Derivatives and Hedging Activities (Tables)

12 Months Ended

Dec. 31, 2019

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 December 31, 2019, and December 31, 2018. The change in the notional amounts of these derivatives by type from December 31, 2018, to December 31, 2019, indicates the volume of our derivative transaction activity during 2019. The notional amounts are not affected by bilateral collateral and master netting agreements. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. 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. Where master netting agreements are not in effect or are not enforceable under bankruptcy laws, we do not adjust those derivative assets and liabilities with counterparties. 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 indicated in the following table:

	December 31, 2019								December 31, 2018
			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	$	39,208	$	191		$	20		$	28,546	$	50		$	(10	)
Foreign exchange	—		—			—			122		2			—
Total	39,208		191			20			28,668		52			(10		)
Derivatives not designated as hedging instruments:
Interest rate	71,209		772			233			63,454		365			307
Foreign exchange	6,572		67			60			6,829		104			95
Commodity	5,324		208			200			2,002		333			323
Credit	427		1			10			226		1			1
Other (a)	3,337		14			10			1,466		9			7
Total	86,869		1,062			513			73,977		812			733
Netting adjustments (b)	—		(473		)	(335		)	—		(333		)	(337		)
Net derivatives in the balance sheet	126,077		780			198			102,645		531			386
Other collateral (c)	—		(2		)	(42		)	—		(2		)	(33		)
Net derivative amounts	$	126,077	$	778		$	156		$	102,645	$	529		$	353

 

(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.

(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 tables summarize the amounts that were recorded on the balance sheet as of December 31, 2019 and December 31, 2018, related to cumulative basis adjustments for fair value hedges.

	December 31, 2019
in millions	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	8,408	$	240
Interest rate contracts	Certificate of deposit ($100,000 or more)	—		—
Interest rate contracts	Other time deposits	—		—

	December 31, 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	$	9,363	$	(6	)
Interest rate contracts	Certificate of deposit ($100,000 or more)	343		(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 adjustments related to de-designated hedges that no longer qualify as fair value hedges reduced the hedge accounting basis adjustment by $9 million and $10 million at December 31, 2019 and December 31, 2018, respectively.

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 years ended December 31, 2019, December 31, 2018, and December 31, 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			Investment banking and debt placement fees		Interest expense – deposits			Other income
Twelve months ended December 31, 2019
Total amounts presented in the consolidated statement of income	$	(454	)	$	4,267		$	630	$	(853	)	$	68
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	(247		)	—			—		(1		)	—
Recognized on derivatives designated as hedging instruments	231			—			—		—			—
Net income (expense) recognized on fair value hedges	(16		)	—			—		(1		)	—
Net gain (loss) on cash flow hedging relationships
Realized gains (losses) (pre-tax) reclassified from AOCI into net income
Interest contracts	(1		)	15			—		—			—
Foreign exchange contracts	—			—			—		—			32
Net income (expense) recognized on cash flow hedges	$	(1	)	$	15		$	—	—			32
Twelve months ended December 31, 2018
Total amounts presented in the consolidated statement of income	$	(420	)	$	4,023		$	650	$	(517	)	$	176
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	(5		)	—			—		1			—
Recognized on derivatives designated as hedging instruments	(12		)	—			—		—			—
Net income (expense) recognized on fair value hedges	(17		)	—			—		$	1		$	—
Net gain (loss) on cash flow hedging relationships
Realized gains (losses) (pre-tax) reclassified from AOCI into net income
Interest contracts	(2		)	(68		)	2		—			31
Net income (expense) recognized on cash flow hedges	$	(2	)	$	(68	)	$	2	—			$	31
Twelve months ended December 31, 2017
Total amounts presented in the consolidated statement of income	$	(319	)	$	3,677		$	603	$	(278	)	$	153
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	—			—			—		—			107
Recognized on derivatives designated as hedging instruments	49			—			—		—			(103		)
Net income (expense) recognized on fair value hedges	49			—			—		—			$	4
Net gain (loss) on cash flow hedging relationships
Realized gains (losses) (pre-tax) reclassified from AOCI into net income
Interest contracts	(4		)	19			—		—			—
Gains (losses) (before tax) recognized in income for hedge ineffectiveness	—			—			—		—			—
Net income (expense) recognized on cash flow hedges	$	(4	)	$	19		$	—	—			—

(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 table summarizes the pre-tax net gains (losses) on our cash flow and net investment hedges for the years ended December 31, 2019, December 31, 2018, and December 31, 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 AOCI 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)
Twelve months ended December 31, 2019
Cash Flow Hedges
Interest rate	$	442		Interest income — Loans	$	15		$	—
Interest rate	(1		)	Interest expense — Long-term debt	(1		)	—
Interest rate	3			Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	(4		)	Other Income	32			—
Total	$	440			$	46		$	—
Twelve months ended December 31, 2018
Cash Flow Hedges
Interest rate	$	(13	)	Interest income — Loans	$	(68	)	$	—
Interest rate	2			Interest expense — Long-term debt	(2		)	—
Interest rate	1			Investment banking and debt placement fees	2			—
Net Investment Hedges
Foreign exchange contracts	19			Other Income	31			—
Total	$	9			$	(37	)	$	—
Twelve months ended December 31, 2017
Cash Flow Hedges
Interest rate	$	(59	)	Interest income — Loans	$	19		$	—
Interest rate	—			Interest expense — Long-term debt	(4		)	—
Interest rate	(1		)	Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	(17		)	Other Income	—			—
Total	$	(77	)		$	15		$	—

(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 table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the years ended December 31, 2019, December 31, 2018, and December 31, 2017, and where they are recorded on the income statement.

	2019											2018											2017
Year ended December 31, in millions	Corporate Services Income			Consumer Mortgage Income		Other Income			Total			Corporate Services Income		Consumer Mortgage Income			Other Income			Total			Corporate Services Income		Consumer Mortgage Income			Other Income			Total
NET GAINS (LOSSES)
Interest rate	$	46		—		$	(2	)	$	44		$	38	—			$	(1	)	$	37		$	29	—			$	(1	)	$	28
Foreign exchange	45			—		—			45			42		—			—			42			41		—			—			41
Commodity	6			—		—			6			8		—			—			8			6		—			—			6
Credit	(6		)	—		(36		)	(42		)	2		—			(30		)	(28		)	2		—			(21		)	(19		)
Other	—			$	2	—			2			—		$	(1	)	12			11			—		$	(1	)	(6		)	(7		)
Total net gains (losses)	$	91		$	2	$	(38	)	$	55		$	90	$	(1	)	$	(19	)	$	70		$	78	$	(1	)	$	(28	)	$	49

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.

December 31, in millions	2019		2018
Interest rate	$	848	$	308
Foreign exchange	30		60
Commodity	95		187
Credit	—		—
Other	14		9
Derivative assets before collateral	987		564
Less: Related collateral	207		33
Total derivative assets	$	780	$	531

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 December 31, 2019, and December 31, 2018. The notional amount represents the amount that the seller could be required to pay. The payment/performance risk shown in the table represents a weighted average of the default probabilities for all reference entities in the respective portfolios. These default probabilities are implied from observed credit indices in the credit default swap market, which are mapped to reference entities based on Key’s internal risk rating.

 

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 December 31, 2019, and December 31, 2018. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of December 31, 2019, and December 31, 2018, and take into account all collateral already posted. A similar calculation was performed for KeyCorp, and no additional collateral would have been required at December 31, 2019, or December 31, 2018.

December 31, in millions	2019				2018
	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