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KEY Keycorp

Filed: 4 May 21, 3:20pm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549 
 
FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number 001-11302
 
 
KeyCorp
keylogoa111.jpg
Exact name of registrant as specified in its charter:
 
Ohio34-6542451
State or other jurisdiction of incorporation or organization:I.R.S. Employer Identification Number:
127 Public Square,Cleveland,Ohio44114-1306
Address of principal executive offices:Zip Code:
(216) 689-3000
Registrant’s telephone number, including area code:
 
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, $1 par valueKEYNew York Stock Exchange
Depositary Shares (each representing a 1/40th interest in a share of Fixed-to-Floating RateKEY PrINew York Stock Exchange
Perpetual Non-Cumulative Preferred Stock, Series E)
Depositary Shares (each representing a 1/40th interest in a share of Fixed Rate Perpetual Non-KEY PrJNew York Stock Exchange
Cumulative Preferred Stock, Series F)
Depositary Shares (each representing a 1/40th interest in a share of Fixed Rate Perpetual Non-KEY PrKNew York Stock Exchange
Cumulative Preferred Stock, Series G)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common Shares with a par value of $1 each970,519,438 shares
Title of classOutstanding at April 29, 2021
1

KEYCORP
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
  Page Number
Item 1.
2

Item 2.
Selected financial data
Item 3.
Item 4.

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PART I. FINANCIAL INFORMATION

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 March 31, 2021, and March 31, 2020. 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 “2020 Form 10-K” refer to our Form 10-K for the year ended December 31, 2020, 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 to KeyCorp’s subsidiary bank, KeyBank National Association.

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 (both to accommodate clients’ needs and to benefit from fluctuations in exchange rates).
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.
ARRC: Alternative Reference Rates Committee.
ASC: Accounting Standards Codification.
ASU: Accounting Standards Update.
ATMs: Automated teller machines.
Austin: Austin Capital Management, Ltd.
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.
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.
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.
HelloWallet: HelloWallet, LLC.
HTC: Historic tax credit.
IRS: Internal Revenue Service.
ISDA: International Swaps and Derivatives Association.
KBCM: KeyBanc Capital Markets, Inc.
KCC: Key Capital Corporation.
KCDC: Key Community Development Corporation.
KEF: Key Equipment Finance.
KIBS: Key Insurance & Benefits Services, Inc.
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.
Nasdaq: The Nasdaq Stock Market LLC.
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.
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.
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.
TCJ Act: Tax Cuts and Jobs Act.
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,” 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 due to the COVID-19 global pandemic;
the decline in oil prices;
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 failures 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 or man-made disasters, global pandemics, conflicts, or terrorist attacks, or other adverse external events;
increased operational risks resulting from the COVID-19 global pandemic;
our participation in the Paycheck Protection Program;
evolving capital and liquidity standards under applicable regulatory rules;
disruption of the U.S. financial system;
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;
uncertainty in markets due to the COVID-19 global pandemic;
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;
economic disruption related to interest rate risk and market risk due to the COVID-19 global pandemic;
our ability to attract and retain talented executives and employees and 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;
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. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our 2020 Form 10-K and 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

Our financial outlook and results of operations have been impacted by the economic fallout of the COVID-19 pandemic. Our long-term targets have not changed as we expect to continue to deliver positive operating leverage and strong financial returns as we emerge from this period of economic & financial stress.
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(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.
chart-4a27cd24274c4563a9b1.jpg
chart-a33cf568235844f291e1.jpg
(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 54.0% to 56.0%.

Our results for the first quarter of 2021 continue to reflect the hard work and dedication of our team and their commitment to serving our clients as we work through the ongoing pandemic. We achieved positive operating leverage compared to the year-ago quarter, and generated record first quarter revenue, up 19% from the year-ago quarter. This was driven by a record first quarter for investment banking & debt placement fees and continued strength in consumer mortgage fee income.



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 decreased seven basis points, and nonperforming loans declined by $57 million from the prior quarter. Our provision for credit losses reflects a benefit from strong credit metrics and an improved outlook for the overall economy, credit migration, and loan production.

Financial Return

A return on average tangible common equity in the range of 16.00% to 19.00%.

We have continued to maintain a strong level of capital. Return on average tangible common equity increased ~160 basis points from the prior quarter, to 18.2%. We ended the first quarter of 2021 with a Common Equity Tier 1 ratio of 9.9%, which is above our targeted range of 9.0% to 9.5%. We believe that this provides us with sufficient capacity to continue to support our customers and their borrowing needs and return capital to our shareholders.
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Selected financial data          
      
Our financial performance for each of the last five quarters is summarized in Figure 1.

Figure 1. Selected Financial Data
20212020
dollars in millions, except per share amountsFirstFourthThirdSecondFirst
FOR THE PERIOD
Interest income$1,087 $1,125 $1,119 $1,190 $1,251 
Interest expense82 90 119 172 270 
Net interest income1,005 1,035 1,000 1,018 981 
Provision for credit losses(93)20 160 482 359 
Noninterest income738 802 681 692 477 
Noninterest expense1,071 1,128 1,037 1,013 931 
Income (loss) from continuing operations before income taxes765 689 484 215 168 
Income (loss) from continuing operations attributable to Key618 575 424 185 145 
Income (loss) from discontinued operations, net of taxes4 
Net income (loss) attributable to Key622 582 428 187 146 
Income (loss) from continuing operations attributable to Key common shareholders591 549 397 159 118 
Income (loss) from discontinued operations, net of taxes4 
Net income (loss) attributable to Key common shareholders595 556 401 161 119 
PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders$.61 $.57 $.41 $.16 $.12 
Income (loss) from discontinued operations, net of taxes .01 — — — 
Net income (loss) attributable to Key common shareholders (a)
.62 .57 .41 .17 .12 
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution.61 .56 .41 .16 .12 
Income (loss) from discontinued operations, net of taxes — assuming dilution .01 — — — 
Net income (loss) attributable to Key common shareholders — assuming dilution (a)
.61 .57 .41 .17 .12 
Cash dividends paid.185 .185 .185 .185 .185 
Book value at period end16.22 16.53 16.25 16.07 15.95 
Tangible book value at period end13.30 13.61 13.32 13.12 12.98 
Weighted-average common shares outstanding (000)964,878 967,987 967,804 967,147 967,446 
Weighted-average common shares and potential common shares outstanding (000) (b)
974,297 976,460 973,988 972,141 976,110 
AT PERIOD END
Loans$100,926 $101,185 $103,081 $106,159 $103,198 
Earning assets160,810 155,469 155,585 156,177 141,333 
Total assets176,203 170,336 170,540 171,192 156,197 
Deposits142,183 135,282 136,746 135,513 115,304 
Long-term debt12,499 13,709 12,685 13,734 13,732 
Key common shareholders’ equity15,734 16,081 15,822 15,642 15,511 
Key shareholders’ equity17,634 17,981 17,722 17,542 17,411 
PERFORMANCE RATIOS — FROM CONTINUING OPERATIONS
Return on average total assets1.44 %1.35 %1.00 %.45 %.40 %
Return on average common equity14.98 13.65 9.98 4.05 3.10 
Return on average tangible common equity (c)
18.25 16.61 12.19 4.96 3.82 
Net interest margin (TE)2.61 2.70 2.62 2.76 3.01 
Cash efficiency ratio (c)
60.3 60.3 60.6 57.9 62.3 
PERFORMANCE RATIOS — FROM CONSOLIDATED OPERATIONS
Return on average total assets1.45 %1.36 %1.00 %.46 %.40 %
Return on average common equity15.08 13.82 10.08 4.10 3.12 
Return on average tangible common equity (c)
18.37 16.82 12.31 5.02 3.86 
Net interest margin (TE)2.60 2.69 2.62 2.76 3.00 
Loan-to-deposit (d)
73.1 76.5 77.2 80.4 92.1 
CAPITAL RATIOS AT PERIOD END
Key shareholders’ equity to assets10.0 %10.6 %10.4 %10.2 %11.1 %
Key common shareholders’ equity to assets9.0 9.5 9.3 9.2 10.0 
Tangible common equity to tangible assets (c)
7.5 7.9 7.8 7.6 8.3 
Common Equity Tier 19.9 9.7 9.5 9.1 8.9 
Tier 1 risk-based capital11.3 11.1 10.9 10.5 10.2 
Total risk-based capital13.4 13.4 13.3 12.8 12.2 
Leverage8.9 8.9 8.7 8.8 9.8 
TRUST ASSETS
Assets under management$45,218 $44,140 $41,312 $39,722 $36,189 
OTHER DATA
Average full-time-equivalent employees17,086 17,029 17,097 16,646 16,529 
Branches1,068 1,073 1,077 1,077 1,082 
(a)EPS may not foot due to rounding.
(b)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.
(c)See the section entitled “GAAP to Non-GAAP Reconciliations,” which presents the computations of certain financial measures related to “tangible common equity” and “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.
(d)Represents period-end consolidated total loans and loans held for sale divided by period-end consolidated total deposits.
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Strategic developments

The first quarter of 2021 was a strong start to the year and positions us to grow and deliver on our commitments to all of our stakeholders. We have remained committed to supporting our employees, our communities, and our clients throughout the pandemic. Providing value to all stakeholders creates the foundation to deliver sustainable long-term performance. The corporate governance processes that we have in place allow us to oversee any changes and new requirements that may occur across our geographic footprint. Our actions and results during the first quarter of 2021 reflect our response to the current environment and support our corporate strategy described in the “Introduction” section under the “Corporate strategy” heading on page 45 of our 2020 Form 10-K.

Our business resiliency plans remained in effect and we maintained our operational effectiveness across the entire organization. The health and safety of our clients, employees, and communities in which we operate have continued to be our top priority. Nearly every branch has been open for business and continues to follow guidelines on how to minimize physical contact with our clients and between our employees. Our return-to-office protocols, which began in the second quarter of 2020, continued during the first quarter of 2021. This plan is flexible as the ongoing pandemic changes and may impact the communities in which our employees and clients operate differently.
We are committed to playing a critical role in providing capital and assistance to our clients and supporting broader initiatives to strengthen our economy. We continue to support our clients through SBA-guaranteed loans to small businesses, payment deferrals, hardship support, borrower assistance programs, and forbearance options to help provide a bridge for individuals and businesses through these uncertain times.
On February 25, 2021, we acquired AQN Strategies, a client-focused analytics firm with deep expertise in the financial services industry. This acquisition aligns to Key’s relationship strategy and underscores our commitment to a data-driven approach to grow our business.
On March 30, 2021, we unveiled Laurel Road for Doctors, a national digital bank tailored to physicians and dentists with products and services informed by their needs. With Laurel Road for Doctors, we continue to expand targeted client relationships by bringing together a full set of solutions, expertise, and services to drive value for healthcare professionals.
Credit quality is also playing a critical role in this environment. Our risk profile and strategy is different than the one we had leading up to, and during, the 2007-2009 financial crisis. We have significantly reduced our exposure to high-risk sectors and industries and have positioned Key to perform well through all phases of the business cycle, including highly stressed environments. Our moderate risk profile will continue to inform our credit decisions and the way we underwrite loans.
Capital and liquidity continued to be clear strengths for us during the first quarter of 2021. Our strong capital position allows us to continue to execute against each of our capital priorities of organic growth, dividends, and share repurchases. During the first quarter we repurchased $135 million of common shares, and the Board of Directors approved a common share dividend of $.185 per Common Share.

Demographics

The Consumer Bank serves individuals and small businesses throughout our 15-state branch footprint and 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 is an aggregation of our Institutional and Commercial operating segments. The Commercial operating segment is a full-service corporate bank focused principally on serving the needs of middle market clients in seven industry sectors: consumer, energy, healthcare, industrial, public sector, real estate, and technology. The Commercial operating segment is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. The Institutional operating segment delivers a broad suite of banking and capital markets products to its clients, including syndicated finance, debt and equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance.

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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 2020 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.

Regulatory capital requirements

The final rule to implement the Basel III international capital framework (“Basel III”) was effective January 1, 2015, with a multi-year transition period (“Regulatory Capital Rules”). As of April 1, 2020, the Regulatory Capital Rules were fully phased-in for Key. The Basel III capital framework and the U.S. implementation of the Basel III capital framework are discussed in more detail in Item 1. Business of our 2020 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 2 below. At March 31, 2021, KeyCorp’s ratios under the fully phased-in Regulatory Capital Rules are set forth in Figure 2.

Figure 2. 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 March 31, 2021 (c)
Common Equity Tier 14.5 %2.5 %7.0 %9.9 %
Tier 1 Capital6.0 2.5 8.5 11.3 
Total Capital8.0 2.5 10.5 13.4 
Leverage (a)
4.0 N/A4.0 8.9 
(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)Ratios 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 3 identifies the capital category thresholds for a “well capitalized” and an “adequately capitalized” institution under the PCA Framework.

Figure 3. "Well Capitalized" and "Adequately Capitalized" Capital Category Ratios under Revised PCA Framework
Prompt Corrective ActionCapital Category
Ratio
Well Capitalized (a)
Adequately Capitalized
Common Equity Tier 1 Risk-Based6.5 %4.5 %
Tier 1 Risk-Based8.0 6.0 
Total Risk-Based10.0 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 March 31, 2021, 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 developments

See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements - Recent regulatory capital-related developments” for a discussion of recent regulatory capital-related developments.

Capital planning and stress testing

On January 19, 2021, the Federal Reserve issued a final rule to make conforming changes to the capital planning, regulatory reporting, and stress capital buffer requirements for firms subject to Category IV standards (including KeyCorp) to make these requirements consistent with the tailored regulatory framework for large banking organizations that the Federal Reserve adopted in an October 2019 rulemaking. The final rule revises the elements of the capital plan that Category IV firms are required to submit to the Federal Reserve and makes related changes to regulatory reporting requirements. Also, the final rule updates the frequency for calculating the stress capital buffer for these firms. In addition, the final rule makes certain clarifying changes to the stress testing rules applicable to all large banking organizations.

Due to the economic uncertainty caused by the COVID-19 pandemic, the Federal Reserve placed temporary restrictions on capital distributions by BHCs having more than $100 billion in total consolidated assets (including KeyCorp), that are in addition to limitations on capital distributions that apply under the Regulatory Capital Rules. On June 25, 2020, the Federal Reserve stated that for the third quarter of 2020, BHCs with more than $100 billion in total assets are prohibited from (i) making share repurchases (other than share repurchase relating to issuances of common stock for employee stock ownership plans); and (ii) paying common stock dividends that exceed the amount paid in the second quarter of 2020 or exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters unless otherwise specified by the Federal Reserve. The Federal Reserve continued these restriction on dividends and share repurchases by large BHCs for the fourth quarter of 2020 in an announcement made on September 17, 2020.

On December 18, 2020, the Federal Reserve stated that because of the ongoing economic uncertainty, it was extending its limits on capital distributions by BHCs with more than $100 billion in total assets into the first quarter of 2021, with certain modifications. The Federal Reserve noted that these firms (i) are prohibited from increasing their common stock dividends to an amount greater than the amount paid in the second quarter of 2020; and (ii) are prohibited from paying common stock dividends and making share repurchase that, in the aggregate, exceed an amount equal to the average of the firm’s net income for the four preceding calendar quarters. The Federal Reserve further indicated that it was extending the time period for the Federal Reserve to notify firms whether their stress capital buffer requirements will be recalculated until March 31, 2021.

On March 25, 2021, the Federal Reserve said that it was continuing into the second quarter of 2021 the restrictions on dividends and share repurchases for BHCs with more than $100 billion in total assets that it announced on December 18, 2020, and indicated that it was extending the time period for the Federal Reserve to notify firms whether their stress capital buffer requirements will be recalculated until June 30, 2021. The Federal Reserve also announced that these temporary restrictions on BHC dividends and share repurchases will end for most firms after June 30, 2021. Firms subject to the Federal Reserve’s supervisory stress test in 2021 with capital levels above those required by the stress test will no longer by subject to the temporary additional restrictions after that date while firms with capital levels below those required by the stress test will remain subject to the restrictions.

For BHCs that are on a two-year stress test cycle and are not subject to the Federal Reserve’s supervisory stress test in 2021 (including KeyCorp), the temporary additional restrictions on dividends and share repurchases will end after June 30, 2021. Beginning on July 1, 2021, these firms will be allowed to make capital distributions that are consistent with the Regulatory Capital Rules, inclusive of the stress capital buffer requirement based on the firm’s June 2020 stress test. In August 2020, the Federal Reserve confirmed that KeyCorp’s required stress capital buffer, based on its June 2020 stress test, is 2.5%, which is the minimum buffer requirement for firms the size of KeyCorp.

See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements - Capital planning and stress testing” for an overview of capital planning and stress testing requirements.


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Liquidity requirements

See Item. 1 Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Regulatory capital requirements - Liquidity requirements” for a discussion of liquidity requirements, including the Liquidity Coverage Rules.

Volcker Rule

The Volcker Rule is discussed in detail in Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Volcker Rule.”

Community Reinvestment Act

See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Community Reinvestment Act” for a discussion of recent developments concerning the Community Reinvestment Act.

Supervision and governance

On February 26, 2021, the Federal Reserve issued supervisory guidance describing the key attributes of effective boards of directors of large financial institutions, including BHCs with $100 billion or more in total consolidated assets. This supervisory guidance adopts a principles-based approach to describe attributes of effective boards of directors and provides illustrative examples of effective practices. The Federal Reserve indicated that it intends to use the board effectiveness guidance in informing its assessment of governance and controls at all firms subject to the large financial institution rating system (“LFI Rating System”) (including KeyCorp).

See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Supervision and governance” for a discussion of other recent supervision and governance-related developments, including a discussion of the LFI Rating System.

Regulatory developments concerning COVID-19

On March 30, 2021, President Biden signed into law the PPP Extension Act, which extends the deadline for submitting loan applications under this program from March 31, 2021, to May 31, 2021. KeyBank participates as a lender in the PPP, which provides SBA-guaranteed loans to small businesses.

On March 31, 2021, the CFPB announced that it is rescinding seven policy statements issued in 2020, which provided financial institutions with temporary regulatory flexibility in complying with various consumer protection laws when they are working with customers affected by the COVID-19 pandemic. The CFPB indicated that, with these rescissions, it intends to exercise the full scope of its supervision and enforcement authority provided by the Dodd-Frank Act.

The CFPB issued a compliance bulletin on April 1, 2021, urging mortgage servicers to take proactive measures to prevent avoidable foreclosures. The CFPB indicated that it will be closely monitoring how servicers engage with borrowers and will consider a servicer’s effectiveness in helping borrowers when it evaluates a servicer’s compliance with mortgage servicing rules.

On April 5, 2021, the CFPB requested public comment on a proposal that would amend the CFPB’s mortgage servicing rules to help ensure that borrowers affected by the COVID-19 pandemic have an opportunity to be evaluated for loss mitigation before the initiation of foreclosure proceedings. Among other things, the proposal (i) would establish a temporary COVID-19 emergency pre-foreclosure review period that would generally prohibit servicers from commencing a foreclosure action involving a borrower’s principal residence until after December 31, 2021; (ii) would permit servicers to offer certain streamlined loan modification options based on the evaluation of an incomplete application; and (iii) would revise the early intervention and reasonable diligence obligations of servicers to ensure that they communicate timely and accurate information to borrowers about their loss mitigation options. Certain requirements would apply only until August 31, 2022. Comments on the proposal are due by May 10, 2021.

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See Item 1. Business of our 2020 Form 10-K under the heading “Supervision and Regulation - Other Regulatory Developments - Regulatory developments concerning COVID-19” for a discussion of other recent regulatory developments relating to the COVID-19 pandemic.

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 March 31, 2020, to the three months ended March 31, 2021 (dollars in millions):
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Net interest income

One of our principal sources 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 4 shows the various components of our balance sheet that affect interest income and expense and their respective yields or rates over the past five quarters. 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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TE net interest income was $1.0 billion for the first quarter of 2021, compared to TE net interest income of $989 million for the first quarter of 2020. The increase in net interest income reflects higher earning asset balances and loan fees partially offset by a lower net interest margin. The net interest margin was impacted by lower interest rates and a change in balance sheet mix, including elevated levels of liquidity.


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Average loans were $100.7 billion for the first quarter of 2021, an increase of $4.6 billion compared to the first quarter of 2020. Commercial loans increased $2.2 billion, reflecting Key’s participation in the PPP partially offset by decreased utilization versus the year-ago period. Consumer loans increased $2.4 billion, driven by strength from Laurel Road and Key's consumer mortgage business.

Average deposits totaled $137.7 billion for the first quarter of 2021, an increase of $27.4 billion compared to the year-ago quarter, reflecting growth from consumer and commercial relationships, partially offset by a decline in time deposits as a result of lower interest rates.
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Figure 4. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates and Components of Net Interest Income Changes from Continuing Operations
 Three months ended March 31, 2021Three months ended March 31, 2020Change in Net interest income due to
dollars in millions
Average
Balance
Interest (a)
Yield/
Rate (a)
Average
Balance
Interest (a)
Yield/
Rate 
(a)
VolumeYield/RateTotal
ASSETS
Loans (b), (c)
Commercial and industrial (d)
$52,581 $453 3.48 %$49,466 $508 4.13 %$31 $(86)$(55)
Real estate — commercial mortgage12,658 114 3.67 13,548 155 4.60 (10)(31)(41)
Real estate — construction2,048 19 3.75 1,666 20 4.75 (5)(1)
Commercial lease financing4,142 31 2.99 4,565 39 3.39 (3)(5)(8)
Total commercial loans71,429 617 3.50 69,245 722 4.19 22 (127)(105)
Real estate — residential mortgage9,699 76 3.12 7,215 68 3.75 21 (13)
Home equity loans9,282 85 3.73 10,155 113 4.49 (9)(19)(28)
Consumer direct loans4,817 56 4.72 3,709 54 5.91 14 (12)
Credit cards933 24 10.45 1,082 31 11.50 (4)(3)(7)
Consumer indirect loans4,568 37 3.30 4,768 46 3.86 (2)(7)(9)
Total consumer loans29,299 278 3.84 26,929 312 4.66 20 (54)(34)
Total loans100,728 895 3.60 96,174 1,034 4.32 42 (181)(139)
Loans held for sale1,531 11 2.89 1,885 19 3.99 (3)(5)(8)
Securities available for sale (b), (e)
30,039 130 1.76 21,172 129 2.49 45 (44)
Held-to-maturity securities (b)
7,188 45 2.53 9,820 62 2.51 (16)(1)(17)
Trading account assets848 5 2.15 1,065 2.95 (1)(2)(3)
Short-term investments16,510 5 .13 1,764 1.42 (10)(1)
Other investments (e)
614 2 1.40 614 .40 — 
Total earning assets157,458 1,094 2.81 132,494 1,259 3.82 76 (242)(166)
Allowance for loan and lease losses(1,623)(1,097)
Accrued income and other assets16,398 14,831 
Discontinued assets686 838 
Total assets$172,919 $147,066 
LIABILITIES
NOW and money market deposit accounts$81,439 10 .05 $66,721 112 .67 20 (122)(102)
Savings deposits6,203 1 .03 4,655 .05 — — — 
Certificates of deposit ($100,000 or more)2,571 6 .96 6,310 34 2.20 (14)(14)(28)
Other time deposits2,902 4��.57 4,901 22 1.81 (7)(11)(18)
Total interest-bearing deposits93,115 21 .09 82,587 169 .82 (1)(147)(148)
Federal funds purchased and securities sold under repurchase agreements243  .04 2,002 1.17 (3)(3)(6)
Bank notes and other short-term borrowings878 1 .64 1,401 1.58 (1)(3)(4)
Long-term debt (f), (g)
12,831 60 1.93 12,443 90 2.96 (33)(30)
Total interest-bearing liabilities107,067 82 .31 98,433 270 1.10 (2)(186)(188)
Noninterest-bearing deposits44,625 27,741 
Accrued expense and other liabilities2,772 2,838 
Discontinued liabilities (g)
686 838 
Total liabilities155,150 129,850 
EQUITY
Key shareholders’ equity17,769 17,216 
Noncontrolling interests — 
Total equity17,769 17,216 
Total liabilities and equity$172,919 $147,066 
Interest rate spread (TE)2.50 %2.72 %
Net interest income (TE) and net interest margin (TE)1,012 2.61 %989 3.01 %$78 $(56)22 
TE adjustment (b)
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Net interest income, GAAP basis$1,005 $981 
(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 March 31, 2021, and March 31, 2020.
(c)For purposes of these computations, nonaccrual loans are included in average loan balances.
(d)Commercial and industrial average balances include $126 million and $145 million of assets from commercial credit cards for the three months ended March 31, 2021, and March 31, 2020, 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.

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Provision for credit losses
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Key’s provision for credit losses was a net benefit of $93 million, including a $207 million reserve release for the three months ended March 31, 2021, compared to an expense of $359 million for the three months ended March 31, 2020. The reserve release was largely driven by expected improvement in the economic outlook.

Noninterest income

As shown in Figure 5, noninterest income was $738 million, and represented 42% of total revenue for the first quarter of 2021, compared to $477 million, representing 33% 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 5. Noninterest Income
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(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 these revenues are shown in Figure 6. For the three months ended March 31, 2021, trust and investment services income remained constant compared to the same period one year ago. This was primarily due to an increase in trust and asset management fees partially related to higher levels of assets under management offset by decreased commercial brokerage income.

A significant portion of our trust and investment services income depends on the value and mix of assets under management. At March 31, 2021, our bank, trust, and registered investment advisory subsidiaries had assets under management of $45.2 billion, compared to $36.2 billion at March 31, 2020. Assets under management were up, as shown in Figure 6, due to increased portfolio yields.

Figure 6. Assets Under Management 
in millionsMarch 31, 2021December 31, 2020September 30, 2020June 30, 2020March 31, 2020
Assets under management by investment type:
Equity$29,071 $27,384 $24,851 $23,303 $20,421 
Securities lending155 131 130 171 188 
Fixed income11,865 12,130 11,767 11,318 10,911 
Money market4,127 4,495 4,564 4,930 4,669 
Total assets under management$45,218 $44,140 $41,312 $39,722 $36,189 

Investment banking and debt placement fees

Investment banking and debt placement fees consists of syndication fees, debt and equity financing fees, financial adviser fees, gains on sales of commercial mortgages, and agency origination fees. Investment banking and debt placement fees for the three months ended March 31, 2021, increased $46 million, or 39.7%, from the year-ago quarter. This increase was primarily driven by higher gains on the sales of commercial mortgages, and increased debt and equity underwriting fees.

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Service charges on deposit accounts

Service charges on deposit accounts decreased $11 million, or 13.1%, for the three months ended March 31, 2021, compared to the same period one year ago. This decrease was primarily driven by elevated balances reducing fee assessments and higher fee waivers related to the ongoing COVID-19 pandemic.

Cards and payments income

Cards and payments income, which consists of debit card, prepaid card, consumer and commercial credit card, and merchant services income, increased $39 million, or 59.1%, for the three months ended March 31, 2021, compared to the same period one year ago. This increase was primarily driven by increased prepaid card activity due to state support program activity.

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 March 31, 2021, increased $187 million, or 239.7%, from the year-ago quarter, primarily due to higher consumer mortgage income driven by strong loan originations and related fees.

Noninterest expense

As shown in Figure 7, noninterest expense was $1.1 billion for the first quarter of 2021, compared to $931 million for the first quarter of 2020.

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 7. Noninterest Expense 

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(a)Other noninterest expense includes equipment, operating lease expense, marketing, FDIC assessment, intangible asset amortization, OREO expense, net, and other expense. See the "Consolidated Statements of Income" in Item 1. Financial Statements of this report.
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Personnel

Personnel expense, the largest category of our noninterest expense, increased by $109 million, or 21.2%, for the three months ended March 31, 2021, compared to the same period one year ago. The activity reflected higher incentive and stock-based compensation, attributed to an increase in revenue from stock performance and an increase in employee benefits compared to the year ago quarter.

Net occupancy

Net occupancy expense remained constant for the first quarter of 2021, compared to the same period one year ago.

Other noninterest expense

Other noninterest expense includes equipment, operating lease expense, marketing, FDIC assessment, intangible asset amortization, OREO expense, and other miscellaneous expense categories. Other noninterest expense for the three months ended March 31, 2021, increased $7 million, or 2.9%, from the year-ago quarter, primarily due to payments-related expense from increased prepaid card activity partially offset by a decrease in other real estate owned expenses.
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Income taxes

We recorded tax expense of $147 million for the first quarter of 2021 and $23 million for the first quarter of 2020.

Our federal tax expense and effective tax rate differs from the amount that would be calculated using the federal statutory tax rate; primarily from investments in tax-advantaged assets, such as corporate-owned life insurance, tax credits associated with energy related projects and 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 158 of our 2020 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 54 of our 2020 Form 10-K. Dollars in the charts are presented in millions.

Consumer Bank

Summary of operations

Net income attributable to Key of $217 million for the first quarter of 2021, compared to $103 million for the year-ago quarter
Taxable-equivalent net interest income increased by $26 million, or 4.5%, compared to the first quarter of 2020, driven by strong balance sheet growth and fees related to PPP loans, partially offset by the lower interest rate environment
Average loans and leases increased $6.1 billion, or 18.3%, driven by benefit from the PPP, as well as growth from Laurel Road and consumer mortgage
Average deposits increased $11.9 billion, or 16.3%, from the first quarter of 2020. This was driven by consumer stimulus payments and relationship growth
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Provision for credit losses decreased $159 million compared to the first quarter of 2020. The provision for credit losses was a net benefit and was driven by expected improvements in economic conditions and continued strength in client credit quality
Noninterest income increased $28 million, or 12.2%, from the year ago quarter, due to higher trust and investment services income, and strength in consumer mortgage income
Noninterest expense increased $62 million, or 11.5%, from the year ago quarter, driven by higher variable compensation from significantly favorable revenue and higher variable expenses related to higher loan volumes
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Commercial Bank

Summary of operations

Net income attributable to Key of $383 million for the first quarter of 2021, compared to $66 million for the year-ago quarter
Taxable-equivalent net interest income decreased by $10 million, compared to the first quarter of 2020, as the lower interest rate environment offset fees related to PPP loans
Average loan and lease balances decreased $1.2 billion, compared to the first quarter of 2020 as lower utilization offset PPP loans
Average deposit balances increased $15.5 billion, or 42.4%, compared to the first quarter of 2020, driven by growth in targeted relationships and the impact of government programs
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Provision for credit losses decreased $289 million compared to the first quarter of 2020. The provision for credit losses was a net benefit and was driven by expected improvements in economic conditions
Noninterest income increased $227 million, from the year-ago quarter, driven by favorable market-related adjustments to customer derivatives compared to detriments in 2020, increased investment banking client activity, and higher cards and payments income related to prepaid card revenue
Noninterest expense increased by $81 million, or 22.4%, from the first quarter of 2020, driven by higher variable compensation from significantly favorable revenue and elevated variable expenses related to prepaid card
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Financial Condition


Loans and loans held for sale

Figure 8. Breakdown of Loans at March 31, 2021
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(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 March 31, 2021, total loans outstanding from continuing operations were $100.9 billion, compared to $101.2 billion at December 31, 2020. 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 100 of our 2020 Form 10-K.


COVID-19 Hardship Relief Programs

In response to the COVID-19 pandemic, beginning in March 2020, we began providing relief and flexibility to our customers through a variety of solutions, including fee waivers, short-term loan modifications, and payment deferrals as well as the suspension of vehicle repossessions and home foreclosures. While the solutions for our commercial borrowers are individually negotiated and tailored to each borrower’s specific facts and circumstances, the most commonly offered relief measures included temporary covenant waivers and/or deferrals of principal and/or interest payments for up to 90 days. We have also granted short-term loan modifications for our consumer loan customers through extensions, deferrals, and forbearance.

The following table provides a summary of portfolio loans and leases as of March 31, 2021, and December 31, 2020, that have received a payment deferral or forbearance as part of our COVID-19 hardship relief programs:


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Figure 9. Loans and Leases COVID-19 Hardship Relief


Outstanding Balance of Loans and Leases
March 31, 2021
dollars in millionsCompleted ReliefIn Active ReliefTotal that have Received Payment Relief
Commercial Loans$2,716 $129 $2,844 
Consumer Loans1,204 255 1,459 
Total Portfolio Loans and Leases$3,920 $384 $4,304 
December 31, 2020
dollars in millionsCompleted ReliefIn Active ReliefTotal that have Received Payment Relief
Commercial Loans$2,899 $181 $3,079 
Consumer Loans1,179 394 1,572 
Total Portfolio Loans and Leases$4,077 $575 $4,652 

The total outstanding balance of commercial loans in active relief as of March 31, 2021, represented 0.2% of the commercial loan portfolio and the total outstanding balance of consumer loans in active relief as of March 31, 2021, represented 0.9% of the consumer loan portfolio.

Under the CARES Act as well as banking regulator interagency guidance, certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by COVID-19 may not be required to be treated as TDRs under U.S. GAAP.  For COVID-19 related loan modifications which occurred from March 1, 2020, through March 31, 2021, and met the loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies or were otherwise considered to be short term in nature, we have elected to suspend TDR accounting for such loan modifications.  Additionally, loans qualifying for these modifications are not required to be reported as delinquent, nonaccrual, impaired, or criticized solely as a result of a COVID-19 loan modification. Refer to Note 4 (“Asset Quality”) under the headings “TDRs” and “Nonperforming and Past Due Loans.”

For loans that receive a payment deferral or forbearance under these hardship relief programs, we continue to accrue interest and recognize interest income during the period of the deferral. Depending on the terms of each program, all or a portion of this accrued interest may be paid directly by the borrower (either during the relief period, at the end of the relief period, or at maturity of the loan) or added to the customer’s outstanding balance. For certain programs, the maturity date of the loan may also be extended by the number of payments deferred. Interest income will continue to be accrued at the original contractual interest rate unless that rate is concurrently modified upon entering the relief program (in which case, the modified rate would be used to recognize interest).

Commercial loan portfolio

Commercial loans outstanding were $71.4 billion at March 31, 2021, a decrease of $0.6 billion, or .8%, compared to December 31, 2020, driven by lower commercial and industrial utilization rates, partly offset by an increase in PPP funding.

As a result of the current economic environment, our commercial loan portfolio is going through active portfolio surveillance. We are conducting ongoing portfolio reviews on our commercial loans with any risk rating migrations being closely monitored. We have centralized internal reporting on enterprise-wide relief initiatives, as well as following any potential relief initiatives that may come in the future. We established a pandemic watchlist and are performing ongoing reviews of commercial clients that are likely to be impacted by COVID-19. These clients represent a small portion of the overall portfolio and are diversified by type and geography. Figure 10 summarizes our commercial portfolios that are at risk of being impacted by the COVID-19 pandemic as of March 31, 2021, and December 31, 2020.

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Figure 10. Select Commercial Portfolio Focus Areas
dollars in millionsOutstanding as of March 31, 2021Percentage of total loans as of March 31, 2021Outstanding as of December 31, 2020Percentage of total loans as of December 31, 2020
Consumer behavior (a)
$5,112 5.1 %$5,083 5.0 %
Education1,557 1.5 1,541 1.5 
Sports664 .7 690 .7 
Restaurants368 .4 400 .4 
Retail commercial real estate (b)
396 .4 525 .5 
Nondurable retail (c)
595 .6 638 .6 
Travel/Tourism (d)
2,440 2.4 2,523 2.5 
Hotels767 .8 784 .8 
Leveraged lending (e)
1,674 1.7 1,700 1.7 
Oil and gas1,792 1.8 1,992 2.0 
Upstream (reserve based)1,141 1.1 1,263 1.2 
Midstream389 .4 468 .5 
Downstream58 .1 98 .1 
(a)Consumer behavior includes restaurants, sports, entertainment and leisure, services, education, etc.
(b)Retail commercial real estate is mainly composed of regional malls, strip centers (unanchored) and lifestyle centers.
(c)Nondurable retail includes direct lending to retailers including apparel, hobby shops, nursery garden centers, cosmetics, and gas stations with convenience stores.
(d)Travel/Tourism includes hotels, tours, and air/water/rail leasing.
(e)Leveraged lending exposures have total debt to EBITDA greater than four times or senior debt to EBITDA greater than three times and meet the purpose test (the new debt finances a buyout, acquisition, or capital distribution).
















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Figure 11 provides our commercial loan portfolios by industry classification at March 31, 2021, and December 31, 2020.

Figure 11. Commercial Loans by Industry
March 31, 2021Commercial and industrial
Commercial
real estate
Commercial
lease financing
Total commercial
loans
Percent of
total
dollars in millions
Industry classification:
 Agriculture$958 $129 $97 $1,184 1.7 %
 Automotive1,672 509 17 2,198 3.1 
 Business products1,561 128 43 1,732 2.4 
 Business services3,942 218 204 4,364 6.1 
 Chemicals761 32 29 822 1.2 
 Commercial real estate5,591 10,353 11 15,955 22.3 
 Construction materials and contractors2,606 263 228 3,097 4.3 
 Consumer discretionary3,744 489 258 4,491 6.3 
 Consumer services5,883 906 490 7,279 10.2 
 Equipment1,339 84 131 1,554 2.2 
 Finance5,770 93 357 6,220 8.7 
 Healthcare3,945 1,351 292 5,588 7.8 
 Metals and mining1,076 51 25 1,152 1.6 
 Oil and gas1,742 41 55 1,838 2.6 
 Public exposure2,475 14 696 3,185 4.5 
 Technology748 18 169 935 1.3 
 Transportation1,431 130 603 2,164 3.0 
 Utilities5,269  394 5,663 7.9 
 Other1,973 15 5 1,993 2.8 
Total$52,486 $14,824 $4,104 $71,414 100.0 %
December 31, 2020Commercial and industrial
Commercial
real estate
Commercial
lease financing
Total commercial
loans
Percent of
total
dollars in millions
Industry classification:
Agriculture$1,002 $148 $97 $1,247 1.7 %
Automotive1,863 510 19 2,392 3.3 
Business products1,523 117 45 1,685 2.3 
Business services4,098 221 202 4,521 6.3 
Chemicals700 30 34 764 1.1 
Commercial real estate5,966 10,187 11 16,164 22.5 
Construction materials and contractors2,571 271 233 3,075 4.3 
Consumer discretionary3,832 404 371 4,607 6.4 
Consumer services6,123 900 525 7,548 10.5 
Equipment1,447 84 120 1,651 2.3 
Finance6,190 92 396 6,678 9.3 
Healthcare4,348 1,396 306 6,050 8.4 
Metals and mining1,074 56 29 1,159 1.6 
Oil and gas1,928 43 62 2,033 2.8 
Public exposure2,332 25 709 3,066 4.3 
Technology741 20 191 952 1.2 
Transportation1,434 144 631 2,209 3.1 
Utilities5,239 397 5,637 7.8 
Other496 25 21 542 .8 
Total$52,907 $14,674 $4,399 $71,980 100.0 %

Commercial and industrial. Commercial and industrial loans are the largest component of our loan portfolio, representing 52% of our total loan portfolio at March 31, 2021, and 52% at December 31, 2020. This portfolio is approximately 71% variable rate and consists of loans originated primarily to large corporate, middle market, and small business clients.

Commercial and industrial loans totaled $52.5 billion at March 31, 2021, a decrease of $0.4 billion, or 0.8%, compared to December 31, 2020. The decline was broad-based and spread across most industry categories, reflecting continued declines in commercial line utilization rates, mostly offset by over $2 billion of additional lending related to the PPP during the first quarter of 2021.

Commercial real estate loans. Our commercial real estate portfolio includes both mortgage and construction loans and is conducted through two primary sources: our 15-state banking franchise, and KeyBank Real Estate Capital, a national line of business within the Commercial Bank that cultivates relationships with owners of commercial real estate located both within and beyond the branch system. Nonowner-occupied properties, generally properties for which at least 50% of the debt service is provided by rental income from nonaffiliated third parties, represented 79% of total commercial real estate loans outstanding at March 31, 2021. Construction loans, which provide a stream of
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funding for properties not fully leased at origination to support debt service payments over the term of the contract or project, represented 14% of commercial real estate loans at period end.

At March 31, 2021, commercial real estate loans totaled $14.8 billion, which includes $12.7 billion of mortgage loans and $2.1 billion of construction loans. Compared to December 31, 2020, this portfolio increased $150 million, or 1.0%. The growth reflects an increase in construction loans as the impact of COVID-19 resulted in a decline in retail, office and hospitality lending. However, we continue to focus primarily on owners of completed and stabilized commercial real estate in accordance with our relationship strategy.

As shown in Figure 12, 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.

Figure 12. Commercial Real Estate Loans
 Geographic RegionTotal
Percent of
Total
Construction
Commercial
Mortgage
dollars in millionsWestSouthwestCentralMidwestSoutheastNortheastNational
March 31, 2021
Nonowner-occupied:
Retail properties$119 $15 $127 $120 $71 $434 $125 $1,011 6.8 %$55 $956 
Multifamily properties658 271 988 820 1,348 1,493 161 5,739 38.7 1,559 4,180 
Health facilities87 49 81 87 170 479 293 1,246 8.4 106 1,140 
Office buildings287 — 272 144 230 597 131 1,661 11.2 43 1,618 
Warehouses53 30 66 18 66 268 120 621 4.2 65 556 
Manufacturing facilities41 — 28 20 40 34 47 210 1.4 15 195 
Hotels/Motels75 — 19 — 12 110 91 307 2.1 19 288 
Residential properties— — — — 47 — 50 .4 — 50 
Land and development18 — 28 — 58 .4 35 23 
Other125 21 99 67 241 305 864 5.8 65 799 
Total nonowner-occupied1,463 391 1,587 1,313 2,009 3,731 1,273 11,767 79.4 1,962 9,805 
Owner-occupied960 277 488 60 1,271 — 3,057 20.6 160 2,897 
Total$2,423 $392 $1,864 $1,801 $2,069 $5,002 $1,273 14,824 100.0 %$2,122 $12,702 
Nonperforming loans$— — $$$23 $29 $65 N/M$— $65 
Accruing loans past due 90 days or more— — 21 — 26 N/M— 26 
Accruing loans past due 30 through 89 days$— $12 — 20 — 40 N/M10 30 
December 31, 2020
Nonowner-occupied:
Retail properties$119 $15 $129 $122 $72 $448 $122 $1,027 6.8 %$54 $973 
Multifamily properties685 228 875 800 1,284 1,493 229 5,594 38.1 1,442 4,152 
Health facilities83 53 85 87 170 487 338 1,303 8.7 91 1,212 
Office buildings276 — 253 142 193 628 147 1,639 11.2 48 1,591 
Warehouses54 31 66 40 52 259 161 663 4.6 74 589 
Manufacturing facilities42 — 28 15 40 34 43 202 1.3 10 192 
Hotels/Motels76 — 19 — 12 107 91 305 2.1 18 287 
Residential properties— — — — 53 — 56 .4 — 56 
Land and development15 — 28 — 55 .4 33 22 
Other108 22 93 69 245 279 822 6.4 65 757 
Total nonowner-occupied1,458 354 1,461 1,304 1,897 3,782 1,410 11,666 80.0 1,835 9,831 
Owner-occupied870 275 499 63 1,297 — 3,008 20.0 152 2,856 
Total$2,328 $358 $1,736 $1,803 $1,960 $5,079 $1,410 $14,674 100.0 %$1,987 $12,687 
Nonperforming loans$— — $$$44 $44 $103 N/M$$85 
Accruing loans past due 90 days or more— — — — 22 — 22 N/M12 
Accruing loans past due 30 through 89 days— — — 14 N/M14 
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



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Consumer loan portfolio

Consumer loans outstanding as of March 31, 2021 totaled $29.5 billion, an increase of $0.3 billion, or 1.1%, from December 31, 2020, driven by growth from the consumer mortgage business and Laurel Road, partly offset by the runoff of indirect auto loans.

The home equity portfolio is comprised of loans originated by our Consumer Bank within our 15-state footprint and is the largest segment of our consumer loan portfolio, representing 31% of consumer loans outstanding at March 31, 2021. 

We held the first lien position for approximately 68% of the home equity portfolio at March 31, 2021, and 66% at December 31, 2020. 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 (“Basis of Presentation and Accounting Policies”) under the heading “Allowance for Loan and Lease Losses” of this report.

Figure 13. Consumer Loans by State
in millionsReal estate — residential mortgageHome equity loansConsumer direct loansCredit cardsConsumer indirect loansTotal
March 31, 2021
New York$1,150 $2,545 $586 $323 $642 $5,246 
Ohio732 1,362 476 201 856 3,627 
Washington2,141 1,237 227 80 18 3,703 
Pennsylvania290 642 261 49 481 1,723 
California807 13 332 3 17 1,172 
Texas84 7 263 3 9 366 
Colorado899 317 145 28 5 1,394 
Connecticut881 345 91 23 124 1,464 
Oregon756 767 98 39 3 1,663 
Florida364 57 250 12 29 712 
Other2,196 1,866 2,133 148 2,099 8,442 
Total$10,300 $9,158 $4,862 $909 $4,283 $29,512 
December 31, 2020
New York$1,164 $2,553 $593 $353 $731 $5,394 
Ohio698 1,375 479 217 957 3,726 
Washington1,835 1,300 236 86 20 3,477 
Pennsylvania286 648 255 52 539 1,780 
California516 14 303 19 856 
Texas74 241 10 335 
Colorado828 345 140 30 1,349 
Connecticut914 352 87 25 141 1,519 
Oregon720 782 97 41 1,644 
Massachusetts239 48 103 460 855 
Other2,024 1,936 2,180 173 1,957 8,270 
Total$9,298 $9,360 $4,714 $989 $4,844 $29,205 

Figure 14 summarizes our loan sales for the first three months of 2021 and all of 2020.

Figure 14. Loans Sold (Including Loans Held for Sale)  
in millionsCommercial
Commercial
Real Estate
Commercial Lease Financing
Residential
Real Estate
Consumer DirectTotal
2021     
First quarter$124 $1,930 $156 $1,129 $ $3,339 
Total$124 $1,930 $156 $1,129 $ $3,339 
2020     
Fourth quarter$197 $2,412 $135 $1,256 $— $4,000 
Third quarter163 1,999 67 1,235 208 3,672 
Second quarter82 2,661 47 925 — 3,715 
First quarter55 2,022 81 546 — 2,704 
Total$497 $9,094 $330 $3,962 $208 $14,091 

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Figure 15 shows loans that are either administered or serviced by us, but not recorded on the balance sheet; this includes loans that were sold.

Figure 15. Loans Administered or Serviced  
in millionsMarch 31, 2021December 31, 2020September 30, 2020June 30, 2020March 31, 2020
Commercial real estate loans$386,908 $371,016 $380,110 $357,509 $354,919 
Residential mortgage8,838 8,311 7,670 6,922 6,405 
Education loans489 516 540 567 594 
Commercial lease financing1,371 1,359 1,273 1,126 1,029 
Commercial loans695 684 652 623 614 
Consumer direct1,109 1,711 1,966 1,710 1,999 
Total$399,410 $383,597 $392,211 $368,457 $365,560 

In the event of default by a borrower, we are subject to recourse with respect to approximately $6.0 billion of the $399.4 billion of loans administered or serviced at March 31, 2021. 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 totaled $40.8 billion at March 31, 2021, compared to $35.2 billion at December 31, 2020. Available-for-sale securities were $33.9 billion at March 31, 2021, compared to $27.6 billion at December 31, 2020. Held-to-maturity securities were $6.9 billion at March 31, 2021, and $7.6 billion at December 31, 2020.

As shown in Figure 16, 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, see Note 1 (“Basis of Presentation and Accounting Policies”), Note 5 (“Fair Value Measurements”) under the heading “Qualitative Disclosures of Valuation Techniques,” and Note 6 (“Securities”).


Figure 16. Mortgage-Backed Securities by Issuer 
in millionsMarch 31, 2021December 31, 2020
FHLMC$8,969 $8,782 
FNMA15,414 13,213 
GNMA11,442 12,109 
Total (a)
$35,825 $34,104 
(a) Includes securities held in the available-for-sale and held-to-maturity portfolios


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. These mortgage securities generate interest income, serve as collateral to support certain pledging agreements, and provide liquidity value under regulatory requirements.

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chart-23cbc383cb134db39051.jpgchart-ced0c91fc0564437b191.jpg
Figure 17 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 17. Securities Available for Sale
dollars in millionsU.S. Treasury, Agencies, and Corporations
States and
Political
Subdivisions
Agency Residential Collateralized Mortgage Obligations (a)
Agency Residential Mortgage-backed Securities (a)
Agency Commercial Mortgage-backed Securities (a)
Other SecuritiesTotal
Weighted-Average Yield (b)
March 31, 2021
Remaining maturity:
One year or less$  $878 $3  $22 $903 1.14 %
After one through five years4,901  10,550 2,664 $3,118  21,233 1.55 
After five through ten years  2,804 1,357 4,236  8,397 1.79 
After ten years  217 2 3,171  3,390 1.46 
Fair value$4,901  $14,449 $4,026 $10,525 $22 $33,923  
Amortized cost$4,914  $14,419 $4,018 $10,644 $8 $34,003 1.59 %
Weighted-average yield (b)
.29 % 1.68 %1.66 %2.05 %.05 %1.59 % 
Weighted-average maturity3.0 years— years3.8 years4.8 years8.1 years.7 years5.1 years 
December 31, 2020
Fair value$1,000 — $14,273 $2,164 $10,106 $13 $27,556 — 
Amortized cost1,000 — 14,001 2,094 9,707 26,810 2.09 %
 
(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%.

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Held-to-maturity securities

Federal agency CMOs and mortgage-backed securities constitute essentially all of our held-to-maturity securities. The remaining balance is comprised of foreign bonds and asset-backed securities. Figure 18 shows the composition, yields, and remaining maturities of these securities.

Figure 18. 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)
March 31, 2021
Remaining maturity:
One year or less$78   $2 $4 $84 2.18 %
After one through five years2,495 $205 $1,877 14 12 4,603 2.40 
After five through ten years739 33 1,398   2,170 2.62 
After ten years       
Amortized cost$3,312 $238 $3,275 $16 $16 $6,857 2.46 %
Fair value$3,419 $247 $3,461 $16 $16 $7,159  
Weighted-average yield (b)
2.11 %2.50 %2.82 %1.76 %2.63 %2.46 % 
Weighted-average maturity3.8 years4.4 years4.9 years2.9 years2.8 years4.3 years 
December 31, 2020
Amortized cost$3,775 $271 $3,515 19 $15 $7,595 2.46 %
Fair value3,899 285 3,805 19 15 8,023 — 
(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 19. Breakdown of Deposits at March 31, 2021
chart-3d7136e90d5a4f998f01.jpgchart-13121e641b594321b311.jpg
Deposits are our primary source of funding. At March 31, 2021, our deposits totaled $142.2 billion, an increase of $6.9 billion compared to December 31, 2020. The increase was driven by existing relationships and targeted strategic growth of commercial clients, as well as growth from consumer stimulus payments and lower consumer spending.

Wholesale funds, consisting of short-term borrowings and long-term debt, totaled $13.5 billion at March 31, 2021, compared to $14.7 billion at December 31, 2020. Strong deposit growth and elevated levels of liquidity resulted in less reliance on wholesale funds to support the growth in the balance sheet.

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. We have identified three primary uses of capital:

1. Investing in our businesses, supporting our clients, and loan growth;
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2. Maintaining or increasing our Common Share dividend; and
3. Returning capital in the form of Common Share repurchases to our shareholders.

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”).
chart-f824efde7abe488cabd1.jpgchart-35193fe215224270b8a1.jpg
(a)Common Share repurchases which were suspended during the first quarter of 2020 in response to the COVID-19 pandemic have resumed in the first quarter of 2021.
(b)The dividend payout ratio for the first and second quarters of 2020 was impacted by lower EPS which was impacted by the economic fallout from the COVID-19 pandemic.

Dividends

Consistent with our 2020 capital plan, we paid a quarterly dividend of $.185 per Common Share for the first quarter of 2021. Further information regarding the capital planning process and CCAR is included under the heading “Capital planning and stress testing” in the “Supervision and Regulation” section beginning on page 15 of our 2020 Form 10-K.

Common shares outstanding

Our Common Shares are traded on the NYSE under the symbol KEY with 31,754 holders of record at March 31, 2021. Our book value per Common Share was $16.22 based on 972.6 million shares outstanding at March 31, 2021, compared to $16.53 per Common Share based on 975.8 million shares outstanding at December 31, 2020. At March 31, 2021, our tangible book value per Common Share was $13.30, compared to $13.61 per Common Share at December 31, 2020.

Figure 20 shows activities that caused the change in outstanding Common Shares over the past five quarters.

Figure 20. Changes in Common Shares Outstanding 
 20212020
in thousandsFirstFourthThirdSecondFirst
Shares outstanding at beginning of period975,773 976,205 975,947 975,319 977,189 
Open market repurchases and return of shares under employee compensation plans(9,277)(1,092)(1)(19)(7,862)
Shares issued under employee compensation plans (net of cancellations)6,091 660 259 647 5,992 
Shares outstanding at end of period972,587 975,773 976,205 975,947 975,319 

As shown above, Common Shares outstanding decreased by 3.2 million shares during the first quarter of 2021.

At March 31, 2021, we had 284.1 million treasury shares, compared to 280.9 million treasury shares at December 31, 2020. 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.

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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 March 31, 2021. 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 2020 Form 10-K under the heading “Supervision and Regulation.” Our shareholders’ equity to assets ratio was 10.01% at March 31, 2021, compared to 10.56% at December 31, 2020. Our tangible common equity to tangible assets ratio was 7.46% at March 31, 2021, compared to 7.93% at December 31, 2020. 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 March 31, 2021, are set forth in the “Supervision and regulation — Regulatory capital requirements” section in Item 2 of this report.

Figure 21 represents the details of our regulatory capital positions at March 31, 2021, and December 31, 2020, 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 177 of our 2020 Form 10-K.

Figure 21. Capital Components and Risk-Weighted Assets 
dollars in millionsMarch 31, 2021December 31, 2020
COMMON EQUITY TIER 1
Key shareholders’ equity (GAAP)$17,634 $17,981 
Less:
Preferred Stock (a)
1,856 1,856 
Add:
CECL phase-in (b)
322 375 
Common Equity Tier 1 capital before adjustments and deductions16,100 16,500 
Less:Goodwill, net of deferred taxes2,564 2,560 
Intangible assets, net of deferred taxes138 151 
Deferred tax assets11 
Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes158 583 
Accumulated gains (losses) on cash flow hedges, net of deferred taxes248 460 
Amounts in AOCI attributed to pension and postretirement benefit costs, net of deferred taxes(303)(306)
Total Common Equity Tier 1 capital$13,284 $13,051 
TIER 1 CAPITAL
Common Equity Tier 1$13,284 $13,051 
Additional Tier 1 capital instruments and related surplus1,856 1,856 
Less:Deductions — 
Total Tier 1 capital15,140 14,907 
TIER 2 CAPITAL
Tier 2 capital instruments and related surplus1,658 1,657 
Allowance for losses on loans and liability for losses on lending-related commitments (c)
1,254 1,412 
Less:Deductions — 
Total Tier 2 capital2,912 3,069 
Total risk-based capital$18,052 $17,976 
RISK-WEIGHTED ASSETS
Risk-weighted assets on balance sheet$102,878 $103,604 
Risk-weighted off-balance sheet exposure29,392 29,240 
Market risk-equivalent assets2,046 1,354 
Gross risk-weighted assets134,316 134,198 
Less:Excess allowance for loan and lease losses — 
Net risk-weighted assets$134,316 $134,198 
AVERAGE QUARTERLY TOTAL ASSETS$170,220 $166,771 
CAPITAL RATIOS
Tier 1 risk-based capital11.27 %11.11 %
Total risk-based capital13.44 %13.40 %
Leverage (d)
8.89 %8.94 %
Common Equity Tier 19.89 %9.73 %
(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 $33 million and $36 million of allowance classified as “discontinued assets” on the balance sheet at March 31, 2021, and December 31, 2020, 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.
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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. There have been no significant changes in our Risk Management practices as described under the heading “Risk Management” beginning on page 72 of our 2020 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 112 of our 2020 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 March 31, 2021, 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 73 of our 2020 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 cancelable 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 73 of our 2020 Form 10-K.

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Actual losses for the total covered portfolios did not exceed aggregate daily VaR at any day during the quarter ended March 31, 2021. Actual losses for the total covered portfolios exceeded aggregate daily VaR at a 99% confidence level and one day holding period twice during the quarter ended March 31, 2020, due to market volatility related to COVID-19. 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 $2.5 million at March 31, 2021, and $3.0 million at March 31, 2020. Figure 22 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 March 31, 2021, and March 31, 2020.

Figure 22. VaR for Significant Portfolios of Covered Positions 
 20212020
 Three months ended March 31, Three months ended March 31, 
in millionsHighLowMeanMarch 31,HighLowMeanMarch 31,
Trading account assets:
Fixed income$6.4 $2.0 $4.0 $2.1 $3.3 $.5 $1.2 $2.6 
Derivatives:
Interest rate$.6 .2 $.4 $.2 $.3 .1 $.1 $.3 

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 $6.2 million at March 31, 2021, and $4.1 million at March 31, 2020. Figure 23 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 March 31, 2021, and March 31, 2020.

Figure 23. Stressed VaR for Significant Portfolios of Covered Positions 
 20212020
 Three months ended March 31, Three months ended March 31, 
in millionsHighLowMeanMarch 31,HighLowMeanMarch 31,
Trading account assets:
Fixed income$6.6 $2.0 $4.5 $5.5 $5.1 $2.2 $3.8 $3.7 
Derivatives:
Interest rate$.6 $.2 $.4 $.4 $1.0 $.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 $33 million at March 31, 2021, 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 2020 Form 10-K, LIBOR in its current form will generally not be available after 2021 for new contracts and will cease publishing all tenors entirely after June 30, 2023. For most products, the most likely replacement rate is expected to be SOFR, which has been recommended by the ARRC, although uncertainty remains as to whether new benchmarks may evolve and a different credit sensitive benchmark could instead become the market-accepted benchmark. The Federal Reserve and the OCC have encouraged financial institutions not to wait for the end of 2021 to make the transition away from LIBOR. We have established an enterprise wide program to identify and address all LIBOR transition issues. We are collaborating closely with regulators and industry groups on the transition and closely monitoring developments in industry practices related to LIBOR alternatives. The goals of our LIBOR transition program are to:

Identify and analyze LIBOR-based exposure and develop and execute transition strategies;
Review and update near-term strategies and actions for our current LIBOR-based business currently being written;
Assess financial impact and risk while planning and executing mitigation actions;
Understand and strategically address the current market approach to LIBOR and SOFR;
Determine and execute system and process work to be operationally ready for SOFR or additional credit sensitive benchmarks; and
Originate new loans using SOFR.

As part of the LIBOR transition program, we completed an initial risk assessment to help us identify the impact and risks associated with various products, systems, processes, and models. This risk assessment has assisted us in making necessary updates to our infrastructure and operational systems and processes to implement a replacement rate, and we are progressing on schedule to be operationally ready for SOFR. We have compiled an inventory of existing legal contracts that are impacted by the LIBOR transition. We are assessing the LIBOR fallback language in those contracts and are devising a strategy to address the LIBOR transition for those contracts. We have also focused on refining LIBOR fallback language in new legal contracts including requiring the use of robust fallback language. Our progress is well-paced, especially as many of the legacy contracts will be provided additional
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time to remediate due to announcements by the ICE Benchmark Administration, the FCA-regulated and authorized administrator of LIBOR, that certain LIBOR tenors may continue until June 2023 for legacy contract purposes. In addition, we are on schedule with executing a strategy to address the LIBOR transition for contracts that must transition by the end of 2021. We expect to leverage recommendations made by the ARRC and ISDA that are tailored to our specific client segments.

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 24 presents the results of the simulation analysis at March 31, 2021, and March 31, 2020. At March 31, 2021, our simulated impact to changes in interest rates was modest. The exposure to declining rates has decreased from an elevated level at March 31, 2020 that was a result of a short term widening of the spread between the Fed Funds Target Rate and LIBOR. As LIBOR declined and the relationship between the two short term market rates normalized, the exposure to declining rates decreased. Exposure to declining rates remains nominal given the low level of market rates in comparison to the floor utilized in the scenario. Tolerance levels for risk management require the development of remediation plans to maintain residual risk within tolerance if simulation modeling demonstrates that a gradual, parallel 200 basis point increase or 200 basis point decrease in interest rates over the next 12 months would adversely affect net interest income over the same period by more than 5.5%. Current modeled exposure is within Board approved tolerances.

Figure 24. Simulated Change in Net Interest Income
March 31, 2021March 31, 2020
Basis point change assumption (short-term rates)-200 +200-200 200
Assumed floor in market rates (in basis points)N/AN/A
Tolerance level-5.50%-5.50%-5.50%-5.50%
Interest rate risk assessment-2.89%4.75%-4.97%5.95%

Simulation analysis produces a sophisticated estimate of interest rate exposure based on assumptions input into the model. We tailor certain assumptions to the specific interest rate environment and yield curve shape being modeled and validate those assumptions on a regular basis. However, actual results may differ from those derived in simulation analysis 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, and repercussions from unanticipated or unknown events.

We also perform regular stress tests and sensitivity analyses on the model inputs that could materially change the resulting risk assessments. Assessments are performed using different shapes of the yield curve, including steepening or flattening of the yield 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 24. 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 25 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 120 basis points.

Our 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
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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 our interest rate risk profile.

We also conduct simulations 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 manner similar to those based on a 12-month horizon. To capture longer-term exposures, we calculate exposures to changes of the EVE 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. The interest rate shock scenarios are equal to the current Fed Target Rate capped at 200 basis points. In the current low rate environment, the declining shock scenario is reduced with a 100 basis point minimum. 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 our expectations. We develop remediation plans that would maintain residual risk within tolerance if this analysis indicates that our EVE will decrease by more than 15% in response to an immediate increase or decrease in interest rates. We are operating within these guidelines as of March 31, 2021.

Management of interest rate exposure. We use the results of our various interest rate risk analyses to formulate A/LM strategies to achieve the desired risk profile while managing to our objectives for capital adequacy and liquidity risk exposures. Specifically, we manage interest rate risk positions by purchasing securities, issuing term debt with floating or fixed interest rates, and using derivatives. We predominantly use interest rate swaps and options, which modify the interest rate characteristics of certain assets and liabilities.

Figure 25 shows all swap positions that we hold 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 as we adjust our broader A/LM objectives and the balance sheet positions to be hedged. For more information about how we use interest rate swaps to manage our risk profile, see Note 7 (“Derivatives and Hedging Activities”).

Figure 25. Portfolio Swaps by Interest Rate Risk Management Strategy 
March 31, 2021
Weighted-AverageDecember 31, 2020
dollars in millionsNotional
Amount
Fair
Value
Maturity
(Years)
Receive
Rate
Pay
Rate
Notional
Amount
Fair
Value
Receive fixed/pay variable — conventional A/LM (a)$25,785 $344 2.71.4 %.1 %$21,035 $632 
Receive fixed/pay variable — conventional debt6,902 210 4.01.9 .1 7,787 415 
Receive fixed/pay variable — forward A/LM    — — 
Pay fixed/receive variable — conventional debt50 (7)7.3.2 3.6 50 (11)
Pay fixed/receive variable — forward securities3,880 287 10.9.6 1.0 2,080 21 
Total portfolio swaps$36,617 $834 (c)3.81.5 %.2 %$30,952 $1,057 (c)
Floors — conventional A/LM — purchased (b)$5,000 $11 .6  $5,000 17 
Floors — conventional A/LM — sold (b)    — — 
Total floors$5,000 $11 1.0  $5,000 17 
(a)Portfolio swaps designated as A/LM are used to manage interest rate risk tied to both assets and liabilities
(b)Conventional A/LM and forward A/LM floors do not have a stated receive rate or pay rate and are given a strike price on the option.
(c)Excludes accrued interest of $127 million and $145 million at March 31, 2021, and December 31, 2020, respectively.

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.

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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 (including COVID-19), 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. See Part I, Item 1A. Risk Factors section “IV. Liquidity Risk” in our 2020 Form 10-K for a discussion of how the COVID-19 global pandemic has impacted our liquidity and may continue to impact it in the future.

Our credit ratings at March 31, 2021, are shown in Figure 26. We believe these credit ratings, under normal conditions in the capital markets, would enable KeyCorp or KeyBank to issue fixed income securities to investors.

Figure 26. Credit Ratings 
March 31, 2021Short-Term
Borrowings
Long-Term
Deposits
(a)
Senior
Long-Term
Debt
Subordinated
Long-Term
Debt
Capital
Securities
Preferred
Stock
KEYCORP (THE PARENT COMPANY)
Standard & Poor’sA-2N/ABBB+BBBBB+BB+
Moody’sP-2N/ABaa1Baa1Baa2Baa3
Fitch Ratings, Inc.F1N/AA-BBB+BB+BB+
DBRS, Inc.R-1 (low)N/AAA (low)A (low)BBB
KEYBANK
Standard & Poor’sA-2N/AA-BBB+N/AN/A
Moody’sP-2P-1/Aa3A3Baa1N/AN/A
Fitch Ratings, Inc.F1AA-BBB+N/AN/A
DBRS, Inc.R-1 (middle)A (high)A (high)AN/AN/A
(a)P-1 rating assigned by Moody’s is specific to KeyBank’s short-term bank deposit ratings.

Sources of liquidity

Our primary sources of funding for KeyBank include customer deposits, wholesale funding, and liquid assets. As of March 31, 2021, our consolidated loan-to-deposit ratio was 73%. In addition, we also have access to various sources of wholesale funding, maintain a portfolio of liquid assets, and have borrowing capacity at the FHLB and Federal Reserve Bank of Cleveland. Our liquid asset portfolio at March 31, 2021, totaled $41.0 billion, consisting of $25.9 billion of unpledged securities, $49.2 million of securities available for secured funding at the FHLB, and $15.1 billion of net balances of federal funds sold and balances in our Federal Reserve account. Additionally, as of March 31, 2021, our unused borrowing capacity secured by loan collateral was $22.7 billion at the Federal Reserve Bank of Cleveland and $9.2 billion at the FHLB. During the first quarter of 2021, our secured term borrowings decreased $1.4 million as advances were paid down. 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.

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 March 31, 2021, 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. During the first quarter of 2021, KeyBank paid $375 million in cash dividends to KeyCorp. As of March 31, 2021, KeyBank had regulatory capacity to pay $975 million 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 increased as a result of an increase in unpledged securities, which was partially offset by a decrease 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.

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 39 of our 2020 Form 10-K. 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 three-month periods ended March 31, 2021, and March 31, 2020.

For more information regarding liquidity governance structure, factors affecting liquidity, management of liquidity risk at KeyBank and KeyCorp, long-term liquidity strategies, and other liquidity programs, see ”Liquidity Risk Management” beginning on page 79 of our 2020 Form 10-K.

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, 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 Board for approval. These policies are communicated throughout the organization to foster a consistent approach to granting credit. As a result of the current economic environment, our commercial loan portfolio is going through active portfolio surveillance which is described in more detail in the section entitled “Loans and loans held for sale — Commercial loan portfolio.”

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.

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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 (“Basis of Presentation and Accounting Policies”) under the heading “Allowance for Loan and Lease Losses” beginning on page 110 of our 2020 Form 10-K. Briefly, the ALLL estimate uses various models and estimation techniques based on our historical loss experience, current borrower characteristics, current conditions, reasonable and supportable forecasts and other relevant factors. As described in Note 1 (“Summary of Significant Accounting Policies”) of our 2020 Form 10-K, on January 1, 2020, we adopted ASC 326, Financial Instruments — Credit Losses, and as such, an expected credit loss methodology, specifically current expected credit losses for the remaining life of our loans and leases, is used to estimate the appropriate level of the ALLL. The ALLL at March 31, 2021, represents our best estimate of the lifetime expected credit losses inherent in the loan portfolio at that date.

As shown in Figure 27, our ALLL from continuing operations decreased by $188 million, or 11.6%, from December 31, 2020. The commercial ALLL decreased by $162 million, or 14.7%, from December 31, 2020, through March 31, 2021, driven by updated economic forecasts that reflect improved economic outlooks, as well as favorable commercial portfolio asset quality migration. Our consumer ALLL decreased by $26 million, or 4.9%, from December 31, 2020, through March 31, 2021, driven by updated economic forecasts that reflect improved economic outlooks.

Figure 27. Allocation of the Allowance for Loan and Lease Losses
 March 31, 2021December 31, 2020
dollars in millionsAmount
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$596 41.4 %52.0 %$678 41.7 %52.3 %
Commercial real estate:
Commercial mortgage256 17.8 12.6 327 20.1 12.5 
Construction45 3.1 2.1 47 2.9 2.0 
Total commercial real estate loans301 20.9 14.7 374 23.0 14.5 
Commercial lease financing40 2.8 4.0 47 2.9 4.3 
Total commercial loans937 65.1 70.7 1,099 67.6 71.1 
Real estate — residential mortgage100 7.0 10.2 102 6.3 9.2 
Home equity loans157 10.9 9.1 171 10.5 9.2 
Consumer direct loans126 8.8 4.8 128 5.3 4.7 
Credit cards80 5.6 1.0 87 7.9 1.0 
Consumer indirect loans38 2.6 4.2 39 2.4 4.8 
Total consumer loans501 34.9 29.3 527 32.4 28.9 
Total ALLL — continuing operations (a)
$1,438 100.0 %100.0 %$1,626 100.0 %100.0 %
(a)Excludes allocations of the ALLL related to the discontinued operations of the education lending business in the amount of $33 million at March 31, 2021, and $36 million at December 31, 2020.


Net loan charge-offs 

Figure 28 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 29.

Net loan charge-offs for the three months ended March 31, 2021, increased $30 million compared to the year-ago quarter. For the remainder of 2021, we expect net loan charge-offs to average loans to be between 35 to 45 basis points which is in line with or below our long-term financial targets.

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Figure 28. Net Loan Charge-offs from Continuing Operations (a) 
 20212020
dollars in millionsFirstFourthThirdSecondFirst
Commercial and industrial$65 $104 $92 $66 $55 
Real estate — Commercial mortgage34 11 
Real estate — Construction — — — — 
Commercial lease financing3 19 10 
Total commercial loans102 124 113 71 59 
Real estate — Residential mortgage(1)— (1)— 
Home equity loans1 — 
Consumer direct loans6 10 
Credit cards4 10 
Consumer indirect loans2 — 
Total consumer loans12 11 15 25 25 
Total net loan charge-offs$114 $135 $128 $96 $84 
Net loan charge-offs to average loans.46 %.53 %.49 %.36 %.35 %
Net loan charge-offs from discontinued operations — education lending business $— — $
(a)Credit amounts indicate that recoveries exceeded charge-offs.
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Figure 29. Summary of Loan and Lease Loss Experience from Continuing Operations
 Three months ended March 31,
dollars in millions20212020
Average loans outstanding$100,728 $96,174 
Allowance for loan and lease losses at the end of the prior period$1,626 $900 
Cumulative effect from change in accounting principle (a)
 204 
Allowance for loan and lease losses at beginning of period1,626 1,104 
Loans charged off:
Commercial and industrial73 60 
Real estate — commercial mortgage35 
Real estate — construction — 
Commercial lease financing4 
Total commercial loans112 65 
Real estate — residential mortgage — 
Home equity loans2 
Consumer direct loans8 12 
Credit cards6 11 
Consumer indirect loans7 
Total consumer loans23 36 
Total loans charged off135 101 
Recoveries:
Commercial and industrial8 
Real estate — commercial mortgage1 
Real estate — construction — 
Commercial lease financing1 — 
Total commercial loans10 
Real estate — residential mortgage1 — 
Home equity loans1 
Consumer direct loans2 
Credit cards2 
Consumer indirect loans5 
Total consumer loans11 11 
Total recoveries21 17 
Net loan charge-offs(114)(84)
Provision (credit) for loan and lease losses(74)339 
Allowance for loan and lease losses at end of period$1,438 $1,359 
Liability for credit losses on lending-related commitments at the end of the prior period$197 $68 
Liability for credit losses on contingent guarantees at the end of the prior period 
Cumulative effect from change in accounting principle (a), (b)
 66 
Liability for credit losses on off-balance sheet exposures at beginning of period197 141 
Provision (credit) for losses on off-balance sheet exposures(19)20 
Liability for credit losses on off-balance sheet exposures at end of period (c)
$178 $161 
Total allowance for credit losses at end of period$1,616 $1,520 
Net loan charge-offs to average total loans.46 %.35 %
Allowance for loan and lease losses to period-end loans1.42 1.32 
Allowance for credit losses to period-end loans1.60 1.47 
Allowance for loan and lease losses to nonperforming loans197.5 215.0 
Allowance for credit losses to nonperforming loans222.0 240.5 
Discontinued operations — education lending business:
Loans charged off$1 $
Recoveries1 
Net loan charge-offs$ $(1)
(a)The cumulative effect from change in accounting principle relates to the January 1, 2020, adoption of ASU 2016-13.
(b)For the period ended March 31, 2020, excludes $4 million related to the provision for other financial assets.
(c)Included in "Accrued expense and other liabilities" on the balance sheet.


43

Nonperforming assets

Figure 30 shows the composition of our nonperforming assets. As shown in Figure 30, nonperforming assets at March 31, 2021, decreased $147 million from December 31, 2020. This decrease was primarily driven by the completion of the sale of a large commercial OREO asset at a small gain during the first quarter of 2021.

Under the CARES Act as well as banking regulator interagency guidance, certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic may not be reported as past due. Refer to Note 4 (“Asset Quality”) under the heading “Nonperforming and Past Due Loans.”

See Note 1 (“Basis of Presentation and Accounting Policies”) under the headings “Nonperforming Loans,” “Impaired Loans,” and “Allowance for Loan and Lease Losses” and Note 1 (“Summary of Significant Accounting Policies”) of our 2020 Form 10-K for a summary of our nonaccrual and charge-off policies.

Figure 30. Summary of Nonperforming Assets and Past Due Loans from Continuing Operations 
dollars in millionsMarch 31, 2021December 31, 2020September 30, 2020June 30, 2020March 31, 2020
Commercial and industrial$387 $385 $459 $404 $277 
Real estate — commercial mortgage66 104 104 91 87 
Real estate — construction — 
Total commercial real estate loans (a)
66 104 105 92 89 
Commercial lease financing8 
Total commercial loans (b)
461 497 570 505 371 
Real estate — residential mortgage95 110 96 89 89 
Home equity loans148 154 146 141 143 
Consumer direct loans5 
Credit cards3 
Consumer indirect loans16 17 17 20 22 
Total consumer loans267 288 264 255 261 
Total nonperforming loans728 785 834 760 632 
OREO12 100 105 112 119 
Nonperforming loans held for sale47 49 61 75 89 
Other nonperforming assets3 
Total nonperforming assets$790 $937 $1,003 $951 $844 
Accruing loans past due 90 days or more$92 $86 $73 $87 $128 
Accruing loans past due 30 through 89 days191 241 336 419 393 
Restructured loans — accruing and nonaccruing (c)
376 363 306 310 340 
Restructured loans included in nonperforming loans (c)
192 229 168 166 172 
Nonperforming assets from discontinued operations — education lending business5 
Nonperforming loans to period-end portfolio loans.72 %.78 %.81 %.72 %.61 %
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets.78 .92 .97 .89 .82 
(a)See Figure 12 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 11 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial loan portfolio.
(c)Restructured loans (i.e., TDRs) are those for which Key, for reasons related to a borrower’s financial difficulties, grants a concession to the borrower that it would not otherwise consider. These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance.

Figure 31 shows the types of activity that caused the change in our nonperforming loan balance during each of the last five quarters.

Figure 31. Summary of Changes in Nonperforming Loans from Continuing Operations
 20212020
in millionsFirstFourthThirdSecondFirst
Balance at beginning of period$785 $834 $760 $632 $577 
Loans placed on nonaccrual status196 300 387 293 219 
Charge-offs(135)(160)(150)(111)(100)
Loans sold(13)(9)(6)(5)(4)
Payments(37)(83)(83)(29)(31)
Transfers to OREO(3)(3)— — (3)
Transfers to nonperforming loans held for sale — — — — 
Transfers to other nonperforming assets — — — — 
Loans returned to accrual status(65)(94)(74)(20)(26)
Balance at end of period$728 $785 $834 $760 $632 



44

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 also encompasses compliance risk, which is the risk of loss from violations of, or noncompliance with, laws, rules and regulations, prescribed practices, and ethical standards. This includes our compliance with lending programs established by the CARES Act, including the PPP and Main Street Lending Program. 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. Resulting operational risk losses and/or additional regulatory compliance costs could take the form of explicit charges, increased operational costs, harm to our reputation, or foregone 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 Risk and Audit Committees and independently supports the Risk Committee’s 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 by third parties 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 emergence of COVID-19 has created a unique situation globally with many more employees and third-party service providers working from home, which inherently introduces additional risk. 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.

Cyberattack risks may also occur with our third-party technology service providers and may result in financial loss or liability that could adversely affect our financial condition or results of operations. Cyberattacks could also interfere with third-party providers’ ability to fulfill their contractual obligations to us. Recent 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 customers, some of whom are customers of ours. We may incur expenses related to the investigation of such attacks or related to the protection of our customers from identity theft as a result of such attacks. We may also incur expenses to enhance our systems or processes to
45

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, or material harm to our customers, as a result of the heightened threat landscape or cyberattacks.

As described in more detail starting on page 72 of our 2020 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. 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.
 Three months ended
dollars in millions3/31/202112/31/20209/30/20206/30/20203/31/2020
Tangible common equity to tangible assets at period-end
Key shareholders’ equity (GAAP)$17,634 $17,981 $17,722 $17,542 $17,411 
Less:
Intangible assets (a)
2,842 2,848 2,862 2,877 2,894 
Preferred Stock (b)
1,856 1,856 1,856 1,856 1,856 
Tangible common equity (non-GAAP)$12,936 $13,277 $13,004 $12,809 $12,661 
Total assets (GAAP)$176,203 $170,336 $170,540 $171,192 $156,197 
Less:
Intangible assets (a)
2,842 2,848 2,862 2,877 2,894 
Tangible assets (non-GAAP)$173,361 $167,488 $167,678 $168,315 $153,303 
Tangible common equity to tangible assets ratio (non-GAAP)7.5 %7.9 %7.8 %7.6 %8.3 %
Average tangible common equity
Average Key shareholders’ equity (GAAP)$17,769 $17,905 $17,730 $17,688 $17,216 
Less:
Intangible assets (average) (c)
2,844 2,855 2,870 2,886 2,902 
Preferred Stock (average)1,900 1,900 1,900 1,900 1,900 
Average tangible common equity (non-GAAP)$13,025 $13,150 $12,960 $12,902 $12,414 
Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)$591 $549 $397 $159 $118 
Average tangible common equity (non-GAAP)13,025 13,150 12,960 12,902 12,414 
Return on average tangible common equity from continuing operations (non-GAAP)18.25 %16.61 %12.19 %4.96 %3.82 %
Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)$595 $556 $401 $161 $119 
Average tangible common equity (non-GAAP)13,025 13,150 12,960 12,902 12,414 
Return on average tangible common equity consolidated (non-GAAP)18.37 %16.82 %12.31 %5.02 %3.86 %
(a)For the three months ended March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020, and March 31, 2020, intangible assets exclude $4 million, $4 million, $5 million, $5 million, and $6 million, respectively, of period-end purchased credit card receivables.
(b)Net of capital surplus.
(c)For the three months ended March 31, 2021, December 31, 2020, September 30, 2020, June 30, 2020, and March 31, 2020, average intangible assets exclude $4 million, $5 million, $5 million, $6 million, and $7 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.
46

 Three months ended
dollars in millions3/31/202112/31/20209/30/20206/30/20203/31/2020
Cash efficiency ratio
Noninterest expense (GAAP)$1,071 $1,128 $1,037 $1,013 $931 
Less:Intangible asset amortization15 15 15 18 17 
Adjusted noninterest expense (non-GAAP)$1,056 $1,113 $1,022 $995 $914 
Net interest income (GAAP)$1,005 $1,035 $1,000 $1,018 $981 
Plus:Taxable-equivalent adjustment7 
Noninterest income (GAAP)738 802 681 692 477 
Total taxable-equivalent revenue (non-GAAP)$1,750 $1,845 $1,687 $1,717 $1,466 
Cash efficiency ratio (non-GAAP)60.3 %60.3 %60.6 %57.9 %62.3 %

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 108 of our 2020 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.

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 91 through 96 of our 2020 Form 10-K. During the first three months of 2021, we did not significantly alter the manner in which we applied our critical accounting policies or developed related assumptions and estimates.



47

Accounting and Reporting Developments

Accounting Guidance Pending Adoption at March 31, 2021

StandardRequired AdoptionDescriptionEffect on Financial Statements or
Other Significant Matters
ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40)January 1, 2022

Early adoption is permitted.
The ASU simplifies the accounting for convertible debt instruments by eliminating the legacy accounting models for convertible instruments with beneficial conversion features or cash conversion features. The guidance also amends the guidance used to determine if a freestanding financial instrument or an embedded feature qualifies for a scope exception from derivative accounting. For freestanding financial instruments and embedded features that have all the characteristics of a derivative instrument and are potentially settled in an entity’s own stock, the guidance simplifies the settlement assessment that entities are required to perform. Also, the Update now requires the use of the if-converted method for all convertible instruments and includes the effect of potential share settlement in diluted EPS if the effect is more dilutive. The new guidance also makes clarifications to the EPS calculation. Further, the ASU expands disclosure requirements.

The guidance should be applied on a modified retrospective or retrospective basis.
The adoption of this accounting guidance is not expected to have a
material effect on our financial condition or results of operations.
Reference Rate Reform (Topic 848)December 31, 2022London Interbank Offered Rate (LIBOR), a reference rate presumed to capture bank funding costs, is being phased out and will no longer be published. This transition to alternate rates will impact, among other things, contracts that reference LIBOR.Key has established an enterprise-wide program to identify and address all LIBOR related issues and will assess the impacts in conjunction with the reference rate transition as it occurs over the next two years.


48

European Sovereign and Nonsovereign Debt Exposures

Our total European sovereign and Nonsovereign debt exposure is presented in Figure 32.

Figure 32. European Sovereign and Nonsovereign Debt Exposures
March 31, 2021
Short- and Long-
Term Commercial
Total (a)
Foreign Exchange
and Derivatives
with Collateral
(b)
Net
Exposure
in millions
France:
Sovereigns— — — 
Nonsovereign financial institutions— 
Nonsovereign non-financial institutions$— $
Total
Germany:
Sovereigns— — — 
Nonsovereign financial institutions— — — 
Nonsovereign non-financial institutions33 — 33 
Total33 — 33 
Italy:
Sovereigns— — — 
Nonsovereign financial institutions— — — 
Nonsovereign non-financial institutions17 — 17 
Switzerland:
Sovereigns— — — 
Nonsovereign financial institutions— 
Nonsovereign non-financial institutions— — — 
Total— 
United Kingdom:
Sovereigns— — — 
Nonsovereign financial institutions— $375 375 
Nonsovereign non-financial institutions— — — 
Total— 375 375 
Total Europe:
Sovereigns— — — 
Nonsovereign financial institutions— 377 377 
Nonsovereign non-financial institutions51 — 51 
Total$51 $377 $428 
(a)Represents our outstanding leases.
(b)Represents contracts to hedge our balance sheet asset and liability needs and to accommodate our clients’ trading and/or hedging needs. Our derivative mark-to-market exposures are calculated and reported on a daily basis. These exposures are largely covered by cash or highly marketable securities collateral with daily collateral calls.

Our credit risk exposure is largely concentrated in developed countries with emerging market exposure essentially limited to commercial facilities; these exposures are actively monitored by management. We do not have at-risk exposures in the rest of the world.
49

Item 1. Financial Statements

Consolidated Balance Sheets
in millions, except per share dataMarch 31,
2021
December 31,
2020
 (Unaudited) 
ASSETS
Cash and due from banks$938 $1,091 
Short-term investments15,376 16,194 
Trading account assets811 735 
Securities available for sale33,923 27,556 
Held-to-maturity securities (fair value: $7,159 and $8,023)6,857 7,595 
Other investments621 621 
Loans, net of unearned income of $408 and $449100,926 101,185 
Less: Allowance for loan and lease losses(1,438)(1,626)
Net loans99,488 99,559 
Loans held for sale (a)
2,296 1,583 
Premises and equipment737 753 
Goodwill2,673 2,664 
Other intangible assets173 188 
Corporate-owned life insurance4,296 4,286 
Accrued income and other assets7,347 6,812 
Discontinued assets667 699 
Total assets$176,203 $170,336 
LIABILITIES
Deposits in domestic offices:
NOW and money market deposit accounts$82,777 $80,427 
Savings deposits6,655 5,913 
Certificates of deposit ($100,000 or more)2,437 2,733 
Other time deposits2,782 3,010 
Total interest-bearing deposits94,651 92,083 
Noninterest-bearing deposits47,532 43,199 
Total deposits142,183 135,282 
Federal funds purchased and securities sold under repurchase agreements281 220 
Bank notes and other short-term borrowings744 759 
Accrued expense and other liabilities2,862 2,385 
Long-term debt12,499 13,709 
Total liabilities158,569 152,355 
EQUITY
Preferred stock1,900 1,900 
Common Shares, $1 par value; authorized 2,100,000,000 and 2,100,000,000 shares; issued 1,256,702,081 and 1,256,702,081 shares1,257 1,257 
Capital surplus6,213 6,281 
Retained earnings13,166 12,751 
Treasury stock, at cost (284,115,148 and 280,928,782 shares)(5,005)(4,946)
Accumulated other comprehensive income (loss)103 738 
Key shareholders’ equity17,634 17,981 
Noncontrolling interests — 
Total equity17,634 17,981 
Total liabilities and equity$176,203 $170,336 
(a)Total loans held for sale include real estate — residential mortgage loans held for sale at fair value of $236 million at March 31, 2021, and $264 million at December 31, 2020.
See Notes to Consolidated Financial Statements (Unaudited).

50

Consolidated Statements of Income
dollars in millions, except per share amountsThree months ended March 31,
(Unaudited)20212020
INTEREST INCOME
Loans$889 $1,026 
Loans held for sale11 19 
Securities available for sale130 129 
Held-to-maturity securities45 62 
Trading account assets5 
Short-term investments5 
Other investments2 
Total interest income1,087 1,251 
INTEREST EXPENSE
Deposits21 169 
Federal funds purchased and securities sold under repurchase agreements 
Bank notes and other short-term borrowings1 
Long-term debt60 90 
Total interest expense82 270 
NET INTEREST INCOME1,005 981 
Provision for credit losses(93)359 
Net interest income after provision for credit losses1,098 622 
NONINTEREST INCOME
Trust and investment services income133 133 
Investment banking and debt placement fees162 116 
Service charges on deposit accounts73 84 
Operating lease income and other leasing gains38 30 
Corporate services income64 62 
Cards and payments income105 66 
Corporate-owned life insurance income31 36 
Consumer mortgage income47 20 
Commercial mortgage servicing fees34 18 
Other income (a)
51 (88)
Total noninterest income738 477 
NONINTEREST EXPENSE
Personnel624 515 
Net occupancy76 76 
Computer processing73 55 
Business services and professional fees50 44 
Equipment25 24 
Operating lease expense34 36 
Marketing26 21 
Intangible asset amortization15 17 
Other expense148 143 
Total noninterest expense1,071 931 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES765 168 
Income taxes147 23 
INCOME (LOSS) FROM CONTINUING OPERATIONS618 145 
Income (loss) from discontinued operations4 
NET INCOME (LOSS)622 146 
Less: Net income (loss) attributable to noncontrolling interests — 
NET INCOME (LOSS) ATTRIBUTABLE TO KEY$622 $146 
Income (loss) from continuing operations attributable to Key common shareholders$591 $118 
Net income (loss) attributable to Key common shareholders595 119 
Per Common Share:
Income (loss) from continuing operations attributable to Key common shareholders$.61 $.12 
Income (loss) from discontinued operations, net of taxes — 
Net income (loss) attributable to Key common shareholders (b) 
.62 .12 
Per Common Share — assuming dilution:
Income (loss) from continuing operations attributable to Key common shareholders$.61 $.12 
Income (loss) from discontinued operations, net of taxes — 
Net income (loss) attributable to Key common shareholders (b)
.61 .12 
Cash dividends declared per Common Share$.185 $.185 
Weighted-average Common Shares outstanding (000)964,878 967,446 
Effect of Common Share options and other stock awards9,419 8,664 
Weighted-average Common Shares and potential Common Shares outstanding (000) (c)
974,297 976,110 
(a)For the three months ended March 31, 2021, net securities gains (losses) totaled less than $1 million for the three months ended March 31, 2020, net securities gains (losses) totaled $4 million. For the three months ended March 31, 2021, and March 31, 2020, we did not have any impairment losses related to securities.
(b)EPS may not foot due to rounding.
(c)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.
See Notes to Consolidated Financial Statements (Unaudited).
51

Consolidated Statements of Comprehensive Income
in millionsThree months ended March 31,
(Unaudited)20212020
Net income (loss)$622 $146 
Other comprehensive income (loss), net of tax:
Net unrealized gains (losses) on securities available for sale, net of income taxes of $(198) and $126(628)405 
Net unrealized gains (losses) on derivative financial instruments, net of income taxes of $(3) and $117(10)377 
Foreign currency translation adjustments, net of income taxes of $0 and $0 — 
Net pension and postretirement benefit costs, net of income taxes of $1 and $23 
Total other comprehensive income (loss), net of tax(635)788 
Comprehensive income (loss)(13)934 
Less: Comprehensive income attributable to noncontrolling interests — 
Comprehensive income (loss) attributable to Key$(13)$934 
See Notes to Consolidated Financial Statements (Unaudited).
52

Consolidated Statements of Changes in Equity

 Key Shareholders’ Equity 
dollars in millions, except per share amounts
(Unaudited)
Preferred
Shares
Outstanding
(000)
Common
Shares
Outstanding
(000)
Preferred
Stock
Common
Shares
Capital
Surplus
Retained
Earnings
Treasury
Stock,
at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
BALANCE AT DECEMBER 31, 20191,396 977,189 $1,900 $1,257 $6,295 $12,469 $(4,909)$26 $— 
Cumulative effect from changes in accounting principle (a)(230)
Net income (loss)146 — 
Other comprehensive income (loss):788 
Deferred compensation(1)
Cash dividends declared
Common Shares ($.185 per share)(181)
Series D Preferred Stock ($12.50 per depositary share)(7)
Series E Preferred Stock ($.382813 per depositary share)(8)
Series F Preferred Stock ($.353125 per depositary share)(6)
Series G Preferred Stock ($.351563 per depositary share)(6)
Open market Common Share repurchases(6,067)(117)
Employee equity compensation program Common Share repurchases(1,795)(72)(35)
Common shares reissued (returned) for stock options and other employee benefit plans5,992 — 105 
Net contribution from (distribution to) noncontrolling interests— 
Other(3)
BALANCE AT MARCH 31, 20201,396 975,319 $1,900 $1,257 $6,222 $12,174 $(4,956)$814 $— 
(a)Includes the impact of implementing ASU 2016-13, Financial Instruments - Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments. See Note 1 (“Summary of Significant Accounting Policies) in our 2020 Form 10-K for more information on our adoption of this guidance and the impact to our results of operations.
See Notes to Consolidated Financial Statements (Unaudited).

 Key Shareholders’ Equity 
dollars in millions, except per share amounts
(Unaudited)
Preferred
Shares
Outstanding
(000)
Common
Shares
Outstanding
(000)
Preferred
Stock
Common
Shares
Capital
Surplus
Retained
Earnings
Treasury
Stock,
at Cost
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interests
BALANCE AT DECEMBER 31, 20201,396 975,773 $1,900 $1,257 $6,281 $12,751 $(4,946)$738 — 
Net income (loss)622  
Other comprehensive income (loss)(635)
Deferred compensation(3)
Cash dividends declared
Common Shares ($.185 per share)(180)
Series D Preferred Stock ($12.50 per depositary share)(7)
Series E Preferred Stock ($.382813 per depositary share)(8)
Series F Preferred Stock ($.353125 per depositary share)(6)
Series G Preferred Stock ($.351563 per depositary share)(6)
Open market Common Share repurchases(7,701)(135)
Employee equity compensation program Common Share repurchases(1,576) (31)
Common Shares reissued (returned) for stock options and other employee benefit plans6,091 (65)107 
Net contribution from (distribution to) noncontrolling interests 
Other 
BALANCE AT MARCH 31, 20211,396 972,587 $1,900 $1,257 $6,213 $13,166 $(5,005)$103  
See Notes to Consolidated Financial Statements (Unaudited).
53

Consolidated Statements of Cash Flows
in millionsThree months ended March 31,
(Unaudited)20212020
OPERATING ACTIVITIES
Net income (loss)$622 $146 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for credit losses(93)359 
Depreciation and amortization expense, net17 54 
Accretion of acquired loans6 10 
Increase in cash surrender value of corporate-owned life insurance(27)(29)
Stock-based compensation expense26 25 
Deferred income taxes (benefit)108 (18)
Proceeds from sales of loans held for sale3,357 2,687 
Originations of loans held for sale, net of repayments(3,937)(3,256)
Net losses (gains) on sales of loans held for sale(55)(38)
Net losses (gains) on leased equipment(3)
Net securities losses (gains) (4)
Net losses (gains) on sales of fixed assets 
Net decrease (increase) in trading account assets(76)245 
Other operating activities, net(150)(362)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES(205)(173)
INVESTING ACTIVITIES
Cash received (used) in acquisitions, net of cash acquired(9)— 
Net decrease (increase) in short-term investments, excluding acquisitions818 (2,801)
Purchases of securities available for sale(9,854)(190)
Proceeds from sales of securities available for sale 583 
Proceeds from prepayments and maturities of securities available for sale2,653 1,176 
Proceeds from prepayments and maturities of held-to-maturity securities743 434 
Purchases of held-to-maturity securities(3)(4)
Purchases of other investments(9)(91)
Proceeds from sales of other investments17 
Proceeds from prepayments and maturities of other investments3 10 
Net decrease (increase) in loans, excluding acquisitions, sales and transfers204 (8,902)
Proceeds from sales of portfolio loans(98)54 
Proceeds from corporate-owned life insurance17 19 
Purchases of premises, equipment, and software(12)(12)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES(5,530)(9,722)
FINANCING ACTIVITIES
Net increase (decrease) in deposits, excluding acquisitions6,901 3,434 
Net increase (decrease) in short-term borrowings46 5,958 
Net proceeds from issuance of long-term debt 2,497 
Payments on long-term debt(1,004)(1,506)
Open market Common Share repurchases(135)(117)
Employee equity compensation program Common Share repurchases(31)(35)
Net proceeds from reissuance of Common Shares12 
Cash dividends paid(207)(208)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES5,582 10,028 
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS(153)133 
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD1,091 732 
CASH AND DUE FROM BANKS AT END OF PERIOD$938 $865 
Additional disclosures relative to cash flows:
Interest paid$80 $267 
Income taxes paid (refunded)43 35 
Noncash items:
Reduction of secured borrowing and related collateral$2 $
Loans transferred to portfolio from held for sale8 10 
Loans transferred to held for sale from portfolio91 210 
Loans transferred to OREO2 92 
CMBS risk retentions(1)12 
ABS risk retentions17 11 
See Notes to Consolidated Financial Statements (Unaudited).
54

Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation and Accounting Policies

The consolidated financial statements include the accounts of KeyCorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Some previously reported amounts have been reclassified to conform to current reporting practices.

The consolidated financial statements include any voting rights entities in which we have a controlling financial interest. In accordance with the applicable accounting guidance for consolidations, we consolidate a VIE if we have: (i) a variable interest in the entity; (ii) the power to direct activities of the VIE that most significantly affect the entity’s economic performance; and (iii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE (i.e., we are considered to be the primary beneficiary). Variable interests can include equity interests, subordinated debt, derivative contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements, and financial instruments. See Note 11 (“Variable Interest Entities”) for information on our involvement with VIEs.

We use the equity method to account for unconsolidated investments in voting rights entities or VIEs if we have significant influence over the entity’s operating and financing decisions (usually defined as a voting or economic interest of 20% to 50%, but not controlling). Unconsolidated investments in voting rights entities or VIEs in which we have a voting or economic interest of less than 20% are carried at the cost measurement alternative or at fair value. Investments held by our registered broker-dealer and investment company subsidiaries (principal investing entities and Real Estate Capital line of business) are carried at fair value.

The unaudited consolidated interim financial statements reflect all adjustments of a normal recurring nature and disclosures that are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. The interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our 2020 Form 10-K.

In preparing these financial statements, subsequent events were evaluated through the time the financial statements were issued. Financial statements are considered issued when they are widely distributed to all shareholders and other financial statement users or filed with the SEC.

Goodwill and Other Intangible Assets

Effective January 1, 2021, Key changed its approach for allocating equity to its reporting units. The carrying amounts of Key’s reporting units now represent the combination of regulatory and economic equity for goodwill impairment testing and management reporting purposes. The fair values of each reporting unit are estimated using a combination of market and income approaches. For more information, refer to Note 10 (“Goodwill”).



55


Accounting Guidance Adopted in 2021

StandardRequired AdoptionDescriptionEffect on Financial Statements or
Other Significant Matters
ASU 2019-12,
Simplifying the
Accounting for
Income Taxes
January 1, 2021


This ASU simplifies the accounting for income
taxes by removing certain exceptions to the
existing guidance, such as exceptions related
to the incremental approach for intraperiod tax
allocation, the methodology for calculating
income taxes in an interim period when a
year-to-date loss exceeds the anticipated loss,
and the recognition of deferred tax liabilities
when a foreign subsidiary becomes an equity
method investment and when a foreign equity
method investment becomes a subsidiary.

Along with general improvements, it adds
simplifications related to franchise taxes, the
tax basis of goodwill, and the method for
recognizing an enacted change in tax laws.
The guidance also specifies that an entity is
not required to allocate the consolidated
amount of certain tax expense to a legal entity
not subject to tax in its own separate financial
statements.

The guidance should be applied on either a
retrospective, modified retrospective, or
prospective basis depending on the
amendment.
The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations.
ASU 2020-01,
Clarifying the
Interactions
between Topic
321,Investments
—Equity
Securities;
Topic 323,
Investments—
Equity Method
and Joint
Ventures; and
Topic 815,
Derivatives and
Hedging
January 1, 2021


This guidance clarifies that when applying the
measurement alternative in Topic 321,
companies should consider certain observable
transactions that require the application or
discontinuance of the equity method under
Topic 323.

It also clarifies that companies should not
consider whether the underlying securities in
certain forward contracts and purchased
options would be accounted for under the
equity method or fair value option when
determining the method of accounting for
those contracts.

This guidance should be applied on a prospective basis.
The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations.
ASU 2020-08,
Codification Improvements to Subtopic 310-20,
Receivables—Nonrefundable Fees and Other Costs
January 1, 2021

This ASU clarifies that at each reporting period an entity should reevaluate whether a callable debt security is within the scope of ASC 310, which says that to the extent the amortized cost basis of an individual callable debt security exceeds the amount repayable by the issuer at the earliest call date, the premium shall be amortized to the earliest call date, unless prepayment guidance is applied.

This guidance should be applied on a prospective basis.
The adoption of this accounting guidance did not have a material effect on our financial condition or results of operations.
ASU 2021-01, Reference
Rate Reform (Topic 848)
January 1, 2021The ASU clarifies that certain optional expedients and exceptions related to contracts modified as a result of reference rate reform and hedge accounting apply to derivatives affected by the discounting transition, such as those that use an interest rate for margining,
discounting, or contract price alignment.

The guidance may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020.

Alternatively, it may be applied on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final Update, until the financial statements are available to be issued.
Key adopted this guidance on January 1, 2021, on a prospective basis and will assess the impact in conjunction with the reference rate transition as it occurs over the next two years.







56

2. Earnings Per Common Share

Basic earnings per share is the amount of earnings (adjusted for dividends declared on our preferred stock) available to each Common Share outstanding during the reporting periods. Diluted earnings per share is the amount of earnings available to each Common Share outstanding during the reporting periods adjusted to include the effects of potentially dilutive Common Shares. Potentially dilutive Common Shares include stock options and other stock-based awards. Potentially dilutive Common Shares are excluded from the computation of diluted earnings per share in the periods where the effect would be antidilutive. 

Our basic and diluted earnings per Common Share are calculated as follows:
 Three months ended March 31,
dollars in millions, except per share amounts20212020
EARNINGS
Income (loss) from continuing operations$618 $145 
Less: Net income (loss) attributable to noncontrolling interests — 
Income (loss) from continuing operations attributable to Key618 145 
Less: Dividends on Preferred Stock27 27 
Income (loss) from continuing operations attributable to Key common shareholders591 118 
Income (loss) from discontinued operations, net of taxes4 
Net income (loss) attributable to Key common shareholders$595 $119 
WEIGHTED-AVERAGE COMMON SHARES
Weighted-average Common Shares outstanding (000)964,878 967,446 
Effect of Common Share options and other stock awards9,419 8,664 
Weighted-average Common Shares and potential Common Shares outstanding (000) (a)
974,297 976,110 
EARNINGS PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders$.61 $.12 
Income (loss) from discontinued operations, net of taxes — 
Net income (loss) attributable to Key common shareholders (b)
.62 .12 
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution$.61 $.12 
Income (loss) from discontinued operations, net of taxes — assuming dilution — 
Net income (loss) attributable to Key common shareholders — assuming dilution (b)
.61 .12 
(a)Assumes conversion of Common Share options and other stock awards and/or convertible preferred stock, as applicable.
(b)EPS may not foot due to rounding.

3. Loan Portfolio

Loan Portfolio by Portfolio Segment and Financing Receivable (a)
in millionsMarch 31, 2021December 31, 2020
Commercial and industrial (b)
$52,486 $52,907 
Commercial real estate:
Commercial mortgage12,702 12,687 
Construction2,122 1,987 
Total commercial real estate loans14,824 14,674 
Commercial lease financing (c)
4,104 4,399 
Total commercial loans71,414 71,980 
Residential — prime loans:
Real estate — residential mortgage10,300 9,298 
Home equity loans9,158 9,360 
Total residential — prime loans19,458 18,658 
Consumer direct loans4,862 4,714 
Credit cards909 989 
Consumer indirect loans4,283 4,844 
Total consumer loans29,512 29,205 
Total loans (d)
$100,926 $101,185 
(a)Accrued interest of $242 million and $241 million at March 31, 2021, and December 31, 2020, respectively, presented in "other assets" on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.
(b)Loan balances include $126 million and $127 million of commercial credit card balances at March 31, 2021, and December 31, 2020, respectively.
(c)Commercial lease financing includes receivables held as collateral for a secured borrowing of $21 million and $23 million at March 31, 2021, and December 31, 2020, respectively. Principal reductions are based on the cash payments received from these related receivables. Additional information pertaining to this secured borrowing is included in Note 20 (“Long-Term Debt”) beginning on page 171 of our 2020 Form 10-K.
(d)Total loans exclude loans of $675 million at March 31, 2021, and $710 million at December 31, 2020, related to the discontinued operations of the education lending business.

57

4. Asset Quality

ALLL

We estimate the appropriate level of the ALLL on at least a quarterly basis. The methodology is described in Note 1 ("Summary of Significant Accounting Policies") under the heading "Allowance for Loan and Lease Losses" beginning on page 110 of our 2020 Form 10-K.

The ALLL at March 31, 2021, represents our current estimate of lifetime credit losses inherent in the loan portfolio at that date. The changes in the ALLL by loan category for the periods indicated are as follows:

Three months ended March 31, 2021:
in millionsDecember 31, 2020ProvisionCharge-offsRecoveriesMarch 31, 2021
Commercial and Industrial$678 $(17)$(73)$8 $596 
Commercial real estate:
Real estate — commercial mortgage327 (37)(35)1 256 
Real estate — construction47 (2)  45 
Total commercial real estate loans374 (39)(35)1 301 
Commercial lease financing47 (4)(4)1 40 
Total commercial loans1,099 (60)(112)10 937 
Real estate — residential mortgage102 (3) 1 100 
Home equity loans171 (13)(2)1 157 
Consumer direct loans128 4 (8)2 126 
Credit cards87 (3)(6)2 80 
Consumer indirect loans39 1 (7)5 38 
Total consumer loans527 (14)(23)11 501 
Total ALLL — continuing operations1,626 (74)(a)(135)21 1,438 
Discontinued operations36 (3)(1)1 33 
Total ALLL — including discontinued operations$1,662 $(77)$(136)$22 $1,471 
(a)Excludes a credit for losses on lending-related commitments of $19 million.

Three months ended March 31, 2020:
in millionsPre-ASC 326 Adoption December 31, 2019Impact of ASC 326 AdoptionJanuary 1, 2020ProvisionCharge-offsRecoveriesMarch 31, 2020
Commercial and Industrial$551 $(141)$410 $187 $(60)$$542 
Commercial real estate:
Real estate — commercial mortgage143 16 159 50 (3)207 
Real estate — construction22 (7)15 10 — — 25 
Total commercial real estate loans165 174 60 (3)232 
Commercial lease financing35 43 (2)— 44 
Total commercial loans751 (124)627 250 (65)818 
Real estate — residential mortgage77 84 — — 89 
Home equity loans31 147 178 (4)184 
Consumer direct loans34 63 97 29 (12)116 
Credit cards47 35 82 31 (11)104 
Consumer indirect loans30 36 16 (9)48 
Total consumer loans149 328 477 89 (36)11 541 
Total ALLL — continuing operations900 204 1,104 339 (a)(101)17 1,359 
Discontinued operations10 31 41 (2)43 
Total ALLL — including discontinued operations$910 $235 $1,145 $342 $(103)$18 $1,402 
(a)Excludes a provision for losses on lending-related commitments of $20 million.



As described in Note 1 ("Summary of Significant Accounting Policies"), under the heading “Allowance for Loan and Lease Losses” beginning on page 110 of our 2020 Form 10-K, we estimate the ALLL using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. In our estimation of expected credit losses, we use a two year reasonable and supportable period across all products. Following this two year period in which supportable forecasts can be generated, for all modeled loan portfolios, we revert expected credit losses to a level that is consistent with our historical information by reverting the macroeconomic variables (model inputs) to their long run average. We revert to historical loss rates for less complex estimation methods for smaller portfolios. A 20 year fixed length look back period is used to calculate the long run average of the macroeconomic variables. A four quarter reversion period is used where the
58

macroeconomic variables linearly revert to their long run average following the two year reasonable and supportable period.

We develop our reasonable and supportable forecasts using relevant data including, but not limited to, changes in economic output, unemployment rates, property values, and other factors associated with the credit losses on financial assets. Some macroeconomic variables apply to all portfolio segments, while others are more portfolio specific. The following table discloses key macroeconomic variables for each loan portfolio.
SegmentPortfolio
Key Macroeconomic Variables (a)
CommercialCommercial and industrialBBB corporate bond rate (spread), GDP, industrial production, and unemployment rate
Commercial real estateBBB corporate bond rate (spread), property and real estate price indices, and unemployment rate
Commercial lease financingBBB corporate bond rate (spread), GDP, and unemployment rate
ConsumerReal estate — residential mortgageGDP, home price index, unemployment rate, and 30 year mortgage rate
Home equityHome price index, unemployment rate, and 30 year mortgage rate
Consumer directUnemployment rate and U.S. household income
Consumer indirectNew vehicle sales and unemployment rate
Credit cardsUnemployment rate and U.S. household income
Discontinued operationsUnemployment rate
(a)Variables include all transformations and interactions with other risk drivers. Additionally, variables may have varying impacts at different points in the economic cycle.

In addition to macroeconomic drivers, portfolio attributes such as remaining term, outstanding balance, risk ratings, FICO, LTV, and delinquency also drive ALLL changes. Our ALLL models were designed to capture the correlation between economic and portfolio changes. As such, evaluating shifts in individual portfolio attributes and macroeconomic variables in isolation may not be indicative of past or future performance.

Economic Outlook

As of March 31, 2021, the COVID-19 pandemic has continued to create unprecedented economic uncertainty in the U.S. and globally. We utilized the Moody’s February 2021 Consensus forecast to estimate our expected credit losses as of March 31, 2021. We determined such forecast to be a reasonable view of the outlook for the economy given all available information at quarter end.

The baseline scenario reflects modest economic growth over the next two years in markets in which we operate. U.S. GDP continues to rebound with a projected 3.3% annualized growth rate in the first quarter of 2021 and continues to accelerate during the year, which is anticipated to return to pre-pandemic levels by the fourth quarter of 2021 and an overall growth rate of approximately 5% expected for the year. The national unemployment rate forecast is 6.3% in the first quarter of 2021, and expected to decline to 5.4% by the fourth quarter of 2021.

To the extent we identified credit risk considerations that were not captured by the third-party economic forecast, we addressed the risk through management’s qualitative adjustments to the ALLL.

As a result of the unprecedented economic uncertainty caused by the COVID-19 pandemic, our future loss estimates may vary considerably from our March 31, 2021 assumptions.

Commercial Loan Portfolio

The ALLL from continuing operations for the commercial segment decreased by $162 million, or 14.7%, from December 31, 2020. The overall decrease in the allowance is driven by improvements in economic forecasts, a slight decline in loan balances, and improving asset quality.

The changes to the economic forecast primarily reflect improvements in economic drivers used in our models. The unemployment and GDP positive growth outlook contributes to the overall commercial segment reserve decrease. Expected improvements in real estate price indices lead to a reduction in reserve in our commercial real estate book. Risk rating migrations are driving a modest increase in ALLL levels for the commercial and industrial portfolio. The ALLL results also reflect incremental credit risk considerations as a result of the future economic uncertainties which are addressed through qualitative adjustments.

As of March 31, 2021, we concluded that no ALLL is necessary for $6.5 billion in outstanding PPP loans as they are 100% guaranteed by the SBA.
59

Consumer Loan Portfolio

The ALLL from continuing operations for the consumer segment decreased by $26 million, or 4.9%, from December 31, 2020. The overall decrease in the allowance is driven by updated economic forecasts that capture an improving outlook for several drivers and strong portfolio performance.

The most meaningful changes to the economic forecast contributing to the reduction in reserves include improvement in the unemployment rate outlook, which impacts all consumer portfolios. In addition, the housing market and HPI outlook continue to display strength, which impacts the residential mortgage and home equity segments. As it relates to the decline in the ALLL due to portfolio factors, shifts are largely driven by attrition activity, targeted portfolio growth and overall strong credit drivers. The ALLL results also reflect incremental credit risk considerations as a result of the economic stress and related borrower assistance programs, which are addressed through qualitative adjustments.

Credit Risk Profile

The prevalent risk characteristic for both commercial and consumer loans is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. Evaluation of this risk is stratified and monitored by the loan risk rating grades assigned for the commercial loan portfolios and the refreshed FICO score assigned for the consumer loan portfolios. The internal risk grades assigned to loans follow our definitions of Pass and Criticized, which are consistent with published definitions of regulatory risk classifications. Loans with a pass rating represent those loans not classified on our rating scale for problem credits, as minimal credit risk has been identified. Criticized loans are those loans that either have a potential weakness deserving management's close attention or have a well-defined weakness that may put full collection of contractual cash flows at risk. Borrower FICO scores provide information about the credit quality of our consumer loan portfolio as they provide an indication as to the likelihood that a debtor will repay its debts. The scores are obtained from a nationally recognized consumer rating agency and are presented in the tables below at the dates indicated.

Most extensions of credit are subject to loan grading or scoring. Loan grades are assigned at the time of origination, verified by credit risk management, and periodically re-evaluated thereafter. This risk rating methodology blends our judgment with quantitative modeling. Commercial loans generally are assigned two internal risk ratings. The first rating reflects the probability that the borrower will default on an obligation; the second rating reflects expected recovery rates on the credit facility. Default probability is determined based on, among other factors, the financial strength of the borrower, an assessment of the borrower’s management, the borrower’s competitive position within its industry sector, and our view of industry risk in the context of the general economic outlook. Types of exposure, transaction structure, and collateral, including credit risk mitigants, affect the expected recovery assessment.

60

Commercial Credit Exposure
Credit Risk Profile by Creditworthiness Category and Vintage (a)
As of March 31, 2021Term LoansRevolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
Amortized Cost Basis by Origination Year and Internal Risk Rating
in millions20212020201920182017PriorTotal
Commercial and Industrial
Risk Rating:
Pass$2,246 $11,524 $5,062 $3,728 $2,360 $5,560 $18,992 $81 $49,553 
Criticized (Accruing)96 220 217 223 340 1,426 20 2,546 
Criticized (Nonaccruing)— 19 64 13 54 227 387 
Total commercial and industrial2,250 11,628 5,301 4,009 2,596 5,954 20,645 103 52,486 
Real estate — commercial mortgage
Risk Rating:
Pass602 1,603 2,916 1,599 819 3,589 695 29 11,852 
Criticized (Accruing)— 14 123 103 159 290 93 784 
Criticized (Nonaccruing)— — 51 — 66 
Total real estate — commercial mortgage602 1,617 3,041 1,706 982 3,930 793 31 12,702 
Real estate — construction
Risk Rating:
Pass16 451 798 501 187 49 31 — 2,033 
Criticized (Accruing)— 14 51 18 — 89 
Criticized (Nonaccruing)— — — — — — — — — 
Total real estate — construction16 455 812 552 205 50 32 — 2,122 
Commercial lease financing
Risk Rating:
Pass152 952 931 462 416 1,077 — — 3,990 
Criticized (Accruing)— 21 35 15 26 — — 106 
Criticized (Nonaccruing)— — — — 
Total commercial lease financing152 973 968 479 444 1,088 — 4,104 
Total commercial loans$3,020 $14,673 $10,122 $6,746 $4,227 $11,022 $21,470 $134 $71,414 

As of December 31, 2020Term LoansRevolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
Amortized Cost Basis by Origination Year and Internal Risk Rating
in millions20202019201820172016PriorTotal
Commercial and Industrial
Risk Rating:
Pass$13,100 $5,487 $4,040 $2,617 $1,967 $2,709 $19,832 $118 $49,870 
Criticized (Accruing)66 198 174 236 150 279 1,527 22 2,652 
Criticized (Nonaccruing)27 71 28 17 226 385 
Total commercial and industrial13,174 5,712 4,285 2,881 2,134 2,995 21,585 141 52,907 
Real estate — commercial mortgage
Risk Rating:
Pass1,591 2,937 1,737 867 765 3,027 885 43 11,852 
Criticized (Accruing)12 142 81 145 72 255 22 731 
Criticized (Nonaccruing)— 88 — 104 
Total real estate — commercial mortgage1,603 3,080 1,822 1,016 839 3,370 912 45 12,687 
Real estate — construction
Risk Rating:
Pass367 764 510 188 27 22 31 1,914 
Criticized (Accruing)— 14 38 18 — — 73 
Criticized (Nonaccruing)— — — — — — — — — 
Total real estate — construction367 778 548 206 27 24 32 1,987 
Commercial lease financing
Risk Rating:
Pass1,076 1,050 534 504 228 901 — — 4,293 
Criticized (Accruing)10 35 15 26 — — 97 
Criticized (Nonaccruing)— 2��— — 
Total commercial lease financing1,086 1,087 551 532 237 906 0— 4,399 
Total commercial loans$16,230 $10,657 $7,206 $4,635 $3,237 $7,295 $22,529 $191 $71,980 
(a)Accrued interest of $143 million and $140 million as of March 31, 2021 and December 31, 2020, respectively, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in these tables.











61

Consumer Credit Exposure
Credit Risk Profile by FICO Score and Vintage (a)
As of March 31, 2021Term LoansRevolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
Amortized Cost Basis by Origination Year and FICO Score
in millions20212020201920182017PriorTotal
Real estate — residential mortgage
FICO Score:
750 and above$1,684 $3,503 $1,326 $159 $213 $1,525 — — $8,410 
660 to 749300 534 245 63 40 384 — — 1,566 
Less than 66019 17 20 172 — — 239 
No Score73 — — 85 
Total real estate — residential mortgage1,987 4,057 1,590 244 268 2,154 — — 10,300 
Home equity loans
FICO Score:
750 and above407 943 367 151 182 926 $2,544 $551 6,071 
660 to 749121 386 172 65 63 280 1,132 186 2,405 
Less than 66027 24 17 17 121 400 56 669 
No Score— — 13 
Total home equity loans535 1,358 565 234 262 1,329 4,081 794 9,158 
Consumer direct loans
FICO Score:
750 and above499 1,636 759 103 29 102 110 — 3,238 
660 to 749120 421 233 67 17 48 231 1,138 
Less than 66021 31 19 14 71 — 166 
No Score10 47 37 18 14 20 174 — 320 
Total consumer direct loans633 2,125 1,060 207 66 184 586 4,862 
Credit cards
FICO Score:
750 and above— — — — — — 441 — 441 
660 to 749— — — — — — 379 — 379 
Less than 660— — — — — — 88 — 88 
No Score— — — — — — — 
Total credit cards— — — — — — 909 — 909 
Consumer indirect loans
FICO Score:
750 and above135 880 851 329 158 105 — — 2,458 
660 to 749— 566 483 193 79 68 — — 1,389 
Less than 660— 124 140 85 44 42 — — 435 
No Score— — — — — — — 
Total consumer indirect loans135 1,570 1,474 607 281 216 — — 4,283 
Total consumer loans$3,290 $9,110 $4,689 $1,292 $877 $3,883 $5,576 $795 $29,512 

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As of December 31, 2020Term LoansRevolving Loans Amortized Cost BasisRevolving Loans Converted to Term Loans Amortized Cost Basis
Amortized Cost Basis by Origination Year and FICO Score
in millions20202019201820172016PriorTotal
Real estate — residential mortgage
FICO Score:
750 and above$3,595 $1,620 $194 $254 $537 $1,211 — — $7,411 
660 to 749710 284 76 48 100 332 — — 1,550 
Less than 66016 28 21 10 26 170 — — 271 
No Score52 — — 66 
Total real estate — residential mortgage4,322 1,934 293 319 665 1,765 — — 9,298 
Home equity loans
FICO Score:
750 and above1,043 404 168 202 190 839 $2,689 $590 6,125 
660 to 749385 198 82 77 69 253 1,237 206 2,507 
Less than 66027 30 18 20 20 113 426 61 715 
No Score— — 13 
Total home equity loans1,457 634 269 299 279 1,207 4,357 858 9,360 
Consumer direct loans
FICO Score:
750 and above1,840 883 115 32 16 57 119 — 3,062 
660 to 749479 268 80 22 14 33 254 1,151 
Less than 66023 37 21 10 81 — 185 
No Score65 35 21 21 10 11 153 — 316 
Total consumer direct loans2,407 1,223 237 83 45 111 607 4,714 
Credit cards
FICO Score:
750 and above— — — — — — 488 — 488 
660 to 749— — — — — — 407 — 407 
Less than 660— — — — — — 93 — 93 
No Score— — — — — — — 
Total credit cards— — — — — — 989 — 989 
Consumer indirect loans
FICO Score:
750 and above1,092 924 369 188 69 66 — — 2,708 
660 to 749653 558 232 97 36 47 — — 1,623 
Less than 660143 163 99 54 25 28 — — 512 
No Score— — — — — — — 
Total consumer indirect loans1,889 1,645 700 339 130 141 — — 4,844 
Total consumer loans$10,075 $5,436 $1,499 $1,040 $1,119 $3,224 $5,953 $859 $29,205 
(a)Accrued interest of $98 million and $101 million as of March 31, 2021 and December 31, 2020, respectively, presented in Other Assets on the Consolidated Balance Sheets, was excluded from the amortized cost basis disclosed in this table.


Nonperforming and Past Due Loans

Our policies for determining past due loans, placing loans on nonaccrual, applying payments on nonaccrual loans, and resuming accrual of interest for our commercial and consumer loan portfolios are disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Nonperforming Loans” beginning on page 108 of our 2020 Form 10-K.

Under the CARES Act as well as banking regulator interagency guidance, certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic may not be required to be reported as past due. For COVID-19 related loan modifications which occurred from March 1, 2020, through March 31, 2021, and met the loan modification criteria under either the CARES Act or the criteria specified by the regulatory agencies, we have elected to re-age to current status all commercial loans and consumer loans that are not secured by real-estate and freeze the delinquency status of consumer real estate secured loans as of the modification or forbearance grant date. At March 31, 2021, the portfolio loans and leases in active deferral or forebearance as part of our COVID-19 hardship relief programs totaled $384 million, of which $328 million of loan modifications and forbearances made under the criteria of either the CARES Act, banking regulator interagency guidance, or short-term forbearance policies were not reported as nonperforming.


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The following aging analysis of past due and current loans as of March 31, 2021, and December 31, 2020, provides further information regarding Key’s credit exposure.

Aging Analysis of Loan Portfolio(a)
March 31, 2021Current
30-59
Days Past
Due (b)
60-89
Days Past
Due (b)
90 and
Greater
Days Past
Due (b)
Non-performing
Loans
Total Past
Due and
Non-performing
Loans
Total
Loans (c)
in millions
LOAN TYPE
Commercial and industrial$52,000 $42 $16 $41 $387 $486 $52,486 
Commercial real estate:
Commercial mortgage12,580 17 14 25 66 122 12,702 
Construction2,113 — — 2,122 
Total commercial real estate loans14,693 25 15 25 66 131 14,824 
Commercial lease financing4,088 — 16 4,104 
Total commercial loans$70,781 $74 $32 $66 $461 $633 $71,414 
Real estate — residential mortgage$10,190 $$$$95 $110 $10,300 
Home equity loans8,958 31 11 10 148 200 9,158 
Consumer direct loans4,844 18 4,862 
Credit cards892 17 909 
Consumer indirect loans4,250 12 16 33 4,283 
Total consumer loans$29,134 $60 $25 $26 $267 $378 $29,512 
Total loans$99,915 $134 $57 $92 $728 $1,011 $100,926 
(a)Amounts in table represent amortized cost and exclude loans held for sale.
(b)Accrued interest of $242 million presented in Other Assets on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.
(c)Net of unearned income, net of deferred fees and costs, and unamortized discounts and premiums.

December 31, 2020Current
30-59
Days Past
Due (b)
60-89
Days Past
Due (b)
90 and
Greater
Days Past
Due (b)
Non-performing
Loans
Total Past
Due and
Non-performing
Loans
Total
Loans (c)
in millions
LOAN TYPE
Commercial and industrial$52,396 $36 $50 $40 $385 $511 $52,907 
Commercial real estate:
Commercial mortgage12,548 21 104 139 12,687 
Construction1,986 — — — 1,987 
Total commercial real estate loans14,534 22 104 140 14,674 
Commercial lease financing4,369 21 — 30 4,399 
Total commercial loans$71,299 $66 $56 $62 $497 $681 $71,980 
Real estate — residential mortgage$9,173 $11 $$$110 $125 $9,298 
Home equity loans9,143 34 20 154 217 9,360 
Consumer direct loans4,694 20 4,714 
Credit cards972 17 989 
Consumer indirect loans4,792 25 17 52 4,844 
Total consumer loans$28,774 $82 $37 $24 $288 $431 $29,205 
Total loans$100,073 $148 $93 $86 $785 $1,112 $101,185 

(a)Amounts in table represent amortized cost and exclude loans held for sale.
(b)Accrued interest of $241 million presented in Other Assets on the Consolidated Balance Sheets is excluded from the amortized cost basis disclosed in this table.
(c)Net of unearned income, net of deferred fees and costs, and unamortized discounts and premiums.


At March 31, 2021, the approximate carrying amount of our commercial nonperforming loans outstanding represented 68% of their original contractual amount owed, total nonperforming loans outstanding represented 75% of their original contractual amount owed, and nonperforming assets in total were carried at 81% of their original contractual amount owed.

Nonperforming loans reduced expected interest income by $7 million for the three months ended March 31, 2021, and $6 million for the three months ended March 31, 2020.

The amortized cost basis of nonperforming loans on nonaccrual status for which there is no related allowance for credit losses was $461 million at March 31, 2021.

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Collateral-dependent Financial Assets

We classify financial assets as collateral-dependent when our borrower is experiencing financial difficulty, and we expect repayment to be provided substantially through the operation or sale of the collateral. Our commercial loans have collateral that includes commercial machinery, commercial properties, and commercial real estate construction projects. Our consumer loans have collateral that includes residential real estate, automobiles, boats, and RVs.

There were no significant changes in the extent to which collateral secures our collateral-dependent financial assets during the three months ended March 31, 2021.

TDRs

We classify loan modifications as TDRs when a borrower is experiencing financial difficulties and we have granted a concession without commensurate financial, structural, or legal consideration. Our loan modifications are handled on a case-by-case basis and are negotiated to achieve mutually agreeable terms that maximize loan collectability and meet the borrower’s financial needs. Under the CARES Act as well as banking regulator interagency guidance, certain loan modifications to borrowers experiencing financial distress as a result of the economic impacts created by the COVID-19 pandemic may not be required to be treated as TDRs under U.S. GAAP.  We elected to suspend TDR accounting for $328 million of COVID-19 related loan modifications as of March 31, 2021 as such loan modifications met the criteria under either the CARES Act or banking regulator interagency guidance. 

Commitments outstanding to lend additional funds to borrowers whose loan terms have been modified in TDRs were $14 million and $1 million at March 31, 2021, and December 31, 2020, respectively.

The consumer TDR other concession category in the table below primarily includes those borrowers’ debts that are discharged through Chapter 7 bankruptcy and have not been formally re-affirmed. At March 31, 2021, and December 31, 2020, the recorded investment of consumer residential mortgage loans in the process of foreclosure was approximately $83 million and $92 million, respectively.

The following table shows the post-modification outstanding recorded investment by concession type for our commercial and consumer accruing and nonaccruing TDRs that occurred during the periods indicated:
Three Months Ended March 31,
in millions20212020
Commercial loans:
Extension of Maturity Date41 $— 
Payment or Covenant Modification/Deferment10 — 
Total51 $— 
Consumer loans:
Interest rate reduction$2 $
Other4 
Total$6 $18 
Total TDRs$57 $18 

The following table summarizes the change in the post-modification outstanding recorded investment of our accruing and nonaccruing TDRs during the periods indicated:
Three Months Ended March 31,
in millions20212020
Balance at beginning of the period$363 $347 
Additions59 17 
Payments(21)(18)
Charge-offs(25)(6)
Balance at end of period$376 $340 









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A further breakdown of TDRs included in nonperforming loans by loan category for the periods indicated are as follows:
March 31, 2021December 31, 2020
Number of
Loans
Pre-modification
Outstanding
Recorded
Investment
Post-modification
Outstanding
Recorded
Investment
Number of
Loans
Pre-modification
Outstanding
Recorded
Investment
Post-modification
Outstanding
Recorded
Investment
dollars in millions
LOAN TYPE
Nonperforming:
Commercial and industrial57 $128 $87 66 $136 $92 
Commercial real estate:
Commercial mortgage5 62 34 62 50 
Total commercial real estate loans5 62 34 62 50 
Total commercial loans62 190 121 73 198 142 
Real estate — residential mortgage206 25 24 258 35 34 
Home equity loans564 35 32 630 41 37 
Consumer direct loans203 4 3 212 
Credit cards265 2 2 356 
Consumer indirect loans776 14 10 861 15 11 
Total consumer loans2,014 80 71 2,317 96 87 
Total nonperforming TDRs2,076 270 192 2,390 294 229 
Prior-year accruing:(a)
Commercial and industrial12 43 41 — 
Commercial real estate
Commercial mortgage   — — — 
Total commercial real estate loans   — — — 
Total commercial loans12 43 41 — 
Real estate — residential mortgage513 44 39 485 37 31 
Home equity loans1,779 107 84 1,781 106 83 
Consumer direct loans202 5 3 163 
Credit cards638 4 2 536 
Consumer indirect loans787 28 15 775 29 16 
Total consumer loans3,919 188 143 3,740 179 134 
Total prior-year accruing TDRs3,931 231 184 3,743 184 134 
Total TDRs6,007 $501 $376 6,133 $478 $363 
(a)All TDRs that were restructured prior to January 1, 2021, and January 1, 2020, and are fully accruing.

Commercial loan TDRs are considered defaulted when principal and interest payments are 90 days past due. Consumer loan TDRs are considered defaulted when principal and interest payments are more than 60 days past due. During the three months ended March 31, 2021, there were two commercial loan TDRs and 36 consumer loan TDRs with a combined recorded investment of $1 million that experienced payment defaults after modifications resulting in TDR status during 2020. During the three months ended March 31, 2020, there were no commercial loan TDRs and 84 consumer loan TDRs with a combined recorded investment of $2 million that experienced payment defaults after modifications resulting in TDR status during 2019.

Liability for Credit Losses on Off Balance Sheet Exposures

The liability for credit losses inherent in unfunded lending-related commitments, such as letters of credit and unfunded loan commitments, and certain financial guarantees is included in “accrued expense and other liabilities” on the balance sheet.

Changes in the liability for credit losses on off balance sheet exposures are summarized as follows:
 Three months ended March 31,
in millions20212020
Balance at the end of the prior period$197 $68 
Liability for credit losses on contingent guarantees at the end of the prior period 
Cumulative effect from change in accounting principle (a), (b)
 66 
Balance at beginning of period197 141 
Provision (credit) for losses on off balance sheet exposures(19)20 
Balance at end of period$178 $161 
(a)The cumulative effect from change in accounting principle relates to the January 1, 2020, adoption of ASU 2016-13.
(b)The three months ended March 31, 2020, amount excludes $4 million related to the provision for other financial assets.

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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.

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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 March 31, 2021, and December 31, 2020.
March 31, 2021December 31, 2020
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
in millions
ASSETS MEASURED ON A RECURRING BASIS
Short-term investments
U.S. Treasury Bills    — — — — 
Total short-term investments    — — — — 
Trading account assets:
U.S. Treasury, agencies and corporations $550  $550 — $633 — $633 
States and political subdivisions 72  72 — 24 — 24