Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2021

Fair Value of Assets and Liabilities Measured on Recurring Basis

The following tables present these assets and liabilities at June 30, 2021, and December 31, 2020.


	June 30, 2021								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
in millions
ASSETS MEASURED ON A RECURRING BASIS



Trading account assets:
U.S. Treasury, agencies and corporations	—		$	631	—		$	631	—		$	633	—		$	633
States and political subdivisions	—		86		—		86		—		24		—		24

Other mortgage-backed securities	—		106		—		106		—		47		—		47
Other securities	—		13		—		13		—		13		—		13
Total trading account securities	—		836		—		836		—		717		—		717
Commercial loans	—		15		—		15		—		18		—		18
Total trading account assets	—		851		—		851		—		735		—		735
Securities available for sale:
U.S. Treasury, agencies and corporations	—		4,886		—		4,886		—		1,000		—		1,000
States and political subdivisions	—		—		—		—		—		—		—		—
Agency residential collateralized mortgage obligations	—		14,374		—		14,374		—		14,273		—		14,273
Agency residential mortgage-backed securities	—		4,878		—		4,878		—		2,164		—		2,164
Agency commercial mortgage-backed securities	—		10,478		—		10,478		—		10,106		—		10,106
Other securities	—		—		$	22	22		—		—		$	13	13
Total securities available for sale	—		34,616		22		34,638		—		27,543		13		27,556
Other investments:
Principal investments:
Direct	—		—		1		1		—		—		1		1
Indirect (measured at NAV) (a)	—		—		—		53		—		—		—		53
Total principal investments	—		—		1		54		—		—		1		54
Equity investments:
Direct	11		—		9		20		—		—		13		13
Direct (measured at NAV) (a)	—		—		—		12		—		—		—		7
Indirect (measured at NAV) (a)	—		—		—		7		—		—		—		7
Total equity investments	11		—		9		39		—		—		13		27
Total other investments	11		—		10		93		—		—		14		81
Loans, net of unearned income (residential)	—		—		11		11		—		—		11		11
Loans held for sale (residential)	—		231		—		231		—		264		—		264
Derivative assets:
Interest rate	—		1,070		35		1,105		—		1,528		56		1,584
Foreign exchange	$	65	22		—		87		$	78	31		—		109
Commodity	—		1,198		—		1,198		—		424		2		426
Credit	—		—		1		1		—		—		1		1
Other	—		7		13		20		—		26		32		58
Derivative assets	65		2,297		49		2,411		78		2,009		91		2,178
Netting adjustments (b)	—		—		—		(251)		—		—		—		(380)
Total derivative assets	65		2,297		49		2,160		78		2,009		91		1,798
Accrued income and other assets	—		—		—		—		—		—		—		—
Total assets on a recurring basis at fair value	$	76	$	37,995	$	92	$	37,984	$	78	$	30,551	$	129	$	30,445
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions	$	211	$	512	—		$	723	$	256	$	503	—		$	759
Derivative liabilities:
Interest rate	—		289		—		289		—		288		—		288
Foreign exchange	62		21		—		83		72		31		—		103
Commodity	—		1,205		—		1,205		—		408		—		408
Credit	—		2		$	6	8		—		—		$	11	11
Other	—		12		—		12		—		16		—		16
Derivative liabilities	62		1,529		6		1,597		72		743		11		826
Netting adjustments (b)	—		—		—		(1,428)		—		—		—		(675)
Total derivative liabilities	62		1,529		6		169		72		743		11		151

Total liabilities on a recurring basis at fair value	$	273	$	2,041	$	6	$	892	$	328	$	1,246	$	11	$	910

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

(b)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.

Fair Value of Direct and Indirect Investments, Related Unfunded Commitments and Financial Support Provided

The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at June 30, 2021, as well as financial support provided for the three and six months ended June 30, 2021, and June 30, 2020.


					Financial support provided
					Three months ended June 30,					Six months ended June 30,
	June 30, 2021				2021			2020		2021			2020
in millions	Fair Value		Unfunded Commitments		Funded Commitments		Funded Other	Funded Commitments	Funded Other	Funded Commitments		Funded Other	Funded Commitments		Funded Other
INVESTMENT TYPE
Direct investments	$	1	—		—		—	—	—	—		—	—		—
Indirect investments (measured at NAV) (a)	53		$	13	$	2	—	—	—	$	4	—	$	—	—
Total	$	54	$	13	$	2	—	—	—	$	4	—	$	—	—

(a) Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. At June 30, 2021, no significant liquidation of the underlying investments has been communicated to Key. The purpose of funding our capital commitments to these investments is to allow the funds to make additional follow-on investments and pay fund expenses until the fund dissolves. We, and all other investors in the fund, are obligated to fund the full amount of our respective capital commitments to the fund based on our and their respective ownership percentages, as noted in the applicable Limited Partnership Agreement.

Change in Fair Values of Level 3 Financial Instruments

The following table shows the components of the change in the fair values of our Level 3 financial instruments measured at fair value on a recurring basis for the three and six months ended June 30, 2021, and June 30, 2020.


in millions	Beginning of Period Balance		Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings			Purchases		Sales		Settlements	Transfers Other		Transfers into Level 3			Transfers out of Level 3			End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Six months ended June 30, 2021


Securities available for sale
Other securities	$	13	$	9	—			—		—		—	—		—			—			$	22	—
Other investments
Principal investments
Direct (a)	1		—		—			—		—		—	—		—			—			1		—

Equity investments
Direct (a)	13		—		$	(1)		—		—		—	—		—			$	(3)		9		$	(1)
Loans held for sale (residential)	—		—		—			—		$	(1)	—	$	1	—			—			—		—
Loans, net of unearned income (residential)	11		—		—			—		(1)		—	1		—			—			11		—
Derivative instruments (b)
Interest rate	56		—		(15)		(c)	$	1	(7)		—	—		$	12	(d)	(12)		(d)	35		—
Credit	(10)		—		5		(c)	—		—		—	—		—			—			(5)		—
Other (e)	32		—		(3)		(c)	—		—		—	(16)		—			—			13		—
Three months ended June 30, 2021


Securities available for sale
Other securities	$	22	—		—			—		—		—	—		—			—			$	22	—
Other investments
Principal investments
Direct (a)	1		—		—			—		—		—	—		—			—			1		—

Equity investments
Direct (a)	9		—		—			—		—		—	—		—			—			9		—
Loans held for sale (residential)	—		—		—			—		—		—	—		—			—			—		—
Loans, net of unearned income (residential)	11		—		—			—		—		—	—		—			—			11		—
Derivative instruments (b)
Interest rate	30		—		$	7	(c)	$	—	$	(2)	—	—		$	5	(d)	$	(5)	(d)	35		—
Credit	(5)		—		—			—				—	—		—						(5)		—
Other (e)	6		—		1		(c)	—		—		—	$	6	—			—			13		—


in millions	Beginning of Period Balance		Gains (Losses) Included in Other Comprehensive Income		Gains (Losses) Included in Earnings			Purchases		Sales		Settlements		Transfers Other		Transfers into Level 3			Transfers out of Level 3			End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Six months ended June 30, 2020
Trading account assets
Other mortgage-backed securities	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	36		$	—		$	36	$	—
Securities available for sale
Other securities	11		1		—			—		—		—		—		—			—			12		—
Other investments
Principal investments
Direct (a)	1		—		—			—		—		—		—		—			—			1		—
Equity investments
Direct (a)	12		—		$	—		—		—		—		—		—			—			12		$	—
Loans held for sale (residential)	—		—		—			—		(10)		—		$	10	—			—			—		—
Loans, net of unearned income (residential)	4		—		—			—		$	(1)	—		2		—			—			5		—
Derivative instruments (b)
Interest rate	22		—		22		(c)	11		(1)		—		—		$	62	(d)	$	(64)	(d)	52		—
Credit	(8)		—		(10)		(c)	$	1			—		—		—						(17)		—
Other (e)	5		—		—			—		—		—		41		—			—			46		—
Three months ended June 30, 2020
Trading account assets
Other mortgage-backed securities	—		—		—			$	—	$	—	$	—	—		$	36		—			$	36	$	—
Securities available for sale
Other securities	$	9	$	3	—			—		—		—		—		—			—			12		—
Other investments
Principal investments
Direct (a)	1		—		—			—		—		—		—		—			—			1		—
Equity investments
Direct (a)	10				$	2																12		2
Loans held for sale (residential)	10		—		—			—		$	(10)	—		—		—			—			—		—
Loans, net of unearned income (residential)	3		—		—			—		—		—		$	2	—			—			5		—
Derivative instruments (b)
Interest rate	96				3		(c)									7		(d)	$	(54)	(d)	52
Credit	(23)		—		6		(c)	—		—		—		—		—			—			(17)		—
Other (e)	23		—		—			—				—		23		—						46		—

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

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

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

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

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

Assets and Liabilities Measured at Fair Value on Nonrecurring Basis

The following table presents our assets measured at fair value on a nonrecurring basis at June 30, 2021, and December 31, 2020:


	June 30, 2021						December 31, 2020
in millions	Level 1	Level 2	Level 3		Total		Level 1	Level 2		Level 3		Total
ASSETS MEASURED ON A NONRECURRING BASIS
Collateral-dependent loans	—	—	$	36	$	36	—	—		$	108	$	108


Accrued income and other assets	—	—	101		101		—	$	—	56		56
Total assets on a nonrecurring basis at fair value	—	—	$	137	$	137	—	—		$	164	$	164

Quantitative Information about Level 3 Fair Value Measurements

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

recurring and nonrecurring assets at June 30, 2021, and December 31, 2020, along with the valuation

techniques used, are shown in the following table:


	Level 3 Asset (Liability)			Valuation Technique	Significant Unobservable Input	Range (Weighted-Average) (b), (c)
dollars in millions	June 30, 2021		December 31, 2020			June 30, 2021	December 31, 2020
Recurring





Securities available-for-sale:
Other securities	$	22	13	Discounted cash flows	Discount rate	N/A (16.61%)	N/A (15.09%)
					Marketability discount	N/A (30.00%)	N/A (30.00%)
					Volatility factor	N/A (55.00%)	N/A (44.00%)
Other investments:(a)
Equity investments
Direct	9		13	Discounted cash flows	Discount rate	N/A (14.15%)	13.90 - 17.04% (15.47%)
					Marketability discount	N/A	N/A (30.00%)
					Volatility factor	N/A	N/A (52.00%)

Loans, net of unearned income (residential)	11		11	Market comparable pricing	Comparability factor	80.88 - 98.37% (94.96%)	64.50-99.04% (94.17%)
Derivative instruments:
Interest rate	35		56	Discounted cash flows	Probability of default	.02 - 100% (7.50%)	.02 - 100% (7.90%)
					Internal risk rating	1 - 19 (9.803)	1 - 19 (9.675)
					Loss given default	0 - 1 (.485)	0 - 1 (.483)
Credit (assets)	1		1	Discounted cash flows	Probability of default	.02 - 100% (3.20%)	.02 - 100% (4.70%)
					Internal risk rating	1 - 19 (9.331)	1 - 19 (10.478)
					Loss given default	0 - 1 (.491)	0 - 1 (.490)
Credit (liabilities)	(6)		(11)	Discounted cash flows	Probability of default	.02 - 100% (14.15%)	.02 - 100% (15.45%)
					Internal risk rating	1 - 19 (8.546)	1 - 19 (8.555)
					Loss given default	0 - 1 (.429)	0 - 1 (.431)
Other(d)	13		32	Discounted cash flows	Loan closing rates	2.43 - 103.66% (86.92%)	36.95 - 99.68% (77.51%)
Nonrecurring
Collateral-dependent loans	36		108	Fair value of collateral	Discount rate	0 - 100.00% (28.00%)	0 - 100.00% (36.00%)


Accrued income and other assets:

OREO and other Level 3 assets (e)	13		16	Appraised value	Appraised value	N/M	N/M

(a)Principal investments, direct is excluded from this table as the balance at June 30, 2021, and December 31, 2020, is insignificant (less than $1 million).

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

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

(d)Amounts represent interest rate lock commitments.

(e)Excludes $88 million and $40 million pertaining to servicing assets at June 30, 2021, and December 31, 2020, respectively. Refer to Note 8 (“Mortgage Servicing Assets”) for significant unobservable inputs pertaining to these assets.

Fair Value Disclosures of Financial Instruments

The Levels in the fair value hierarchy ascribed to our financial instruments and the related carrying amounts at June 30, 2021, and December 31, 2020, are shown in the following tables. Assets and liabilities are further arranged by measurement category.


	June 30, 2021
			Fair Value
in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment			Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)	$	851	$	—	$	851	—		—		—			$	851
Other investments (b)	635		11		—		$	551	$	73	—			635
Loans, net of unearned income (residential) (d)	11		—		—		11		—		—			11
Loans held for sale (residential) (b)	231		—		231		—		—		—			231
Derivative assets - trading (b)	2,064		65		2,248		49		—		$	(298)	(f)	2,064
Fair value - OCI
Securities available for sale (b)	34,638		—		34,616		22		—		—			34,638
Derivative assets - hedging (b)(g)	96		—		49		—		—		47		(f)	96
Amortized cost
Held-to-maturity securities (c)	6,175		—		6,474		—		—		—			6,474
Loans, net of unearned income (d)	99,499		—		—		99,283		—		—			99,283
Loans held for sale (b)	1,306		—		—		1,306		—		—			1,306
Other

Cash and other short-term investments (a)	21,252		21,252		—		—		—		—			21,252
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)	$	152	$	62	$	1,511	7		—		$	(1,428)	(f)	$	152
Fair value - OCI
Derivative liabilities - hedging (b)(g)	17		—		17		—		—		—		(f)	17
Amortized cost
Time deposits (e)	4,557		—		4,567		—		—		—			4,567
Short-term borrowings (a)	934		211		723		—		—		—			934
Long-term debt (e)	13,211		13,172		723		—		—		—			13,895
Other
Deposits with no stated maturity (a)	141,515		—		141,515		—		—		—			141,515


	December 31, 2020
			Fair Value
in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment			Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)	$	735	—		$	735	—		—		—			$	735
Other investments (b)	621		—		—		$	555	$	66	—			621
Loans, net of unearned income (residential) (d)	11		—		—		11		—		—			11
Loans held for sale (residential) (b)	264		—		264		—		—		—			264
Derivative assets - trading (b)	1,676		$	78	1,939		91		—		$	(433)	(f)	1,675
Fair value - OCI
Securities available for sale (b)	27,556		—		27,543		13		—		—			27,556
Derivative assets - hedging (b)(g)	123		—		70		—		—		53		(f)	123
Amortized cost
Held-to-maturity securities (c)	7,595		—		8,023		—		—		—			8,023
Loans, net of unearned income (d)	99,548		—		—		98,946		—		—			98,946
Loans held for sale (b)	1,319		—		—		1,319		—		—			1,319
Other
Short-term investments - U.S. Treasury Bills (b)	—		—		—		—		—		—			—
Cash and other short-term investments (a)	17,285		17,285		—		—		—		—			17,285
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)	$	154	$	72	$	746	$	11	—		$	(675)	(f)	$	154
Fair value - OCI
Derivative liabilities - hedging (b)(g)	(3)		—		(3)		—		—		—		(f)	(3)
Amortized cost
Time deposits (e)	5,743		—		5,765		—		—		—			5,765
Short-term borrowings (a)	979		256		723		—		—		—			979
Long-term debt (e)	13,709		13,925		734		—		—		—			14,659
Other
Deposits with no stated maturity (a)	129,539		—		129,539		—		—		—			129,539

Valuation Methods and Assumptions

(a)Fair value equals or approximates carrying amount. The fair value of deposits with no stated maturity does not take into consideration the value ascribed to core deposit intangibles.

(b)Information pertaining to our methodology for measuring the fair values of these assets and liabilities is included in the sections entitled “Qualitative Disclosures of Valuation Techniques” and “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” within our 2020 Form 10-K Note 6 (“Fair Value Measurements”). Investments accounted for under the cost method (or cost less impairment adjusted for observable price changes for certain equity investments) are classified as Level 3 assets. These investments are not actively traded in an open market as sales for these types of investments are rare. The carrying amount of the investments carried at cost are adjusted for declines in value if they are considered to be other-than-temporary (or due to observable orderly transactions of the same issuer for equity investments eligible for the cost less impairment measurement alternative). These adjustments are included in “other income” on the income statement.

(c)Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure that they are reasonable and consistent with the values placed on similar securities traded in the secondary markets.

(d)The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their fair value.

(e)Fair values of time deposits and long-term debt are based on discounted cash flows utilizing relevant market inputs.

(f)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.

(g)Derivative assets-hedging and derivative liabilities-hedging includes both cash flow and fair value hedges. Additional information regarding our accounting policies for cash flow and fair value hedges is provided in Note 1 (“1. Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging” beginning on page 114 of our 2020 Form 10-K.