Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations

Introduction

This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for the quarterly periods ended June 30, 2023, and June 30, 2022. Some tables may include additional periods to comply with disclosure requirements or to illustrate trends in greater depth. When you read this discussion, you should also refer to the consolidated financial statements and related notes in this report. The page locations of specific sections and notes that we refer to are presented in the Table of Contents.

References to our “2022 Form 10-K” refer to our Form 10-K for the year ended December 31, 2022, which has been filed with the SEC and is available on its website (www.sec.gov) and on our website (www.key.com/ir).

Terminology

Throughout this discussion, references to “Key,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of KeyCorp and its subsidiaries. “KeyCorp” refers solely to the parent holding company, and “KeyBank” refers solely to KeyCorp’s subsidiary bank, KeyBank National Association. “KeyBank (consolidated)” refers to the consolidated entity consisting of KeyBank and its subsidiaries.

We want to explain some industry-specific terms at the outset so you can better understand the discussion that follows.

• We use the phrase continuing operations in this document to mean all of our businesses other than our government-guaranteed and private education lending business, which has been accounted for as discontinued operations since 2009.

• We engage in capital markets activities primarily through business conducted by our Commercial Bank segment*.* These activities encompass a variety of products and services. Among other things, we trade securities as a dealer, enter into derivative contracts (both to accommodate clients’ financing needs and to mitigate certain risks), and conduct transactions in foreign currencies (to accommodate clients’ needs).

• For regulatory purposes, capital is divided into two classes. Federal regulations currently prescribe that at least one-half of a bank or BHC’s total risk-based capital must qualify as Tier 1 capital. Both total and Tier 1 capital serve as bases for several measures of capital adequacy, which is an important indicator of financial stability and condition. Banking regulators evaluate a component of Tier 1 capital, known as Common Equity Tier 1, under the Regulatory Capital Rules. The “Capital” section of this report under the heading “Capital adequacy” provides more information on total capital, Tier 1 capital, and the Regulatory Capital Rules, including Common Equity Tier 1, and describes how these measures are calculated.

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The acronyms and abbreviations identified below are used in the Management’s Discussion & Analysis of Financial Condition & Results of Operations as well as in the Notes to Consolidated Financial Statements (Unaudited). You may find it helpful to refer back to this page as you read this report.

ABO: Accumulated benefit obligation. ALCO: Asset/Liability Management Committee. ALLL: Allowance for loan and lease losses. A/LM: Asset/liability management. AML: Anti-money laundering. AOCI: Accumulated other comprehensive income (loss). APBO: Accumulated postretirement benefit obligation. AQN Strategies: Arbitria Quum Notitia, LLC. ARRC: Alternative Reference Rates Committee. ASC: Accounting Standards Codification. ASR: Accelerated share repurchase. ASU: Accounting Standards Update. ATMs: Automated teller machines. BSA: Bank Secrecy Act. BHCA: Bank Holding Company Act of 1956, as amended. BHCs: Bank holding companies. Board: KeyCorp Board of Directors. CAPM: Capital Asset Pricing Model. CARES Act: Coronavirus Aid, Relief, and Economic Security Act. CCAR: Comprehensive Capital Analysis and Review. Cain Brothers: Cain Brothers & Company, LLC. CECL: Current Expected Credit Losses. CFPB: Consumer Financial Protection Bureau, also known as the Bureau of Consumer Financial Protection. CFTC: Commodities Futures Trading Commission. CMBS: Commercial mortgage-backed securities. CMO: Collateralized mortgage obligation. Common Shares: KeyCorp common shares, $1 par value. CVA: Credit valuation adjustment. DCF: Discounted cash flow. DIF: Deposit Insurance Fund of the FDIC. Dodd-Frank Act: Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. EAD: Exposure at default. EBITDA: Earnings before interest, taxes, depreciation, and amortization. EPS: Earnings per share. ERISA: Employee Retirement Income Security Act of 1974. ERM: Enterprise risk management. ESG: Environmental, social, and governance. EVE: Economic value of equity. FASB: Financial Accounting Standards Board. FDIA: Federal Deposit Insurance Act, as amended. FDIC: Federal Deposit Insurance Corporation. Federal Reserve: Board of Governors of the Federal Reserve System. FHLB: Federal Home Loan Bank of Cincinnati. FHLMC: Federal Home Loan Mortgage Corporation. FICO: Fair Isaac Corporation. FINRA: Financial Industry Regulatory Authority. First Niagara: First Niagara Financial Group, Inc. FNMA: Federal National Mortgage Association. FSOC: Financial Stability Oversight Council.			FVA: Fair value of employee benefit plan assets. GAAP: U.S. generally accepted accounting principles. GNMA: Government National Mortgage Association. HTC: Historic tax credit. IDI: Insured depository institution. IRS: Internal Revenue Service. ISDA: International Swaps and Derivatives Association. KBCM: KeyBanc Capital Markets, Inc. KCC: Key Capital Corporation. KCDC: Key Community Development Corporation. KCIC: Key Community Investment Capital LLC. KEF: Key Equipment Finance. LCR: Liquidity coverage ratio. LGD: Loss given default. LIBOR: London Interbank Offered Rate. LIHTC: Low-income housing tax credit. LTV: Loan-to-value. Moody’s: Moody’s Investor Services, Inc. MRM: Market Risk Management group. MRC: Market Risk Committee. N/A: Not applicable. NAV: Net asset value. NFA: National Futures Association. N/M: Not meaningful. NMTC: New market tax credit. NOW: Negotiable Order of Withdrawal. NPR: Notice of proposed rulemaking. NSF: Non-sufficient funds. NYSE: New York Stock Exchange. OCC: Office of the Comptroller of the Currency. OCI: Other comprehensive income (loss). OREO: Other real estate owned. PBO: Projected benefit obligation. PCCR: Purchased credit card relationship. PCD: Purchased credit deteriorated. PD: Probability of default. PPP: Paycheck Protection Program. RMBS: Residential mortgage-backed securities. S&P: Standard and Poor’s Ratings Services, a Division of The McGraw-Hill Companies, Inc. SEC: U.S. Securities & Exchange Commission. SIFIs: Systemically important financial institutions, including large, interconnected BHCs and nonbank financial companies designated by FSOC for supervision by the Federal Reserve. SOFR: Secured Overnight Financing Rate. TDR: Troubled debt restructuring. TE: Taxable-equivalent. U.S. Treasury: United States Department of the Treasury. VaR: Value at risk. VEBA: Voluntary Employee Beneficiary Association. VIE: Variable interest entity.

Forward-looking statements

From time to time, we have made or will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as “goal,” “objective,” “plan,” “expect,” “assume,” “anticipate,” “intend,” “project,” “believe,” “estimate,” “will,” “would,” “should,” “could,” or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results or aspirations. Our disclosures in this report contain forward-looking statements. We may also make forward-looking statements in other documents filed with or furnished to the SEC. In addition, we may make forward-looking statements orally to analysts, investors, representatives of the media, and others.

Forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements.

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There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause our actual results to differ from those described in forward-looking statements include, but are not limited to:

• our concentrated credit exposure in commercial and industrial loans;

• deterioration of commercial real estate market fundamentals;

• defaults by our loan counterparties or clients;

• adverse changes in credit quality trends;

• declining asset prices;

• deterioration of asset quality and an increase in credit losses;

• labor shortages and supply chain constraints, as well as the impact of inflation;

• the extensive regulation of the U.S. financial services industry;

• changes in accounting policies, standards, and interpretations;

• operational or risk management failures by us or critical third parties;

• breaches of security or failure or unavailability of our technology systems due to technological or other factors and cybersecurity threats;

• negative outcomes from claims or litigation;

• failure or circumvention of our controls and procedures;

• the occurrence of natural disasters, which may be exacerbated by climate change;

• societal responses to climate change;

• increased operational risks resulting from remote work;

• evolving capital and liquidity standards under applicable regulatory rules;

• disruption of the U.S. financial system, including the impact of inflation and a potential global economic downturn or recession;

• our ability to receive dividends from our subsidiaries, including KeyBank;

• unanticipated changes in our liquidity position, including but not limited to, changes in our access to or the cost of funding and our ability to secure alternative funding sources;

• downgrades in our credit ratings or those of KeyBank;

• a worsening of the U.S. economy due to financial, political or other shocks;

• our ability to anticipate interest rate changes and manage interest rate risk;

• uncertainty surrounding the transition from LIBOR to an alternate reference rate;

• deterioration of economic conditions in the geographic regions where we operate;

• the soundness of other financial institutions, including the impact of recent bank failures;

• our ability to manage our reputational risks;

• our ability to timely and effectively implement our strategic initiatives;

• increased competitive pressure;

• our ability to adapt our products and services to industry standards and consumer preferences;

• our ability to attract and retain talented executives and employees;

• unanticipated adverse effects of strategic partnerships or acquisitions and dispositions of assets or businesses and;

• our ability to develop and effectively use the quantitative models we rely upon in our business planning.

Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances, except as required by applicable securities laws. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our 2022 Form 10-K, in Part II, Item 1A. "Risk Factors" of our Form 10-Q for the quarter ended March 31, 2023, and in any subsequent reports filed with the SEC by Key, as well as our registration statements under the Securities Act of 1933, as amended, all of which are or will upon filing be accessible on the SEC’s website at www.sec.gov and on our website at www.key.com/ir.

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Long-term financial targets

(a)See the section entitled “GAAP to Non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “cash efficiency.” The section includes tables that reconcile the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

(a)See the section entitled “GAAP to Non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “tangible common equity.” The section includes tables that reconcile the GAAP performance measures to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

Positive Operating Leverage

Generate positive operating leverage and a cash efficiency ratio in the range of 54% to 56%.

We continue to exercise disciplined expense management. Expenses were down 9% quarter-over-quarter and stable year-over-year. Our commitment to positive operating leverage remains.

Moderate Risk Profile

Maintain a moderate risk profile by targeting a net loan charge-offs to average loans ratio in the range of .40% to .60% through a credit cycle.

We believe our strong risk management practices and disciplined underwriting continue to strengthen our credit quality. Net charge-offs to average loans remain at low levels, in alignment with our moderate risk profile.

Financial Return

A return on average tangible common equity in the range of 16% to 19%.

Our relationship-based business model, strong expense management and disciplined underwriting continue to drive sound profitable growth.

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Strategic developments

Our actions and results during the second quarter of 2023 support our corporate strategy described in the “Introduction” section under the “Corporate strategy” heading on page 49 of our 2022 Form 10-K.

• Our relationship-based business model provides us with a strong granular deposit base and attractive lending and fee-based opportunities. Our long-term strategic commitment to primacy, that is, serving as our client's primary bank, continues to serve us well.

• We grew and expanded relationships, with our differentiated originate-to-distribute model enabling us to support our clients on and off-balance sheet. Market disruption has provided further opportunity for client acquisition.

• We continue to be proactive from both a balance sheet optimization and capital allocation perspective.

• Overall, credit quality remains solid as our new loan originations in both our commercial and consumer businesses continue to meet our criteria for high quality loans as we effectively manage risk and rewards. Our continuous focus on maintaining our risk discipline has and will continue to position us to perform well through all business cycles.

• Our strong capital position allows us to continue to execute against our capital priorities. During the second quarter, the Board of Directors declared a Common Share dividend of $.205 per Common Share, and our Common Equity Tier 1 ratio was 9.3%(a) as of June 30, 2023.

Current year expectations - full year 2023 vs. full year 2022

Category						Expectations (b)
Average loans						up 6% to 9%
Average deposits						flat to down 2%
Net interest income (TE)						down 12% to 14%
Noninterest income						down 7% to 9%
Noninterest expense						relatively stable
Net charge-offs to average loans						25 to 30 basis points (FY2023)
Effective tax rate						18% to 19% (FY2023)

Quarterly expectations

Category						3Q23 (vs 2Q23)****(b)						4Q23 (vs 3Q23)****(b)
Average loans						down 1% to 3%						down 1% to 3%
Average deposits						relatively stable						relatively stable
Net interest income (TE)						down 4% to 6%						flat to down 2%
Noninterest income						up 2% to 4%						up 4% to 6%
Noninterest expense						relatively stable						relatively stable(c)
Net charge-offs to average loans						20 to 25 basis points (3Q23)						25 to 35 basis points (4Q23)
Effective tax rate						18% to 19% (3Q23)						18% to 19% (4Q23)

(a) June 30, 2023 capital ratios are estimates

(b) Relatively stable: +/- 2%

(c) Excludes proposed FDIC special assessment discussed under the heading “Supervision and regulation - Deposit insurance and assessments” within this Form 10-Q

Demographics

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.

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. This operating segment includes the KBCM platform, which provides a broad suite of capital markets products and services including syndicated finance, debt and equity capital markets,

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derivatives, foreign exchange, financial advisory, and public finance. Additionally, KBCM provides fixed income and equity sales and trading services to investor clients.

Supervision and regulation

The following discussion provides a summary of recent regulatory developments and should be read in conjunction with the disclosure included in our 2022 Form 10-K under the heading “Supervision and Regulation” in Item 1. Business and under the heading “II. Compliance Risk” in Item 1A. Risk Factors as well as the disclosure included in Part II, Item 1A. "Risk Factors" of our Form 10-Q for the quarter ended March 31, 2023.

Regulatory capital requirements

KeyCorp and KeyBank are subject to regulatory capital requirements that are based largely on the Basel III international capital framework (“Basel III”). The Basel III capital framework and the U.S. implementation of the Basel III capital framework (“Regulatory Capital Rules”) are discussed in more detail in Item 1. Business of our 2022 Form 10-K under the heading “Supervision and Regulation — Regulatory capital requirements.”

Under the Regulatory Capital Rules, standardized approach banking organizations, such as KeyCorp and KeyBank, are required to meet the minimum capital and leverage ratios set forth in Figure 1 below. At June 30, 2023, KeyCorp’s ratios under the fully phased-in Regulatory Capital Rules are set forth in Figure 1.

Figure 1. Minimum Capital Ratios and KeyCorp Ratios Under the Regulatory Capital Rules

Ratios (including stress capital buffer)			Regulatory Minimum Requirement			Stress Capital Buffer (b)			Regulatory Minimum With Stress Capital Buffer			KeyCorp June 30, 2023 (c)
Common Equity Tier 1			4.5		%	2.5		%	7.0		%	9.3		%
Tier 1 Capital			6.0			2.5			8.5			10.8
Total Capital			8.0			2.5			10.5			13.1
Leverage (a)			4.0			N/A			4.0			8.7

(a)As a standardized approach banking organization, KeyCorp is not subject to the 3% supplemental leverage ratio requirement, which became effective January 1, 2018.

(b)Stress capital buffer must consist of Common Equity Tier 1 capital. As a standardized approach banking organization, KeyCorp is not subject to the countercyclical capital buffer of up to 2.5% imposed upon an advanced approaches banking organization under the Regulatory Capital Rules.

(c)June 30, 2023 ratios are estimated and reflect the five-year transition of CECL impacts on regulatory ratios.

Revised prompt corrective action framework

The federal prompt corrective action (“PCA”) framework under the FDIA groups FDIC-insured depository institutions into one of five prompt corrective action capital categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” In addition to implementing the Basel III capital framework in the United States, the Regulatory Capital Rules also revised the PCA capital category threshold ratios applicable to FDIC-insured depository institutions such as KeyBank, with an effective date of January 1, 2015. The revised PCA framework table in Figure 2 identifies the capital category thresholds for a “well capitalized” and an “adequately capitalized” institution under the PCA Framework.

Figure 2. "Well Capitalized" and "Adequately Capitalized" Capital Category Ratios under Revised PCA Framework

Prompt Corrective Action						Capital Category
Ratio						Well Capitalized (a)			Adequately Capitalized
Common Equity Tier 1 Risk-Based						6.5		%	4.5		%
Tier 1 Risk-Based						8.0			6.0
Total Risk-Based						10.0			8.0
Tier 1 Leverage (b)						5.0			4.0

(a)A “well capitalized” institution also must not be subject to any written agreement, order, or directive to meet and maintain a specific capital level for any capital measure.

(b)As a “standardized approach” banking organization, KeyBank is not subject to the 3% supplemental leverage ratio requirement, which became effective January 1, 2018.

As of June 30, 2023, KeyBank (consolidated) satisfied the risk-based and leverage capital requirements necessary to be considered “well capitalized” for purposes of the PCA framework. However, investors should not regard this determination as a representation of the overall financial condition or prospects of KeyBank because the PCA framework is intended to serve a limited supervisory function. Moreover, it is important to note that the PCA framework does not apply to BHCs, like KeyCorp.

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Recent regulatory capital-related changes

On July 27, 2023, the federal banking agencies issued a proposal (the “Capital Proposal”) that would make significant changes to the Regulatory Capital Rules applicable to banking organizations with total assets of $100 billion or more and their depository institution subsidiaries (“Large Banking Organizations”) (including KeyCorp and KeyBank) and banking organizations with significant trading activity. This proposal would implement the final elements of the Basel III capital framework and make other changes to the Regulatory Capital Rules in response to recent bank failures. The Capital Proposal would establish a new framework for calculating risk-weighted assets (the “expanded risk-based approach”) that would apply to Large Banking Organizations. The expanded risk-based approach would include a new more risk-sensitive standardized approach for measuring credit risk and operational risk. It would also include new standardized approaches for measuring market risk and credit valuation adjustment risk but would allow the use of internal models for market risk in certain circumstances with regulatory approval. Under the Capital Proposal, a Large Banking Organization would be required to calculate its risk-based capital ratios under both the expanded risk-based approach and the current standardized approach and would use the lower of the two. All capital buffer requirements, including the stress capital buffer requirement, would apply regardless of whether the expanded risk-based approach or the existing standardized approach produces the lower ratio.

The Capital Proposal would also align the calculation of regulatory capital for Category III and IV banking organizations with the calculation of regulatory capital for Category I and II banking organizations. KeyCorp and KeyBank are Category IV banking organizations. Under the proposal, Category III and IV banking organizations would be required to include most components of AOCI, including net unrealized gains and losses on available-for-sale securities, in regulatory capital. Category III and IV banking organizations would also be required to apply the same capital deductions and minority interest treatments that currently apply to Category I and Category II banking organizations. In addition, all Large Banking Organizations would be subject to the supplementary leverage ratio and countercyclical capital buffer requirement and would be required to make certain enhanced public disclosures.

The expanded total risk-weighted assets calculation used in the expanded risk-based approach would be phased in over a three-year period starting on July 1, 2025. For Category III and IV banking organizations, the requirement to reflect AOCI in regulatory capital would also be phased in over a three-year period starting on July 1, 2025. All other elements of the calculation of regulatory capital would apply on the effective date of the final rule, which is expected to be on or about July 1, 2025. Comments on the Capital Proposal are due by November 30, 2023.

Capital planning and stress testing

On June 23, 2022, the Federal Reserve announced the results of the supervisory stress test that it conducted of 34 BHCs having more than $100 billion in total consolidated assets (including KeyCorp). The Federal Reserve indicated that all BHCs subject to the stress test maintained capital ratios above the minimum required levels under the severely adverse scenario. The stress test results for individual BHCs were used to determine a BHC’s stress capital buffer requirement, which became effective on October 1, 2022, and will remain in effect until September 30, 2023, unless the firm later receives an updated stress capital buffer requirement from the Federal Reserve. On August 4, 2022, the Federal Reserve confirmed that KeyCorp’s required stress capital buffer, based on its June 2022 stress test, is 2.5%, which is the minimum buffer required for banking organizations the size of KeyCorp.

On June 28, 2023, the Federal Reserve announced the results of the supervisory stress test that it conducted of 23 large BHCs (not including KeyCorp). As a Category IV banking organization subject to a supervisory stress test every other year, KeyCorp was not required to participate in the Federal Reserve’s supervisory stress test in 2023. On July 27, 2023, the Federal Reserve confirmed that KeyCorp’s required stress capital buffer (based on the results of KeyCorp’s June 2022 stress test) is 2.5%.

See Item 1. Business of our 2022 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements - Capital planning and stress testing” for a discussion of other developments concerning capital planning and stress testing requirements.

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Deposit insurance and assessments

On October 18, 2022, the FDIC adopted a final rule, applicable to all insured depository institutions (“IDIs”), to increase the initial base deposit insurance assessment rate schedules uniformly by two basis points consistent with the Amended Restoration Plan approved by the FDIC on June 21, 2022. The FDIC indicated that it was taking this action in order to restore the DIF reserve ratio to the required statutory minimum of 1.35% by the statutory deadline of September 30, 2028. The FDIC said that the reserve ratio had declined below this level because of the increase in insured deposits since the start of the pandemic and other factors that affect the level of the DIF. Under the final rule, the increase in rates began with the first quarterly assessment period of 2023 and will remain in effect unless and until the reserve ratio meets or exceeds 2% in order to support growth in the DIF in progressing toward the FDIC’s long-term goal of a 2% reserve ratio. The increase in assessment rates applies to KeyBank.

On March 10, 2023, and March 12, 2023, Silicon Valley Bank (“SVB”) and Signature Bank (“Signature”) were closed by the state banking authorities in California and New York, respectively, and the FDIC was appointed as receiver of SVB and Signature. All deposits of SVB and Signature were transferred to bridge banks established by the FDIC under the systemic risk exception to the least cost test in the FDIA so that the uninsured deposits as well as the insured deposits of both banks were protected by the FDIC. Under the FDIA, the loss to the DIF arising from the use of the systemic risk exception must be recovered through one or more special assessments on IDIs, depository institution holding companies, or both, as the FDIC determines to be appropriate. The FDIA requires the FDIC to consider the following factors in designing any special assessment: the types of entities that benefit from the action taken, economic conditions, the effects on the industry, and such other factors as the FDIC deems appropriate and relevant to the action taken.

On May 11, 2023, the FDIC issued for public comment a proposed rule to impose a special assessment on IDIs to recover the loss to the DIF resulting from the use of the systemic risk exception to protect the uninsured depositors of SVB and Signature. Under the proposal, the FDIC would collect a special assessment from IDIs at an annual rate of approximately 12.5 basis points over eight quarterly assessment periods, starting with the first quarterly assessment period of 2024. The assessment base for the proposed special assessment would be equal to an IDI’s estimated uninsured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion in estimated uninsured deposits held by the IDI. The special assessment rate could be revised before the proposal is finalized in order to reflect any adjustments to the estimated loss to the DIF from protecting the uninsured depositors of SVB and Signature, any mergers or failures of IDIs, or any amendments to the reported estimates of uninsured deposits by the covered IDIs. In its proposal, the FDIC indicated that the special assessment would be a tax-deductible operating expense for IDIs, and that it assumed that the effect on income of the entire amount of the special assessment would occur in one quarter for the IDIs subject to the assessment. Comments on the proposal were due by July 21, 2023.

As proposed, the current estimated impact of the special assessment is approximately $176 million which is expected to be recognized upon the rule’s final issuance. Any change to the amount of the uninsured deposits subject to the rule or the terms of the final rule impacting the determination of uninsured deposits, exclusionary criteria, annual rate, or term of annual rate application would have a direct impact on the estimate of Key’s special assessment.

The FDIC’s proposal for a special assessment discussed above is not intended to recover the estimated $13 billion loss to the DIF from the failure of First Republic Bank in May 2023 or the estimated $2.7 billion loss to the DIF from the failures of SVB and Signature that was not related to the protection of uninsured depositors. The FDIC indicated that no further adjustments to assessments are contemplated at this time to recover those losses but that it will re-evaluate this issue in the future when it updates projections for the DIF balance and the reserve ratio in connection with its periodic review of the DIF Restoration Plan that was adopted in 2022. The FDIC updates these projections at least semiannually with the next update expected October of 2023.

See Item 1. Business of our 2022 Form 10-K under the heading “Supervision and Regulation – FDIA, Resolution Authority and Financial Stability - Deposit insurance and assessments” for a discussion of other developments concerning deposit insurance and assessments.

Regulatory responses to recent bank failures

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Following the failures of SVB and Signature and the resulting stress in the banking system, the Federal Reserve created a new Bank Term Funding Program (the “Program”) as an additional source of liquidity available to depository institutions that are in generally sound financial condition. The Program offers loans of up to one year to eligible depository institutions, which would pledge U.S. Treasuries, agency debt, mortgage-backed securities, or other qualifying assets valued at par as collateral. The Program will be in effect until at least March 11, 2024.

As a result of the failures of SVB and Signature in March 2023 and First Republic Bank in May 2023, representatives of federal banking agencies have indicated that consideration is being given to strengthening the oversight and regulation of large regional banks, in particular, those banks with between $100 billion and $250 billion in assets. The strengthened oversight and regulation may consist of new requirements imposed on such banking organizations, including additional capital, liquidity, stress testing, resolution planning, and long-term debt requirements. KeyCorp and KeyBank may be subject to any such new requirements that are adopted.

The issuance by the FDIC of an NPR for a special assessment related to the recent bank failures is discussed above under the heading “Supervision and regulation - Deposit insurance and assessments,” and the issuance by the federal banking agencies of an NPR proposing a revision of capital rules applicable to Large Banking Organizations is discussed above under the heading “Supervision and regulation - Recent regulatory capital-related changes.”

Cybersecurity disclosure requirements

On July 26, 2023, the SEC adopted final rules requiring public companies (including KeyCorp) to disclose on Form 8-K material cybersecurity incidents and to disclose annually on Form 10-K information regarding their cybersecurity risk management, strategy, and governance. Material cybersecurity incidents must be disclosed on Form 8-K within four business days after the company determines that the cybersecurity incident is material unless the U.S. Attorney General determines that immediate disclosure would pose a substantial risk to national security or public safety. The disclosure of a cybersecurity incident must include a description of the incident’s nature, scope, and timing, as well as its material impact or reasonably likely material impact on the company. The annual disclosure on Form 10-K must include information regarding a company’s processes, if any, to assess, identify, and manage material cybersecurity risks, management’s role in assessing and managing material cybersecurity risks, and the board of directors’ oversight of cybersecurity risks. Companies are required to comply with the Form 8-K incident disclosure requirements starting the later of 90 days after the date of publication of the SEC’s rules in the Federal Register or December 18, 2023. The disclosures on Form 10-K will be required in annual reports for fiscal years ending on or after December 15, 2023.

Volcker Rule

The Volcker Rule is discussed in detail in Item 1. Business of our 2022 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Volcker Rule.” As of June 30, 2023, Key has completed conforming and/or divesting certain indirect investments subject to the Volcker Rule.

Federal LIBOR transition legislation

On March 15, 2022, President Biden signed into law the Consolidated Appropriations Act, 2022, which contains the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”). The LIBOR Act addresses certain issues relating to the transition from the use of LIBOR as a benchmark reference rate in contracts to the use of alternate reference rates. Among other things, the LIBOR Act (i) provides for the replacement, by operation of law, of LIBOR with a SOFR-based reference rate selected by the Federal Reserve for contracts which do not have effective fallback language; (ii) authorizes persons who have discretionary authority for selecting a LIBOR replacement to opt into a statutory safe harbor from liability by selecting the benchmark identified by the Federal Reserve; (iii) states that parties to a contract may opt out of the LIBOR Act; and (iv) provides that no federal supervisory agency may take supervisory action against a bank solely because the bank uses a benchmark rate other than SOFR.

On December 16, 2022, the Federal Reserve adopted a final rule to implement the LIBOR Act. The final rule establishes Federal Reserve-selected benchmark replacements for contracts governed by federal or state law that use LIBOR as a benchmark reference rate but do not provide for a clearly defined or practicable replacement after June 30, 2023, when LIBOR will no longer be available in its current form. The final rule identifies separate Federal Reserve-selected replacement rates for different categories of LIBOR contracts, including, among others, derivative

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transactions, consumer loans, and contracts involving entities regulated by the Federal Housing Finance Agency. Consistent with the LIBOR Act, each replacement rate is based on SOFR and incorporates spread adjustments for each specified tenor of LIBOR. The final rule also defines various terms and clarifies certain matters relating to the implementation, administration, and calculation of the benchmark replacement rate, including clarification of who is considered a “determining person” able to make the decision to use the Federal Reserve-selected rate in a LIBOR contract. In addition, the final rule indicates that this rule preempts any state or local law, regulation, or standard relating to the selection or use of a benchmark replacement for LIBOR or related conforming changes. The final rule ensures that LIBOR contracts adopting a Federal Reserve-selected benchmark will not be interrupted or terminated following LIBOR’s replacement. The final rule became effective February 27, 2023.

On April 26, 2023, five federal financial institution regulatory agencies in conjunction with the state bank and state credit union regulators issued a joint statement on completing the LIBOR transition. In their joint statement, the agencies reminded financial institutions that U.S. dollar LIBOR panels will end on June 30, 2023 and that institutions should complete their transition of remaining LIBOR contracts as soon as practicable. The agencies indicated that bank examiners will continue monitoring efforts through 2023 to ensure that institutions have moved their contracts away from LIBOR in a safe and sound manner and in compliance with applicable legal requirements.

Final NYSE Clawback Listing Standards

On October 26, 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (clawback) provisions mandated by Section 954 of the Dodd-Frank Act. The rules, which are set forth under new Rule 10D-1 of the Securities Exchange Act of 1934, as amended (“Rule 10D-1”), directed U.S. stock exchanges to establish listing standards requiring listed companies to adopt policies providing for the recovery (or clawback) of incentive-based compensation received by current or former executive officers where such compensation is based on the erroneously reported financial information which required an accounting restatement (a “Clawback Policy”). Under the rules, a company must recover erroneously awarded incentive compensation “reasonably promptly” after such obligation is incurred. Rule 10D-1 also requires that the listing standards include disclosure requirements related to clawbacks.

On June 9, 2023, the SEC approved the NYSE’s proposed clawback listing standards. Consistent with Rule 10D-1, the NYSE listing standards require NYSE-listed companies, including KeyCorp, to (i) adopt and implement a compliant Clawback Policy, (ii) file the Clawback Policy as an exhibit to their annual reports, and (iii) provide certain disclosures relating to any compensation recovery triggered by the policy. Failure to comply with the NYSE listing standards could result in a suspension from trading on the NYSE and the commencement of delisting procedures. KeyCorp will be required to adopt a compliant Clawback Policy no later than December 1, 2023.

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Results of Operations

Earnings overview

The following chart provides a reconciliation of net income from continuing operations attributable to Key common shareholders for the three months ended June 30, 2022, to the three months ended June 30, 2023 (dollars in millions):

Net interest income

One of our principal source of revenue is net interest income. Net interest income is the difference between interest income received on earning assets (such as loans and securities) and loan-related fee income, and interest expense paid on deposits and borrowings. There are several factors that affect net interest income, including:

• the volume, pricing, mix, and maturity of earning assets and interest-bearing liabilities;

• the volume and value of net free funds, such as noninterest-bearing deposits and equity capital;

• the use of derivative instruments to manage interest rate risk;

• interest rate fluctuations and competitive conditions within the marketplace;

• asset quality; and

• fair value accounting of acquired earning assets and interest-bearing liabilities.

To make it easier to compare both the results across several periods and the yields on various types of earning assets (some taxable, some not), we present net interest income in this discussion on a “TE basis” (i.e., as if all income were taxable and at the same rate). For example, $100 of tax-exempt income would be presented as $126, an amount that, if taxed at the statutory federal income tax rate of 21%, would yield $100.

Figure 3 shows the various components of our balance sheet that affect interest income and expense and their respective yields or rates for the current periods and comparative year ago periods. This figure also presents a reconciliation of TE net interest income to net interest income reported in accordance with GAAP for each of those quarters. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing annualized TE net interest income by average earning assets.

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Net interest income (TE) was $986 million for the second quarter of 2023 and the net interest margin was 2.12%. Compared to the second quarter of 2022, net interest income (TE) decreased $118 million and net interest margin decreased by forty-nine basis points. The decline in net interest income and the net interest margin reflects higher interest-bearing deposit costs and a shift in funding mix to higher cost deposits and borrowings.

For the six months ended June 30, 2023, net interest income (TE) decreased $32 million from the same period last year and net interest margin decreased by twenty-four basis points. The decline in net interest income (TE) and the net interest margin was driven by higher interest-bearing deposit costs, a shift in funding mix to higher cost deposits and borrowings, and lower loan fees from PPP.

Average loans were $120.7 billion for the second quarter of 2023, an increase of $11.5 billion compared to the second quarter of 2022. Commercial loans increased $9.0 billion, largely reflecting growth in commercial and industrial loans, as well as an increase in commercial mortgage real estate loans. Consumer loans increased $2.5 billion, largely driven by Key's residential mortgage business.

Average deposits totaled $142.9 billion for the second quarter of 2023, a decrease of $4.6 billion compared to the year-ago quarter. The decline reflects elevated inflation-related spend, changing client behavior due to higher interest rates, and a normalization of pandemic-related deposits.

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Figure 3. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates and Components of Net Interest Income Changes from Continuing Operations**(h)**

			Three months ended June 30, 2023												Three months ended June 30, 2022												Change in Net interest income due to
Dollars in millions			Average Balance			Interest (a)			Yield/ Rate (a)						Average Balance			Interest (a)			Yield/ Rate (a)						Volume			Yield/Rate			Total
ASSETS
Loans (b), (c)
Commercial and industrial (d)			$	61,426		$	881		5.76		%				$	53,858		$	449		3.34		%				$	71		$	361		$	432
Real estate — commercial mortgage			16,226			235			5.80						15,231			136			3.58						9			90			99
Real estate — construction			2,641			44			6.64						2,125			20			3.81						6			18			24
Commercial lease financing			3,756			29			3.07						3,817			24			2.47						—			5			5
Total commercial loans			84,049			1,189			5.67						75,031			629			3.36						86			474			560
Real estate — residential mortgage			21,659			176			3.25						18,383			131			2.85						25			20			45
Home equity loans			7,620			109			5.75						8,208			78			3.83						(6)			37			31
Consumer direct loans			6,323			77			4.89						6,514			68			4.19						(2)			11			9
Credit cards			984			33			13.49						943			24			10.20						1			8			9
Consumer indirect loans			37			—			—						59			—			—						—			—			—
Total consumer loans			36,623			395			4.33						34,107			301			3.53						18			76			94
Total loans			120,672			1,584			5.26						109,138			930			3.41						104			550			654
Loans held for sale			1,087			17			6.16						1,107			10			3.49						—			7			7
Securities available for sale (b), (e)			38,899			194			1.74						43,023			188			1.60						(19)			25			6
Held-to-maturity securities (b)			9,371			81			3.47						7,291			48			2.65						16			17			33
Trading account assets			1,244			15			4.64						854			7			3.45						4			4			8
Short-term investments			7,798			111			5.73						3,591			13			1.45						28			70			98
Other investments (e)			1,566			16			4.03						800			4			2.27						6			6			12
Total earning assets			180,637			2,018			4.34						165,804			1,200			2.83						139			679			818
Allowance for loan and lease losses			(1,379)												(1,103)
Accrued income and other assets			17,202												18,826
Discontinued assets			394												505
Total assets			$	196,854											$	184,032
LIABILITIES
Money market deposits			$	32,419		$	123		1.53		%				$	36,362		$	5		.05		%				$	(1)		$	119		$	118
Demand deposits			53,569			256			1.91						49,027			13			.11						1			242			243
Savings deposits			6,592			1			.04						7,891			—			.01						—			1			1
Certificates of deposit ($100,000 or more)			3,851			33			3.48						1,487			1			.44						4			28			32
Other time deposits			11,365			118			4.17						1,972			1			.13						23			94			117
Total interest-bearing deposits			107,796			531			1.98						96,739			20			.08						27			484			511
Federal funds purchased and securities sold under repurchase agreements			3,767			48			5.07						2,792			6			.88						3			39			42
Bank notes and other short-term borrowings			7,982			104			5.22						1,943			9			1.77						60			35			95
Long-term debt (f), (g)			22,284			349			6.26						12,662			61			1.92						73			215			288
Total interest-bearing liabilities			141,829			1,032			2.91						114,136			96			.34						163			773			936
Noninterest-bearing deposits			35,107												50,732
Accrued expense and other liabilities			5,112												4,261
Discontinued liabilities (g)			394												505
Total liabilities			182,442												169,634
EQUITY
Key shareholders’ equity			14,412												14,398
Noncontrolling interests			—												—
Total equity			14,412												14,398
Total liabilities and equity			$	196,854											$	184,032
Interest rate spread (TE)									1.43		%										2.50		%
Net interest income (TE) and net interest margin (TE)						$	986		2.12		%							$	1,104		2.61		%				$	(24)		$	(94)		(118)
TE adjustment (b)						8												7
Net interest income, GAAP basis						$	978											$	1,097

(a)Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (g), calculated using a matched funds transfer pricing methodology.

(b)Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the three months ended June 30, 2023, and June 30, 2022.

(c)For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)Commercial and industrial average balances include $194 million and $153 million of assets from commercial credit cards for the three months ended June 30, 2023, and June 30, 2022, respectively.

(e)Yield is calculated on the basis of amortized cost.

(f)Rate calculation excludes basis adjustments related to fair value hedges.

(g)A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying our matched funds transfer pricing methodology to discontinued operations.

(h)Average balances presented are based on daily average balances over the respective stated period.

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Figure 3. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates and Components of Net Interest Income Changes from Continuing Operations**(h)**

			Six months ended June 30, 2023												Six months ended June 30, 2022												Change in Net interest income due to
Dollars in millions			Average Balance			Interest (a)			Yield/ Rate (a)						Average Balance			Interest (a)			Yield/ Rate (a)						Volume			Yield/Rate			Total
ASSETS
Loans (b), (c)
Commercial and industrial (d)			$	60,857		$	1,688		5.59		%				$	52,723		$	858		3.28		%				$	149		$	681		$	830
Real estate — commercial mortgage			16,347			459			5.66						14,910			257			3.48						27			175			202
Real estate — construction			2,583			83			6.47						2,076			37			3.60						11			35			46
Commercial lease financing			3,770			56			2.97						3,879			48			2.44						(1)			9			8
Total commercial loans			83,557			2,286			5.51						73,588			1,200			3.28						186			900			1,086
Real estate — residential mortgage			21,548			348			3.23						17,352			243			2.80						64			41			105
Home equity loans			7,749			215			5.61						8,276			153			3.72						(10)			72			62
Consumer direct loans			6,380			152			4.80						6,236			129			4.18						3			20			23
Credit cards			984			65			13.43						938			48			10.28						2			15			17
Consumer indirect loans			39			1			.60						75			—			—						—			1			1
Total consumer loans			36,700			781			4.28						32,877			573			3.49						59			149			208
Total loans			120,257			3,067			5.14						106,465			1,773			3.35						245			1,049			1,294
Loans held for sale			997			30			6.02						1,295			22			3.40						(6)			14			8
Securities available for sale (b), (e)			39,034			388			1.73						43,968			361			1.55						(43)			70			27
Held-to-maturity securities (b)			9,152			155			3.40						7,239			94			2.59						28			33			61
Trading account assets			1,123			27			4.74						848			13			3.10						5			9			14
Short-term investments			5,677			153			5.44						5,447			17			.65						1			135			136
Other investments (e)			1,438			29			4.02						726			6			1.82						9			14			23
Total earning assets			177,678			3,849			4.22						165,988			2,286			2.72						239			1,324			1,563
Allowance for loan and lease losses			(1,357)												(1,080)
Accrued income and other assets			17,351												18,152
Discontinued assets			406												522
Total assets			$	194,078											$	183,582
LIABILITIES
Money market deposits			$	33,110		$	201		1.23		%				$	36,795		$	9		.05		%				$	(1)		$	193		$	192
Demand deposits			52,993			440			1.67						50,148			20			.08						1			419			420
Savings deposits			6,967			1			.04						7,746			1			.01						—			—			—
Certificates of deposit ($100,000 or more)			3,125			49			3.16						1,562			3			.44						6			40			46
Other time deposits			9,745			190			3.94						2,035			1			.14						17			172			189
Total interest-bearing deposits			105,940			881			1.68						98,286			34			.07						23			824			847
Federal funds purchased and securities sold under repurchase agreements			2,932			70			4.81						1,547			6			.81						9			55			64
Bank notes and other short-term borrowings			7,293			182			5.03						1,327			12			1.82						122			48			170
Long-term debt (f), (g)			21,218			624			5.88						11,751			110			1.86						140			374			514
Total interest-bearing liabilities			137,383			1,757			2.57						112,911			162			.29						294			1,301			1,595
Noninterest-bearing deposits			37,213												50,523
Accrued expense and other liabilities			4,960												4,043
Discontinued liabilities (g)			406												522
Total liabilities			179,962												167,999
EQUITY
Key shareholders’ equity			14,116												15,583
Noncontrolling interests			—												—
Total equity			14,116												15,583
Total liabilities and equity			$	194,078											$	183,582
Interest rate spread (TE)									1.65		%										2.44		%
Net interest income (TE) and net interest margin (TE)						$	2,092		2.29		%							$	2,124		2.53		%				$	(55)		$	23		$	(32)
TE adjustment (b)						15												13
Net interest income, GAAP basis						$	2,077											$	2,111

(a)Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.

(b)Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the six months ended June 30, 2023, and June 30, 2022, respectively.

(c)For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)Commercial and industrial average balances include $186 million and $147 million of assets from commercial credit cards for the six months ended June 30, 2023, and June 30, 2022, respectively.

(e)Yield is calculated on the basis of amortized cost.

(f)Rate calculation excludes basis adjustments related to fair value hedges.

(g)A portion of long-term debt and the related interest expense is allocated to discontinued liabilities as a result of applying Key’s matched funds transfer pricing methodology to discontinued operations.

(h)Average balances presented are based on daily average balances over the respective stated period.

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Provision for credit losses

Key’s provision for credit losses was $167 million for the three months ended June 30, 2023, compared to $45 million for the three months ended June 30, 2022. The provision for credit losses was $306 million for the six months ended June 30, 2023, compared to $128 million for the six months ended June 30, 2022. The increase was largely driven by changes in the economic outlook and portfolio activity.

Noninterest income

As shown in Figure 4, noninterest income was $609 million, and represented 38% of total revenue for the second quarter of 2023, compared to $688 million, representing 38% of total revenue, for the year-ago quarter.

The following discussion explains the composition of certain elements of our noninterest income and the factors that caused those elements to change.

Figure 4. Noninterest Income

(a)Other noninterest income includes operating lease income and other leasing gains, corporate services income, corporate-owned life insurance income, consumer mortgage income, commercial mortgage servicing fees, and other income. See the "Consolidated Statements of Income" in Item 1. Financial Statements of this report.

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Trust and investment services income

Trust and investment services income consists of brokerage commissions, trust and asset management fees, and insurance income. The assets under management that primarily generate certain trust and asset management fees are shown in Figure 5. For the three months ended June 30, 2023, trust and investment services income was down $11 million, or 8.0%, compared to the same period one year ago. For the six months ended June 30, 2023, trust and investment services income was down $19 million, or 7.0%, compared to the same period one year ago. This was primarily due to a decline in fixed income, equity trading, and brokerage commissions.

A significant portion of our trust and investment services income depends on the value and mix of assets under management. As shown in Figure 5, at June 30, 2023, our bank, trust, and registered investment advisory subsidiaries had assets under management of $54.0 billion, up 10.1% compared to June 30, 2022.

Figure 5. Assets Under Administration

Dollars in millions			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Discretionary assets under management by investment type:
Equity			$	30,320		$	29,139		$	28,313		$	26,930		$	28,344
Fixed income			13,819			14,615			14,432			13,035			12,913
Money market			6,094			6,490			5,238			4,850			4,604
Total discretionary assets under management			50,233			50,244			47,983			44,815			45,861
Non-discretionary assets under administration			3,719			3,445			3,299			3,031			3,142
Total			$	53,952		$	53,689		$	51,282		$	47,846		$	49,003

Investment banking and debt placement fees

Investment banking and debt placement fees consist of syndication fees, debt and equity securities underwriting fees, merger and acquisition and financial advisory fees, gains on sales of commercial mortgages, and agency origination fees. For the three months ended June 30, 2023, investment banking and debt placement fees were down $29 million, or 19.5%, compared to the same period a year ago. For the six months ended June 30, 2023, investment banking and debt placement fees decreased $47 million, or 15.1%, compared to the same period a year ago. The decrease reflects lower merger and acquisition advisory fees and lower syndication fees.

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Service charges on deposit accounts

Service charges on deposit accounts decreased $27 million, or 28.1%, for the three months ended June 30, 2023, compared to the same period one year ago. For the six months ended June 30, 2023, service charges on deposit accounts decreased by $51 million, or 27.3%, from the six months ended June 30, 2022. The declines for both periods were driven by a reduction in overdraft and non-sufficient funds fees from our new client friendly fee structure and lower account analysis fees related to the interest rate environment.

Cards and payments income

Cards and payments income, which consists of debit card, prepaid card, consumer and commercial credit card, and merchant services income, was relatively flat for the three months ended June 30, 2023 and the six months ended June 30, 2023, compared to the same periods one year ago.

Other noninterest income

Other noninterest income includes operating lease income and other leasing gains, corporate services income,

corporate-owned life insurance income, consumer mortgage income, commercial mortgage servicing fees, and other income. Other noninterest income for the three months ended June 30, 2023, decreased $12 million, or 5.4%, from the year-ago quarter. For the six months ended June 30, 2023, other noninterest income decreased $31 million, or 7.3%, from the same period a year ago. Decreases were driven by the overall decrease in consumer mortgage income from lower gain on sale margins as well as decreases in operating lease income from smaller portfolio size. These decreases were slightly offset by an increase in commercial mortgage servicing fees driven by a higher servicing portfolio.

Noninterest expense

As shown in Figure 6, noninterest expense was $1.1 billion for the second quarter of 2023, compared to $1.1 billion for the second quarter of 2022. Noninterest expense was $2.3 billion for the six months ended June 30, 2023, compared to $2.1 billion for the six months ended June 30, 2022.

The following discussion explains the composition of certain elements of our noninterest expense and the factors that caused those elements to change.

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Figure 6. Noninterest Expense

(a)Other noninterest expense includes equipment, operating lease expense, marketing, and other expense. See the "Consolidated Statements of Income" in Item 1. Financial Statements of this report.

Personnel

Personnel expense, the largest category of our noninterest expense, increased by $15 million, or 2.5%, for the three months ended June 30, 2023, compared to the same period one year ago. For the six months ended June 30, 2023, personnel expense was up $86 million, or 7.0%, compared to the same period one year ago. The increases were driven by higher salaries expense as well as an increase in severance from expense actions in the first quarter, partially offset by decreases in incentive compensation amounts.

Nonpersonnel expense

Nonpersonnel expenses includes net occupancy, computer processing, business services and professional fees, equipment, operating lease expense, marketing, and other miscellaneous expense categories. Nonpersonnel expenses for the three months ended June 30, 2023, decreased $17 million, or 3.6%, from the year-ago quarter, primarily due to decreases in net occupancy expense as we exit corporate facilities and a decline in business services and professional fees offset by an increase in computer processing expense, due to technology investments. For the six months ended June 30, 2023, other nonpersonnel expense increased $18 million, or 2.0%, from the six months ended June 30, 2022, driven by an increase in computer processing expense from technology investments, partially offset by decreases in net occupancy and business service and professional fees.

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Income taxes

We recorded tax expense of $58 million for the second quarter of 2023 and $132 million for the second quarter of 2022. We recorded tax expense of $139 million for the six months ended June 30, 2023, compared to $222 million for the six months ended June 30, 2022.

Our federal tax expense and effective tax rate differs from the amount that would be calculated using the federal statutory tax rate; primarily due to investments in tax-advantaged assets, such as corporate-owned life insurance, tax credits associated with low-income housing investments, and periodic adjustments to our tax reserves.

Additional information pertaining to how our tax expense (benefit) and the resulting effective tax rates were derived is included in Note 14 (“Income Taxes”) beginning on page 151 of our 2022 Form 10-K.

Business Segment Results

This section summarizes the financial performance of our two major business segments (operating segments): Consumer Bank and Commercial Bank. Note 20 (“Business Segment Reporting”) describes the products and services offered by each of these business segments and provides more detailed financial information pertaining to the segments. For more information on the segment imperatives and market and business overview, see “Business Segment Results” beginning on page 57 of our 2022 Form 10-K. Dollars in the charts are presented in millions.

Consumer Bank

Summary of operations

• Net income attributable to Key of $82 million for the second quarter of 2023, compared to $128 million for the year-ago quarter

• Taxable-equivalent net interest income attributable to the Consumer Bank decreased by $46 million, or 7.6%, compared to the second quarter of 2022, driven by higher interest-bearing deposit costs and a shift in funding mix

• Average loans and leases increased $2.1 billion, or 5.2%, from the second quarter of 2022, driven by growth in consumer mortgage loans

• Average deposits decreased $8.9 billion, or 9.7%, from the second quarter of 2022, reflecting elevated inflation-related spend, changing client behavior due to higher interest rates, and a normalization of pandemic-related deposits

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• Provision for credit losses increased $24 million compared to the second quarter of 2022, driven by increases in both the allowance for credit losses and net loan charge-offs

• Noninterest income decreased $9 million, or 3.5%, from the second quarter of 2022, driven by lower service charges on deposit accounts due to a planned reduction in overdraft and non-sufficient funds fees

• Noninterest expense decreased $18 million, or 2.6%, from the second quarter of 2022, reflecting lower incentive compensation and employee benefits from the prior period, partly offset by an increase in salaries

Commercial Bank

Summary of operations

• Net income attributable to Key of $214 million for the second quarter of 2023, compared to $340 million for the year-ago quarter

• Taxable-equivalent net interest income decreased by $11 million, compared to the second quarter of 2022, reflecting higher interest-bearing deposit costs and a shift in funding mix to higher-cost deposits

• Average loan and lease balances increased $9.5 billion, compared to the second quarter of 2022, reflecting growth in commercial and industrial loans and an increase in commercial mortgage real estate loans

• Average deposit balances decreased $3.4 billion, or 6.2%, compared to the second quarter of 2022, reflecting changing client behavior due to higher interest rates

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• Provision for credit losses increased $97 million compared to the second quarter of 2022, driven by higher allowance for credit losses due to changes in the economic outlook and portfolio activity

• Noninterest income decreased $58 million, from the second quarter of 2022, primarily driven by lower investment banking and debt placement fees reflecting lower merger and acquisition advisory fees and lower syndication fees, as well as a decrease in corporate services income

• Noninterest expense decreased by $6 million, or 1.5%, from the second quarter of 2022, driven by a decline in incentive compensation

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Financial Condition

Loans and loans held for sale

Figure 7. Breakdown of Loans at June 30, 2023

(a)Other consumer loans include Consumer direct loans, Credit cards, and Consumer indirect loans. See Note 3 (“Loan Portfolio”) in Item 1. Financial Statements of this report.

At June 30, 2023, total loans outstanding from continuing operations were $119.0 billion, compared to $119.4 billion at December 31, 2022. For more information on balance sheet carrying value, see Note 1 (“Summary of Significant Accounting Policies”) under the headings “Loans” and “Loans Held for Sale” starting on page 105 of our 2022 Form 10-K.

Commercial loan portfolio

Commercial loans outstanding were $82.6 billion at June 30, 2023, an increase of $89 million, or .1%, compared to December 31, 2022. The increase was driven by growth in commercial and industrial loans, which increased $412 million, or .7% partially offset by a decline in real estate commercial mortgage loans.

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Figure 8 provides our commercial loan portfolios by industry classification at June 30, 2023, and December 31, 2022.

Figure 8. Commercial Loans by Industry

June 30, 2023			Commercial and industrial						Commercial real estate						Commercial lease financing						Total commercial loans						Percent of total
Dollars in millions
Industry classification:
Agriculture			$	852					$	175					$	97					$	1,124					1.4		%
Automotive			1,914						833						9						2,756						3.3
Business products			2,270						168						34						2,472						3.0
Business services			3,612						245						152						4,009						4.8
Chemicals			961						47						4						1,012						1.2
Commercial real estate			8,538						13,683						9						22,230						26.9
Construction materials and contractors			2,330						286						279						2,895						3.5
Consumer goods			4,089						631						297						5,017						6.1
Consumer services			4,867						821						376						6,064						7.3
Equipment			1,995						123						164						2,282						2.8
Finance			9,700						87						368						10,155						12.3
Healthcare			3,223						1,335						297						4,855						5.9
Metals and mining			1,297						80						89						1,466						1.8
Oil and gas			2,472						46						16						2,534						3.1
Public exposure			2,508						11						569						3,088						3.7
Technology			885						12						82						979						1.2
Transportation			1,157						137						498						1,792						2.2
Utilities			6,834						3						443						7,280						8.8
Other			555						(29)						18						544						.7
Total			$	60,059					$	18,694					$	3,801					$	82,554					100.0		%
December 31, 2022			Commercial and industrial						Commercial real estate						Commercial lease financing						Total commercial loans						Percent of total
Dollars in millions
Industry classification:
Agriculture			$	907					$	171					$	96					$	1,174					1.4		%
Automotive			1,660						741						12						2,413						2.9
Business products			2,332						176						37						2,545						3.1
Business services			3,497						249						167						3,913						4.7
Chemicals			934						31						45						1,010						1.2
Commercial real estate			8,862						13,897						7						22,766						27.6
Construction materials and contractors			2,351						327						309						2,987						3.7
Consumer goods			4,312						544						286						5,142						6.2
Consumer services			4,963						873						346						6,182						7.5
Equipment			1,988						111						113						2,212						2.7
Finance			8,784						111						462						9,357						11.3
Healthcare			3,379						1,348						310						5,037						6.1
Metals and mining			1,453						86						94						1,633						2.0
Oil and gas			2,385						32						20						2,437						3.0
Public exposure			2,526						9						582						3,117						3.8
Technology			914						12						89						1,015						1.2
Transportation			1,139						159						497						1,795						2.2
Utilities			6,725						5						450						7,180						8.7
Other			536						—						14						550						.7
Total			$	59,647					$	18,882					$	3,936					$	82,465					100.0		%

Commercial and industrial. Commercial and industrial loans are the largest component of our loan portfolio, representing 51% of our total loan portfolio at June 30, 2023, and 50% at December 31, 2022. This portfolio is approximately 87% variable rate and consists of loans originated primarily to large corporate, middle market, and small business clients.

Commercial and industrial loans totaled $60.1 billion at June 30, 2023, an increase of $412 million, or 0.7%, compared to December 31, 2022. The increase was driven by growth in the finance, automotive, business services, and utilities industries, partly offset by declines in most other industry categories.

Commercial real estate loans. Our commercial real estate portfolio includes project loans primarily focused in market-rate and affordable multi-family housing loans, owner-occupied commercial and industrial operating company buildings, and community center grocer-anchored retail centers. These three commercial real estate segments make up 74% of our commercial real estate portfolio. Our non-owner-occupied portfolio is focused on operators of commercial real estate who not only utilize our loan products, but also our broader industry-focused products and services and provide consistent pipelines into our agency, CMBS, and other long-term market take out products. This focus ensures our relationship clients foster and build portfolios with stable, recurring cash flows, with adequate, balanced cash reserves to support our balance sheet exposures through the economic cycle.

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At June 30, 2023, commercial real estate loans totaled $18.7 billion, which includes $16.0 billion of mortgage loans and $2.6 billion of construction loans. Compared to December 31, 2022, this portfolio decreased $188 million, or 1.0%, driven by decreases in non-owner occupied. Nonowner-occupied properties, generally properties for which at least 50% of the debt service is provided by rental income from nonaffiliated third parties, represented 81% of total commercial real estate loans outstanding at June 30, 2023.

Since the global financial crisis in 2008, we have limited our construction business and reduced our overall construction loans from 42% to 14% of commercial real estate loans as of June 30, 2023. Construction loans provide a stream of funding for properties not fully leased at origination to support debt service payments over the term of the contract or project. As of June 30, 2023, 74% of our construction portfolio are multi-family project loans.

Our office exposure, which only represents 5% of commercial real estate loans at period end, is largely non-gateway city exposure and is currently 85% occupied.

As shown in Figure 9, our commercial real estate loan portfolio includes various property types and geographic locations of the underlying collateral. These loans include commercial mortgage and construction loans in both Consumer Bank and Commercial Bank.

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Figure 9. Commercial Real Estate Loans

			Geographic Region																					Total			Percent of Total			Construction			Commercial Mortgage
Dollars in millions			West			Southwest			Central			Midwest			Southeast			Northeast			National
June 30, 2023
Nonowner-occupied:
Diversified			$	9		$	—		$	—		$	4		$	—		$	19		$	225		$	257		1.4		%	$	—		$	257
Industrial			50			25			63			126			226			283			34			807			4.3			148			659
Land & Residential			1			3			3			7			2			23			—			39			.2			16			23
Lodging			48			—			9			4			24			71			51			207			1.1			5			202
Medical Office			41			—			43			5			22			105			39			255			1.4			33			222
Multifamily			1,156			563			1,279			1,263			2,880			1,432			455			9,028			48.3			1,964			7,064
Office			148			—			160			98			123			296			59			884			4.7			—			884
Retail			234			15			109			181			95			364			223			1,221			6.5			93			1,128
Self Storage			75			13			45			20			80			35			223			491			2.6			3			488
Senior Housing			143			54			147			77			114			120			232			887			4.7			174			713
Skilled Nursing			—			—			—			51			—			213			105			369			2.0			—			369
Student Housing			—			—			—			55			171			—			—			226			1.2			47			179
Other			13			13			9			38			36			76			185			370			2.0			—			370
Total nonowner-occupied			1,918			686			1,867			1,929			3,773			3,037			1,831			15,041			80.5			2,483			12,558
Owner-occupied			1,156			3			371			606			177			1,340			—			3,653			19.5			163			3,490
Total			$	3,074		$	689		$	2,238		$	2,535		$	3,950		$	4,377		$	1,831		$	18,694		100.0		%	$	2,646		$	16,048
Nonperforming loans			$	1		$	—		$	—		$	22		$	—		$	6		$	36		$	65		N/M			$	—		$	65
Accruing loans past due 90 days or more			—			—			2			—			—			8			—			10			N/M			—			10
Accruing loans past due 30 through 89 days			1			3			—			1			2			2			—			9			N/M			—			9
December 31, 2022
Nonowner-occupied:
Diversified			$	9		$	—		$	—		$	4		$	—		$	24		$	231		$	268		1.4		%	$	—		$	268
Industrial			75			25			101			135			220			284			52			892			4.7			203			689
Land & Residential			1			3			3			3			3			24			—			37			.2			15			22
Lodging			58			—			10			4			20			72			41			205			1.1			22			183
Medical Office			47			—			43			9			19			98			25			241			1.3			64			177
Multifamily			1,083			533			1,388			1,264			2,813			1,370			438			8,889			47.1			1,705			7,184
Office			189			1			173			113			128			300			95			999			5.3			—			999
Retail			282			35			112			183			69			395			235			1,311			6.9			106			1,205
Self Storage			85			13			50			20			79			37			202			486			2.6			4			482
Senior Housing			150			57			144			76			118			120			235			900			4.8			194			706
Skilled Nursing			—			—			—			52			—			239			143			434			2.3			—			434
Student Housing			—			—			—			53			199			13			—			265			1.4			39			226
Other			24			4			9			79			42			83			195			436			2.3			2			434
Total nonowner-occupied			2,003			671			2,033			1,995			3,710			3,059			1,892			15,363			81.4			2,354			13,009
Owner-occupied			1,149			5			364			580			128			1,293			—			3,519			18.6			176			3,343
Total			$	3,152		$	676		$	2,397		$	2,575		$	3,838		$	4,352		$	1,892		$	18,882		100.0		%	$	2,530		$	16,352
Nonperforming loans			$	—		$	—		$	—		$	2		$	—		$	7		$	12		$	21		N/M			$	—		$	21
Accruing loans past due 90 days or more			—			—			—			—			—			8			—			8			N/M			—			8
Accruing loans past due 30 through 89 days			—			—			1			11			—			6			—			18			N/M			—			18

West –			Alaska, California, Hawaii, Idaho, Montana, Oregon, Washington, and Wyoming
Southwest –			Arizona, Nevada, and New Mexico
Central –			Arkansas, Colorado, Oklahoma, Texas, and Utah
Midwest –			Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin
Southeast –			Alabama, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington D.C., and West Virginia
Northeast –			Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont
National –			Accounts in three or more regions

Consumer loan portfolio

Consumer loans outstanding as of June 30, 2023, totaled $36.5 billion, a decrease of $472 million, or 1.3%, from December 31, 2022. The decrease reflects balance declines across most consumer loan categories, partly offset by growth in our residential mortgage business.

The residential mortgage portfolio is comprised of loans originated by our Consumer Bank and is the largest segment of our consumer loan portfolio as of June 30, 2023, representing 59% of consumer loans outstanding. This is followed by our home equity portfolio representing 21% of consumer loans outstanding at June 30, 2023.

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We held the first lien position for approximately 65% of the home equity portfolio at June 30, 2023, and 66% at December 31, 2022. For loans with real estate collateral, we track borrower performance monthly. Regardless of the lien position, credit metrics are refreshed quarterly, including recent FICO scores as well as updated loan-to-value ratios. This information is used in establishing the ALLL. Our methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses” of our 2022 Form 10-K.

Figure 10 presents our consumer loans by geography.

Figure 10. Consumer Loans by State

Dollars in millions			Real estate — residential mortgage			Home equity loans			Consumer direct loans			Credit cards			Consumer indirect loans			Total
June 30, 2023
Washington			$	4,686		$	1,052		$	235		$	88		$	1		$	6,062
Ohio			2,760			1,094			302			203			3			4,362
New York			847			2,125			780			346			1			4,099
Colorado			3,047			290			160			33			—			3,530
California			2,346			13			519			3			5			2,886
Oregon			1,307			609			116			43			—			2,075
Pennsylvania			459			546			401			61			2			1,469
Florida			851			44			435			13			5			1,348
Connecticut			810			270			117			29			1			1,227
Utah			868			264			69			19			—			1,220
Other			3,656			1,222			3,123			163			15			8,179
Total			$	21,637		$	7,529		$	6,257		$	1,001		$	33		$	36,457
December 31, 2022
Washington			$	4,621		$	1,100		$	253		$	87		$	2		$	6,063
Ohio			2,766			1,173			347			214			5			4,505
New York			840			2,256			770			359			1			4,226
Colorado			3,006			301			171			32			—			3,510
California			2,357			16			538			4			6			2,921
Oregon			1,268			630			117			43			—			2,058
Pennsylvania			459			580			403			61			3			1,506
Florida			851			45			453			14			6			1,369
Texas			336			3			397			4			3			743
Illinois			134			3			212			2			1			352
Other			4,763			1,844			2,847			206			16			9,676
Total			$	21,401		$	7,951		$	6,508		$	1,026		$	43		$	36,929

Figure 11 summarizes our loan sales for the six months ended June 30, 2023, and all of 2022.

Figure 11. Loans Sold (Including Loans Held for Sale)

Dollars in millions			Commercial			Commercial Real Estate			Commercial Lease Financing			Residential Real Estate									Total
2023
Second quarter			$	118		$	1,431		$	28		$	283								$	1,860
First quarter			125			1,121			164			135									1,545
Total			$	243		$	2,552		$	192		$	418								$	3,405
2022
Fourth quarter			$	33		$	2,774		$	114		$	235								$	3,156
Third quarter			211			1,882			43			353									2,489
Second quarter			41			1,851			150			496									2,538
First quarter			1,469			1,909			39			901									4,318
Total			$	1,754		$	8,416		$	346		$	1,985								$	12,501

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Figure 12 shows loans that are either administered or serviced by us, but not recorded on the balance sheet; this includes loans that were sold.

Figure 12. Loans Administered or Serviced

Dollars in millions			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Commercial real estate loans			$	493,396		$	493,865		$	488,478		$	485,342		$	479,974
Residential mortgage			11,003			10,951			11,026			11,014			10,948
Education loans			278			294			312			341			366
Commercial lease financing			1,732			1,673			1,646			1,619			1,418
Commercial loans			708			712			723			727			724
Consumer direct			455			480			509			536			575
Consumer indirect			1,120			1,316			1,536			1,766			2,039
Total			$	508,692		$	509,291		$	504,230		$	501,345		$	496,044

In the event of default by a borrower, we are subject to recourse with respect to approximately $7.0 billion of the $508.7 billion of loans administered or serviced at June 30, 2023. Additional information about this recourse arrangement is included in Note 17 (“Contingent Liabilities and Guarantees”) under the heading “Recourse agreement with FNMA.”

We derive income from several sources when retaining the right to administer or service loans that are sold. We earn noninterest income (recorded as “Consumer mortgage income” and “Commercial mortgage servicing fees”) from fees for servicing or administering loans. This fee income is reduced by the amortization of related servicing assets. In addition, we earn interest income from investing funds generated by escrow deposits collected in connection with the servicing loans. Additional information about our mortgage servicing assets is included in Note 8 (“Mortgage Servicing Assets”).

Securities

Our securities portfolio is constructed to help manage overall interest rate risk and provide a source of liquidity, including holding securities used to accommodate pledging requirements. Our securities portfolio totaled $47.1 billion at June 30, 2023, compared to $47.8 billion at December 31, 2022. Available-for-sale securities were $37.9 billion at June 30, 2023, compared to $39.1 billion at December 31, 2022. Held-to-maturity securities were $9.2 billion at June 30, 2023, and $8.7 billion at December 31, 2022.

As shown in Figure 13, all of our mortgage-backed securities, which include both securities available-for-sale and held-to-maturity securities, are issued by government-sponsored enterprises or GNMA, and are traded in liquid secondary markets. These securities are recorded on the balance sheet at fair value for the available-for-sale portfolio and at amortized cost for the held-to-maturity portfolio. For more information about these securities, refer to our 2022 Form 10-K within Note 1 (“Summary of Significant Accounting Policies”) under the heading “Securities” and Note 6 (“Fair Value Measurements”) under the heading “Qualitative Disclosures of Valuation Techniques.” Additionally refer to Note 6 (“Securities”) within this report.

Figure 13. Mortgage-Backed Securities by Issuer

Dollars in millions			June 30, 2023			December 31, 2022
FHLMC & FNMA			$	24,889		$	25,371
GNMA			11,667			11,620
Total (a)			$	36,556		$	36,991

(a) Includes securities held in the available-for-sale and held-to-maturity portfolios.

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Securities available for sale

The majority of our securities available-for-sale portfolio consists of Federal Agency CMOs and mortgage-backed securities. CMOs are debt securities secured by a pool of mortgages or mortgage-backed securities. Figure 14 shows the composition, yields, and remaining maturities of our securities available for sale. For more information about these securities, including gross unrealized gains and losses by type of security and securities pledged, see Note 6 (“Securities”).

Figure 14. Securities Available for Sale

Dollars in millions			U.S. Treasury, Agencies, and Corporations						Agency Residential Collateralized Mortgage Obligations (a)			Agency Residential Mortgage-backed Securities (a)			Agency Commercial Mortgage-backed Securities (a)						Total			Weighted-Average Yield (b)
June 30, 2023
Remaining maturity:
One year or less			$	3,218					$	53		$	1		$	18					$	3,290		.42		%
After one through five years			6,050						1,695			2,382			2,177						12,304			1.45
After five through ten years			114						8,912			898			5,743						15,667			2.05
After ten years			107						4,955			468			1,117						6,647			1.66
Fair value			$	9,489					$	15,615		$	3,749		$	9,055					$	37,908		—
Amortized cost			$	10,009					$	19,306		$	4,415		$	10,406					$	44,136		1.66		%
Weighted-average yield (b)			.59		%				1.67		%	1.62		%	2.70		%				1.66		%	—
Weighted-average maturity			1.4 years						8.6 years			6.1 years			7.1 years						6.4 years			—
December 31, 2022
Fair value			$	9,415					$	16,433		$	3,920		$	9,349					$	39,117		—		%
Amortized cost			10,044						20,180			4,616			10,712						45,552			1.67

(a)Maturity is based upon expected average lives rather than contractual terms.

(b)Weighted-average yields are calculated based on amortized cost. Such yields have been adjusted to a TE basis using the statutory federal income tax rate of 21%.

Held-to-maturity securities

The majority of our held-to-maturity portfolio consists of Federal agency CMOs and mortgage-backed securities. This portfolio is also comprised of asset-backed securities that were acquired as the result of balance sheet optimization strategies, including the indirect auto portfolio transaction in the third quarter of 2021. The remaining balance is comprised of foreign bonds. Figure 15 shows the composition, yields, and remaining maturities of these securities.

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Figure 15. Held-to-Maturity Securities

Dollars in millions			Agency Residential Collateralized Mortgage Obligations (a)			Agency Residential Mortgage-backed Securities (a)			Agency Commercial Mortgage-backed Securities (a)			Asset-backed securities			Other Securities			Total			Weighted-Average Yield (b)
June 30, 2023
Remaining maturity:
One year or less			$	7		$	—		$	5		$	1		$	5		$	18		2.57		%
After one through five years			2,064			112			1,967			1,032			10			5,185			3.18
After five through ten years			2,194			14			525			4			—			2,737			3.59
After ten years			1,166			47			36			—			—			1,249			4.22
Amortized cost			$	5,431		$	173		$	2,533		$	1,037		$	15		$	9,189		3.44		%
Fair value			$	5,114		$	158		$	2,305		$	984		$	14		$	8,575		—
Weighted-average yield (b)			3.80		%	2.80		%	3.28		%	2.10		%	2.78		%	3.44		%	—
Weighted-average maturity			6.9 years			7.4 years			4.2 years			1.1 years			2.4 years			5.5 years			—
December 31, 2022
Amortized cost			$	4,586		$	181		$	2,522		$	1,407		$	14		$	8,710		3.18		%
Fair value			4,308			165			2,315			1,311			14			8,113			—

(a)Maturity is based upon expected average lives rather than contractual terms.

(b)Weighted-average yields are calculated based on amortized cost. Such yields have been adjusted to a TE basis using the statutory federal income tax rate of 21%.

Deposits and other sources of funds

Figure 16. Breakdown of Deposits at June 30, 2023

Our highly diversified deposit base is our primary source of funding. At June 30, 2023, our deposits totaled $145.1 billion, an increase of $2.5 billion compared to December 31, 2022. The increase reflects our durable relationship-based business model, in addition to changing client behavior as a result of higher interest rates.

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Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regimes. Figure 17 presents estimated uninsured deposits for the noted periods which reflect amounts disclosed in KeyBank’s Call Report adjusted for intercompany deposits, which are not customer facing and are eliminated in consolidation, and accrued interest.

Figure 17. Estimated Uninsured Deposits

Dollars in billions			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Uninsured deposits(a)			$	61.6		$	63.3		$	67.1		$	69.7		$	71.6
Total deposits			145.1			144.1			142.6			144.9			145.9
Uninsured % of Deposits			42		%	44		%	47		%	48		%	49		%
(a) Intercompany deposits and accrued interest excluded from uninsured deposits			$	8.6		$	8.3		$	8.4		$	8.3		$	7.6

As of June 30, 2023, approximately $13.6 billion of uninsured deposits were collateralized by government-backed securities.

Wholesale funds, consisting of short-term borrowings and long-term debt, totaled $30.7 billion at June 30, 2023, compared to $28.8 billion at December 31, 2022. The increase reflects our desire to maintain increased levels of cash at the Federal Reserve in accordance with our liquidity risk management practices. For more information regarding our wholesale funds, see Item 2. Management’s Discussion & Analysis of Financial Condition & Results of Operations under the heading “Risk Management - Liquidity risk management” of this report.

Capital

The objective of capital management is to maintain capital levels consistent with our risk appetite and of a sufficient amount to operate under a wide range of economic conditions. Our current capital levels positions us well to execute against our capital priorities including supporting organic growth and paying dividends.

The following sections discuss certain ways we have deployed our capital. For further information, see the Consolidated Statements of Changes in Equity and Note 19 (“Shareholders' Equity”).

Dividends

Consistent with our capital plan, we paid a quarterly dividend of $.205 per Common Share for the second quarter of 2023. Further information regarding the capital planning process and CCAR is included under the heading “Capital planning and stress testing” beginning on page 12 in the “Supervision and Regulation” section of our 2022 Form 10-K.

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Common shares outstanding

Our Common Shares are traded on the NYSE under the symbol KEY with 29,198 holders of record at June 30, 2023. Our book value per Common Share was $12.18 based on 935.7 million shares outstanding at June 30, 2023, compared to $11.79 per Common Share based on 933.3 million shares outstanding at December 31, 2022. At June 30, 2023, our tangible book value per Common Share was $9.16, compared to $8.75 per Common Share at December 31, 2022.

Figure 18 shows activities that caused the change in outstanding Common Shares over the past five quarters.

Figure 18. Changes in Common Shares Outstanding

			2023												2022
In thousands			Second			First									Fourth			Third			Second
Shares outstanding at beginning of period			935,229			933,325									932,938			932,643			932,398
Open market repurchases and return of shares under employee compensation plans			(38)			(4,333)									(2)			(3)			(24)
Shares issued under employee compensation plans (net of cancellations)			542			6,237									389			298			269
Shares outstanding at end of period			935,733			935,229									933,325			932,938			932,643

As shown above, Common Shares outstanding increased by .5 million shares during the second quarter of 2023. We did not complete any open market share repurchases in the second quarter of 2023.

At June 30, 2023, we had 321.0 million treasury shares, compared to 323.4 million treasury shares at December 31, 2022. Going forward we expect to reissue treasury shares as needed in connection with stock-based compensation awards and for other corporate purposes.

Information on repurchases of Common Shares by KeyCorp is included in Part II, Item 2. “Unregistered Sales of Equity Securities and Use of Proceeds” of this report.

Capital adequacy

Capital adequacy is an important indicator of financial stability and performance. All of our capital ratios remained in excess of regulatory requirements at June 30, 2023. Our capital and liquidity levels are intended to position us to weather an adverse operating environment while continuing to serve our clients’ needs, as well as to meet the Regulatory Capital Rules described in Item 1. Business of our 2022 Form 10-K under the heading “Supervision and Regulation.” Our shareholders’ equity to assets ratio was 7.1% at both June 30, 2023, and December 31, 2022. Our tangible common equity to tangible assets ratio was 4.5% at June 30, 2023, compared to 4.4% at December 31, 2022. See the section entitled “GAAP to Non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “tangible common equity.” The minimum capital and leverage ratios under the Regulatory Capital Rules together with the ratios of KeyCorp at June 30, 2023, are set forth in the “Supervision and regulation — Regulatory capital requirements” section in Item 2 of this report.

Figure 19 represents the details of our regulatory capital positions at June 30, 2023, and December 31, 2022, under the Regulatory Capital Rules. Information regarding the regulatory capital ratios of KeyCorp’s banking subsidiaries is presented annually, with the most recent information included in Note 24 (“Shareholders' Equity”) beginning on page 170 of our 2022 Form 10-K.

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Figure 19. Capital Components and Risk-Weighted Assets

			Dollars in millions			June 30, 2023			December 31, 2022
COMMON EQUITY TIER 1
Key shareholders’ equity (GAAP)						$	13,844		$	13,454
Less:			Preferred Stock (a)			2,446			2,446
Add:			CECL phase-in (b)			118			178
			Common Equity Tier 1 capital before adjustments and deductions			11,516			11,186
Less:			Goodwill, net of deferred taxes			2,608			2,612
			Intangible assets, net of deferred taxes			67			88
			Deferred tax assets			1			1
			Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes			(4,687)			(4,857)
			Accumulated gains (losses) on cash flow hedges, net of deferred taxes			(1,083)			(1,160)
			Amounts in AOCI attributed to pension and postretirement benefit costs, net of deferred taxes			(274)			(277)
			Total Common Equity Tier 1 capital			$	14,884		$	14,779
TIER 1 CAPITAL
Common Equity Tier 1						$	14,884		$	14,779
Additional Tier 1 capital instruments and related surplus						2,446			2,446
Less:			Deductions			—			—
			Total Tier 1 capital			$	17,330		$	17,225
TIER 2 CAPITAL
Tier 2 capital instruments and related surplus						$	2,017		$	2,200
Allowance for losses on loans and liability for losses on lending-related commitments (c)						1,634			1,351
Less:			Deductions			—			—
			Total Tier 2 capital			3,651			3,551
			Total risk-based capital			$	20,981		$	20,776
RISK-WEIGHTED ASSETS**(e)**
Risk-weighted assets on balance sheet						$	124,851		$	125,900
Risk-weighted off-balance sheet exposure						34,265			35,745
Market risk-equivalent assets						1,305			826
Gross risk-weighted assets						160,421			162,471
Less:			Excess allowance for loan and lease losses			—			—
			Net risk-weighted assets			$	160,421		$	162,471
AVERAGE QUARTERLY TOTAL ASSETS						$	200,195		$	193,986
CAPITAL RATIOS**(e)**
Tier 1 risk-based capital						10.80		%	10.60		%
Total risk-based capital						13.08		%	12.79		%
Leverage (d)						8.66		%	8.88		%
Common Equity Tier 1						9.28		%	9.10		%

(a)Net of capital surplus.

(b)Amount reflects our decision to adopt the CECL transitional provision.

(c)The ALLL included in Tier 2 capital is limited by regulation to 1.25% of the institution’s standardized total risk-weighted assets (excluding its standardized market risk-weighted assets). The ALLL includes $18 million and $21 million of allowance classified as “discontinued assets” on the balance sheet at June 30, 2023, and December 31, 2022, respectively.

(d)This ratio is Tier 1 capital divided by average quarterly total assets as defined by the Federal Reserve less: (i) goodwill, (ii) the disallowed intangible and deferred tax assets, and (iii) other deductions from assets for leverage capital purposes.

(e)June 30, 2023 capital ratios and risk weighted assets are estimates.

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Risk Management

Overview

Like all financial services companies, we engage in business activities and assume the related risks. The most significant risks we face are credit, compliance, operational, liquidity, market, reputation, strategic, and model risks. Our risk management activities are focused on ensuring that we properly identify, measure, and manage such risks across the entire enterprise to maintain safety and soundness, and to maximize profitability. Our definition, philosophy, and approach to risk management have not materially changed from the discussion presented under the heading “Risk Management” beginning on page 72 of our 2022 Form 10-K.

Market risk management

Market risk is the risk that movements in market risk factors, including interest rates, foreign exchange rates, equity prices, commodity prices, credit spreads, and volatilities, will reduce Key’s income and the value of its portfolios. These factors influence prospective yields, values, or prices associated with the instrument. We are exposed to market risk both in our trading and nontrading activities, which include asset and liability management activities. Information regarding our fair value policies, procedures, and methodologies is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements” on page 109 of our 2022 Form 10-K and Note 5 (“Fair Value Measurements”) in this report.

Trading market risk

Key incurs market risk as a result of trading activities that are used in support of client facilitation and hedging activities, principally within our investment banking and capital markets businesses. Key has exposures to a wide range of risk factors including interest rates, equity prices, foreign exchange rates, credit spreads, and commodity prices, as well as the associated implied volatilities and spreads. Our primary market risk exposures are a result of trading and hedging activities in the derivative and fixed income markets, including securitization positions exposures. At June 30, 2023, we did not have any re-securitization positions. We maintain modest trading inventories to facilitate customer flow, make markets in securities, and hedge certain risks including but not limited to credit risk and interest rate risk. The risks associated with these activities are mitigated in accordance with the Market Risk hedging policy. The majority of our positions are traded in active markets.

Market risk management is an integral part of Key’s risk culture. The Risk Committee of our Board provides oversight of trading market risks. The ERM Committee and the Market Risk Committee regularly review and discuss market risk reports prepared by our MRM that contain our market risk exposures and results of monitoring activities. Market risk policies and procedures have been defined and approved by the Market Risk Committee, a Tier 2 Risk Governance Committee, and take into account our tolerance for risk and consideration for the business environment. For more information regarding monitoring of trading positions and the activities related to the Market Risk Rule compliance, see “Market Risk Management” beginning on page 74 of our 2022 Form 10-K.

VaR and stressed VaR. VaR is the estimate of the maximum amount of loss on an instrument or portfolio due to adverse market conditions during a given time interval within a stated confidence level. Stressed VaR is used to assess extreme conditions on market risk within our trading portfolios. The MRM calculates VaR and stressed VaR on a daily basis, and the results are distributed to appropriate management. VaR and stressed VaR results are also provided to our regulators and utilized in regulatory capital calculations.

We use a historical simulation VaR model to measure the potential adverse effect of changes in interest rates, foreign exchange rates, equity prices, and credit spreads on the fair value of our covered positions and other non-covered positions. We analyze market risk by portfolios and do not separately measure and monitor our portfolios by risk type. Historical scenarios are customized for specific positions, and numerous risk factors are incorporated in the calculation. Additional consideration is given to the risk factors to estimate the exposures that contain optionality features, such as options and cancellable provisions. VaR is calculated using daily observations over a one-year time horizon and approximates a 95% confidence level. Statistically, this means that we would expect to incur losses greater than VaR, on average, five out of 100 trading days, or three to four times each quarter. We also calculate VaR and stressed VaR at a 99% confidence level. For more information regarding our VaR model, its governance, and assumptions, see “Market Risk Management” on page 74 of our 2022 Form 10-K.

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Actual losses for the total covered portfolios exceeded aggregate daily VaR for a total of one day during the quarter ended June 30, 2023, and did not exceed aggregate daily VaR for any day during the quarter ended June 30, 2022. The MRM backtests our VaR model on a daily basis to evaluate its predictive power. The test compares VaR model results at the 99% confidence level to daily held profit and loss. Results of backtesting are provided to the Market Risk Committee. Backtesting exceptions occur when trading losses exceed VaR. We do not engage in correlation trading or utilize the internal model approach for measuring default and credit migration risk. Our net VaR approach incorporates diversification, but our VaR calculation does not include the impact of counterparty risk and our own credit spreads on derivatives.

The aggregate VaR at the 99% confidence level with a one day holding period for all covered positions was $1.6 million at June 30, 2023, and $1.6 million at June 30, 2022. Figure 20 summarizes our VaR at the 99% confidence level with a one day holding period for significant portfolios of covered positions for the three months ended June 30, 2023, and June 30, 2022.

Figure 20. VaR for Significant Portfolios of Covered Positions

			2023															2022
			Three months ended June 30,															Three months ended June 30,
Dollars in millions			High			Low			Mean			June 30,						High			Low			Mean			June 30,
Trading account assets:
Fixed income			$	2.0		$	1.0		$	1.5		$	1.0					$	1.1		$	.6		$	.8		$	1.1
Derivatives:
Interest rate			$	4.0		$	.4		$	1.2		$	.6					$	.6		$	.1		$	.2		$	.2

Stressed VaR is calculated by running the portfolios through a predetermined stress period which is approved by the Market Risk Committee and is calculated at the 99% confidence level using the same model and assumptions used for general VaR. The aggregate stressed VaR for all covered positions was $3.2 million at June 30, 2023, and $2.8 million at June 30, 2022. Figure 21 summarizes our stressed VaR at the 99% confidence level with a one day holding period for significant portfolios of covered positions for the three months ended June 30, 2023, and June 30, 2022.

Figure 21. Stressed VaR for Significant Portfolios of Covered Positions

			2023															2022
			Three months ended June 30,															Three months ended June 30,
Dollars in millions			High			Low			Mean			June 30,						High			Low			Mean			June 30,
Trading account assets:
Fixed income			$	3.5		$	1.6		$	2.4		$	2.6					$	2.8		$	1.2		$	1.9		$	1.9
Derivatives:
Interest rate			$	5.6		$	.4		$	1.4		$	.5					$	.5		$	.1		$	.3		$	.2

Internal capital adequacy assessment. Market risk is a component of our internal capital adequacy assessment. Our risk-weighted assets include a market risk-equivalent asset amount, which consists of a VaR component, stressed VaR component, a de minimis exposure amount, and a specific risk add-on including the securitization positions. The aggregate market value of the securitization positions as defined by the Market Risk Rule was $0.4 million at June 30, 2023, all of which were mortgage-backed security positions. Specific risk is the price risk of individual financial instruments, which is not accounted for by changes in broad market risk factors and is measured through a standardized approach. Market risk weighted assets, including the specific risk calculations, are run quarterly by the MRM in accordance with the Market Risk Rule, and approved by the Chief Market Risk Officer.

Nontrading market risk

Most of our nontrading market risk is derived from interest rate fluctuations and its impacts on our traditional loan and deposit products, as well as investments, hedging relationships, long-term debt, and certain short-term borrowings. Interest rate risk, which is inherent in the banking industry, is measured by the potential for fluctuations in net interest income and the EVE. Such fluctuations may result from changes in interest rates and differences in the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities. We manage the exposure to changes in net interest income and the EVE in accordance with our risk appetite and in accordance with the Board approved ERM policy.

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Interest rate risk positions are influenced by a number of factors, including the balance sheet positioning that arises out of customer preferences for loan and deposit products, economic conditions, the competitive environment within our markets, changes in market interest rates that affect client activity, and our hedging, investing, funding, and capital positions. The primary components of interest rate risk exposure consist of reprice risk, basis risk, yield curve risk, and option risk.

• “Reprice risk”** is the exposure to changes in the level of interest rates and occurs when the volume of interest-bearing liabilities and the volume of interest-earning assets they fund (e.g., deposits used to fund loans) do not mature or reprice at the same time.

• “Basis risk”** is the exposure to asymmetrical changes in interest rate indexes and occurs when floating-rate assets and floating-rate liabilities reprice at the same time, but in response to different market factors or indexes.

• “Yield curve risk” is the exposure to nonparallel changes in the slope of the yield curve (where the yield curve depicts the relationship between the yield on a particular type of security and its term to maturity) and occurs when interest-bearing liabilities and the interest-earning assets that they fund do not price or reprice to the same term point on the yield curve.

• “Option risk”** is the exposure to a customer or counterparty’s ability to take advantage of the interest rate environment and terminate or reprice one of our assets, liabilities, or off-balance sheet instruments prior to contractual maturity without a penalty. Option risk occurs when exposures to customer and counterparty early withdrawals or prepayments are not mitigated with an offsetting position or appropriate compensation.

The management of nontrading market risk is centralized within Corporate Treasury. The Risk Committee of our Board provides oversight of nontrading market risk. The ERM Committee and the ALCO review reports on the interest rate risk exposures described above. In addition, the ALCO reviews reports on stress tests and sensitivity analyses related to interest rate risk. These committees have various responsibilities related to managing nontrading market risk, including recommending, approving, and monitoring strategies that maintain risk positions within approved tolerance ranges. The A/LM policy provides the framework for the oversight and management of interest rate risk and is administered by the ALCO. The MRM, as the second line of defense, provides additional oversight.

LIBOR transition. As disclosed in Item 1A. Risk Factors of our 2022 Form 10-K and discussed above under the heading “Supervision and Regulation - Federal LIBOR transition legislation”, bank regulators have issued guidance advising against the use of LIBOR in its current form for new contracts and indicated that bank examiners will continue monitoring efforts through 2023 to ensure that institutions have moved their contracts away from LIBOR in a safe and sound manner and in compliance with applicable legal requirements. Key has complied with such regulatory expectations and successfully transitioned substantially all of it its products away from LIBOR as of June 30, 2023. For most financial products, the most common alternative reference rates have been SOFR-based benchmarks. This is true for both new originations and legacy LIBOR contracts that were subject to amendment or a transition by their terms. We have also originated a small number of new loans using credit sensitive rates in a limited and managed fashion.

Net interest income simulation analysis. The primary tool we use to measure our interest rate risk is simulation analysis. For purposes of this analysis, we estimate our net interest income based on the current and projected composition of our on- and off-balance sheet positions, accounting for recent and anticipated trends in customer activity. The analysis also incorporates assumptions for the current and projected interest rate environments and balance sheet growth projections based on a most likely macroeconomic view. The modeling incorporates investment portfolio and swap portfolio balances consistent with management's desired interest rate risk positioning. The simulation model estimates the amount of net interest income at risk by simulating the change in net interest income that would occur if rates were to gradually increase or decrease from current levels over the next 12 months (subject to a floor on market interest rates at zero).

Figure 22 presents the results of the simulation analysis at June 30, 2023, and June 30, 2022. At June 30, 2023, our simulated impact to changes in interest rates was moderate. The benefit to declining rates has increased as a result of higher funding costs and a funding mix change to more rate sensitive instruments compared to the June 30, 2022 analysis. Current modeled exposure is within the Board approved tolerances. If a tolerance level is breached and determined inconsistent with risk appetite, the development of a remediation plan is required to reduce exposure back to within tolerance.

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Figure 22. Simulated Change in Net Interest Income

			June 30, 2023						June 30, 2022
Basis point change assumption			-200			+200			-200			+200
Assumed floor in market rates (in basis points)			—			N/A			—			N/A
Rising rate beta			N/A			50s			N/A			Low 40s
Tolerance level			(5.50)		%	(5.50)		%	(5.50)		%	(5.50)		%
Interest rate risk assessment			3.65		%	(5.38)		%	(5.70)		%	(1.56)		%
+200 NII at risk beta sensitivity			June 30, 2023
Beta assumption			High 50s			Mid 50s			High 40s			Mid 40s
Interest rate risk assessment			(7.48)		%	(6.43)		%	(4.39)		%	(3.49)		%

Simulation analyses produce a sophisticated estimate of interest rate exposure based on assumption inputs within the model. Assumptions are tailored to the specific interest rate environment and validated on a regular basis. However, actual results may differ from those derived in simulation analyses due to unanticipated changes to the balance sheet composition, customer behavior, product pricing, market interest rates, changes in management’s desired interest rate risk positioning, investment, funding and hedging activities or repercussions from exogenous events.

Regular stress tests and sensitivity analyses are performed on the model inputs that could materially change the resulting risk assessments. Assessments are performed using different yield curve shapes, including steepenings or flattenings of the curve, immediate changes in market interest rates, and changes in the relationship of money market interest rates. Assessments are also performed on changes to the following assumptions: loan and deposit balances, the pricing of deposits without contractual maturities, changes in lending spreads, prepayments on loans and securities, investment, funding and hedging activities, and liquidity and capital management strategies.

The results of additional assessments indicate that net interest income could increase or decrease from the base simulation results presented in Figure 22. Net interest income is highly dependent on the timing, magnitude, frequency, and path of interest rate changes and the associated assumptions for deposit repricing relationships, lending spreads, and the balance behavior of transaction accounts. If fixed rate assets increase by $1 billion, or fixed rate liabilities decrease by $1 billion, then the benefit to rising rates would decrease by approximately 23 basis points. If the interest-bearing liquid deposit beta assumption increases or decreases by 5% (e.g., 40% to 45%), then the benefit to rising rates would decrease or increase by approximately 105 basis points.

The current interest rate risk position could fluctuate to higher or lower levels of risk depending on the competitive environment and client behavior that may affect the actual volume, mix, maturity, and repricing characteristics of loan and deposit flows. Corporate Treasury discretionary activities related to funding, investing, and hedging may also change as a result of changes in customer business flows or changes in management’s desired interest rate risk positioning. As changes occur to both the configuration of the balance sheet and the outlook for the economy, management proactively evaluates hedging opportunities that may change the interest rate risk profile.

Simulations are also conducted that measure the effect of changes in market interest rates in the second and third years of a three-year horizon. These simulations are conducted in a similar manner to those based on a 12-month horizon. To capture longer-term exposures, changes in the EVE are calculated as discussed in the following section.

Economic value of equity modeling. EVE complements net interest income simulation analysis as it estimates risk exposure beyond 12-, 24-, and 36-month horizons. EVE modeling measures the extent to which the economic values of assets, liabilities, and off-balance sheet instruments may change in response to fluctuations in interest rates. EVE is calculated by subjecting the balance sheet to an immediate increase or decrease in interest rates, measuring the resulting change in the values of assets, liabilities, and off-balance sheet instruments, and comparing those amounts with the base case of the current interest rate environment. EVE policy limits are measured against a +200 basis point/policy decline scenario. The resulting rate in the policy decline scenario is equal to the greater of the current fed funds target and zero. As of June 30, 2023, the policy decline scenario is minus 200 basis points. This analysis is highly dependent upon assumptions applied to assets and liabilities with non-contractual maturities. Those assumptions are based on historical behaviors, as well as forward expectations. Remediation plans are similarly developed if the analysis indicates that the EVE will decrease by more than 15% in response to an immediate increase or decrease in interest rates. The position is within these guidelines as of June 30, 2023.

Management of interest rate exposure. The results of the various interest rate risk analyses are used to formulate A/LM strategies to achieve the desired risk profile while managing to objectives for capital adequacy and liquidity

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risk exposures. Specifically, risk positions are managed by purchasing securities, issuing term debt with floating or fixed interest rates, and using derivatives. Interest rate swaps and options are predominantly used, which modify the interest rate characteristics of certain assets and liabilities.

Figure 23 shows all swap positions held for A/LM purposes. These positions are used to convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) to another interest rate index. For example, fixed-rate debt is converted to a floating rate through a “receive fixed/pay variable” interest rate swap. The volume, maturity, and mix of portfolio swaps change frequently to reflect broader A/LM objectives and the balance sheet positions to be hedged. For more information about how interest rate swaps are used to manage the risk profile, see Note 7 (“Derivatives and Hedging Activities”).

Figure 23. Portfolio Swaps by Interest Rate Risk Management Strategy

			June 30, 2023
												Weighted-Average												December 31, 2022
Dollars in millions			Notional Amount			Fair Value						Maturity (Years)			Receive Rate			Pay Rate						Notional Amount			Fair Value
Receive fixed/pay variable — conventional A/LM (a)			$	52,050		$	(1,264)					2.0			1.4		%	5.3		%				$	28,450		$	(1,503)
Receive fixed/pay variable — conventional debt (b)			9,880			(288)						3.0			2.5			5.1						10,995			(551)
Receive fixed/pay variable — forward A/LM (c)			6,250			(146)						3.1			3.5			5.1						1,300			(8)
Receive fixed/pay variable — forward debt (d)			4,146			(308)						5.4			2.2			5.4						—			—
Pay fixed/receive variable — conventional debt (e)			100			2						5.0			5.5			3.6						50			1
Pay fixed/receive variable — forward securities			—			—						—			—			—						—			—
Pay fixed/receive variable — securities			1,405			61						2.2			5.1			2.9						405			48
Total portfolio swaps			$	73,831		$	(1,943)		(f)			2.4			1.8		%	5.2		%				$	41,200		$	(2,013)		(f)
Floors — forward purchased			$	3,250		$	29					2.6			—		%	—		%				$	—		$	—
Floors — forward sold			3,250			(13)						2.6			—			—						—			—
Total floors			$	6,500		$	16					—			—		%	—		%				$	—		$	—

(a)Portfolio swaps designated as A/LM are used to manage interest rate risk tied to both assets and liabilities. Notional amount as of June 30, 2023 reflects the impacts of LIBOR transition. Notional amount includes $13.4 billion of short-dated receive fix/pay variable LIBOR swaps and $13.4 billion of short-dated pay fixed/receive variable SOFR swaps which were created as a result of the industry’s operational transition from LIBOR to SOFR related to impacted LIBOR receive fixed/pay variable swaps. The weighted-average maturity, receive rate, and pay rate amounts disclosed exclude the impacts of these short-dated LIBOR and SOFR swaps.

(b)Notional amounts as of June 30, 2023 reflects the impacts of LIBOR transition. Notional amount includes $800 million of SOFR and LIBOR swaps and created as a result of LIBOR transition. The weighted-average maturity, receive rate, and pay rate amounts disclosed exclude the impacts of these swaps created as a result of LIBOR transition.

(c)Notional amount as of June 30, 2023 reflect the impact of the LIBOR transition. Notional amount includes $2.3 billion of forward-starting SOFR swaps created as a result of the industry’s operational transition from LIBOR to SOFR. The weighted-average maturity, receive rate, and pay rate amounts disclosed exclude the impacts of these swaps created as a result of LIBOR transition.

(d)Notional amount as of June 30, 2023 reflects the impacts of LIBOR transition. Notional amount includes $2.8 billion of forward-starting SOFR swaps created as a result of LIBOR transition. The weighted-average maturity, receive rate, and pay rate amounts disclosed exclude the impacts of the SOFR swaps created as a result of LIBOR transition.

(e)Notional amount as of June 30, 2023 reflects the impacts of LIBOR transition. Notional amount includes a $50 million of short-dated LIBOR swap which was ere created as a result of the industry’s operational transition from LIBOR to SOFR. The weighted-average maturity, receive rate, and pay rate amounts disclosed excludes the impacts of the short-dated LIBOR swap.

(f)Excludes accrued interest payable of $221 million at June 30, 2023, and accrued interest of $62 million at December 31, 2022.

Liquidity risk management

Liquidity risk, which is inherent in the banking industry, is measured by our ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund new business opportunities at a reasonable cost, in a timely manner, and without adverse consequences. Liquidity management involves maintaining sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes in assets and liabilities under both normal and adverse conditions.

Factors affecting liquidity

Our liquidity could be adversely affected by both direct and indirect events. An example of a direct event would be a downgrade in our public credit ratings by a rating agency. Examples of indirect events (events unrelated to us) that could impair our access to liquidity would be an act of terrorism or war, natural disasters, global pandemics, political events, or the default or bankruptcy of a major corporation, mutual fund, or hedge fund. Similarly, market speculation, or rumors about us or the banking industry in general, may adversely affect the cost and availability of normal funding sources. For a discussion of certain risks which may impact our liquidity, see Part II, Item 1A. "Risk Factors" in this report. For more information on recent liquidity activity, see the header "Our liquidity position and recent activity" in this report below.

Our credit ratings at June 30, 2023, are shown in Figure 24. We believe these credit ratings, under normal conditions in the capital markets, would enable KeyCorp or KeyBank to issue fixed income securities to investors. During the second quarter, Moody’s, Standard & Poor’s and DBRS Inc., each affirmed KeyCorp and KeyBank’s long-term and short-term credit ratings. All three rating services also changed Key’s Outlook or Trend to “negative”

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from “stable”. Their rationale for the Outlook or Trend change is provided in their credit opinions and analysis. This includes a more challenging outlook for the entire banking industry and other company specific factors. KeyCorp and KeyBank’s rating outlook from Fitch Ratings, Inc., remains unchanged and is listed as “stable”.

Figure 24. Credit Ratings

June 30, 2023			Short-Term Borrowings			Long-Term Deposits (a)			Senior Long-Term Debt			Subordinated Long-Term Debt			Capital Securities			Preferred Stock
KEYCORP
Standard & Poor’s			A-2			N/A			BBB+			BBB			BB+			BB+
Moody’s			P-2			N/A			Baa1			Baa1			Baa2			Baa3
Fitch Ratings, Inc.			F1			N/A			A-			N/A			BB+			BB+
DBRS, Inc.			R-1 (low)			N/A			A			A (low)			A (low)			BBB
KEYBANK
Standard & Poor’s			A-2			N/A			A-			BBB+			N/A			N/A
Moody’s			P-2			P-1/A1			A3			Baa1			N/A			N/A
Fitch Ratings, Inc.			F1			F1/A			A-			BBB+			N/A			N/A
DBRS, Inc.			R-1 (middle)			A (high)			A (high)			A			N/A			N/A

(a)P-1 rating assigned by Moody’s is specific to KeyBank’s short-term bank deposit ratings. F1 assigned by Fitch Ratings, Inc. is specific to KeyBank’s short-term deposit ratings.

Sources of liquidity

Our primary source of funding for KeyBank are customer deposits resulting in a consolidated loan-to-deposit ratio of 83% as of June 30, 2023. If the cash flows needed to support operating and investing activities are not satisfied by deposit balances, we rely on wholesale funding or on-balance sheet liquid reserves. Conversely, excess cash generated by operating, investing, and deposit-gathering activities may be used to repay outstanding debt or invest in liquid assets. We maintain a Contingency Funding Plan that outlines the process for addressing a liquidity crisis. As part of the plan, we maintain on-balance sheet liquid reserves referred to as our liquid asset portfolio, which consists of high quality liquid assets. During a problem period, that reserve could be used as a source of funding to provide time to develop and execute a longer-term strategy. Our available contingent liquidity at June 30, 2023, totaled $80.0 billion, consisting of $5.5 billion of unpledged securities, $8.9 billion of net balances of federal funds sold and balances in our Federal Reserve account, $55.7 billion of unused secured borrowing capacity at the Federal Reserve Bank of Cleveland, and $9.9 billion of unused secured borrowing capacity at the FHLB. During the second quarter of 2023, our secured term borrowings decreased $1.5 billion as some maturing term borrowings were not replaced.

We have several liquidity programs, which are described in Note 20 (“Long-term Debt”) beginning on page 164 of our 2022 Form 10-K, that are designed to enable KeyCorp and KeyBank to raise funds in the public and private debt markets. The proceeds from most of these programs can be used for general corporate purposes, including acquisitions. There were no bank note issuances during the second quarter of 2023.

Liquidity for KeyCorp

The primary source of liquidity for KeyCorp is from subsidiary dividends, primarily from KeyBank. KeyCorp has sufficient liquidity when it can service its debt; support customary corporate operations and activities (including acquisitions); support occasional guarantees of subsidiaries’ obligations in transactions with third parties at a reasonable cost, in a timely manner, and without adverse consequences; and fund capital distributions in the form of dividends and share buybacks.

At June 30, 2023, KeyCorp held $2.7 billion in cash, which we projected to be sufficient to meet our projected obligations, including the repayment of our maturing debt obligations for the periods prescribed by our risk tolerance.

Typically, KeyCorp meets its liquidity requirements through regular dividends from KeyBank, supplemented with term debt. KeyCorp had no debt issuances during the second quarter of 2023. During the second quarter of 2023, KeyBank paid $175 million cash dividends to KeyCorp. As of June 30, 2023, KeyBank had regulatory capacity to pay $2.8 billion in dividends to KeyCorp without prior regulatory approval.

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Our liquidity position and recent activity

Over the past quarter, our liquid asset portfolio, which includes overnight and short-term investments, as well as unencumbered, high quality liquid securities held as protection against a range of potential liquidity stress scenarios, has decreased primarily as a result of a decrease in unencumbered securities, which was offset by an increase in cash held at the Federal Reserve. The liquid asset portfolio continues to exceed the amount that we estimate would be necessary to manage through an adverse liquidity event by providing sufficient time to develop and execute a longer-term solution. In response to the market volatility driven by the recent bank failures, Key has initiated heightened monitoring for liquidity and funding. This heightened monitoring includes daily updates to senior management centered on balance sheet flows and reserve balances held at the Federal Reserve. We have also increased the level of cash held at the Federal Reserve in the event there is an unexpected funding outflow.

From time to time, KeyCorp or KeyBank may seek to retire, repurchase, or exchange outstanding debt, capital securities, preferred shares, or common shares through cash purchase, privately negotiated transactions or other means. Additional information on repurchases of Common Shares by KeyCorp is included in Part II, Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities beginning on page 45 of our 2022 Form 10-K and Part II, Item 2 of this Form 10-Q. Such transactions depend on prevailing market conditions, our liquidity and capital requirements, contractual restrictions, regulatory requirements, and other factors. The amounts involved may be material, individually or collectively.

The Consolidated Statements of Cash Flows summarize our sources and uses of cash by type of activity for the six-month periods ended June 30, 2023, and June 30, 2022.

For more information regarding liquidity governance structure, management of liquidity risk at KeyBank and KeyCorp, long-term liquidity strategies, and other liquidity programs, see “Liquidity Risk Management” beginning on page 80 of our 2022 Form 10-K as well as the disclosure included in Part II, Item 1A. “Risk Factors” of this report.

Credit risk management

Credit risk is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Like other financial services institutions, we make loans, extend credit, distribute credit risk, purchase securities, provide financial and payments products, and enter into financial derivative contracts, all of which have related credit risk.

Credit policy, approval, and evaluation

We manage credit risk exposure through a multifaceted program. The Credit Risk Committee approves management credit policies and recommends significant credit policies to the Enterprise Risk Management Committee, the KeyBank Board, and the Risk Committee of the KeyCorp Board for approval. These policies are communicated throughout the organization to foster a consistent approach to granting credit.

Our credit risk management team and certain individuals within our lines of business, to whom credit risk management has delegated limited credit authority, are responsible for credit approval. Individuals with assigned credit authority are authorized to grant exceptions to credit policies. It is not unusual to make exceptions to established policies when mitigating circumstances dictate, however, a corporate level tolerance has been established to keep exceptions at an acceptable level based upon portfolio and economic considerations.

Our credit risk management team uses risk models to evaluate consumer loans. These models, known as scorecards, forecast the probability of serious delinquency and default for an applicant. The scorecards are embedded in the application processing system, which allows for real-time scoring and automated decisions for many of our products. We periodically validate the loan scoring processes.

We maintain an active concentration management program to mitigate concentration risk in our credit portfolios. For individual obligors, we employ a sliding scale of exposure, known as hold limits, which is dictated by the type of loan and strength of the borrower. We also set and monitor industry concentration and correlation risk by setting appropriate limits and tolerances to achieve balanced and acceptable portfolio composition levels with our desired risk profile. We set, measure, and manage that risk consideration of both internal and external industry performance metrics, domestic and global economic data, and by allocating capital adequacy stress test supported capacity.

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With highly uncertain economic conditions, we maintain diligent and vigilant portfolio monitoring activities in keeping with our credit risk framework. These activities include proactive higher risk portfolio segment detailed reviews. This allows us greater insight to support our credit loss guidance. All financial institutions will experience credit portfolio migration. Understanding and effectively managing these portfolios allow us to minimize ultimate economic loss, while supporting our fulsome relationship clients.

Allowance for loan and lease losses

We estimate the appropriate level of the ALLL on at least a quarterly basis. The methodology used 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. Briefly, the ALLL estimate uses various models and estimation techniques based on our historical loss experience, current borrower characteristics, current economic conditions, reasonable and supportable forecasts, and other relevant factors. The ALLL at June 30, 2023, represents our best estimate of the lifetime expected credit losses inherent in the loan portfolio at that date.

As shown in Figure 25, our ALLL from continuing operations increased by $143 million, or 10.7%, from December 31, 2022. The commercial ALLL increased by $122 million, or 14.1%, from December 31, 2022, through June 30, 2023. Our consumer ALLL increased by $21 million, or 4.4%, from December 31, 2022, through June 30, 2023. Refer to Note 4 (“Asset Quality”) within this report for further discussion of changes in the ALLL.

Figure 25. Allocation of the Allowance for Loan and Lease Losses

			June 30, 2023												December 31, 2022
Dollars in millions			Amount			Percent of Allowance to Total Allowance			Percent of Loan Type to Total Loans						Amount			Percent of Allowance to Total Allowance			Percent of Loan Type to Total Loans
Commercial and industrial			$	599		40.5		%	50.5		%				$	601		45.0		%	50.0		%
Commercial real estate:
Commercial mortgage			315			21.3			13.5						203			15.2			13.7
Construction			39			2.6			2.2						28			2.1			2.1
Total commercial real estate loans			354			23.9			15.7						231			17.3			15.8
Commercial lease financing			33			2.2			3.2						32			2.4			3.3
Total commercial loans			986			66.6			69.4						864			64.7			69.1
Real estate — residential mortgage			200			13.5			18.2						196			14.7			17.9
Home equity loans			96			6.5			6.3						98			7.3			6.6
Consumer direct loans			125			8.4			5.2						111			8.3			5.4
Credit cards			72			4.9			0.8						66			4.9			0.9
Consumer indirect loans			1			0.1			0.1						2			0.1			0.1
Total consumer loans			494			33.4			30.6						473			35.3			30.9
Total ALLL — continuing operations (a)			$	1,480		100.0		%	100.0		%				$	1,337		100.0		%	100.0		%

(a)Excludes allocations of the ALLL related to the discontinued operations of the education lending business in the amount of $18 million at June 30, 2023, and $21 million at December 31, 2022.

Net loan charge-offs

Figure 26 shows the trend in our net loan charge-offs by loan type, while the composition of loan charge-offs and recoveries by type of loan is presented in Figure 28. Figure 27 shows the ratios of net charge-offs by loan category as a percentage of the respective average loan balance.

Net loan charge-offs for the three months ended June 30, 2023, increased $8 million compared to the year-ago quarter.

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Figure 26. Net Loan Charge-offs from Continuing Operations (a)

			2023												2022
Dollars in millions			Second			First									Fourth			Third			Second
Commercial and industrial			$	27		$	27								$	17		$	36		$	31
Real estate — Commercial mortgage			8			5									12			1			2
Real estate — Construction			—			—									—			—			(1)
Commercial lease financing			(1)			(2)									(2)			(1)			(1)
Total commercial loans			34			30									27			36			31
Real estate — Residential mortgage			—			(1)									(3)			—			(3)
Home equity loans			1			—									—			(1)			(1)
Consumer direct loans			9			9									8			4			9
Credit cards			7			8									7			5			7
Consumer indirect loans			1			(1)									2			(1)			1
Total consumer loans			18			15									14			7			13
Total net loan charge-offs			$	52		$	45								$	41		$	43		$	44
Net loan charge-offs to average loans			.17		%	.15		%							.14		%	.15		%	.16		%
Net loan charge-offs from discontinued operations — education lending business			$	1		$	1								$	2		$	—		$	—

(a)Credit amounts indicate that recoveries exceeded charge-offs.

Figure 27. Net Loan Charge-offs to Average Loans from Continuing Operations (a)

			2023												2022
Dollars in millions			Second			First									Fourth			Third			Second
Commercial and industrial			0.18		%	0.18		%							0.12		%	0.25		%	0.23		%
Real estate — commercial mortgage			0.20			0.12									0.29			0.02			0.05
Real estate — construction			—			—									—			—			(0.19)
Commercial lease financing			(0.11)			(0.21)									(0.21)			(0.10)			(0.11)
Total commercial loans			0.16			0.14									0.13			0.18			0.17
Real estate — residential mortgage			—			(0.02)									(0.06)			—			(0.07)
Home equity loans			0.05			—									—			(0.05)			(0.05)
Consumer direct loans			0.57			0.56									0.47			0.23			0.55
Credit cards			2.85			3.26									2.80			2.05			2.98
Consumer indirect loans			10.97			(9.78)									17.25			(7.63)			6.80
Total consumer loans			0.20			0.16									0.15			0.08			0.15
Total net loan charge-offs			0.17		%	0.15		%							0.14		%	0.15		%	0.16		%

(a)Credit amounts indicate that recoveries exceeded charge-offs.

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Figure 28. Summary of Loan and Lease Loss Experience from Continuing Operations

			Three months ended June 30,									Six months ended June 30,
Dollars in millions			2023			2022						2023			2022
Average loans outstanding			$	120,672		$	109,138					$	120,257		$	106,465
Allowance for loan and lease losses at beginning of period			1,380			1,105						1,337			1,061
Loans charged off:
Commercial and industrial			42			39						77			69
Real estate — commercial mortgage			9			3						14			7
Real estate — construction			—			—						—			—
Commercial lease financing			1			—						—			2
Total commercial loans			52			42						91			78
Real estate — residential mortgage			1			(2)						1			(3)
Home equity loans			2			—						3			1
Consumer direct loans			11			10						22			17
Credit cards			9			8						18			15
Consumer indirect loans			1			1						1			2
Total consumer loans			24			17						45			32
Total loans charged off			76			59						136			110
Recoveries:
Commercial and industrial			15			8						23			19
Real estate — commercial mortgage			1			1						1			2
Real estate — construction			—			1						—			1
Commercial lease financing			2			1						3			1
Total commercial loans			18			11						27			23
Real estate — residential mortgage			1			1						2			1
Home equity loans			1			1						2			2
Consumer direct loans			2			1						4			3
Credit cards			2			1						3			3
Consumer indirect loans			—			—						1			1
Total consumer loans			6			4						12			10
Total recoveries			24			15						39			33
Net loan charge-offs			(52)			(44)						(97)			(77)
Provision (credit) for loan and lease losses			152			38						240			115
Allowance for loan and lease losses at end of period			$	1,480		$	1,099					$	1,480		$	1,099
Liability for credit losses on off-balance sheet exposures at beginning of period			276			166						225			160
Provision (credit) for losses on off-balance sheet exposures			15			7						66			13
Liability for credit losses on off-balance sheet exposures at end of period(a)			$	291		$	173					$	291		$	173
Total allowance for credit losses at end of period			$	1,771		$	1,272					$	1,771		$	1,272
Net loan charge-offs to average total loans			.17		%	.16		%				.16		%	.15		%
Allowance for loan and lease losses to period-end loans			1.24			.98						1.24			.98
Allowance for credit losses to period-end loans			1.49			1.13						1.49			1.13
Allowance for loan and lease losses to nonperforming loans			343.4			256.2						343.4			256.2
Allowance for credit losses to nonperforming loans			410.9			296.5						410.9			296.5
Discontinued operations — education lending business:
Loans charged off			$	2		$	1					$	3		$	3
Recoveries			1			1						1			1
Net loan charge-offs			$	(1)		$	—					$	(2)		$	(2)

(a)Included in "Accrued expense and other liabilities" on the balance sheet.

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Nonperforming assets

Figure 29 shows the composition of our nonperforming assets. As shown in Figure 29, nonperforming assets at June 30, 2023, increased $42 million from December 31, 2022. This increase reflects normalization of nonperforming loan levels, while still favorable relative to long-term levels. The increase was broad-based over four industries.

See Note 1 (“Summary of Significant Accounting Policies”) of our 2022 Form 10-K under the headings “Nonperforming Loans,” “Impaired Loans,” and “Allowance for Loan and Lease Losses” for a summary of our nonaccrual and charge-off policies.

Figure 29. Summary of Nonperforming Assets and Past Due Loans from Continuing Operations

Dollars in millions			June 30, 2023			March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022
Commercial and industrial			$	188		$	170		$	174		$	169		$	197
Real estate — commercial mortgage			65			59			21			34			35
Real estate — construction			—			—			—			—			—
Total commercial real estate loans (a)			65			59			21			34			35
Commercial lease financing			1			1			1			2			2
Total commercial loans (b)			254			230			196			205			234
Real estate — residential mortgage			73			75			77			66			67
Home equity loans			97			104			107			112			120
Consumer direct loans			3			3			3			3			3
Credit cards			3			3			3			3			3
Consumer indirect loans			1			1			1			1			2
Total consumer loans			177			186			191			185			195
Total nonperforming loans (c)			431			416			387			390			429
OREO			15			13			13			12			9
Nonperforming loans held for sale			16			18			20			17			25
Other nonperforming assets			—			—			—			—			—
Total nonperforming assets			$	462		$	447		$	420		$	419		$	463
Accruing loans past due 90 days or more			$	73		$	55		$	60		$	47		$	41
Accruing loans past due 30 through 89 days			139			164			180			187			137
Nonperforming assets from discontinued operations — education lending business			2			3			3			3			3
Nonperforming loans to period-end portfolio loans			.36		%	.35		%	.32		%	.34		%	.38		%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets			.39			.37			.35			.36			.41

(a)See Figure 9 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial real estate loan portfolio.

(b)See Figure 8 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial loan portfolio.

(c)On January 1, 2023, Key adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. In connection with the adoption of this guidance, nonperforming loans for periods after January 1, 2023, include certain loans which were modified for borrowers experiencing financial difficulty. Amounts prior to January 1, 2023, include nonperforming troubled debt restructurings (TDRs), for which accounting guidance was eliminated upon adoption of ASU 2022-02.

Figure 30 shows the types of activity that caused the change in our nonperforming loan balance during each of the last five quarters.

Figure 30. Summary of Changes in Nonperforming Loans from Continuing Operations

			2023												2022
Dollars in millions			Second			First									Fourth			Third			Second
Balance at beginning of period			$	416		$	387								$	390		$	429		$	439
Loans placed on nonaccrual status			169			143									113			80			118
Charge-offs			(76)			(60)									(67)			(68)			(59)
Loans sold			(23)			(2)									(4)			(3)			(8)
Payments			(20)			(31)									(22)			(29)			(35)
Transfers to OREO			(2)			(2)									(1)			(1)			(2)
Loans returned to accrual status			(33)			(19)									(22)			(18)			(24)
Balance at end of period			$	431		$	416								$	387		$	390		$	429

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Operational and compliance risk management

Like all businesses, we are subject to operational risk, which is the risk of loss resulting from human error or malfeasance, inadequate or failed internal processes and systems, and external events. These events include, among other things, threats to our cybersecurity, as we are reliant upon information systems and the internet to conduct our business activities. Operational risk intersects with compliance risk, which is the risk of loss from violations of, or noncompliance with, laws, rules and regulations, prescribed practices, and ethical standards. Under the Dodd-Frank Act, large financial companies like Key are subject to heightened prudential standards and regulation. This heightened level of regulation has increased our operational risk. While operational and compliance risk are separate risk disciplines in KeyCorp’s ERM framework, losses and/or additional regulatory compliance costs are included in operational loss reporting and could take the form of explicit charges, increased operational costs, harm to our reputation, or forgone opportunities.

We seek to mitigate operational risk through identification and measurement of risk, alignment of business strategies with risk appetite and tolerance, and a system of internal controls and reporting. We continuously strive to strengthen our system of internal controls to improve the oversight of our operational risk and to ensure compliance with laws, rules, and regulations. For example, an operational event database tracks the amounts and sources of operational risk and losses. This tracking mechanism helps to identify weaknesses and to highlight the need to take corrective action. We also rely upon software programs designed to assist in assessing operational risk and monitoring our control processes. This technology has enhanced the reporting of the effectiveness of our controls to senior management and the Board.

The Operational Risk Management Program provides the framework for the structure, governance, roles, and responsibilities, as well as the content, to manage operational risk for Key. The Compliance Risk Management Program serves the same function in managing compliance risk for Key. The Operational Risk Committee and the Compliance Risk Committee support the ERM Committee by identifying early warning events and trends, escalating emerging risks, and discussing forward-looking assessments. Both the Operational Risk Committee and the Compliance Risk Committee include attendees from each of the Three Lines of Defense. Primary responsibility for managing and monitoring internal control mechanisms lies with the managers of our various lines of business. The Operational Risk Committee and Compliance Risk Committee are senior management committees that oversee our level of operational and compliance risk and direct and support our operational and compliance infrastructure and related activities. These committees and the Operational Risk Management and Compliance Risk Management functions are an integral part of our ERM Program. Our Risk Review function regularly assesses the overall effectiveness of our Operational Risk Management and Compliance Risk Management Programs and our system of internal controls. Risk Review reports the results of reviews on internal controls and systems to senior management and the Audit Committee and updates the Risk Committee, as appropriate, on matters related to the oversight of these controls.

Cybersecurity

We maintain comprehensive Cyber Incident Response Plans, and we devote significant time and resources to maintaining and regularly updating our technology systems and processes to protect the security of our computer systems, software, networks, and other technology assets against attempts to obtain unauthorized access to confidential information, destroy data, disrupt or degrade service, sabotage systems, shut down access to systems for ransom, or cause other damage. As the threat landscape continues to evolve, critical infrastructure, including financial services, remains a top target for cyberattacks. The remote work environment utilized by our employees and our third-party service providers inherently introduces additional operational risk. Additionally, we face heightened risk of cyberattacks in the near term because of recent geopolitical events, which may result in increased attacks against U.S. critical infrastructure, including financial institutions. Cyberattacks may include, but are not limited to, attacks that are intended to disrupt or disable banking services and prevent banking transactions, attempts to breach the security of systems and data, and social engineering attempts aimed at tricking employees and clients into providing sensitive information or executing financial transactions.

We also face cyberattack risks related to our third-party service providers. Cyberattacks successfully compromising or circumventing the security of the systems of our third-party service providers have resulted in, and could again in the future, result in negative consequences to us, including interfering with our third-party providers’ ability to fulfill their contractual obligations to us, an interruption in our business processes, or the disclosure or misappropriation of confidential information of us or that of our clients. These cyberattacks may result in regulatory consequences, reputational harm or financial loss or liability that could adversely affect our financial condition or results of

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operations. High-profile cyberattacks have targeted retailers, credit bureaus, and other businesses for the purpose of acquiring the confidential information (including personal, financial, and credit card information) of their customers. There have also been numerous highly publicized cases where hackers requested ransom payments in exchange for not disclosing customer information or to restore company access to locked systems. We have incurred, and may again incur, expenses related to responding to cyberattacks involving third-party providers, including the protection of our clients from identity theft as a result of such attacks. We have also incurred, and may continue to incur, expenses to enhance our systems or processes to protect against cyber or other security incidents.

Risks and exposures related to cyberattacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of internet banking, mobile banking, and other technology-based products and services by us and our clients. To date, Key has not experienced material disruption of our operations as a result of the heightened threat landscape of cyberattacks.

As described in more detail starting on page 72 of our 2022 Form 10-K under the heading “Risk Management — Overview,” the Board serves in an oversight capacity ensuring that Key’s risks are managed in a manner that is effective and balanced and adds value for the shareholders. The Board’s Risk Committee has primary oversight for enterprise-wide risk at KeyCorp, including operational risk (which includes cybersecurity). The Risk Committee reviews and provides oversight of management’s activities related to the enterprise-wide risk management framework, including cyber-related risk. Board members are updated on cybersecurity matters at each regularly-scheduled Board meeting. The ERM Committee, chaired by the Chief Executive Officer and comprising other senior level executives, is responsible for managing risk (including cyber-related risk) and ensuring that the corporate risk profile is managed in a manner consistent with our risk appetite. The ERM Committee reports to the Board’s Risk Committee.

GAAP to Non-GAAP Reconciliations

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not

audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company,

they have limitations as analytical tools, and should not be considered in isolation, nor as a substitute for analyses

of results as reported under GAAP.

The tangible common equity ratio and the return on tangible common equity ratio have been a focus for some investors, and management believes that these ratios may assist investors in analyzing Key’s capital position without regard to the effects of intangible assets and preferred stock. Since analysts and banking regulators may assess our capital adequacy using tangible common equity, we believe it is useful to enable investors to assess our capital adequacy on these same bases.

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						Three months ended																		Six months ended
Dollars in millions						6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022						6/30/2023			6/30/2022
Tangible common equity to tangible assets at period-end
Key shareholders’ equity (GAAP)						$	13,844		$	14,322		$	13,454		$	13,290		$	14,427
Less:			Intangible assets (a)			2,826			2,836			2,844			2,856			2,868
			Preferred Stock (b)			2,446			2,446			2,446			2,446			1,856
			Tangible common equity (non-GAAP)			$	8,572		$	9,040		$	8,164		$	7,988		$	9,703
Total assets (GAAP)						$	195,037		$	197,519		$	189,813		$	190,051		$	187,008
Less:			Intangible assets (a)			2,826			2,836			2,844			2,856			2,868
			Tangible assets (non-GAAP)			$	192,211		$	194,683		$	186,969		$	187,195		$	184,140
			Tangible common equity to tangible assets ratio (non-GAAP)			4.5		%	4.6		%	4.4		%	4.3		%	5.3		%
Average tangible common equity
Average Key shareholders’ equity (GAAP)						$	14,412		$	13,817		$	13,168		$	14,614		$	14,398					$	14,116		$	15,583
Less:			Intangible assets (average) (c)			2,831			2,841			2,851			2,863			2,827						2,836			2,821
			Preferred Stock (average)			2,500			2,500			2,500			2,148			1,900						2,500			1,900
			Average tangible common equity (non-GAAP)			$	9,081		$	8,476		$	7,817		$	9,603		$	9,671					$	8,780		$	10,862
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)						$	250		$	275		$	356		$	513		$	504					$	525		$	924
Average tangible common equity (non-GAAP)						9,081			8,476			7,817			9,603			9,671						8,780			10,862
Return on average tangible common equity from continuing operations (non-GAAP)						11.0		%	13.2		%	18.1		%	21.2		%	20.9		%				12.06		%	17.15		%
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)						$	251		$	276		$	356		$	515		$	507					$	527		$	928
Average tangible common equity (non-GAAP)						9,081			8,476			7,817			9,603			9,671						8,780			10,862
Return on average tangible common equity consolidated (non-GAAP)						11.1		%	13.2		%	18.1		%	21.3		%	21.0		%				12.10		%	17.23		%

(a)For the three months ended June 30, 2023, March 31, 2023, December 31, 2022, September 30, 2022, and June 30, 2022, intangible assets exclude $1 million, $1 million, $2 million, $2 million, and $2 million, respectively, of period-end purchased credit card receivables.

(b)Net of capital surplus.

(c)For the three months ended June 30, 2023, March 31, 2023, December 31, 2022, September 30, 2022, and June 30, 2022, average intangible assets exclude $1 million, $1 million, $2 million, $2 million, and $2 million, respectively, of average purchased credit card receivables. For the six months ended June 30, 2023, and June 30, 2022, average intangible assets exclude $1 million, and $2 million, respectively, of average purchased credit card receivables.

The cash efficiency ratio is a ratio of two non-GAAP performance measures, adjusted noninterest expense and total taxable-equivalent revenue. Accordingly, there is no directly comparable GAAP performance measure. The cash efficiency ratio excludes the impact of our intangible asset amortization from the calculation. We believe this ratio provides greater consistency and comparability between our results and those of our peer banks. Additionally, this ratio is used by analysts and investors to evaluate how effectively management is controlling noninterest expenses in generating revenue, as they develop earnings forecasts and peer bank analysis.

						Three months ended																		Six months ended
Dollars in millions						6/30/2023			3/31/2023			12/31/2022			9/30/2022			6/30/2022						6/30/2023			6/30/2022
Cash efficiency ratio
Noninterest expense (GAAP)						$	1,076		$	1,176		$	1,156		$	1,106		$	1,078					$	2,252		$	2,148
Less:			Intangible asset amortization			10			10			12			12			12						20			23
Adjusted noninterest expense (non-GAAP)						$	1,066		$	1,166		$	1,144		$	1,094		$	1,066					$	2,232		$	2,125
Net interest income (GAAP)						$	978		$	1,099		$	1,220		$	1,196		$	1,097					$	2,077		$	2,111
Plus:			Taxable-equivalent adjustment			8			7			7			7			7						15			13
			Noninterest income (GAAP)			609			608			671			683			688						1,217			1,364
Total taxable-equivalent revenue (non-GAAP)						$	1,595		$	1,714		$	1,898		$	1,886		$	1,792					$	3,309		$	3,488
Cash efficiency ratio (non-GAAP)						66.8		%	68.0		%	60.3		%	58.0		%	59.5		%				67.5		%	60.9		%

Critical Accounting Policies and Estimates

Our business is dynamic and complex. Consequently, we must exercise judgment in choosing and applying accounting policies and methodologies. These choices are critical – not only are they necessary to comply with GAAP, they also reflect our view of the appropriate way to record and report our overall financial performance. All accounting policies are important, and all policies described in Note 1 (“Summary of Significant Accounting Policies”) beginning on page 105 of our 2022 Form 10-K should be reviewed for a greater understanding of how we record and report our financial performance. Note 1 (“Basis of Presentation and Accounting Policies”) of this report should also be reviewed for more information on accounting standards that have been adopted during the period.

In our opinion, some accounting policies are more likely than others to have a critical effect on our financial results and to expose those results to potentially greater volatility. These policies apply to areas of relatively greater business importance or require us to exercise judgment and to make assumptions and estimates that affect amounts reported in the financial statements. Because these assumptions and estimates are based on current circumstances, they may prove to be inaccurate, or we may find it necessary to change them.

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We rely heavily on the use of judgment, assumptions, and estimates to make a number of core decisions, including accounting for the ALLL; contingent liabilities, guarantees and income taxes; derivatives and related hedging activities; and assets and liabilities that involve valuation methodologies. In addition, we may employ outside valuation experts to assist us in determining fair values of certain assets and liabilities. A brief discussion of each of these areas appears on pages 92 through 94 of our 2022 Form 10-K. During the three months ended June 30, 2023, we did not significantly alter the manner in which we applied our critical accounting policies or developed related assumptions and estimates.

Accounting and Reporting Developments

Accounting Guidance Pending Adoption at June 30, 2023

Standard			Required Adoption			Description			Effect on Financial Statements or Other Significant Matters
ASU 2022-03, Fair Value Measurement - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)			January 1, 2024 Early adoption is permitted.			The amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and is not considered in measuring fair value. Entities cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments require disclosures for equity securities subject to contractual restrictions including; the fair value of equity securities subject to contractual sale restrictions reflected in the balance sheet, the nature and remaining duration of the restriction(s) and the circumstances that could cause a lapse in the restriction(s). The guidance should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption.			The guidance is not expected to have any impact on Key’s financial condition or results of operations.

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