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Fair Value Measurements
 9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
Fair Value Measurements
5. Fair Value Measurements

In accordance with GAAP, Key measures certain assets and liabilities at fair value. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in our principal market. Additional information regarding our accounting policies for determining fair value is provided in Note 6 (“Fair Value Measurements”) and Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements” of our 2020 Form 10-K.
Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis in accordance with GAAP. For more information on the valuation techniques used to measure classes of assets and liabilities reported at fair value on a recurring basis as well as the classification of each in the valuation hierarchy, refer to Note 6 (“Fair Value Measurements” in our 2020 Form 10-K. The following tables present these assets and liabilities at September 30, 2021, and December 31, 2020.
September 30, 2021December 31, 2020
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Dollars in millions
ASSETS MEASURED ON A RECURRING BASIS
Trading account assets:
U.S. Treasury, agencies and corporations— $747 — $747 — $633 — $633 
States and political subdivisions— 91 — 91 — 24 — 24 
Other mortgage-backed securities— 21 — 21 — 47 — 47 
Other securities$17 13 — 30 — 13 — 13 
Total trading account securities17 872 — 889 — 717 — 717 
Commercial loans— 13 — 13 — 18 — 18 
Total trading account assets17 885 — 902 — 735 — 735 
Securities available for sale:
U.S. Treasury, agencies and corporations— 8,938 — 8,938 — 1,000 — 1,000 
States and political subdivisions— — — — — — — — 
Agency residential collateralized mortgage obligations— 16,104 — 16,104 — 14,273 — 14,273 
Agency residential mortgage-backed securities— 5,408 — 5,408 — 2,164 — 2,164 
Agency commercial mortgage-backed securities— 10,121 — 10,121 — 10,106 — 10,106 
Other securities— 1 $22 23 — — $13 13 
Total securities available for sale— 40,572 22 40,594 — 27,543 13 27,556 
Other investments:
Principal investments:
Direct— — 1 1 — — 1 1 
Indirect (measured at NAV) (a)
— — — 48 — — — 53 
Total principal investments— — 1 49 — — 1 54 
Equity investments:
Direct— — 9 9 — — 13 13 
Direct (measured at NAV) (a)
— — — 16 — — — 7 
Indirect (measured at NAV) (a)
— — — 6 — — — 7 
Total equity investments— — 9 31 — — 13 27 
Total other investments— — 10 80 — — 14 81 
Loans, net of unearned income (residential)— — 10 10 — — 11 11 
Loans held for sale (residential)— 237 — 237 — 264 — 264 
Derivative assets:
Interest rate— 920 34 954 — 1,528 56 1,584 
Foreign exchange65 15 — 80 $78 31 — 109 
Commodity— 1,799 — 1,799 — 424 2 426 
Credit— — — — — — 1 1 
Other— 16 6 22 — 26 32 58 
Derivative assets65 2,750 40 2,855 78 2,009 91 2,178 
Netting adjustments (b)
— — — (302)— — — (380)
Total derivative assets65 2,750 40 2,553 78 2,009 91 1,798 
Accrued income and other assets— — — — — — — — 
Total assets on a recurring basis at fair value$82 $44,444 $82 $44,376 $78 $30,551 $129 $30,445 
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions$212 $555 — $767 $256 $503 — $759 
Derivative liabilities:
Interest rate— 273 — 273 — 288 — 288 
Foreign exchange60 15 — 75 72 31 — 103 
Commodity— 1,805 — 1,805 — 408 — 408 
Credit— 1 $6 7 — — $11 11 
Other— 11 — 11 — 16 — 16 
Derivative liabilities60 2,105 6 2,171 72 743 11 826 
Netting adjustments (b)
— — — (1,911)— — — (675)
Total derivative liabilities60 2,105 6 260 72 743 11 151 
Total liabilities on a recurring basis at fair value$272 $2,660 $6 $1,027 $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.
The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at September 30, 2021, as well as financial support provided for the three and nine months ended September 30, 2021, and September 30, 2020.
   Financial support provided
   Three months ended September 30,Nine months ended September 30,
 September 30, 20212021202020212020
Dollars 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)
48 $13 $— — 1 — $4 — $1 — 
Total$49 $13 $— — 1 — $4 — $1 — 
(a) Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. At September 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.

Changes in Level 3 Fair Value Measurements

The following table shows the components of the change in the fair values of our Level 3 financial instruments measured at fair value on a recurring basis for the three and nine months ended September 30, 2021, and September 30, 2020. 
Dollars in millionsBeginning of Period BalanceGains (Losses) Included in Other Comprehensive IncomeGains (Losses) Included in EarningsPurchasesSalesSettlementsTransfers OtherTransfers into Level 3Transfers out of Level 3End of Period BalanceUnrealized Gains (Losses) Included in Earnings
Nine months ended September 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 — — — (2)— 1 — — 10 — 
Derivative instruments (b)
Interest rate56 — (20)
(c)
$1 (7)— — $21 
(d)
(17)
(d)
34 — 
Credit(10)— 4 
(c)
— — — — —   —   (6)— 
Other (e)
32 — (3)
(c)
— — — (23)— — 6 — 
Three months ended September 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 — — — (1)— — — — 10 — 
Derivative instruments (b)
Interest rate35 — $(5)
(c)
$1 $(1)— — $9 
(d)
$(5)
(d)
34 — 
Credit(5)— — (1)— — — —     (6)— 
Other (e)
13 — — 
(c)
— — — $(7)— — 6 — 
Dollars in millionsBeginning of Period BalanceGains (Losses) Included in Other Comprehensive IncomeGains (Losses) Included in EarningsPurchasesSalesSettlementsTransfers OtherTransfers into Level 3Transfers out of Level 3End of Period BalanceUnrealized Gains (Losses) Included in Earnings
Nine months ended September 30, 2020
Trading account assets
Other mortgage-backed securities— — — — $(9)— — $36 — $27 — 
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)— $11 — — 1 — 
Loans, net of unearned income (residential)4 — — — (2)— 6 — — 8 — 
Derivative instruments (b)
Interest rate22 — $18 
(c)
$14 (5)— — $98 
(d) 
$(66)
(d) 
81 — 
Credit(8)— (6)
(c)
$1 — — —   (13)— 
Other (e)
5 — — — — — 39 — — 44 — 
Three months ended September 30, 2020
Trading account assets
Other mortgage-backed securities$36 — — — $(9)$— — $— — $27 $— 
Securities available for sale
Other securities12 — — 
  
— — — — — —   12 — 
Other investments
Principal investments
Direct (a)
1 — — — — — — —   —   1 — 
Equity investments
Direct (a)
12 $— 12 — 
Loans held for sale (residential)— — — — $— — $1 — — 1 — 
Loans, net of unearned income (residential)5 — — — — — 3 — — 8 — 
Derivative instruments (b)
Interest rate52 $(3)
(c)
$2 $(4)$36 
(d) 
$(2)
(d) 
81 
Credit(17)— 4 
(c)
— — — — —   — 
  
(13)— 
Other (e)
46 — 5 — — (7)— 44 — 
(a)Realized and unrealized gains and losses on principal investments and other equity investments are reported in “other income” on the income statement.
(b)Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.
(c)Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.
(d)Certain instruments previously classified as Level 2 were transferred to Level 3 because Level 3 unobservable inputs became significant. Certain derivatives previously classified as Level 3 were transferred to Level 2 because Level 3 unobservable inputs became less significant.
(e)Amounts represent Level 3 interest rate lock commitments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with GAAP. The adjustments to fair value generally result from the application of accounting guidance that requires assets and liabilities to be recorded at the lower of cost or fair value, or assessed for impairment. For more information on the valuation techniques used to measure classes of assets and liabilities measured at fair value on a nonrecurring basis, refer to Note 6 (“Fair Value Measurements” in our 2020 Form 10-K.  There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2021, and December 31, 2020.

The following table presents our assets measured at fair value on a nonrecurring basis at September 30, 2021, and December 31, 2020:
 September 30, 2021December 31, 2020
Dollars in millionsLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
ASSETS MEASURED ON A NONRECURRING BASIS
Collateral-dependent loans— — $5 $5 — — $108 $108 
Accrued income and other assets— — 74 74 — $— 56 56 
Total assets on a nonrecurring basis at fair value— — $79 $79 — — $164 $164 

We have other investments in equity securities that do not have readily determinable fair values and do not qualify for the practical expedient to measure the investment using a net asset value per share. We have elected to measure these securities at cost less impairment plus or minus adjustments due to observable orderly transactions. Impairment is recorded when there is evidence that the expected fair value of the investment has declined to below the recorded cost. At each reporting period, we assess if these investments continue to qualify for this measurement alternative. At September 30, 2021, and December 31, 2020, the carrying amount of equity investments under this method was $168 million and $171 million, respectively. No impairment was recorded for the three months ended September 30, 2021.
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 September 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
September 30, 2021December 31, 2020September 30, 2021December 31, 2020
Recurring    
Securities available-for-sale:
Other securities
$22 13 Discounted cash flowsDiscount 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)
10 11 
Market comparable pricing
Comparability factor
64.50 - 97.30% (94.13%)
64.50-99.04% (94.17%)
Derivative instruments:
Interest rate
34 56 Discounted cash flowsProbability of default
.02 - 100% (16.60%)
.02 - 100% (7.90%)
Internal risk rating
1 - 19 (15.133)
1 - 19 (9.675)
Loss given default
0 - 1 (.500)
0 - 1 (.483)
Credit (assets)
— 1 
Discounted cash flows
Probability of default
.02 - 100% (3.10%)
.02 - 100% (4.70%)
Internal risk rating
1 - 19 (9.024)
1 - 19 (10.478)
Loss given default
0 - 1 (.498)
0 - 1 (.490)
Credit (liabilities)
(6)(11)
Discounted cash flows
Probability of default
.02 - 100% (14.91%)
.02 - 100% (15.45%)
Internal risk rating
1 - 19 (8.197)
1 - 19 (8.555)
Loss given default
0 - 1 (.422)
0 - 1 (.431)
Other(d)
6 32 
Discounted cash flows
Loan closing rates
5.90 - 99.70% (85.17%)
36.95 - 99.68% (77.51%)
Nonrecurring   
Collateral-dependent loans5 108 
Fair value of collateral
Discount rate
0 - 0.00% (0.00%)
0 - 100.00% (36.00%)
Accrued income and other assets:
OREO and other Level 3 assets (e)
12 16 Appraised valueAppraised valueN/MN/M
(a)Principal investments, direct is excluded from this table as the balance at September 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 $62 million and $40 million pertaining to servicing assets at September 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 September 30, 2021, and December 31, 2020, are shown in the following tables. Assets and liabilities are further arranged by measurement category.
 September 30, 2021
  Fair Value
Dollars in millions
Carrying
Amount
Level 1Level 2Level 3
Measured
at NAV
Netting
Adjustment
 Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)
$902 $17 $885 — — —   $902 
Other investments (b)
607 — — $537 $70 —   607 
Loans, net of unearned income (residential) (d)
10 — — 10 — —   10 
Loans held for sale (residential) (b)
237 — 237 — — —   237 
Derivative assets - trading (b)
2,469 65 2,739 7 — $(342)
(f) 
2,469 
Fair value - OCI
Securities available for sale (b)
40,594 — 40,572 22 — —   40,594 
Derivative assets - hedging (b)(g)
84 — 45 — — 39 
(f) 
84 
Amortized cost
Held-to-maturity securities (c)
8,423 — 8,664 — — —   8,664 
Loans, net of unearned income (d)
97,515 — — 97,435 — —   97,435 
Loans held for sale (b)
1,568 — — 1,568 — — 1,568 
Other
Cash and other short-term investments (a)
20,371 20,371 — — — — 20,371 
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)
$249 $60 $2,093 $7 — $(1,911)
(f) 
$249 
Fair value - OCI
Derivative liabilities - hedging (b)(g)
11 — 11 — — — 
(f) 
11 
Amortized cost
Time deposits (e)
4,205 — 4,214 — — —   4,214 
Short-term borrowings (a)
995 212 783 — — —   995 
Long-term debt (e)
13,165 13,076 716 — — —   13,792 
Other
Deposits with no stated maturity (a)
147,726 — 147,726 — — — 
  
147,726 
December 31, 2020
 Fair Value
Dollars in millions
Carrying
Amount
Level 1Level 2Level 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.

Discontinued assets — education lending business.  Our discontinued assets include government-guaranteed and private education loans originated through our education lending business that was discontinued in September 2009. This portfolio consists of loans recorded at carrying value with appropriate valuation reserves, and loans in portfolio recorded at fair value. All of these loans were excluded from the table above as follows:
 
•Loans at carrying value, net of allowance, of $602 million ($518 million at fair value) at September 30, 2021, and $674 million ($567 million at fair value) at December 31, 2020;
•Portfolio loans at fair value of $2 million at September 30, 2021, and $2 million at December 31, 2020.

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