Derivatives and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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

The following table summarizes the fair values of our derivative instruments on a gross and net basis as of September 30, 2018, and December 31, 2017. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Securities collateral related to legally enforceable master netting

agreements is not offset on the balance sheet. Our derivative instruments are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the balance sheet, as follows:

	September 30, 2018								December 31, 2017
			Fair Value								Fair Value
in millions	Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate	$	27,445	$	38		$	(4	)	$	26,176	$	81		$	46
Foreign exchange	254		2			1			302		1			4
Total	27,699		40			(3		)	26,478		82			50
Derivatives not designated as hedging instruments:
Interest rate	65,617		272			449			61,390		641			474
Foreign exchange	7,695		100			92			8,317		129			120
Commodity	2,235		491			481			1,687		255			246
Credit	401		—			3			315		1			4
Other (a)	1,795		7			3			2,006		4			13
Total	77,743		870			1,028			73,715		1,030			857
Netting adjustments (b)	—		(162		)	(582		)	—		(443		)	(616		)
Net derivatives in the balance sheet	105,442		748			443			100,193		669			291
Other collateral (c)	—		(1		)	(50		)	—		(5		)	(84		)
Net derivative amounts	$	105,442	$	747		$	393		$	100,193	$	664		$	207

(a) Other derivatives include interest rate lock commitments and forward sale commitments related to our residential mortgage banking activities, forward purchase and sales contracts consisting of contractual commitments associated with “to be announced” securities and when-issued securities, and when-issued security transactions in connection with an “at-the-market” equity offering program.

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

(c)

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

Pre-Tax Net Gains (Losses) on Fair Value Hedges

The following table summarizes the amounts that were recorded on the balance sheet as of September 30, 2018, related to cumulative basis adjustments for fair value hedges.

	September 30, 2018
in millions	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	9,442	$	(145	)
Interest rate contracts	Certificate of deposit ($100,000 or more)	344		(1		)
Interest rate contracts	Other time deposits	178		—

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

(b)

Basis adjustment includes $10 million related to de-designated hedged items no longer in qualifying fair value hedging relationships.

Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location

The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the three- and nine-month periods ended September 30, 2018, and September 30, 2017.

	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships (a)
in millions	Interest expense – long-term debt			Interest income – loans			Interest expense - deposits			Other income
Three months ended September 30, 2018
Total amounts presented in the consolidated statement of income	$	(108	)	$	1,025		$	(140	)	$	23
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	41			—			—			—
Recognized on derivatives designated as hedging instruments	(46		)	—			—			—
Net income (expense) recognized on fair value hedges	(5		)	—			—			—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	(2		)	(15		)	—			—
Net income (expense) recognized on cash flow hedges	$	(2	)	$	(15	)	—			—
Three months ended September 30, 2017
Total amounts presented in the consolidated statement of income	$	(86	)	$	928		$	(72	)	$	21
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	—			—			—			20
Recognized on derivatives designated as hedging instruments	10			—			—			(19		)
Net income (expense) recognized on fair value hedges	10			—			—			1
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	(1		)	1			—			—
Gains (losses) (before tax) recognized in income for hedge ineffectiveness	—			—			—			—
Net income (expense) recognized on cash flow hedges	$	(1	)	$	1		—			—

	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships (a)
in millions	Interest expense – long-term debt			Interest income – loans			Interest expense - deposits			Other income
Nine months ended September 30, 2018
Total amounts presented in the consolidated statement of income	$	(302	)	$	2,965		$	(343	)	$	143
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	134			—			1			—
Recognized on derivatives designated as hedging instruments	(140		)	—			—			—
Net income (expense) recognized on fair value hedges	(6		)	—			1			—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	(2		)	(42		)	—			—
Net income (expense) recognized on cash flow hedges	$	(2	)	$	(42	)	—			—
Nine months ended September 30, 2017
Total amounts presented in the consolidated statement of income	$	(228	)	$	2,753		$	(196	)	$	138
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	—			—			—			50
Recognized on derivatives designated as hedging instruments	42			—			—			(49		)
Net income (expense) recognized on fair value hedges	42			—			—			1
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	(3		)	21			—			—
Gains (losses) (before tax) recognized in income for hedge ineffectiveness	—			—			—			—
Net income (expense) recognized on cash flow hedges	$	(3	)	$	21		—			—

(a) Prior period gain or loss amounts were not restated to conform to the new hedge accounting guidance adopted in 2018.

Derivative Instrument Cash Flow Hedge Earning Recognized by Income Statement Location

The following tables summarize the pre-tax net gains (losses) on our cash flow and net investment hedges for the three- and nine-month periods ended September 30, 2018, and September 30, 2017, and where they are recorded on the income statement. The table includes net gains (losses) recognized in OCI during the period and net gains (losses) reclassified from OCI into income during the current period.

in millions	Net Gains (Losses) Recognized in OCI			Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income(a)			Net Gains (Losses) Recognized in Other Income(a)
Three months ended September 30, 2018
Cash Flow Hedges
Interest rate	$	(32	)	Interest income — Loans	$	(15	)	$	—
Interest rate	(1		)	Interest expense — Long-term debt	(2		)	—
Interest rate	1			Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	(2		)	Other Income	—			—
Total	$	(34	)		$	(17	)	$	—
Three months ended September 30, 2017
Cash Flow Hedges
Interest rate	$	(1	)	Interest income — Loans	$	1		$	—
Interest rate	(1		)	Interest expense — Long-term debt	(1		)	—
Interest rate	(1		)	Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	(12		)	Other Income	—			—
Total	$	(15	)		$	—		$	—

in millions	Net Gains (Losses) Recognized in OCI			Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income(a)			Net Gains (Losses) Recognized in Other Income(a)
Nine months ended September 30, 2018
Cash Flow Hedges
Interest rate	$	(178	)	Interest income — Loans	$	(42	)	$	—
Interest rate	3			Interest expense — Long-term debt	(2		)	—
Interest rate	2			Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	8			Other Income	—			—
Total	$	(165	)		$	(44	)	$	—
Nine months ended September 30, 2017
Cash Flow Hedges
Interest rate	$	(1	)	Interest income — Loans	$	21		$	—
Interest rate	(1		)	Interest expense — Long-term debt	(3		)	—
Interest rate	(1		)	Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	(22		)	Other Income	—			—
Total	$	(25	)		$	18		$	—

(a)

Prior period gain or loss amounts were not restated to conform to the new hedge accounting guidance adopted in 2018.

Pre-Tax Net Gains (Losses) on Derivatives Not Designated as Hedging Instruments

The following tables summarize the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the three- and nine-month periods ended September 30, 2018, and September 30, 2017, and where they are recorded on the income statement.

	Three months ended September 30, 2018										Three months ended September 30, 2017
in millions	Corporate services income		Consumer mortgage income		Other income			Total			Corporate services income		Consumer mortgage income			Other income			Total
NET GAINS (LOSSES)
Interest rate	$	8	$	—	$	2		$	10		$	5	—			$	1		$	6
Foreign exchange	10		—		—			10			10		—			—			10
Commodity	—		—		—			—			1		—			—			1
Credit	—		—		(7		)	(7		)	—		—			(6		)	(6		)
Other	—		1		1			2			—		$	(1	)	7			6
Total net gains (losses)	$	18	$	1	$	(4	)	$	15		$	16	$	(1	)	$	2		$	17

	Nine months ended September 30, 2018										Nine months ended September 30, 2017
in millions	Corporate services income		Consumer mortgage income		Other income			Total			Corporate services income		Consumer mortgage income		Other income			Total
NET GAINS (LOSSES)
Interest rate	$	28	$	—	$	4		$	32		$	21	—		$	(1	)	$	20
Foreign exchange	32		—		—			32			31		—		—			31
Commodity	6		—		—			6			4		—		—			4
Credit	2		—		(26		)	(24		)	1		—		(16		)	(15		)
Other	—		1		13			14			—		$	—	(4		)	(4		)
Total net gains (losses)	$	68	$	1	$	(9	)	$	60		$	57	$	—	$	(21	)	$	36

Fair Value of Derivative Assets by Type

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

in millions	September 30, 2018			December 31, 2017
Interest rate	$	189		$	401
Foreign exchange	61			77
Commodity	376			163
Credit	(1		)	1
Other	7			4
Derivative assets before collateral	632			646
Less: Related collateral	(116		)	(23		)
Total derivative assets	$	748		$	669

Fair Value of Credit Derivatives Purchased and Sold

The following table summarizes the fair value of our credit derivatives purchased and sold by type as of September 30, 2018, and December 31, 2017. The fair value of credit derivatives presented below does not take into account the effects of bilateral collateral or master netting agreements.

	September 30, 2018								December 31, 2017
in millions	Purchased			Sold		Net			Purchased			Sold	Net
Single-name credit default swaps	$	(1	)	—		$	(1	)	$	(1	)	—	$	(1	)
Traded credit default swap indices	(1		)	—		(1		)	(2		)	—	(2		)
Other	—			(1	)	(1		)	—			—	—
Total credit derivatives	$	(2	)	(1	)	$	(3	)	$	(3	)	—	$	(3	)

Credit Derivatives Sold and Held

The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at September 30, 2018, and December 31, 2017. The notional amount represents the maximum amount that the seller could be required to pay. The payment/performance risk assessment is based on the default probabilities for the underlying reference entities’ debt obligations using a Moody’s credit ratings matrix known as Moody’s “Idealized” Cumulative Default Rates. The payment/performance risk shown in the table represents a weighted-average of the default probabilities for all reference entities in the respective portfolios. These default probabilities are directly correlated to the probability that we will have to make a payment under the credit derivative contracts.

	September 30, 2018					December 31, 2017
dollars in millions	Notional Amount		Average Term (Years)	Payment / Performance Risk		Notional Amount		Average Term (Years)	Payment / Performance Risk
Other	$	12	2.47	5.01	%	$	15	3.08	6.64	%
Total credit derivatives sold	$	12	—	—		$	15	—	—

Credit Risk Contingent Feature

The following table summarizes the additional cash and securities collateral that KeyBank would have been required to deliver under the ISDA Master Agreements had the credit risk contingent features been triggered for the derivative contracts in a net liability position as of September 30, 2018, and December 31, 2017. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of September 30, 2018, and December 31, 2017, and take into account all collateral already posted. A similar calculation was performed for KeyCorp, and no additional collateral would have been required as

of September 30, 2018, and December 31, 2017. For more information about the credit ratings for KeyBank and KeyCorp, see the discussion under the heading “Factors affecting liquidity” in the section entitled “Liquidity risk management” in Item 2 of this report.

	September 30, 2018				December 31, 2017
in millions	Moody’s		S&P		Moody’s		S&P
KeyBank’s long-term senior unsecured credit ratings	A3		A-		A3		A-
One rating downgrade	$	1	$	1	$	2	$	2
Two rating downgrades	1		1		2		2
Three rating downgrades	1		1		2		2