, 2022. The cash collateral netted against derivative liabilities totaled $112 million at June 30, 2023, and $626 million at December 31, 2022. Our means of mitigating and managing exposure to credit risk on derivative contracts is described in Note 8 (“Derivatives and Hedging Activities”) beginning on page 137 of our 2022 Form 10-K under the heading “Counterparty Credit Risk.”

The following table summarizes the fair value of our derivative assets by type at the dates indicated. These assets represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and master netting agreements and other means used to mitigate risk.


Dollars in millions	June 30, 2023		December 31, 2022
Interest rate	$	146	$	136
Foreign exchange	64		67
Commodity	366		820
Credit	—		—
Other	8		11
Derivative assets before collateral	584		1,034
Plus(Less): Related collateral	(328)		(10)
Total derivative assets	$	256	$	1,024

We enter into derivative transactions with two primary groups: broker-dealers and banks, and clients. Given that these groups have different economic characteristics, we have different methods for managing counterparty credit exposure and credit risk.

We enter into transactions with broker-dealers and banks for various risk management purposes. These types of

transactions are primarily high dollar volume. We enter into bilateral collateral and master netting agreements with

these counterparties. We clear certain types of derivative transactions with these counterparties, whereby central

clearing organizations become the counterparties to our derivative contracts. In addition, we enter into derivative

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contracts through swap execution facilities. Swap clearing and swap execution facilities reduce our exposure to

counterparty credit risk. At June 30, 2023, we had gross exposure of $613 million to broker-dealers and banks. We had net exposure of $25 million after the application of master netting agreements and cash collateral, where such qualifying agreements exist.

We enter into transactions using master netting agreements with clients to accommodate their business needs. In

most cases, we mitigate our credit exposure by cross-collateralizing these transactions to the underlying loan collateral. For transactions that are not clearable, we mitigate our market risk by buying and selling U.S. Treasuries and Eurodollar futures or entering into offsetting positions. Due to the cross-collateralization to the underlying loan, we typically do not exchange cash or marketable securities collateral in connection with these transactions. To address the risk of default associated with these contracts, we have established a CVA reserve (included in

“accrued income and other assets”) in the amount of $11 million at June 30, 2023. The CVA is calculated from

potential future exposures, expected recovery rates, and market-implied probabilities of default. At June 30, 2023, we had gross exposure of $344 million to client counterparties and other entities that are not broker-dealers or banks for derivatives that have associated master netting agreements. We had net exposure of $231 million on our derivatives with these counterparties after the application of master netting agreements, collateral, and the related reserve.

Credit Derivatives

We are a buyer and, under limited circumstances, may be a seller of credit protection through the credit derivative market. We purchase credit derivatives to manage the credit risk associated with specific commercial lending and swap obligations as well as exposures to debt securities. Our credit derivative portfolio was in a net liability position of $1 million as of June 30, 2023, and $2 million as of December 31, 2022. Our credit derivative portfolio consists of traded credit default swap indices and risk participation agreements. Additional descriptions of our credit derivatives are provided in Note 8 (“Derivatives and Hedging Activities”) beginning on page 137 of our 2022 Form 10-K under the heading “Credit Derivatives.”

The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at June 30, 2023, and December 31, 2022. The notional amount represents the amount that the seller could

be required to pay. The payment/performance risk shown in the table represents a weighted average of the default

probabilities for all reference entities in the respective portfolios. These default probabilities are implied from

observed credit indices in the credit default swap market, which are mapped to reference entities based on Key’s

internal risk rating.


	June 30, 2023					December 31, 2022
Dollars in millions	Notional Amount		Average Term (Years)	Payment / Performance Risk		Notional Amount		Average Term (Years)	Payment / Performance Risk

Other	$	1	8.43	6.03	%	$	1	15.17	5.10	%
Total credit derivatives sold	$	1	—	—		$	1	—	—

Credit Risk Contingent Features

We have entered into certain derivative contracts that require us to post collateral to the counterparties when these contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to our long-term senior unsecured credit ratings with Moody’s and S&P. Collateral requirements also are based on minimum transfer amounts, which are specific to each Credit Support Annex (a component of the ISDA Master Agreement) that we have signed with the counterparties. In a limited number of instances, counterparties have the right to terminate their ISDA Master Agreements with us if our ratings fall below a certain level, usually investment-grade level (i.e., “Baa3” for Moody’s and “BBB-” for S&P). At June 30, 2023, KeyBank’s rating was “A3” with Moody’s and “A-” with S&P, and KeyCorp’s rating was “Baa1” with Moody’s and “BBB+” with S&P. Refer to the table below for the aggregate fair value of all derivative contracts with credit risk contingent features held by KeyBank that were in a net liability position.


Dollars in millions	June 30, 2023		December 31, 2022


Net derivative liabilities with credit-risk contingent features	$	(101)	$	(612)
Collateral posted	90		534

As of June 30, 2023, and December 31, 2022, the fair value of additional collateral that could be required to be posted as a result of the credit risk related contingent features being triggered was immaterial to Key’s consolidated

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financial statements. There were no derivative contracts with credit risk contingent features held by KeyCorp at June 30, 2023.

8. Mortgage Servicing Assets

We originate and periodically sell commercial and residential mortgage loans but continue to service those loans for the buyers. We also may purchase the right to service commercial mortgage loans from other lenders. We record a servicing asset if we purchase or retain the right to service loans in exchange for servicing fees that exceed the going market servicing rate and are considered more than adequate compensation for servicing. Additional information pertaining to the accounting for mortgage and other servicing assets is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Servicing Assets” beginning on page 112 of our 2022 Form 10-K.

Commercial

Changes in the carrying amount of commercial mortgage servicing assets are summarized as follows:


	Three months ended June 30,				Six months ended June 30,
Dollars in millions	2023		2022		2023		2022
Balance at beginning of period	$	634	$	644	$	653	$	634
Servicing retained from loan sales	17		22		26		52
Purchases	6		12		10		23
Amortization	(30)		(31)		(62)		(62)
Temporary (impairments) recoveries	—		—		—		—
Balance at end of period	$	627	$	647	$	627	$	647
Fair value at end of period	$	893	$	938	$	893	$	938

The fair value of commercial mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted average of the significant unobservable inputs used to determine the fair value of our commercial mortgage servicing assets at June 30, 2023, and June 30, 2022, along with the valuation techniques, are shown in the following table:


Dollars in millions		June 30, 2023						June 30, 2022
Valuation Technique	Significant Unobservable Input	Range				Weighted Average		Range				Weighted Average

Discounted cash flow	Expected defaults	1.00	%	2.00	%	1.01	%	1.00	%	2.00	%	1.11	%
	Residual cash flows discount rate	7.41	%	10.56	%	10.16	%	8.25	%	10.18	%	9.42	%
	Escrow earn rate	5.09	%	5.23	%	5.11	%	3.34	%	3.79	%	3.61	%

	Loan assumption rate	—	%	2.16	%	1.97	%	—	%	1.57	%	1.24	%

If these economic assumptions change or prove incorrect, the fair value of commercial mortgage servicing assets may also change. Expected credit losses, escrow earning rates, and discount rates are critical to the valuation of commercial mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates, and reflect historical data associated with the commercial mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. A decrease in the value assigned to the escrow earning rates would cause a decrease in the fair value of our commercial mortgage servicing assets. An increase in the assumed default rates of commercial mortgage loans or an increase in the assigned discount rates would cause a decrease in the fair value of our commercial mortgage servicing assets. Prepayment activity on commercial serviced loans does not significantly affect the valuation of our commercial mortgage servicing assets. Unlike residential mortgages, commercial mortgages experience significantly lower prepayments due to certain contractual restrictions affecting the borrower’s ability to prepay the mortgage.

The amortization of commercial servicing assets is determined in proportion to, and over the period of, the estimated net servicing income. The amortization of commercial servicing assets for each period, as shown in the table at the beginning of this note, is recorded as a reduction to contractual fee income. The contractual fee income from servicing commercial mortgage loans totaled $159 million for the six-month period ended June 30, 2023, and $143 million for the six-month period ended June 30, 2022. This fee income was offset by $62 million of amortization for the six-month period ended June 30, 2023, and $62 million for the six-month period ended June 30,

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Both the contractual fee income and the amortization are recorded, net, in “commercial mortgage servicing fees” on the income statement.

Residential

Changes in the carrying amount of residential mortgage servicing assets are summarized as follows:


	Three months ended June 30,				Six months ended June 30,
Dollars in millions	2023		2022		2023		2022
Balance at beginning of period	$	105	$	101	$	106	$	93
Servicing retained from loan sales	3		6		4		17
Purchases	—		—		—		—
Amortization	(2)		(3)		(4)		(7)
Temporary (impairments) recoveries	—		—		—		1
Balance at end of period	$	106	$	104	$	106	$	104
Fair value at end of period	$	130	$	125	$	130	$	125

The fair value of mortgage servicing assets is determined by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. The range and weighted-average of the significant unobservable inputs used to fair value our mortgage servicing assets at June 30, 2023, and June 30, 2022, along with the valuation techniques, are shown in the following table:


		June 30, 2023									June 30, 2022
Valuation Technique	Significant Unobservable Input	Range						Weighted Average			Range						Weighted Average

Discounted cash flow	Prepayment speed	6.14		%	40.07		%	7.32		%	6.99		%	43.84		%	7.96		%
	Discount rate	7.35		%	8.35		%	7.39		%	7.50		%	8.56		%	7.53		%
	Servicing cost	$	62.00		$	8,075		$	67.70		$	62.00		$	8,075		$	66.75

If these economic assumptions change or prove incorrect, the fair value of residential mortgage servicing assets may also change. Prepayment speed, discount rates, and servicing cost are critical to the valuation of residential mortgage servicing assets. Estimates of these assumptions are based on how a market participant would view the respective rates and reflect historical data associated with the residential mortgage loans, industry trends, and other considerations. Actual rates may differ from those estimated due to changes in a variety of economic factors. An

increase in the prepayment speed would cause a decrease in the fair value of our residential mortgage servicing

assets. An increase in the assigned discount rates and servicing cost assumptions would cause a decrease in the

fair value of our residential mortgage servicing assets.

The amortization of servicing assets for June 30, 2023, as shown in the table above, is recorded as a reduction to contractual fee income. The contractual fee income from servicing residential mortgage loans totaled $18 million for the six-month period ended June 30, 2023, and $19 million for the six-month period ended June 30, 2022. This fee income was offset by $4 million of amortization for the six-month period ended June 30, 2023, and $7 million for the six-month period ended June 30, 2022. Both the contractual fee income and the amortization are recorded, net, in “consumer mortgage income” on the income statement.

9. Leases

As a lessee, we enter into leases of land, buildings, and equipment. Our real estate leases primarily relate to bank branches and office space. The leases of equipment principally relate to technology assets for data processing and data storage. As a lessor, we primarily provide financing through our equipment leasing business. For more information on our leasing activity, see Note 10 (“Leases”) beginning on page 145 of our 2022 Form 10-K.

Lessor Equipment Leasing

Leases may have fixed or floating rate terms. Variable payments are based on an index or other specified rate and are included in rental payments. Certain leases contain an option to extend the lease term or the option to terminate at the discretion of the lessee. Under certain conditions, lease agreements may also contain the option for a lessee to purchase the underlying asset.

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Interest income from sales-type and direct financing leases is recognized in "interest income — loans" on the income statement. Income related to operating leases is recognized in “operating lease income and other leasing gains” on the income statement. The components of equipment leasing income are summarized in the table below:


	Three months ended June 30,				Six months ended June 30,
Dollars in millions	2023		2022		2023		2022

Sales-type and direct financing leases
Interest income on lease receivable	$	20	$	15	$	39	$	31
Interest income related to accretion of unguaranteed residual asset	4		4		7		8

Total sales-type and direct financing lease income	$	24	$	19	$	46	$	39
Operating leases
Operating lease income related to lease payments	$	22	$	27	$	46	$	56
Other operating leasing gains	1		1		2		4
Total operating lease income and other leasing gains	23		28		48		60
Total lease income	$	47	$	47	$	94	$	99

10. Goodwill

Our annual goodwill impairment testing is performed as of October 1 each year, or more frequently as events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. A quantitative or qualitative testing approach may be used. 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” beginning on page 112 of our 2022 Form 10-K.

The carrying amount of goodwill by reporting segment are presented in the following table:


Dollars in millions	Consumer Bank		Commercial Bank		Total


BALANCE AT JUNE 30, 2022	$	1,819	$	933	$	2,752


BALANCE AT DECEMBER 31, 2022	$	1,819	$	933	$	2,752


BALANCE AT JUNE 30, 2023	$	1,819	$	933	$	2,752

11. Variable Interest Entities

Our significant VIEs are summarized below. Additional information pertaining to the criteria used in determining if an entity is a VIE is included in Note 13 (“Variable Interest Entities”) beginning on page 149 of our 2022 Form 10-K.

LIHTC and NMTC investments. We had $2.2 billion and $1.9 billion of investments in LIHTC operating partnerships at June 30, 2023, and December 31, 2022, respectively. These investments are recorded in “accrued income and other assets” on our Consolidated Balance Sheets. We do not have any loss reserves recorded related to these investments because we believe the likelihood of any loss to be remote. For all legally binding, unfunded equity commitments, we increase our recognized investment and recognize a liability. As of June 30, 2023, and December 31, 2022, we had liabilities of $1.2 billion and $957 million, respectively, related to investments in qualified affordable housing projects, which are recorded in “accrued expenses and other liabilities” on our Consolidated Balance Sheets. We continue to invest in these LIHTC operating partnerships.

The assets and liabilities presented in the table below convey the size of KCDC’s direct and indirect investments at June 30, 2023, and December 31, 2022. As these investments represent unconsolidated VIEs, the assets and liabilities of the investments themselves are not recorded on our Consolidated Balance Sheets. Additional information pertaining to our LIHTC investments is included in Note 13 (“Variable Interest Entities”) beginning on page 149 of our 2022 Form 10-K.

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	Unconsolidated VIEs
Dollars in millions	Total Assets		Total Liabilities		Maximum Exposure to Loss
June 30, 2023
LIHTC investments	$	8,701	$	3,750	$	2,621
December 31, 2022
LIHTC investments	$	8,227	$	3,091	$	2,370

We had $31 million and $12 million in NMTC investments at June 30, 2023 and December 31, 2022, respectively. These investments are recorded in “accrued income and other assets” on our Consolidated Balance Sheets.

We amortize our LIHTC and NMTC investments over the period that we expect to receive the tax benefits. During the six months ended June 30, 2023, we recognized $107 million of amortization, $104 million of tax credits and $26 million of other tax benefits associated with these investments within “income taxes” on our income statement. During the six months ended June 30, 2022, we recognized $93 million of amortization, $91 million of tax credits and $22 million of other tax benefits associated with these investments within “income taxes” on our income statement.

Principal investments. Our maximum exposure to loss associated with indirect principal investments consists of the investments’ fair value plus any unfunded equity commitments. The fair value of our indirect principal investments totaled $18 million and $34 million at June 30, 2023, and December 31, 2022, respectively. These investments are recorded in “other investments” on our Consolidated Balance Sheets. The table below reflects the size of the private equity funds in which we were invested as well as our maximum exposure to loss in connection with these investments at June 30, 2023, and December 31, 2022.


	Unconsolidated VIEs
Dollars in millions	Total Assets		Total Liabilities		Maximum Exposure to Loss
June 30, 2023
Indirect investments	$	2,819	$	76	$	19
December 31, 2022
Indirect investments	$	6,636	$	90	$	43

Through our principal investing entities, we have formed and funded operating entities that provide management and other related services to our investment company funds, which directly invest in portfolio companies. These entities had no assets at June 30, 2023, and December 31, 2022, that can be used to settle the entities’ obligations. The entities had no liabilities at June 30, 2023, and December 31, 2022, and other equity investors have no recourse to our general credit.

Additional information on our indirect and direct principal investments is provided in Note 6 (“Fair Value Measurements”) beginning on page 125 and in Note 13 (“Variable Interest Entities “) beginning on page 149 of our 2022 Form 10-K.

Other unconsolidated VIEs. We are involved with other various entities in the normal course of business which we have determined to be VIEs. We have determined that we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities that most significantly impact their economic performance or hold a variable interest that could potentially be significant. The table below shows our assets and liabilities associated with these unconsolidated VIEs at June 30, 2023, and December 31, 2022. These assets are recorded in “accrued income and other assets,” “other investments,” “securities available for sale,” “held-to-maturity securities,” and “loans, net of unearned income” on our Consolidated Balance Sheets. Of the total balance as of June 30, 2023, $1.0 billion related to the purchase of senior notes from a securitization collateralized by sold indirect auto loans. Additional information pertaining to our other unconsolidated VIEs is included in Note 13 (“Variable Interest Entities“) under the heading “Other unconsolidated VIEs” on page 151 of our 2022 Form 10-K.


	Other unconsolidated VIEs
Dollars in millions	Total Assets		Total Liabilities
June 30, 2023
Other unconsolidated VIEs	$	1,450	$	1
December 31, 2022
Other unconsolidated VIEs	$	1,798	$	1

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12. Income Taxes

Income Tax Provision

In accordance with the applicable accounting guidance, the principal method established for computing the provision for income taxes in interim periods requires us to make our best estimate of the effective tax rate expected to be applicable for the full year. This estimated effective tax rate is then applied to interim consolidated pre-tax operating income to determine the interim provision for income taxes.

The effective tax rate, which is the provision for income taxes as a percentage of income before income taxes, was 16.7% for the second quarter of 2023 and 19.9% for the second quarter of 2022. The effective tax rates are less than our combined federal and state statutory tax rate of 23.9%, primarily due to income from investments in tax-advantaged assets such as corporate-owned life insurance and tax credits associated with low-income housing investments.

Deferred Taxes

At June 30, 2023, we had a net deferred tax asset of $1.9 billion, compared to a net deferred tax asset of $2.0 billion at December 31, 2022, which are included in “accrued income and other assets” on the balance sheet. The deferred tax asset is primarily related to market fluctuations in the investment security portfolio accounted for in other comprehensive income.

To determine the amount of deferred tax assets that are more likely than not to be realized, and therefore recorded, we conduct a quarterly assessment of all available evidence. This evidence includes, but is not limited to, taxable income in prior periods, projected future taxable income, and projected future reversals of deferred tax items. These assessments involve a degree of subjectivity and may undergo change. Based on these criteria, we had a valuation allowance of $11 million at June 30, 2023, and $11 million at December 31, 2022. The valuation allowance is associated with federal and state capital loss carryforwards.

Unrecognized Tax Benefits

At June 30, 2023, Key’s unrecognized tax benefits were $43 million. As permitted under the applicable accounting guidance for income taxes, it is our policy to recognize interest and penalties related to unrecognized tax benefits in “income tax expense.”

Pre-1988 Bank Reserves Acquired in a Business Combination

Retained earnings of KeyBank included approximately $92 million of allocated bad debt deductions for which no income taxes have been recorded. Under current federal law, these reserves are subject to recapture into taxable income if KeyBank, or any successor, fails to maintain its bank status under the Internal Revenue Code or makes non-dividend distributions or distributions greater than its accumulated earnings and profits. No deferred tax liability has been established as these events are not expected to occur in the foreseeable future.

13. Acquisitions and Discontinued Operations

Acquisitions

XUP Payments. On November 19, 2021, KeyBank acquired XUP Payments, a B2B focused digital platform. The acquisition was accounted for as a business combination. As a result of the acquisition, we recognized goodwill of $20.6 million and no separately identified intangible assets were recorded. Other acquired assets and liabilities of XUP were immaterial. The valuation was final as of March 31, 2022.

GradFin. On May 2, 2022, KeyBank acquired GradFin, a public service loan forgiveness counseling provider. The acquisition was accounted for as a business combination. Consideration paid totaled $72 million consisting of $62 million in cash and $10 million in contingent consideration. As a result of the acquisition, we recognized goodwill of $58 million and other intangible assets of $12 million, with remaining assets acquired consisting primarily of cash. Other acquired assets and liabilities of GradFin were immaterial. The valuation was final as of September 30, 2022.

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Discontinued operations

Discontinued operations primarily includes our government-guaranteed and private education lending business. At June 30, 2023, and December 31, 2022, approximately $381 million and $434 million, respectively, of education loans are included in discontinued assets on the Consolidated Balance Sheets. Net interest income after provision for credit losses for this business is not material and is included in income (loss) from discontinued operations, net of taxes on the Consolidated Statements of Income.

14. Securities Financing Activities

Additional information regarding our securities financing activities, including risk management activities, is provided in Note 1 (“Summary of Significant Accounting Policies”) beginning on page 105 our 2022 Form 10-K and Note 16 (“Securities Financing Activities”) beginning on page 154 of our 2022 Form 10-K.

The following table summarizes our securities financing agreements at June 30, 2023, and December 31, 2022:


	June 30, 2023								December 31, 2022
Dollars in millions	Gross Amount Presented in Balance Sheet		Netting Adjustments (a)		Collateral (b)		Net Amounts		Gross Amount Presented in Balance Sheet		Netting Adjustments (a)		Collateral (b)		Net Amounts
Offsetting of financial assets:
Reverse repurchase agreements	$	—	$	—	$	—	$	—	$	8	$	(8)	$	—	$	—
Securities borrowed	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	8	$	(8)	$	—	$	—

Offsetting of financial liabilities:
Repurchase agreements (c)	$	1,702	$	—	$	(1,702)	$	—	$	71	$	(8)	$	(63)	$	—
Total	$	1,702	$	—	$	(1,702)	$	—	$	71	$	(8)	$	(63)	$	—

(a)Netting adjustments take into account the impact of master netting agreements that allow us to settle with a single counterparty on a net basis.

(b)These adjustments take into account the impact of bilateral collateral agreements that allow us to offset the net positions with the related collateral. The application of collateral cannot reduce the net position below zero. Therefore, excess collateral, if any, is not reflected above.

(c)Repurchase agreements are collateralized by mortgage-backed securities and U.S. Treasuries and are contracted on an overnight or continuous basis.

As of June 30, 2023, assets pledged as collateral against repurchase agreements totaled $1.7 billion. Assets pledged as collateral are reported in “securities available for sale” and “held-to-maturity securities” on the Consolidated Balance Sheets. At June 30, 2023, the liabilities associated with collateral pledged were solely comprised of customer sweep financing activity and had a carrying value of $1.7 billion. The collateral pledged under customer sweep repurchase agreements is posted to a third-party custodian and cannot be sold or repledged by the secured party. The risk related to a decline in the market value of collateral pledged is minimal given the collateral's high credit quality and the overnight duration of the repurchase agreements.

15. Employee Benefits

Pension Plans

The components of net pension cost (benefit) for all funded and unfunded plans are recorded in Other expense and are summarized in the following table. For more information on our Pension Plans and Other Postretirement Benefit Plans, see Note 18 (“Employee Benefits”) beginning on page 157 of our 2022 Form 10-K.


	Three months ended June 30,				Six months ended June 30,
Dollars in millions	2023		2022		2023		2022
Interest cost on PBO	$	11	$	6	$	22	$	13
Expected return on plan assets	(10)		(6)		(21)		(13)
Amortization of losses	2		3		5		7
Settlement loss	—		—		—		—
Net pension cost	$	3	$	3	$	6	$	7

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16. Trust Preferred Securities Issued by Unconsolidated Subsidiaries

We own the outstanding common stock of business trusts formed by us that issued corporation-obligated, mandatorily redeemable, trust preferred securities. The trusts used the proceeds from the issuance of their trust preferred securities and common stock to buy debentures issued by KeyCorp. These debentures are the trusts’ only assets; the interest payments from the debentures finance the distributions paid on the mandatorily redeemable trust preferred securities. The outstanding common stock of these business trusts is recorded in Other investments on the Consolidated Balance Sheets. We unconditionally guarantee the following payments or distributions on behalf of the trusts:

required distributions on the trust preferred securities;
the redemption price when a capital security is redeemed; and
the amounts due if a trust is liquidated or terminated.

The Regulatory Capital Rules, discussed in “Supervision and regulation” in Item 2 of this report, require us to treat our mandatorily redeemable trust preferred securities as Tier 2 capital.

The trust preferred securities, common stock, and related debentures are summarized as follows:


Dollars in millions	Trust Preferred Securities, Net of Discount (a)(d)		Common Stock		Principal Amount of Debentures, Net of Discount (b)(d)		Interest Rate of Trust Preferred Securities and Debentures (c)		Maturity of Trust Preferred Securities and Debentures
June 30, 2023
KeyCorp Capital I	$	156	$	6	$	162	5.494	%	2028
KeyCorp Capital II	86		4		90		6.875		2029
KeyCorp Capital III	112		4		116		7.750		2029
HNC Statutory Trust III	21		1		22		6.793		2035
HNC Statutory Trust IV	18		1		19		6.579		2037
Willow Grove Statutory Trust I	20		1		21		6.862		2036
Westbank Capital Trust II	8		—		8		7.700		2034
Westbank Capital Trust III	8		—		8		7.700		2034
Total	$	429	$	17	$	446	6.616	%	—

December 31, 2022	$	433	$	17	$	450	5.321	%	—

(a)The trust preferred securities must be redeemed when the related debentures mature, or earlier if provided in the governing indenture. Each issue of trust preferred securities carries an interest rate identical to that of the related debenture.

(b)We have the right to redeem these debentures. If the debentures purchased by KeyCorp Capital I, HNC Statutory Trust III, Willow Grove Statutory Trust I, HNC Statutory Trust IV, Westbank Capital Trust II, or Westbank Capital Trust III are redeemed before they mature, the redemption price will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by KeyCorp Capital II or KeyCorp Capital III are redeemed before they mature, the redemption price will be the greater of: (i) the principal amount, plus any accrued but unpaid interest, or (ii) the sum of the present values of principal and interest payments discounted at the Treasury Rate (as defined in the applicable indenture), plus 20 basis points for KeyCorp Capital II or 25 basis points for KeyCorp Capital III, or 50 basis points in the case of redemption upon either a tax or a capital treatment event for either KeyCorp Capital II or KeyCorp Capital III, plus any accrued but unpaid interest.

(c)The interest rates for the trust preferred securities issued by KeyCorp Capital II and KeyCorp Capital III are fixed. The trust preferred securities issued by KeyCorp Capital I have a floating interest rate, equal to three-month LIBOR plus 74 basis points, that reprices quarterly. The trust preferred securities issued by HNC Statutory Trust III have a floating interest rate, equal to three-month LIBOR plus 140 basis points, that reprices quarterly. The trust preferred securities issued by Willow Grove Statutory Trust I have a floating interest rate, equal to three-month LIBOR plus 131 basis points, that reprices quarterly. The trust preferred securities issued by HNC Statutory Trust IV have a floating interest rate, equal to three-month LIBOR plus 128 basis points, that reprices quarterly. The trust preferred securities issued by Westbank Capital Trust II and Westbank Capital Trust III each have a floating interest rate, equal to three-month LIBOR plus 219 basis points, that reprices quarterly. The total interest rates are weighted-average rates.

(d)Certain trust preferred securities include basis adjustments related to fair value hedges totaling $13 million at June 30, 2023, and $17 million at December 31, 2022. See Note 7 (“Derivatives and Hedging Activities”) for an explanation of fair value hedges.

17. Contingent Liabilities and Guarantees

Legal Proceedings

Litigation. From time to time, in the ordinary course of business, we and our subsidiaries are subject to various litigation, investigations, and administrative proceedings. Private, civil litigation may range from individual actions involving a single plaintiff to putative class action lawsuits with potentially thousands of class members. Investigations may involve both formal and informal proceedings, by both government agencies and self-regulatory bodies. These matters may involve claims for substantial monetary relief. At times, these matters may present novel claims or legal theories. Due to the complex nature of these various other matters, it may be years before some matters are resolved. While it is impossible to ascertain the ultimate resolution or range of financial liability, based on information presently known to us, we do not believe there is any matter to which we are a party, or involving any of our properties that, individually or in the aggregate, would reasonably be expected to have a material adverse effect on our financial condition. We continually monitor and reassess the potential materiality of these litigation matters. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves. As a result, the outcome of a particular matter, or a combination of matters, may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

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Record-Keeping Investigation. The Company’s broker-dealer and investment advisory subsidiaries have been responding to a request for information from the SEC concerning compliance with certain record-keeping requirements relating to business communications transmitted on unapproved electronic communications platforms. The SEC is conducting similar inquiries into recordkeeping practices at other financial institutions. The Company is cooperating with the inquiry.

Guarantees

We are a guarantor in various agreements with third parties. The following table shows the types of guarantees that we had outstanding at June 30, 2023. Information pertaining to the basis for determining the liabilities recorded in connection with these guarantees is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Contingencies and Guarantees” beginning on page 113 of our 2022 Form 10-K.


June 30, 2023	Maximum Potential Undiscounted Future Payments		Liability Recorded
Dollars in millions
Financial guarantees:
Standby letters of credit	$	4,759	$	91
Recourse agreement with FNMA	6,981		89
Residential mortgage reserve	3,294		12
Written put options (a)	3,739		257
Total	$	18,773	$	449

(a)The maximum potential undiscounted future payments represent notional amounts of derivatives qualifying as guarantees.

We determine the payment/performance risk associated with each type of guarantee described below based on the probability that we could be required to make the maximum potential undiscounted future payments shown in the preceding table. We use a scale of low (0% to 30% probability of payment), moderate (greater than 30% to 70% probability of payment), or high (greater than 70% probability of payment) to assess the payment/performance risk, and have determined that the payment/performance risk associated with each type of guarantee outstanding at June 30, 2023, is low. Information pertaining to the nature of each of the guarantees listed below is included in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Guarantees” beginning on page 166 of our 2022 Form 10-K.

Standby letters of credit. At June 30, 2023, our standby letters of credit had a remaining weighted-average life of 1.5 years, with remaining actual lives ranging from less than 1 year to as many as 11.4 years.

Recourse agreement with FNMA. At June 30, 2023, the outstanding commercial mortgage loans in this program had a weighted-average remaining term of 7.1 years, and the unpaid principal balance outstanding of loans sold by us as a participant was $22.6 billion. The maximum potential amount of undiscounted future payments that we could be required to make under this program, as shown in the preceding table, is equal to approximately 30.8% of the principal balance of loans outstanding at June 30, 2023. FNMA delegates responsibility for originating, underwriting, and servicing mortgages, and we assume a limited portion of the risk of loss during the remaining term on each commercial mortgage loan that we sell to FNMA. We maintain a reserve for such potential losses of $89 million that we believe approximates the fair value of our liability in addition to the expected credit loss for the guarantee as described in Note 4 (“Asset Quality”).

Residential Mortgage Banking. At June 30, 2023, the unpaid principal balance outstanding of loans sold by us in this program was $11.0 billion. The maximum potential amount of undiscounted future payments that we could be required to make under this program, as shown in the preceding table, is equal to approximately 30% of the principal balance of loans outstanding at June 30, 2023.

Our liability for estimated repurchase obligations on loans sold, which is included in “accrued expenses and other liabilities” on the Consolidated Balance Sheets, was $12 million at June 30, 2023. For more information on our residential mortgages, see Note 8 (“Mortgage Servicing Assets”).

Written put options. At June 30, 2023, our written put options had an average life of 1.6 years. These written put options are accounted for as derivatives at fair value, as further discussed in Note 7 (“Derivatives and Hedging Activities”).

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Written put options where the counterparty is a broker-dealer or bank are accounted for as derivatives at fair value but are not considered guarantees since these counterparties typically do not hold the underlying instruments. In addition, we are a purchaser and seller of credit derivatives, which are further discussed in Note 7 (“Derivatives and Hedging Activities”).

Other Off-Balance Sheet Risk

Other off-balance sheet risk stems from financial instruments that do not meet the definition of a guarantee as specified in the applicable accounting guidance, and from other relationships. Additional information pertaining to types of other off-balance sheet risk is included in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Other Off-Balance Sheet Risk” on page 166 of our 2022 Form 10-K.

18. Accumulated Other Comprehensive Income

Our changes in AOCI for the three and six months ended June 30, 2023, and June 30, 2022, are as follows:


Dollars in millions	Unrealized gains (losses) on securities available for sale		Unrealized gains (losses) on derivative financial instruments		Net pension and postretirement benefit costs		Total







Balance at December 31, 2022	$	(4,895)	$	(1,124)	$	(276)	$	(6,295)
Other comprehensive income before reclassification, net of income taxes	159		(263)		—		(104)
Amounts reclassified from AOCI, net of income taxes (a)	—		352		3		355

Net current-period other comprehensive income, net of income taxes	159		89		3		251
Balance at June 30, 2023	$	(4,736)	$	(1,035)	$	(273)	$	(6,044)








Balance at March 31, 2023	$	(4,320)	$	(879)	$	(275)	$	(5,474)
Other comprehensive income before reclassification, net of income taxes	(416)		(344)		—		(760)
Amounts reclassified from AOCI, net of income taxes (a)	—		188		2		190

Net current-period other comprehensive income, net of income taxes	(416)		(156)		2		(570)
Balance at June 30, 2023	$	(4,736)	$	(1,035)	$	(273)	$	(6,044)


Balance at December 31, 2021	$	(403)	$	88	$	(271)	$	(586)
Other comprehensive income before reclassification, net of income taxes	(2,764)		(755)		—		(3,519)
Amounts reclassified from AOCI, net of income taxes (a)	—		(66)		5		(61)

Net current-period other comprehensive income, net of income taxes	(2,764)		(821)		5		(3,580)
Balance at June 30, 2022	$	(3,167)	$	(733)	$	(266)	$	(4,166)

Balance at March 31, 2022	$	(2,187)	$	(473)	$	(269)	$	(2,929)
Other comprehensive income before reclassification, net of income taxes	(980)		(242)		1		(1,221)
Amounts reclassified from AOCI, net of income taxes (a)	—		(18)		2		(16)

Net current-period other comprehensive income, net of income taxes	(980)		(260)		3		(1,237)
Balance at June 30, 2022	$	(3,167)	$	(733)	$	(266)	$	(4,166)

(a)See table below for details about these reclassifications.

Our reclassifications out of AOCI for the three and six months ended June 30, 2023, and June 30, 2022, are as follows:



	Three months ended June 30,				Affected Line Item in the Consolidated Statement of Income
Dollars in millions	2023		2022






Unrealized gains (losses) on derivative financial instruments
Interest rate	$	(245)	$	19	Interest income — Loans
Interest rate	(1)		(1)		Interest expense — Long-term debt
Interest rate	—		5		Investment banking and debt placement fees

	(246)		23		Income (loss) from continuing operations before income taxes
	(58)		5		Income taxes
	$	(188)	$	18	Income (loss) from continuing operations
Net pension and postretirement benefit costs
Amortization of losses	$	(2)	$	(3)	Other expense
Settlement loss	—		—		Other expense
Amortization of unrecognized prior service credit	—		1		Other expense
	(2)		(2)		Income (loss) from continuing operations before income taxes
	—		—		Income taxes
	$	(2)	$	(2)	Income (loss) from continuing operations

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	Six months ended June 30,				Affected Line Item in the Consolidated Statement of Income
Dollars in millions	2023		2022






Unrealized gains (losses) on derivative financial instruments
Interest rate	$	(460)	$	82	Interest income — Loans
Interest rate	(1)		(2)		Interest expense — Long-term debt
Interest rate	—		7		Investment banking and debt placement fees
	(461)		87		Income (loss) from continuing operations before income taxes
	(109)		21		Income taxes
	$	(352)	$	66	Income (loss) from continuing operations
Net pension and postretirement benefit costs
Amortization of losses	$	(5)	$	(7)	Other expense
Settlement loss	—		—		Other expense
Amortization of unrecognized prior service credit	1		1		Other expense
	(4)		(6)		Income (loss) from continuing operations before income taxes
	(1)		(1)		Income taxes
	$	(3)	$	(5)	Income (loss) from continuing operations

19. Shareholders' Equity

Comprehensive Capital Plan

In July 2021, the Board of Directors authorized the repurchase of up to $1.5 billion of our Common Shares, effective for the third quarter of 2021 through the third quarter of 2022. In September 2022, the Board of Directors approved the extension of the previous authorization through the third quarter of 2023. As of June 30, 2023, approximately $752 million remained available for gross repurchase under the authorization. During the second quarter of 2023, Key repurchased no shares under this authorization and less than $1 million of shares related to equity compensation programs.

Consistent with our capital plan, the Board declared a quarterly dividend of $.205 per Common Share for the second quarter of 2023.

Preferred Stock

The following table summarizes our preferred stock at June 30, 2023.


Preferred stock series	Amount outstanding (in millions)		Shares authorized and outstanding	Par value		Liquidation preference		Ownership interest per depositary share	Liquidation preference per depositary share		Second quarter 2023 dividends paid per depositary share
5.000% Fixed-to-Floating Rate Perpetual Noncumulative Series D	$	525	21,000	$	1	$	25,000	1/25th	$	1,000	$	12.50
6.125% Fixed-to-Floating Rate Perpetual Noncumulative Series E	500		500,000	1		1,000		1/40th	25		.382813
5.650% Fixed Rate Perpetual Noncumulative Series F	425		425,000	1		1,000		1/40th	25		.353125
5.625% Fixed Rate Perpetual Non-Cumulative Series G	450		450,000	1		1,000		1/40th	25		.351563
6.200% Fixed Rate Reset Perpetual Non-Cumulative Series H	600		600,000	1		1,000		1/40th	25		.387500

20. Business Segment Reporting

The following is description of the segments and their primary businesses at June 30, 2023.

Consumer Bank

The Consumer Bank serves individuals and small businesses throughout our 15-state branch footprint as well as healthcare professionals nationally through our Laurel Road digital brand by offering a variety of deposit and investment products, personal finance and financial wellness services, lending, student loan refinancing, mortgage and home equity, credit card, treasury services, and business advisory services. In addition, wealth management and investment services are offered to assist non-profit and high-net-worth clients with their banking, trust, portfolio management, life insurance, charitable giving, and related needs.

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Commercial Bank

The Commercial Bank consists of the Commercial and Institutional operating segments. The Commercial operating segment is a full-service, commercial banking platform that focuses primarily on serving the borrowing, cash management, and capital markets needs of middle market clients within Key’s 15-state branch footprint. It is also a significant, national, commercial real estate lender and third-party servicer of commercial mortgage loans and special servicer of CMBS. The Institutional operating segment operates nationally in providing lending, equipment financing, and banking products and services to large corporate and institutional clients. The industry coverage and product teams have proven expertise in the following sectors: Consumer, Energy, Healthcare, Industrial, Public Sector, Real Estate, and Technology. The operating segment includes the KBCM platform which provides a broad suite of capital markets products and services including syndicated finance, debt and equity underwriting, derivatives, foreign exchange, debt and M&A advisory, public finance, and fixed income and equity sales and trading services.

Other

Other includes various corporate treasury activities such as management of our investment securities portfolio, long-term debt, short-term liquidity and funding activities, and balance sheet risk management, our principal investing unit, restructuring charges, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also include intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations.

The development and application of the methodologies that we use to allocate items among our business segments is a dynamic process. Accordingly, financial results may be revised periodically to reflect enhanced alignment of expense base allocations drivers, changes in the risk profile of a particular business, or changes in our organizational structure.

The table below shows selected financial data for our business segments for the three- and six-month periods ended June 30, 2023, and June 30, 2022. Capital is assigned to each business segment based on a combination of regulatory and economic equity.


Three months ended June 30,	Consumer Bank						Commercial Bank						Other						Total Key
Dollars in millions	2023			2022			2023			2022			2023			2022			2023			2022
SUMMARY OF OPERATIONS
Net interest income (TE)	$	558		$	604		$	459		$	470		$	(31)		$	30		$	986		$	1,104
Noninterest income	245			254			346			404			18			30			609			688
Total revenue (TE) (a)	803			858			805			874			(13)			60			1,595			1,792
Provision for credit losses	32			8			134			37			1			—			167			45
Depreciation and amortization expense	21			22			22			30			17			17			60			69
Other noninterest expense	642			659			383			381			(9)			(31)			1,016			1,009
Income (loss) from continuing operations before income taxes (TE)	108			169			266			426			(22)			74			352			669
Allocated income taxes and TE adjustments	26			41			52			86			(12)			12			66			139
Income (loss) from continuing operations	82			128			214			340			(10)			62			286			530
Income (loss) from discontinued operations, net of taxes	—			—			—			—			1			3			1			3
Net income (loss)	82			128			214			340			(9)			65			287			533
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—			—			—			—			—
Net income (loss) attributable to Key	$	82		$	128		$	214		$	340		$	(9)		$	65		$	287		$	533

AVERAGE BALANCES (b)
Loans and leases	$	42,934		$	40,827		$	77,277		$	67,825		$	461		$	486		$	120,672		$	109,138
Total assets (a)	45,761			43,897			87,106			78,816			63,593			60,814			196,460			183,527
Deposits	82,498			91,394			51,420			54,846			8,985			1,231			142,903			147,471
OTHER FINANCIAL DATA
Net loan charge-offs (b)	$	32		$	23		$	20		$	21		$	—		$	—		$	52		$	44
Return on average allocated equity (b)	9.04		%	13.94		%	8.17		%	15.29		%	(14.75)		%	13.84		%	7.96		%	14.76		%
Return on average allocated equity	9.04			13.94			8.17			15.29			(13.27)			14.51			7.99			14.85
Average full-time equivalent employees (c)	7,829			8,074			2,487			2,408			7,438			6,932			17,754			17,414

(a)Substantially all revenue generated by our major business segments is derived from clients that reside in the United States. Substantially all long-lived assets, including premises and equipment, capitalized software, and goodwill held by our major business segments, are located in the United States.

(b)From continuing operations.

(c)The number of average full-time equivalent employees was not adjusted for discontinued operations.

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Six months ended June 30,	Consumer Bank						Commercial Bank						Other							Total Key
Dollars in millions	2023			2022			2023			2022			2023				2022			2023			2022
SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,170		$	1,157		$	937		$	893		$	(15)			$	74		$	2,092		$	2,124
Noninterest income	473			511			712			798			32				55			1,217			1,364
Total revenue (TE) (a)	1,643			1,668			1,649			1,691			17				129			3,309			3,488
Provision for credit losses	92			51			215			78			(1)				(1)			306			128
Depreciation and amortization expense	42			43			46			61			33				35			121			139
Other noninterest expense	1,284			1,308			801			763			46				(62)			2,131			2,009
Income (loss) from continuing operations before income taxes (TE)	225			266			587			789			(61)				157			751			1,212
Allocated income taxes and TE adjustments	54			64			118			157			(18)				14			154			235
Income (loss) from continuing operations	171			202			469			632			(43)				143			597			977
Income (loss) from discontinued operations, net of taxes	—			—			—			—			2				4			2			4
Net income (loss)	171			202			469			632			(41)				147			599			981
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—			—				—			—			—
Net income (loss) attributable to Key	$	171		$	202		$	469		$	632		$	(41)		(d)	$	147		$	599		$	981

AVERAGE BALANCES (b)
Loans and leases	$	43,009		$	39,746		$	76,794		$	66,263		$	454			$	456		$	120,257		$	106,465
Total assets (a)	45,847			42,856			86,483			76,827			61,342				63,377			193,672			183,060
Deposits	83,561			91,517			51,818			56,037			7,774				1,255			143,153			148,809
OTHER FINANCIAL DATA
Net loan charge-offs (b)	$	57		$	45		$	40		$	32		—				—			$	97		$	77
Return on average allocated equity (b)	9.46		%	11.20		%	9.09		%	14.48		%	(133.40)		%		9.18		%	8.53		%	12.64		%
Return on average allocated equity	9.46			11.20			9.09			14.48			(127.20)				9.43			8.56			12.69
Average full-time equivalent employees (c)	7,962			8,012			2,502			2,412			7,523				6,838			17,987			17,262

(b)From continuing operations.

(c)The number of average full-time equivalent employees was not adjusted for discontinued operations.

21. Revenue from Contracts with Customers

The following table represents a disaggregation of revenue from contracts with customers, by business segment, for the three- and six-month periods ended June 30, 2023, and June 30, 2022. The development and application of the methodologies that we use to allocate items among our business segments is a dynamic process. Accordingly, financial results may be revised periodically to reflect enhanced alignment of expense base allocations drivers, changes in the risk profile of a particular business, or changes in our organizational structure.


	Three months ended June 30, 2023						Three months ended June 30, 2022
Dollars in millions	Consumer Bank		Commercial Bank		Total Contract Revenue		Consumer Bank		Commercial Bank		Total Contract Revenue
NONINTEREST INCOME
Trust and investment services income	$	100	$	14	$	114	$	103	$	18	$	121
Investment banking and debt placement fees	—		79		79		—		98		98
Services charges on deposit accounts	41		28		69		59		37		96


Cards and payments income	48		35		83		44		39		83




Other noninterest income	3		—		3		3		—		3
Total revenue from contracts with customers	$	192	$	156	$	348	$	209	$	192	$	401

Other noninterest income (a)					$	243					$	257
Noninterest income from Other(b)					18						30

Total noninterest income					$	609					$	688

(a)Noninterest income considered earned outside the scope of contracts with customers.

(b)Other includes other segments that consists of corporate treasury, our principal investing unit, and various exit portfolios as well as reconciling items which primarily represents the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling items also includes intercompany eliminations and certain items that are not allocated to the business segments because they do not reflect their normal operations. Refer to Note 20 (“Business Segment Reporting”) for more information.

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	Six months ended June 30, 2023						Six months ended June 30, 2022
Dollars in millions	Consumer Bank		Commercial Bank		Total Contract Revenue		Consumer Bank		Commercial Bank		Total Contract Revenue
NONINTEREST INCOME
Trust and investment services income	$	200	$	31	$	231	$	208	$	36	$	244
Investment banking and debt placement fees	—		191		191		—		207		207
Services charges on deposit accounts	80		56		136		114		73		187


Cards and payments income	93		67		160		86		75		161




Other noninterest income	6		—		6		5		—		5
Total revenue from contracts with customers	$	379	$	345	$	724	$	413	$	391	$	804

Other noninterest income (a)					$	461					$	505
Noninterest income from Other(b)					32						55
Total noninterest income					$	1,217					$	1,364

(a)Noninterest income considered earned outside the scope of contracts with customers.

We had no material contract assets or contract liabilities as of June 30, 2023, and June 30, 2022.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of KeyCorp

Results of Review of Interim Financial Statements

We have reviewed the accompanying consolidated balance sheet of KeyCorp as of June 30, 2023, the related consolidated statements of income, comprehensive income, and changes in equity for the three- and six-month periods ended June 30, 2023 and 2022, the related consolidated statement of cash flows for the six-month periods ended June 30, 2023 and 2022, and the related notes (collectively referred to as the “consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of KeyCorp as of December 31, 2022, the related consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated February 22, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

These financial statements are the responsibility of KeyCorp's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to KeyCorp in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.



Cleveland, Ohio
August 2, 2023

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