# KEYCORP /NEW/ (KEY) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from KEYCORP /NEW/'s 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/91576/000009157622000029/key-20211231.htm
Accession: 0000091576-22-000029
Filing date: 2022-02-22
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/KEY/
All MD&A years: /company/KEY/mda/
Next year: /company/KEY/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

[[GREPCENT_TABLE]]
[["","Page Number"],["Introduction","45"],["Long-term financial targets","46"],["Corporate strategy","47"],["Strategic developments","47"],["Results of Operations","48"],["Earnings overview","48"],["Net interest income","48"],["Provision for credit losses","51"],["Noninterest income","51"],["Noninterest expense","53"],["Income taxes","55"],["Business Segment Results","55"],["Consumer Bank","55"],["Commercial Bank","56"],["Financial Condition","58"],["Loans and loans held for sale","58"],["Securities","66"],["Deposits and other sources of funds","69"],["Capital","70"],["Off-Balance Sheet Arrangements and Aggregate Contractual Obligations","72"],["Off-balance sheet arrangements","72"],["Guarantees","73"],["Risk Management","73"],["Overview","73"],["Market risk management","75"],["Liquidity risk management","81"],["Credit risk management","84"],["Operational and compliance risk management","88"],["GAAP to Non-GAAP Reconciliations","90"],["Critical Accounting Policies and Estimates","91"],["Allowance for loan and lease losses","91"],["Valuation methodologies","92"],["Derivatives and hedging","95"],["Contingent liabilities, guarantees and income taxes","95"],["Accounting and reporting developments","96"]]
[[/GREPCENT_TABLE]]

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Introduction

This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for 2021 and 2020. Some tables 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 that we refer to are presented in the table of contents. To review our financial condition and results of operations for 2019 and a comparison between the 2019 and 2020 results, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2020 Form 10-K filed with the SEC on February 22, 2021, which discussion is incorporated herein by reference.

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Long-term financial targets

(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.

(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%.

Positive operating leverage was achieved for the 2021 fiscal year, and we expect to again generate positive operating leverage in 2022. Overall revenue was up 9% year-over-year with growth in both net interest income and noninterest 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.

Our net charge-offs to average loans ratio remains at a historically low level. We believe our strong risk management practices will allow us to continue supporting our clients, while maintaining our moderate risk profile, and will position the company to perform well through all business cycles.

Financial Return

A return on average tangible common equity in the range of 16.0% to 19.0%.

In 2021 we returned 75% of our net income to shareholders in the form of dividends and share repurchases. Our full-year dividend for 2021 was $.75, a 1.4% increase from the previous year. We remain committed to delivering value to all shareholders.

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Corporate strategy

We remain committed to enhancing long-term shareholder value by continuing to execute our relationship-based business model, growing our franchise, and being disciplined in our capital management. We intend to pursue this commitment by growing profitably; acquiring and expanding targeted client relationships; effectively managing risk and rewards; maintaining financial strength; and engaging, retaining, and inspiring our diverse and high-performing workforce. These strategic priorities for enhancing long-term shareholder value are described in more detail below.

•Grow profitably — We intend to continue to focus on generating positive operating leverage by growing revenue and creating a more efficient operating environment. We expect our relationship business model to keep generating organic growth as it helps us expand engagement with existing clients and attract new customers. We plan to leverage our continuous improvement culture to maintain an efficient cost structure that is aligned, sustainable, and consistent with the current operating environment and that supports our relationship business model.

•Acquire and expand targeted client relationships — We seek to be client-centric in our actions and have taken purposeful steps to enhance our ability to acquire and expand targeted relationships. We seek to provide solutions to serve our clients' needs. We focus on markets and clients where we can be the most relevant. In aligning our businesses and investments against these targeted client segments, we are able to make a meaningful impact for our clients.

•Effectively manage risk and rewards — Our risk management activities are focused on ensuring we properly identify, measure, and manage risks across the entire company to maintain safety and soundness and maximize profitability.

•Maintain financial strength — With the foundation of a strong balance sheet, we intend to remain focused on sustaining strong reserves, liquidity, and capital. We plan to work closely with our Board and regulators to manage capital to support our clients’ needs and drive long-term shareholder value. Our capital remains a competitive advantage for us.

•Engage a high-performing, talented, and diverse workforce — Every day our employees provide our clients with great ideas, extraordinary service, and smart solutions. We intend to continue to engage our high-performing, talented, and diverse workforce to create an environment where they can make a difference, own their careers, be respected, and feel a sense of pride.

Strategic developments

We took the following actions during 2021 in support of our corporate strategy:

•We continued to grow profitably during 2021. We generated positive operating leverage for the eighth time in the past nine years. Revenue was up 9% year-over-year with our Investment Banking business continuing to be a consistent and sustainable growth engine. In order to enhance our strong competitive position we have continued to add senior bankers and expect future growth in 2022.

•During 2021 we completed the acquisition of AQN Strategies, a consumer-focused analytics firm, and XUP, a business-to-business focused digital payments platform that provides an integrated and seamless onboarding experience. In 2021, we also launched our national digital affinity bank, Laurel Road for Doctors, which expanded our consumer footprint nationally for a very targeted high-quality client segment. These actions highlight our commitment to acquire and expand targeted client relationships.

•Laurel Road and and our consumer mortgage business have continued to provide growth to the company as these businesses generated $16 billion in originations for the year.

•Overall, credit quality remains strong as our new loan originations in both our commercial and consumer book continue to meet our criteria for high quality loans as we continue to effectively manage risk and rewards. Our continuous focus on maintaining our risk discipline has and will continue to position us to perform well through all business cycles.

•Maintaining financial strength while driving long-term shareholder value was again a focus during 2021. At December 31, 2021, our Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 9.43% and 10.71%, respectively. In 2021, we completed $1.2 billion of gross Common Share repurchases primarily through the open market and an ASR program. Our full-year dividend for 2021 was $.75, which included a dividend increase in the fourth quarter of 2021.

•We remained committed to our strategy to engage a high-performing, talented, and diverse workforce. We have been recognized by multiple organizations for our dedication to creating an environment where employees are treated with respect and empowered to bring their authentic selves to work. Some of these awards and

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recognitions included the Human Rights Campaign naming us one of the 2021 Best Places to Work for LGBT Equality, Bloomberg listing us on the Gender-Equality Index, G.I. Jobs and Military Spouse Magazine recognizing us as a Military Friendly® and Military Friendly® Spouse Employer, and receiving the Leading Disability Employer Seal from the National Organization on Disability. We were also named to DiversityInc’s 2021 Top 50 Companies for Diversity.

Results of Operations

Earnings Overview

The following chart provides a reconciliation of net income from continuing operations attributable to Key common shareholders for the year ended December 31, 2020, to the year ended December 31, 2021 (dollars in millions):

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 among 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. Prior to 2018, $100 of tax-exempt income would be presented as $154, an amount that, if taxed at the previous statutory federal income tax rate of 35%, would yield $100.

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TE net interest income for 2021 was $4.1 billion, and the net interest margin was 2.50%, compared to TE net interest income of $4.1 billion and a net interest margin of 2.77% for the prior year. TE net interest income benefited from lower deposit costs, higher loan fees driven by PPP forgiveness, and elevated levels of liquidity as we continued to experience higher levels of deposit inflows in 2021. TE net interest income was also impacted by a lower net interest margin, the exit of the indirect auto loan portfolio, and one less day in 2021. The decline in the net interest margin reflects a change in balance sheet mix, including elevated levels of liquidity, and lower reinvestment yields. In 2022, we expect TE net interest income to be relatively stable compared to 2021 and the net interest margin to be relatively stable compared to the fourth quarter of 2021.

Average loans totaled $100.3 billion for 2021, compared to $102.7 billion in 2020. Commercial loans decreased $4.6 billion, reflecting decreased utilization versus the prior year. Consumer loans increased $2.2 billion, reflecting strength from Key's consumer mortgage business and Laurel Road, partially offset by the exit of the indirect auto loan portfolio. For 2022, we expect average loans to be up 1% to 3% compared to 2021.

Average deposits totaled $145.0 billion for 2021, an increase of $17.7 billion compared to 2020. The increase reflects growth from consumer and commercial relationships, consumer retention of stimulus payments, and higher commercial escrow deposits, partially offset by declines in certificates of deposits and other time deposits. For 2022, we expect average deposits to be up 1% to 3% compared to 2021.

Figure 1 shows the various components of our balance sheet that affect interest income and expense, and their respective yields or rates over the past five years. This figure also presents a reconciliation of TE net interest income to net interest income reported in accordance with GAAP for each of those years. The net interest margin, which is an indicator of the profitability of our earning assets less the cost of funding, is calculated by dividing taxable-equivalent net interest income by average earning assets.

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Figure 1. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates from Continuing Operations(h)

[[GREPCENT_TABLE]]
[["Year ended December 31,","2021","","2020","","2019"],["Dollars in millions","AverageBalance","Interest (a)","Yield/Rate (a)","","AverageBalance","Interest (a)","Yield/Rate (a)","","Average Balance","Interest (a)","Yield/ Rate (a)"],["ASSETS"],["Loans (b), (c)"],["Commercial and industrial (d)","$","50,931","","$","1,795","","3.52","%","","$","55,145","","$","1,977","","3.59","%","","$","47,482","","$","2,144","","4.51","%"],["Real estate \u2014 commercial mortgage","13,118","","472","","3.60","","","13,279","","521","","3.92","","","13,641","","676","","4.95"],["Real estate \u2014 construction","2,113","","77","","3.61","","","1,843","","74","","3.99","","","1,485","","78","","5.24"],["Commercial lease financing","4,019","","114","","2.84","","","4,497","","139","","3.09","","","4,488","","163","","3.63"],["Total commercial loans","70,181","","2,458","","3.50","","","74,764","","2,711","","3.63","","","67,096","","3,061","","4.56"],["Real estate \u2014 residential mortgage","12,252","","348","","2.84","","","8,094","","284","","3.50","","","6,095","","241","","3.95"],["Home equity loans","8,967","","336","","3.74","","","9,772","","392","","4.01","","","10,634","","526","","4.95"],["Consumer direct loans","5,105","","233","","4.56","","","4,213","","221","","5.26","","","2,475","","176","","7.11"],["Credit cards","925","","94","","10.11","","","1,001","","107","","10.65","","","1,100","","127","","11.51"],["Consumer indirect loans","2,839","","90","","3.19","","","4,845","","180","","3.72","","","4,111","","168","","4.09"],["Total consumer loans","30,088","","1,101","","3.66","","","27,925","","1,184","","4.24","","","24,415","","1,238","","5.07"],["Total loans","100,269","","3,559","","3.55","","","102,689","","3,895","","3.79","","","91,511","","4,299","","4.70"],["Loans held for sale","1,700","","50","","2.96","","","1,972","","69","","3.49","","","1,411","","63","","4.48"],["Securities available for sale (b), (e)","35,765","","546","","1.53","","","23,742","","484","","2.10","","","21,362","","537","","2.51"],["Held-to-maturity securities (b)","7,035","","185","","2.63","","","8,938","","222","","2.49","","","10,841","","262","","2.41"],["Trading account assets","820","","19","","2.35","","","814","","20","","2.47","","","1,017","","32","","3.18"],["Short-term investments","17,529","","28","",".16","","","9,096","","18","",".20","","","2,876","","61","","2.11"],["Other investments (e)","621","","7","","1.14","","","635","","6","",".87","","","630","","13","","2.09"],["Total earning assets","163,739","","4,394","","2.69","","","147,886","","4,714","","3.20","","","129,648","","5,267","","4.06"],["Allowance for loan and lease losses","(1,340)","","","","","(1,481)","","","","","(880)"],["Accrued income and other assets","16,520","","","","","15,650","","","","","14,411"],["Discontinued assets","632","","","","","775","","","","","984"],["Total assets","$","179,551","","","","","$","162,830","","","","","$","144,163"],["LIABILITIES"],["NOW and money market deposit accounts","$","84,736","","41","",".05","","","$","75,733","","206","",".27","","","$","63,731","","566","",".89"],["Savings deposits","6,893","","1","",".02","","","5,252","","2","",".04","","","4,740","","4","",".09"],["Certificates of deposit ($100,000 or more)(f)","2,135","","16","",".72","","","4,520","","83","","1.83","","","7,757","","180","","2.32"],["Other time deposits","2,540","","9","",".37","","","4,041","","56","","1.38","","","5,426","","103","","1.90"],["Total interest-bearing deposits","96,304","","67","",".07","","","89,546","","347","",".39","","","81,654","","853","","1.04"],["Federal funds purchased and securities sold under repurchase agreements","239","","\u2014","",".02","","","670","","6","",".88","","","264","","2","",".66"],["Bank notes and other short-term borrowings","770","","8","","1.08","","","1,452","","12","",".85","","","730","","17","","2.31"],["Long-term debt (f), (g)","12,391","","221","","1.79","","","12,578","","286","","2.36","","","13,062","","454","","3.52"],["Total interest-bearing liabilities","109,704","","296","",".27","","","104,246","","651","",".63","","","95,710","","1,326","","1.39"],["Noninterest-bearing deposits","48,731","","","","","37,740","","","","","28,376"],["Accrued expense and other liabilities","2,819","","","","","2,433","","","","","2,456"],["Discontinued liabilities (g)","632","","","","","775","","","","","984"],["Total liabilities","161,886","","","","","145,194","","","","","127,526"],["EQUITY"],["Key shareholders\u2019 equity","17,665","","","","","17,636","","","","","16,636"],["Noncontrolling interests","\u2014","","","","","\u2014","","","","","1"],["Total equity","17,665","","","","","17,636","","","","","16,637"],["Total liabilities and equity","$","179,551","","","","","$","162,830","","","","","$","144,163"],["Interest rate spread (TE)","","","2.42","%","","","","2.57","%","","","","2.67","%"],["Net interest income (TE) and net interest margin (TE)","","4,098","","2.50","%","","","4,063","","2.77","%","","","3,941","","3.04","%"],["Less: TE adjustment (b)","","27","","","","","29","","","","","32"],["Net interest income, GAAP basis","","$","4,071","","","","","$","4,034","","","","","$","3,909"]]
[[/GREPCENT_TABLE]]

(a)Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (g) below, calculated using a matched funds transfer pricing methodology.

(b)Interest income on tax-exempt securities and loans has been adjusted to a TE basis using the statutory federal income tax rate in effect that calendar year.

(c)For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)Commercial and industrial average loan balances include $134 million, $130 million, and $141 million of assets from commercial credit cards for the years ended December 31, 2021, December 31, 2020, and December 31, 2019, 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.

(h)Average balances presented are based on daily average balances over the respective stated period.

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Figure 2 shows how the changes in yields or rates and average balances from the prior year affected net interest income. The section entitled “Financial Condition” contains additional discussion about changes in earning assets and funding sources.

Figure 2. Components of Net Interest Income Changes from Continuing Operations

[[GREPCENT_TABLE]]
[["","2021 vs. 2020"],["Dollars in millions","AverageVolume","Yield/ Rate","Net Change(a)"],["INTEREST INCOME"],["Loans","$","(95)","","$","(241)","","$","(336)"],["Loans held for sale","(9)","","(10)","","(19)"],["Securities available for sale","204","","(142)","","62"],["Held-to-maturity securities","(49)","","12","","(37)"],["Trading account assets","\u2014","","(1)","","(1)"],["Short-term investments","14","","(4)","","10"],["Other investments","\u2014","","1","","1"],["Total interest income (TE)","65","","(385)","","(320)"],["INTEREST EXPENSE"],["NOW and money market deposit accounts","22","","(187)","","(165)"],["Savings deposits","\u2014","","(1)","","(1)"],["Certificates of deposit ($100,000 or more)","(32)","","(35)","","(67)"],["Other time deposits","(16)","","(31)","","(47)"],["Total interest-bearing deposits","(26)","","(254)","","(280)"],["Federal funds purchased and securities sold under repurchase agreements","(2)","","(4)","","(6)"],["Bank notes and other short-term borrowings","(7)","","3","","(4)"],["Long-term debt","(4)","","(61)","","(65)"],["Total interest expense","(39)","","(316)","","(355)"],["Net interest income (TE)","$","104","","$","(69)","","$","35"]]
[[/GREPCENT_TABLE]]

(a)The change in interest not due solely to volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each.

Provision for credit losses

Our provision for credit losses was a net benefit of $418.0 million for 2021, compared to $1.0 billion expense for 2020. The decrease in our provision for credit losses included a reserve release of $602 million and was largely driven by improvements in the economic outlook and asset quality as well as lower net charge-offs. In 2020, our provision for credit losses was impacted by the economic stress and uncertainty in the U.S. and globally from the ongoing pandemic caused by COVID-19 as well as increased net loan charge-offs. In 2022 we expect net charge-offs to average loans to be in the range of 20 to 30 bps.

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Noninterest income

Noninterest income for 2021 was $3.2 billion, compared to $2.7 billion during 2020. Noninterest income represented 44% of total revenue for 2021 and 39% of total revenue for 2020. In 2022, we expect noninterest income to be down 1% to 3% compared to 2021.

The following discussion explains the composition of certain elements of our noninterest income and the factors that caused those elements to change.

Figure 3. Noninterest Income

(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 Part II, Item 8. Financial Statements and Supplementary Data 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 commissions, and insurance income. For 2021, trust and investment services income increased $23 million, or 4.5% as a result of an increase in assets under management.

A significant portion of our trust and investment services income depends on the value and mix of assets under management. At December 31, 2021, our bank, trust, and registered investment advisory subsidiaries had assets under administration of $55.8 billion, compared to $47.1 billion at December 31, 2020. The increase from 2020 to 2021 was primarily attributable to the strength of the equity markets during the year.

Figure 4. Assets Under Administration

[[GREPCENT_TABLE]]
[["Year ended December 31,","","","Change 2021 vs. 2020"],["Dollars in millions","2021","2020","Amount","Percent"],["Discretionary assets under management by investment type:"],["Equity","$","33,767","","$","27,384","","$","6,383","","23.3","%"],["Securities lending","\u2014","","131","","(131)","","(100.0)"],["Fixed income","13,851","","12,130","","1,721","","14.2"],["Money market","4,541","","4,495","","46","","1.0"],["Total discretionary assets under management","$","52,159","","$","44,140","","$","8,019","","18.2","%"],["Non-discretionary assets under administration","$","3,647","","$","2,946","","$","701","","23.8","%"],["Total","$","55,806","","$","47,086","","$","8,720","","18.5","%"]]
[[/GREPCENT_TABLE]]

Investment banking and debt placement fees

Investment banking and debt placement fees consist of syndication fees, debt and equity underwriting fees, financial advisor fees, gains on sales of commercial mortgages, and agency origination fees. For 2021, investment banking and debt placement fees increased $276 million, or 41.8%, from the prior year driven by growth in M&A advisory fees and debt and equity underwriting fees.

Service charges on deposit accounts

Service charges on deposit accounts increased $26 million, or 8.4%, in 2021 compared to the prior year. This increase stemmed from account analysis services and overdraft fees.

Cards and payments income

Cards and payments income, which consists of debit card, consumer and commercial credit card, and merchant services income, increased $47 million, or 12.8%, in 2021 compared to 2020. This increase was primarily due to increased transaction volume and spend on debit and credit card, with a slight offset from reduced prepaid card activity as customers roll off government support programs.

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 increased $170 million, or 21.1%, in 2021 compared to 2020, driven by increases in commercial loan servicing fees and corporate services income stemming from other non-yield loan and commitment fees.

Noninterest expense

Noninterest expense for 2021 was $4.4 billion, compared to $4.1 billion for 2020. Figure 5 gives a breakdown of our major categories of noninterest expense as a percentage of total noninterest expense for the twelve months ended December 31, 2021. In 2022, we expect noninterest expense to be down 1% to 3% compared to 2021.

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 5. Noninterest Expense

(a)Other noninterest expense includes equipment, operating lease expense, marketing, intangible asset amortization and other miscellaneous expense. See the "Consolidated Statements of Income" in Part II, Item 8. Financial Statements and Supplementary Data of this report.

Personnel

As shown in Figure 6, personnel expense, the largest category of our noninterest expense, increased by $225 million, or 9.6%, in 2021 compared to 2020. The increase was driven by higher production-related incentives from our record fee production.

Figure 6. Personnel Expense

[[GREPCENT_TABLE]]
[["Year ended December 31,Dollars in millions","","","Change 2021 vs. 2020"],["2021","2020","Amount","Percent"],["Salaries and contract labor","$","1,311","","$","1,329","","$","(18)","","(1.4)","%"],["Incentive and stock-based compensation (a)","861","","627","","234","","37.3"],["Employee benefits","388","","350","","38","","10.9"],["Severance","1","","30","","(29)","","(96.7)"],["Total personnel expense","$","2,561","","$","2,336","","$","225","","9.6","%"]]
[[/GREPCENT_TABLE]]

(a)Excludes directors’ stock-based compensation of $2 million in 2021 and $2 million in 2020, reported as “other noninterest expense” in Figure 5.

Non-personnel expense

In total, other non-personnel expense increased $95 million, or 5.4%, in 2021 compared to 2020 stemming from increased software and cloud expenses, professional service fees, and marketing spend.

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Income taxes

We recorded a tax provision from continuing operations of $642 million for 2021, compared to $227 million for 2020. The effective tax rate, which is the provision for income taxes as a percentage of income from continuing operations before income taxes, was 19.7% for 2021 and 14.6% for 2020. In 2022, we expect our GAAP tax rate to be approximately 20%.

In 2021, our federal tax expense and effective tax rate differ from the amount that would be calculated using the federal statutory tax rate primarily due to investments in tax-advantaged assets, such as corporate-owned life insurance, tax credits associated with investments in low-income housing projects and energy related projects, and periodic adjustments to our tax reserves as described in Note 14 (“Income Taxes”).

Business Segment Results

This section summarizes the highlights and segment imperatives, market and business overview, and financial performance of our two major business segments (operating segments): Consumer Bank and Commercial Bank. Note 25 (“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. Dollars in the charts are presented in millions.

Consumer Bank

Segment imperatives

•Simplification and digitalization to drive growth and operating leverage

•Relationship-based strategy with a focus on financial wellness as a differentiator

•Omni-channel approach in delivering products and services

Market and business overview

As the banking industry moves forward, so do our clients. Anticipating our clients’ needs not only today, but for tomorrow and into the future, has become one of the biggest challenges for the banking industry. We view these challenges as an opportunity to help our current client base meet their own goals, as well as attract new and diverse clients. In an increasingly digital world focused on specialized convenience, we have made meaningful steps to meet those demands through new digital portals including the rollout of our national digital affinity bank, Laurel Road for Doctors. These platforms place us in a strong position to develop long lasting and meaningful relationships with our current and prospective clients. Financial wellness is a core tenet of our customer relationships and we see it in three different ways: diagnose, enhance, and sustain. Our goal is to get our clients to a place where they can comfortably sustain their current financial position so we can be there for them when they are ready to grow. Clients no longer go to a branch to conduct transactions only, they go to seek advice and gain new perspectives on issues they may be facing.

Summary of operations

•Net income attributable to Key of $876 million in 2021, compared to $653 million in 2020, a increase of 34.2%.

•Taxable equivalent net interest income decreased in 2021 by $46 million, or 1.9%, from the prior year, related to the sale of the indirect auto portfolio, partially offset by strong consumer mortgage balance sheet growth and fees related to PPP loans.

•Average loans and leases increased in 2021 by $1.5 billion, or 4.0%, from the prior year. This was driven by growth in residential mortgage and Laurel Road, offset by the sale of the indirect auto loan portfolio.

•Average deposits increased in 2021 by $8.7 billion, or 10.9%, from the prior year. This was driven by consumer retention of stimulus payments and relationship growth.

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•Provision for credit losses decreased $402 million in 2021 compared to the prior year. The provision for credit losses was a net benefit and primarily driven by lower reserve levels.

•Noninterest income increased in 2021 by $69 million, or 6.9%, from the prior year, driven by higher cards and payments income and trust and investment services income. Partially offsetting the increase was consumer mortgage income, reflecting higher balance sheet retention and lower gain on sale margins.

•Noninterest expense increased in 2021 by $128 million, or 5.7%, from the prior year, driven by higher production-related incentives and increased marketing expense related to Laurel Road.

Commercial Bank

Segment imperatives

•Solve complex client needs through a differentiated product set of banking and capital markets capabilities

•Drive targeted scale through distinct product capabilities delivered to a broad set of clients

•Utilize industry expertise and broad capabilities to build relationships with narrowly targeted client sets

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Market and business overview

Building relationships and delivering complex solutions for middle market clients requires a distinctive operating model that understands their business and can provide a broad set of product capabilities. As competition for these clients intensifies, we have positioned the business to maintain and grow our competitive advantage by building targeted scale in businesses and client segments. Strong market share in businesses such as real estate loan servicing and equipment finance highlights our ability to successfully meet customer needs through targeted scale in distinct product capabilities. Clients expect us to understand every aspect of their business. Our seven industry verticals are aligned to drive targeted scale in segments where we have a breadth of industry expertise. Our business model is positioned to meet our client needs because our focus is not on being a universal bank, but rather being the right bank for our clients.

Summary of operations

•Net income attributable to Key of $1.6 billion in 2021, compared to $651 million in 2020, an increase of 152.7%.

•Taxable equivalent net interest income decreased in 2021 by $70 million, or 4.1%, from the prior year. The decrease in net interest income was primarily driven by lower average loan balances offset by fees related to PPP loans.

•Average loan and lease balances decreased $4.0 billion in 2021, or 6.2%, compared to the prior year reflecting a decline in PPP balances, partly offset by core growth in commercial and industrial and commercial real estate loans.

•Average deposit balances increased $8.6 billion in 2021, or 18.2%, compared to the prior year, driven by growth in targeted relationships and higher commercial escrow deposits.

•Provision for credit losses decreased $1.0 billion in 2021 compared to the prior year. The provision for credit losses was a net benefit, driven by reduced reserve levels and lower net loan charge-offs.

•Noninterest income increased $465 million in 2021, or 30.5%, from the prior year, driven by elevated investment banking client activity and corporate services income, partially offset by lower cards and payments income.

•Noninterest expense increased by $115 million in 2021, or 6.6%, from the prior year, driven by higher production-related incentives related to strong investment banking and debt placement fees.

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Financial Condition

Loans and loans held for sale

Figure 7. Breakdown of Loans

(a)Other consumer loans include Consumer direct loans, Credit cards, and Consumer indirect loans. See Note 4 (“Loan Portfolio”) Item 8. Financial Statements of this report.

COVID-19 Hardship Relief Programs

In response to the COVID-19 pandemic, beginning in March 2020 and continuing in 2021, we provided relief accommodations to our clients in the form of interest and or principal payment deferrals, waivers and adjustments of performance covenants, loan modifications, facilitation and support of government stimulus in multiple ways, and we suspended repossession, foreclosures and other default remedies to ensure our customers had adequate resources to withstand the economic disruption caused by the pandemic. All of these accommodations are and were made based upon our strong relationship focus with our clients and were consistent and in compliance with regulatory, statutory and executive rules, guidance, and requirements. 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 December 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 8. Loans and Leases COVID-19 Hardship Relief

[[GREPCENT_TABLE]]
[["","","Outstanding Balance of Loans and Leases"],["December 31, 2021"],["Dollars in millions","","Completed Relief","In Active Relief","Total that have Received Payment Relief"],["Commercial Loans","","$","1,880","","$","19","","$","1,899"],["Consumer Loans","","844","","56","","900"],["Total Portfolio Loans and Leases","","$","2,724","","$","75","","$","2,799"],["December 31, 2020"],["Dollars in millions","","Completed Relief","In Active Relief","Total that have Received Payment Relief"],["Commercial Loans","","$","2,899","","$","181","","$","3,079"],["Consumer Loans","","1,179","","394","","1,572"],["Total Portfolio Loans and Leases","","$","4,077","","$","575","","$","4,652"]]
[[/GREPCENT_TABLE]]

The total outstanding balance of commercial loans in active relief as of December 31, 2021, represented 0.02% of our commercial loan portfolio and the total outstanding balance of consumer loans in active relief as of December 31, 2021, represented 0.2% of the consumer 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 December 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 5 (“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).

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Figure 9 shows the composition of our loan portfolio at December 31 for each of the past five years.

Figure 9. Composition of Loans

[[GREPCENT_TABLE]]
[["","","2021","","2020"],["December 31,Dollars in millions","","Amount","","Percent of Total","","Amount","","Percent of Total"],["COMMERCIAL"],["Commercial and industrial (a)","","$","50,525","","","49.6","%","","$","52,907","","","52.3","%"],["Commercial real estate:"],["Commercial mortgage","","14,244","","","13.9","","","12,687","","","12.5"],["Construction","","1,996","","","2.0","","","1,987","","","2.0"],["Total commercial real estate loans","","16,240","","","15.9","","","14,674","","","14.5"],["Commercial lease financing (b)","","4,071","","","4.0","","","4,399","","","4.3"],["Total commercial loans","","70,836","","","69.5","","","71,980","","","71.1"],["CONSUMER"],["Real estate \u2014 residential mortgage","","15,756","","","15.5","","","9,298","","","9.2"],["Home equity loans","","8,467","","","8.3","","","9,360","","","9.2"],["Consumer direct loans","","5,753","","","5.6","","","4,714","","","4.7"],["Credit cards","","972","","","1.0","","","989","","","1.0"],["Consumer indirect loans","","70","","","0.1","","","4,844","","","4.8"],["Total consumer loans","","31,018","","","30.5","","","29,205","","","28.9"],["Total loans (c)","","$","101,854","","","100.0","%","","$","101,185","","","100.0","%"]]
[[/GREPCENT_TABLE]]

(a)Loan balances include $139 million and $127 million, of commercial credit card balances at December 31, 2021, and December 31, 2020, respectively.

(b)Commercial lease financing includes receivables held as collateral for a secured borrowing of $16 million and $19 million at December 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”).

(c)Total loans exclude loans of $567 million at December 31, 2021, and $710 million at December 31, 2020, related to the discontinued operations of the education lending business.

At December 31, 2021, total loans outstanding from continuing operations were $101.9 billion, compared to $101.2 billion at the end of 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.”

Commercial loan portfolio

Commercial loans outstanding were $70.8 billion at December 31, 2021, a decrease of $1.1 billion, or 1.6%, compared to December 31, 2020. The decrease versus the prior year reflects the impact of PPP balances, which

declined $5.1 billion in 2021 as a result of $8.0 billion of PPP loans forgiven. Excluding the impact of PPP loans,

commercial loans increased $4.0 billion, or 5.5%, reflecting core growth in commercial and industrial loans and

commercial real estate loans.

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 have also established a pandemic watchlist and are performing ongoing reviews of commercial clients that are likely to be impacted by COVID-19. Overall, 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 December 31, 2021, and December 31, 2020.

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Figure 10. Select Commercial Portfolio Focus Areas

[[GREPCENT_TABLE]]
[["Dollars in millions","Outstanding as of December 31, 2021","","","Percentage of total loans as of December 31, 2021","","Outstanding as of December 31, 2020","","Percentage of total loans as of December 31, 2020"],["Consumer behavior (a)","$","5,337","","","","5.2","%","","$","5,083","","","5.0","%"],["Education","1,596","","","","1.6","","","1,541","","","1.5"],["Sports","563","","","",".6","","","690","","",".7"],["Restaurants","431","","","",".4","","","400","","",".4"],["Retail commercial real estate (b)","364","","","",".4","","","525","","",".5"],["Nondurable retail (c)","650","","","",".6","","","638","","",".6"],["Travel/Tourism (d)","2,385","","","","2.3","","","2,523","","","2.5"],["Hotels","610","","","",".6","","","784","","",".8"],["Leveraged lending (e)","2,170","","","","2.1","","","1,700","","","1.7"],["Oil and gas","1,805","","","","1.8","","","1,992","","","2.0"],["Upstream (reserve based)","1,171","","","","1.1","","","1,263","","","1.2"],["Midstream","374","","","",".4","","","468","","",".5"],["Downstream","70","","","",".1","","","98","","",".1"]]
[[/GREPCENT_TABLE]]

(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 portfolio by industry classification as of December 31, 2021, and December 31, 2020.

Figure 11. Commercial Loans by Industry

[[GREPCENT_TABLE]]
[["December 31, 2021","Commercial and industrial","","Commercial real estate","","Commercial lease financing","","Total commercial loans","","Percent of total"],["Dollars in millions"],["Industry classification:"],["Agriculture","$","872","","","$","161","","","$","84","","","$","1,117","","","1.6","%"],["Automotive","1,253","","","609","","","18","","","1,880","","","2.7"],["Business products","1,732","","","131","","","39","","","1,902","","","2.7"],["Business services","3,202","","","235","","","177","","","3,614","","","5.1"],["Chemicals","786","","","25","","","22","","","833","","","1.2"],["Construction materials and contractors","2,248","","","338","","","264","","","2,850","","","4.0"],["Consumer goods","3,760","","","555","","","276","","","4,591","","","6.5"],["Consumer services","4,998","","","889","","","424","","","6,311","","","8.9"],["Equipment","1,650","","","97","","","138","","","1,885","","","2.7"],["Finance","6,676","","","98","","","380","","","7,154","","","10.1"],["Healthcare","3,138","","","1,302","","","245","","","4,685","","","6.6"],["Metals and mining","1,219","","","71","","","55","","","1,345","","","1.9"],["Oil and gas","1,758","","","26","","","35","","","1,819","","","2.6"],["Public exposure","2,768","","","15","","","720","","","3,503","","","4.9"],["Commercial real estate","6,494","","","11,456","","","9","","","17,959","","","25.3"],["Technology","649","","","9","","","149","","","807","","","1.1"],["Transportation","1,288","","","134","","","551","","","1,973","","","2.8"],["Utilities","5,491","","","\u2014","","","467","","","5,958","","","8.4"],["Other","543","","","89","","","18","","","650","","",".9"],["Total","$","50,525","","","$","16,240","","","$","4,071","","","$","70,836","","","100.0","%"],["December 31, 2020","Commercial 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","%"],["Automotive","1,863","","","510","","","19","","","2,392","","","3.3"],["Business products","1,523","","","117","","","45","","","1,685","","","2.3"],["Business services","4,098","","","221","","","202","","","4,521","","","6.3"],["Chemicals","700","","","30","","","34","","","764","","","1.1"],["Construction materials and contractors","2,571","","","271","","","233","","","3,075","","","4.3"],["Consumer goods","3,832","","","404","","","371","","","4,607","","","6.4"],["Consumer services","6,123","","","900","","","525","","","7,548","","","10.5"],["Equipment","1,447","","","84","","","120","","","1,651","","","2.3"],["Finance","6,190","","","92","","","396","","","6,678","","","9.3"],["Healthcare","4,348","","","1,396","","","306","","","6,050","","","8.4"],["Metals and mining","1,074","","","56","","","29","","","1,159","","","1.6"],["Oil and gas","1,928","","","43","","","62","","","2,033","","","2.8"],["Public exposure","2,332","","","25","","","709","","","3,066","","","4.3"],["Commercial real estate","5,966","","","10,187","","","11","","","16,164","","","22.5"],["Technology","741","","","20","","","191","","","952","","","1.2"],["Transportation","1,434","","","144","","","631","","","2,209","","","3.1"],["Utilities","5,239","","","1","","","397","","","5,637","","","7.8"],["Other","496","","","25","","","21","","","542","","",".8"],["Total","$","52,907","","","$","14,674","","","$","4,399","","","$","71,980","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Commercial and industrial. Commercial and industrial loans are the largest component of our loan portfolio, representing 51% of our total loan portfolio at December 31, 2021, and 52% at December 31, 2020. This portfolio is approximately 81% variable rate and consists of loans primarily to large corporate, middle market, and small business clients.

Commercial and industrial loans totaled $50.5 billion at December 31, 2021, a decrease of $2.4 billion, or 4.5%, compared to December 31, 2020. The decline was broad-based and spread across most industry categories,

and reflects an increase in PPP loans forgiven in 2021. Excluding the the impact of PPP loans, commercial

and industrial loans increased $2.7 billion, or 5.2%, from core portfolio growth during the second half of 2021.

Commercial real estate loans. Our commercial real estate lending business 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 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 December 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 12% of commercial real estate loans at year end.

At December 31, 2021, commercial real estate loans totaled $16.2 billion, comprised of $14.2 billion of mortgage loans and $2.0 billion of construction loans. Compared to December 31, 2020, this portfolio increased $1.6 billion driven by growth in multi-family lending. 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

[[GREPCENT_TABLE]]
[["","Geographic Region"],["Dollars in millions","West","Southwest","Central","Midwest","Southeast","Northeast","National","Total","Percent of Total","Construction","CommercialMortgage"],["December 31, 2021"],["Nonowner-occupied:"],["Retail properties","$","158","","$","15","","$","128","","$","210","","$","47","","$","303","","$","162","","$","1,023","","6.3","%","$","43","","$","980"],["Multifamily properties","866","","529","","1,202","","1,006","","1,775","","1,403","","239","","7,020","","43.2","","1,337","","5,683"],["Health facilities","125","","32","","136","","62","","126","","487","","386","","1,354","","8.3","","113","","1,241"],["Office buildings","266","","1","","238","","137","","141","","487","","47","","1,317","","8.1","","41","","1,276"],["Warehouses","80","","29","","67","","51","","219","","232","","140","","818","","5.0","","95","","723"],["Manufacturing facilities","7","","\u2014","","21","","5","","37","","34","","48","","152","",".9","","\u2014","","152"],["Hotels/Motels","75","","\u2014","","21","","4","","30","","101","","28","","259","","1.6","","27","","232"],["Residential properties","1","","\u2014","","\u2014","","3","","\u2014","","43","","\u2014","","47","",".3","","\u2014","","47"],["Land and development","13","","3","","4","","2","","5","","28","","\u2014","","55","",".4","","32","","23"],["Other","112","","21","","6","","79","","74","","197","","301","","790","","4.9","","46","","744"],["Total nonowner-occupied","1,703","","630","","1,823","","1,559","","2,454","","3,315","","1,351","","12,835","","79.0","","1,734","","11,101"],["Owner-occupied","1,065","","\u2014","","293","","592","","124","","1,331","","\u2014","","3,405","","21.0","","262","","3,143"],["Total","$","2,768","","$","630","","$","2,116","","$","2,151","","$","2,578","","$","4,646","","$","1,351","","$","16,240","","100.0","%","$","1,996","","$","14,244"],["Nonowner-occupied:"],["Nonperforming loans","\u2014","","\u2014","","\u2014","","$","2","","$","\u2014","","$","17","","$","25","","$","44","","N/M","\u2014","","$","44"],["Accruing loans past due 90 days or more","$","1","","\u2014","","$","1","","\u2014","","\u2014","","6","","\u2014","","8","","N/M","$","1","","7"],["Accruing loans past due 30 through 89 days","\u2014","","\u2014","","5","","1","","24","","5","","\u2014","","35","","N/M","16","","19"],["December 31, 2020"],["Nonowner-occupied:"],["Retail properties","$","119","","$","15","","$","129","","$","122","","$","72","","$","448","","$","122","","$","1,027","","6.8","%","$","54","","$","973"],["Multifamily properties","685","","228","","875","","800","","1,284","","1,493","","229","","5,594","","38.1","","1,442","","4,152"],["Health facilities","83","","53","","85","","87","","170","","487","","338","","1,303","","8.7","","91","","1,212"],["Office buildings","276","","\u2014","","253","","142","","193","","628","","147","","1,639","","11.2","","48","","1,591"],["Warehouses","54","","31","","66","","40","","52","","259","","161","","663","","4.6","","74","","589"],["Manufacturing facilities","42","","\u2014","","28","","15","","40","","34","","43","","202","","1.3","","10","","192"],["Hotels/Motels","76","","\u2014","","19","","\u2014","","12","","107","","91","","305","","2.1","","18","","287"],["Residential properties","\u2014","","\u2014","","\u2014","","3","","\u2014","","53","","\u2014","","56","",".4","","\u2014","","56"],["Land and development","15","","5","","\u2014","","2","","5","","28","","\u2014","","55","",".4","","33","","22"],["Other","108","","22","","6","","93","","69","","245","","279","","822","","6.4","","65","","757"],["Total nonowner-occupied","1,458","","354","","1,461","","1,304","","1,897","","3,782","","1,410","","11,666","","80.0","","1,835","","9,831"],["Owner-occupied","870","","4","","275","","499","","63","","1,297","","\u2014","","3,008","","20.0","","152","","2,856"],["Total","$","2,328","","$","358","","$","1,736","","$","1,803","","$","1,960","","$","5,079","","$","1,410","","$","14,674","","100.0","%","$","1,987","","$","12,687"],["Nonperforming loans","$","1","","\u2014","","\u2014","","$","7","","6","","$","44","","$","44","","$","102","","N/M","\u2014","","$","102"],["Accruing loans past due 90 days or more","\u2014","","\u2014","","\u2014","","1","","$","\u2014","","22","","\u2014","","23","","N/M","$","1","","22"],["Accruing loans past due 30 through 89 days","3","","\u2014","","$","\u2014","","2","","3","","7","","\u2014","","15","","N/M","\u2014","","15"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["West \u2013","Alaska, California, Hawaii, Idaho, Montana, Oregon, Washington, and Wyoming"],["Southwest \u2013","Arizona, Nevada, and New Mexico"],["Central \u2013","Arkansas, Colorado, Oklahoma, Texas, and Utah"],["Midwest \u2013","Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin"],["Southeast \u2013","Alabama, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C., and West Virginia"],["Northeast \u2013","Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont"],["National \u2013","Accounts in three or more regions"]]
[[/GREPCENT_TABLE]]

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Consumer loan portfolio

Consumer loans outstanding at December 31, 2021, totaled $31.0 billion, an increase of $1.8 billion, or 6.2%, from one year ago. Consumer loans continue to reflect strength from the consumer mortgage business and

Laurel Road, partly offset by the exit of the indirect auto loan portfolio, which reduced consumer loans by $4.7 billion.

The residential mortgage portfolio is comprised of loans originated by our Consumer Bank primarily within our 15-state footprint and is the largest segment of our consumer loan portfolio as of December 31, 2021, representing approximately 51% of consumer loans. This is followed by our home equity portfolio comprising approximately 27% of consumer loans outstanding at year end. 

We held the first lien position for approximately 71% of the Consumer Bank home equity portfolio at December 31, 2021, and 64% 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 original and updated loan-to-value ratios. This information is used in establishing the ALLL. Our methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.”

Figure 13. Consumer Loans by State

[[GREPCENT_TABLE]]
[["December 31, 2021","Real estate \u2014 residential mortgage","Home equity loans","Consumer direct loans","Credit cards","Consumer indirect loans","Total"],["State"],["New York","$","679","","$","2,467","","$","638","","$","345","","$","4","","$","4,133"],["Ohio","2,631","","1,284","","485","","206","","8","","4,614"],["Washington","2,264","","1,076","","234","","81","","2","","3,657"],["Pennsylvania","351","","634","","327","","55","","4","","1,371"],["California","1,781","","14","","430","","3","","10","","2,238"],["Texas","184","","5","","343","","4","","4","","540"],["Colorado","2,602","","284","","156","","30","","\u2014","","3,072"],["Connecticut","837","","319","","96","","26","","2","","1,280"],["Oregon","1,009","","670","","110","","40","","1","","1,830"],["Florida","591","","46","","378","","13","","10","","1,038"],["Other","2,827","","1,668","","2,556","","169","","25","","7,245"],["Total","$","15,756","","$","8,467","","$","5,753","","$","972","","$","70","","$","31,018"],["December 31, 2020"],["New York","$","1,164","","$","2,553","","$","593","","$","353","","$","731","","$","5,394"],["Ohio","698","","1,375","","479","","217","","957","","3,726"],["Washington","1,835","","1,300","","236","","86","","20","","3,477"],["Pennsylvania","516","","14","","303","","4","","19","","856"],["California","286","","648","","255","","52","","539","","1,780"],["Texas","74","","7","","241","","3","","10","","335"],["Colorado","828","","345","","140","","30","","6","","1,349"],["Connecticut","914","","352","","87","","25","","141","","1,519"],["Oregon","720","","782","","97","","41","","4","","1,644"],["Massachusetts","239","","48","","103","","5","","460","","855"],["Other","2,024","","1,936","","2,180","","173","","1,957","","8,270"],["Total","$","9,298","","$","9,360","","$","4,714","","$","989","","$","4,844","","$","29,205"]]
[[/GREPCENT_TABLE]]

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Loan sales

As shown in Figure 14, during 2021, we sold $19 billion of our loans. Sales of loans classified as held for sale generated net gains of $282 million during 2021.

Figure 14 summarizes our loan sales during 2021 and 2020.

Figure 14. Loans Sold (Including Loans Held for Sale)

[[GREPCENT_TABLE]]
[["Dollars in millions","Commercial","CommercialReal Estate","CommercialLeaseFinancing","ResidentialReal Estate","Consumer Direct","Consumer Indirect","Total"],["2021"],["Fourth quarter","$","296","","$","3,460","","$","93","","$","987","","\u2014","","\u2014","","$","4,836"],["Third quarter","215","","1,996","","68","","901","","\u2014","","$","3,305","","6,485"],["Second quarter","1,085","","1,907","","75","","1,192","","\u2014","","\u2014","","4,259"],["First quarter","124","","1,930","","156","","1,129","","\u2014","","\u2014","","3,339"],["Total","$","1,720","","$","9,293","","$","392","","$","4,209","","\u2014","","$","3,305","","$","18,919"],["2020"],["Fourth quarter","$","197","","$","2,412","","$","135","","$","1,256","","\u2014","","\u2014","","$","4,000"],["Third quarter","163","","1,999","","67","","1,235","","$","208","","\u2014","","3,672"],["Second quarter","82","","2,661","","47","","925","","\u2014","","\u2014","","3,715"],["First quarter","55","","2,022","","81","","546","","\u2014","","\u2014","","2,704"],["Total","$","497","","$","9,094","","$","330","","$","3,962","","$","208","","\u2014","","$","14,091"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["December 31,Dollars in millions","2021","2020","2019","2018","2017"],["Commercial real estate loans","$","444,131","","$","371,016","","$","347,186","","$","291,158","","$","238,718"],["Residential mortgage","10,312","","8,311","","6,146","","5,209","","4,582"],["Education loans","415","","516","","625","","766","","932"],["Commercial lease financing","1,236","","1,359","","1,047","","916","","862"],["Commercial loans","750","","684","","591","","549","","488"],["Consumer direct","699","","1,711","","2,243","","\u2014","","\u2014"],["Consumer indirect","2,714","","\u2014","","\u2014","","\u2014","","\u2014"],["Total","$","460,257","","$","383,597","","$","357,838","","$","298,598","","$","245,582"]]
[[/GREPCENT_TABLE]]

In the event of default by a borrower, we are subject to recourse with respect to approximately $6.4 billion of the $460 billion of loans administered or serviced at December 31, 2021. Additional information about this recourse arrangement is included in Note 22 (“Commitments, 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 9 (“Mortgage Servicing Assets”).

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Maturities and sensitivity of certain loans to changes in interest rates

Figure 16 shows the remaining maturities of our loan portfolio and the sensitivity of certain loans to changes in interest rates as of December 31, 2021.

Figure 16. Remaining Maturities and Sensitivity of Certain Loans to Changes in Interest Rates(a)

[[GREPCENT_TABLE]]
[["December 31, 2021"],["Dollars in millions","Within One Year","One - Five Years","Five - Fifteen Years","Over Fifteen Years","Total"],["Commercial"],["Commercial and industrial","$","10,810","","$","32,316","","$","7,106","","$","293","","$","50,525"],["Commercial Mortgage","3,795","","6,869","","3,274","","306","","14,244"],["Real estate \u2014 construction","975","","773","","56","","192","","1,996"],["Commercial lease financing","245","","2,433","","1,365","","28","","4,071"],["Total commercial loans","15,825","","42,391","","11,801","","819","","70,836"],["Consumer"],["Real estate - residential mortgage","25","","41","","859","","14,831","","15,756"],["Home equity loans","16","","272","","2,847","","5,332","","8,467"],["Consumer direct loans","536","","1,120","","2,483","","1,614","","5,753"],["Credit Cards","972","","\u2014","","\u2014","","\u2014","","972"],["Consumer indirect loans","1","","59","","10","","\u2014","","70"],["Total consumer loans","1,550","","1,492","","6,199","","21,777","","31,018"],["Total loans","$","17,375","","$","43,883","","$","18,000","","$","22,596","","$","101,854"],["Loans with floating or adjustable interest rates (b)","","$","37,663","","$","6,848","","$","10,239","","$","54,750"],["Loans with predetermined interest rates (c)","","6,221","","11,151","","12,357","","29,729"],["Total","","$","43,884","","$","17,999","","$","22,596","","$","84,479"]]
[[/GREPCENT_TABLE]]

(a)Accrued interest of $198 million at December 31, 2021, is presented in "Accrued income and other assets" on the Consolidated Balance Sheets and is excluded from the amortized cost basis disclosed in this table.

(b)Floating and adjustable rates vary in relation to other interest rates (such as the base lending rate) or a variable index that may change during the term of the loan.

(c)Predetermined interest rates either are fixed or may change during the term of the loan according to a specific formula or schedule.

Securities

Our securities portfolio totaled $52.9 billion at December 31, 2021, compared to $35.2 billion at December 31, 2020. Available-for-sale securities were $45.4 billion at December 31, 2021, compared to $27.6 billion at December 31, 2020. Held-to-maturity securities were $7.5 billion at December 31, 2021, compared to $7.6 billion at December 31, 2020.

As shown in Figure 17, 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 cost for the held-to-maturity portfolio. For more information about these securities, see Note 6 (“Fair Value Measurements”) under the heading “Qualitative Disclosures of Valuation Techniques,” and Note 7 (“Securities”).

Figure 17. Mortgage-Backed Securities by Issuer

[[GREPCENT_TABLE]]
[["December 31,Dollars in millions","2021","2020"],["FHLMC","$","10,585","","$","8,782"],["FNMA","17,876","","13,213"],["GNMA","12,469","","12,109"],["Total (a)","$","40,930","","$","34,104"]]
[[/GREPCENT_TABLE]]

(a)Includes securities held in the available-for-sale and held-to-maturity portfolios.

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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.

We periodically evaluate our securities available-for-sale portfolio in light of established A/LM objectives, changing market conditions that could affect the profitability of the portfolio, the regulatory environment, and the level of interest rate risk to which we are exposed. These evaluations may cause us to take steps to adjust our overall balance sheet positioning.

In addition, the size and composition of our securities available-for-sale portfolio could vary with our needs for liquidity and the extent to which we are required (or elect) to hold these assets as collateral to secure public funds and trust deposits. Although we generally use debt securities for this purpose, other assets, such as securities purchased under resale agreements or letters of credit, are used occasionally when they provide a lower cost of collateral or more favorable risk profiles.

Our investing activities continue to complement other balance sheet developments and provide for our ongoing liquidity management needs. Our actions to not reinvest the monthly security cash flows at various times served to provide the liquidity necessary to address our funding requirements. These funding requirements included ongoing loan growth and occasional debt maturities. At other times, we may make additional investments that go beyond the replacement of maturities or mortgage security cash flows as our liquidity position and/or interest rate risk management strategies may require. Lastly, our focus on investing in high quality liquid assets, including GNMA-related securities, is related to liquidity management strategies to satisfy regulatory requirements.

Figure 18 shows the composition, TE 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 7 (“Securities”).

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Figure 18. Securities Available for Sale

[[GREPCENT_TABLE]]
[["Dollars in millions","U.S. Treasury, Agencies, and Corporations","","Agency Residential Collateralized Mortgage Obligations(a)","Agency Residential Mortgage-backed Securities(a),(b)","Agency Commercial Mortgage-backed Securities(a)","Other Securities","","Total","Weighted-Average Yield(b)"],["December 31, 2021"],["Remaining maturity:"],["One year or less","$","\u2014","","","$","152","","$","3","","$","230","","\u2014","","","$","385","","3.57","%"],["After one through five years","9,472","","","7,738","","2,269","","2,520","","\u2014","","","21,999","","1.34"],["After five through ten years","\u2014","","","12,410","","2,641","","4,960","","\u2014","","(c)","20,011","","1.48"],["After ten years","\u2014","","","819","","209","","1,941","","\u2014","","","2,969","","1.53"],["Fair value","$","9,472","","","$","21,119","","$","5,122","","$","9,651","","\u2014","","(c)","$","45,364","","\u2014"],["Amortized cost","9,573","","","21,430","","5,137","","9,753","","\u2014","","","45,893","","1.43","%"],["Weighted-average yield (b)","0.45","%","","1.58","%","1.59","%","2.00","%","0.62","%","","1.43","%","\u2014"],["Weighted-average maturity","2.6 years","","6.1 years","5.1 years","7.7 years","7.7 years","","5.6 years","\u2014"],["December 31, 2020"],["Fair value","$","1,000","","","$","14,273","","$","2,164","","$","10,106","","$","13","","","$","27,556","","\u2014"],["Amortized cost","1,000","","","14,001","","2,094","","9,707","","8","","","26,810","","2.09","%"]]
[[/GREPCENT_TABLE]]

(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 in effect that calendar year.

(c)Other Securities amounts total less than $1 million for both after five through ten years and total fair value.

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Held-to-maturity securities

The majority of our held-to-maturity portfolio consists of Federal Agency CMOs and mortgage-backed securities. The portfolio is also comprised of asset-backed securities that were acquired as the result of balance sheet optimization strategies, including the indirect auto portfolio transaction in the third quarter of 2021. The remaining balance is comprised of foreign bonds. Figure 19 shows the composition, yields, and remaining maturities of these securities.

Figure 19. Held-to-Maturity Securities

[[GREPCENT_TABLE]]
[["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)"],["December 31, 2021"],["Remaining maturity:"],["One year or less","","","$","52","","$","\u2014","","$","17","","$","3","","$","4","","","$","76","","","2.67","%"],["After one through five years","","","1,533","","141","","1,463","","2,482","","12","","","5,631","","","2.27"],["After five through ten years","","","611","","23","","1,198","","\u2014","","\u2014","","","1,832","","","2.64"],["After ten years","","","\u2014","","\u2014","","\u2014","","\u2014","","\u2014","","","\u2014","","","\u2014"],["Amortized cost","","","$","2,196","","$","164","","$","2,678","","$","2,485","","$","16","","","$","7,539","","","2.37","%"],["Fair value","","","2,229","","170","","2,796","","2,454","","16","","","7,665","","","\u2014"],["Weighted-average yield(b)","","","2.10","%","2.50","%","2.82","%","2.10","%","2.62","%","","2.37","%","","\u2014"],["Weighted-average maturity","","","3.8 years","4.3 years","4.6 years","2.6 years","2.0 years","","3.7 years","","\u2014"],["December 31, 2020"],["Amortized cost","","","$","3,775","","$","271","","$","3,515","","19","","$","15","","","$","7,595","","","2.46","%"],["Fair value","","","3,899","","285","","3,805","","19","","15","","","8,023","","","\u2014"]]
[[/GREPCENT_TABLE]]

(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 in effect that calendar year.

Deposits and other sources of funds

Figure 20. Breakdown of Deposits at December 31, 2021

Deposits are our primary source of funding. At December 31, 2021, our deposits totaled $152.6 billion, an increase of $17.3 billion, compared to December 31, 2020. The increase in deposits compared to the prior year was driven by growth from consumer and commercial relationships, including higher commercial escrow deposits, as well as growth from the retention of consumer stimulus payments and lower consumer spending.

Wholesale funds, consisting of short-term borrowings and long-term debt, totaled $12.8 billion at December 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 in 2021.

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Uninsured deposits totaled $77.6 billion and $63.9 billion at December 31, 2021 and December 31, 2020, respectively. Uninsured amounts are estimated based on the portion of account balances, including allocated interest payable amounts, in excess of FDIC insurance limits.

Figure 21 shows the maturity distribution of uninsured time deposits.

Figure 21. Maturity Distribution of Uninsured Time Deposit Amounts

[[GREPCENT_TABLE]]
[["December 31, 2021","Total"],["Dollars in millions"],["Remaining maturity:"],["Three months or less","$","96"],["After three through six months","52"],["After six through twelve months","66"],["After twelve months","35"],["Total","$","249"]]
[[/GREPCENT_TABLE]]

Capital

The objective of management of capital is to maintain capital levels consistent with our risk appetite and sufficient in size to operate within a wide range of operating environments. We have identified three primary uses of capital:

1.Investing in our businesses, supporting our clients, and loan growth;

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 24 (“Shareholders' Equity”).

(a)Common Share repurchases were suspended during the second quarter of 2020 in response to the COVID-19 pandemic and resumed in the first quarter of 2021.

Dividends

Consistent with our capital plans, the Board declared a quarterly dividend of $.185 per Common Share for the first three quarters of 2021 and $.195 for the fourth quarter of 2021. These quarterly dividend payments brought our annual dividend to $.75 per Common Share for 2021.

Common Shares outstanding

Our Common Shares are traded on the NYSE under the symbol KEY with 30,734 holders of record at December 31, 2021. Our book value per Common Share was $16.76 based on 928.9 million shares outstanding at December 31, 2021, compared to $16.53 based on 975.8 million shares outstanding at December 31, 2020. At December 31, 2021, our tangible book value per Common Share was $13.72, compared to $13.61 at December 31, 2020.

Figure 22 shows activities that caused the change in our outstanding Common Shares over the past two years.

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Figure 22. Changes in Common Shares Outstanding

[[GREPCENT_TABLE]]
[["","","2021 Quarters"],["In thousands","2021","Fourth","Third","Second","First","2020"],["Shares outstanding at beginning of period","975,773","","930,544","","960,276","","972,587","","975,773","","977,189"],["Open market repurchases, repurchases under an ASR program, and return of shares under employee compensation plans","(54,986)","","(2,482)","","(29,923)","","(13,304)","","(9,277)","","(8,974)"],["Shares issued under employee compensation plans (net of cancellations)","8,063","","788","","191","","993","","6,091","","7,558"],["Shares outstanding at end of period","928,850","","928,850","","930,544","","960,276","","972,587","","975,773"]]
[[/GREPCENT_TABLE]]

During 2021, Common Shares outstanding decreased by 46.9 million shares, primarily driven by the execution of an ASR program, but also due to Common Share repurchases under our 2020 and 2021 capital plans. For additional information on the ASR program including total repurchases under the program, see Note 24 (“Shareholders' Equity”).

At December 31, 2021, we had 327.9 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.

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 December 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 the “Supervision and regulation” section of Item 1 of this report. Our shareholders’ equity to assets ratio was 9.36% at December 31, 2021, compared to 10.56% at December 31, 2020. Our tangible common equity to tangible assets ratio was 6.95% at December 31, 2021, compared to 7.93% at December 31, 2020. The new minimum capital and leverage ratios under the Regulatory Capital Rules together with the estimated ratios of KeyCorp at December 31, 2021, calculated on a fully phased-in basis, are set forth under the heading “Basel III” in the “Supervision and Regulation” section in Item 1 of this report.

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Figure 23 represents the details of our regulatory capital positions at December 31, 2021, and December 31, 2020, under the Regulatory Capital Rules. Information regarding the regulatory capital ratios of KeyCorp’s banking subsidiaries is presented in Note 24 (“Shareholders' Equity”).

Figure 23. Capital Components and Risk-Weighted Assets

[[GREPCENT_TABLE]]
[["December 31, Dollars in millions","2021","2020"],["COMMON EQUITY TIER 1"],["Key shareholders\u2019 equity (GAAP)","$","17,423","","$","17,981"],["Less:","Preferred Stock (a)","1,856","","1,856"],["Add:","CECL phase-in (b)","237","","375"],["","Common Equity Tier 1 capital before adjustments and deductions","15,804","","16,500"],["Less:","Goodwill, net of deferred taxes","2,571","","2,560"],["","Intangible assets, net of deferred taxes","125","","151"],["","Deferred tax assets","1","","1"],["","Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes","(300)","","583"],["","Accumulated gains (losses) on cash flow hedges, net of deferred taxes","(14)","","460"],["","Amounts in AOCI attributed to pension and postretirement benefit costs, net of deferred taxes","(272)","","(306)"],["","Total Common Equity Tier 1 capital","13,693","","13,051"],["TIER 1 CAPITAL"],["Common Equity Tier 1","13,693","","13,051"],["Additional Tier 1 capital instruments and related surplus","1,856","","1,856"],["Less:","Deductions","\u2014","","\u2014"],["","Total Tier 1 capital","15,549","","14,907"],["TIER 2 CAPITAL"],["Tier 2 capital instruments and related surplus","1,540","","1,657"],["Allowance for losses on loans and liability for losses on lending-related commitments (c)","941","","1,412"],["Less:","Deductions","\u2014","","\u2014"],["","Total Tier 2 capital","2,481","","3,069"],["","Total risk-based capital","$","18,030","","$","17,976"],["RISK-WEIGHTED ASSETS"],["Risk-weighted assets on balance sheet","$","109,041","","$","103,604"],["Risk-weighted off-balance sheet exposure","33,853","","29,240"],["Market risk-equivalent assets","1,500","","1,354"],["","Gross risk-weighted assets","144,394","","134,198"],["Less:","Excess allowance for loan and lease losses","\u2014","","\u2014"],["","Net risk-weighted assets","$","144,394","","$","134,198"],["AVERAGE QUARTERLY TOTAL ASSETS","$","183,604","","$","166,771"],["CAPITAL RATIOS"],["Tier 1 risk-based capital","10.77","%","11.11","%"],["Total risk-based capital","12.49","","13.40"],["Leverage (d)","8.47","","8.94"],["Common Equity Tier 1","9.48","","9.73"]]
[[/GREPCENT_TABLE]]

(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 $28 million and $36 million of allowance classified as “discontinued assets” on the balance sheet at December 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.

Off-Balance Sheet Arrangements

Off-balance sheet arrangements

We are party to various types of off-balance sheet arrangements, which could lead to contingent liabilities or risks of loss that are not reflected on the balance sheet.

Variable interest entities

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 impact 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). Additional information regarding the nature of VIEs and our involvement with them is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Principles of Consolidation and Basis of Presentation” and in Note 13 (“Variable Interest Entities”).

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Commitments to extend credit or funding

Loan commitments provide for financing on predetermined terms as long as the client continues to meet specified criteria. These commitments generally carry variable rates of interest and have fixed expiration dates or other termination clauses. We typically charge a fee for our loan commitments. Since a commitment may expire without resulting in a loan or being fully utilized, the total amount of an outstanding commitment may significantly exceed any related cash outlay. Further information about our loan commitments at December 31, 2021, is presented in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Commitments to Extend Credit or Funding.”

Other off-balance sheet arrangements

Other off-balance sheet arrangements include financial instruments that do not meet the definition of a guarantee in accordance with the applicable accounting guidance, and other relationships, such as liquidity support provided to asset-backed commercial paper conduits, indemnification agreements and intercompany guarantees. Information about such arrangements is provided in Note 22 under the heading “Other Off-Balance Sheet Risk.”

Guarantees

We are a guarantor in various agreements with third parties. As guarantor, we may be contingently liable to make payments to the guaranteed party based on changes in a specified interest rate, foreign exchange rate or other variable (including the occurrence or nonoccurrence of a specified event). These variables, known as underlyings, may be related to an asset or liability, or another entity’s failure to perform under a contract. Additional information regarding these types of arrangements is presented in Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Guarantees.”

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 shown in the following chart, and we manage such risks across the entire enterprise to maintain safety and soundness and maximize profitability. Certain of these risks are defined and discussed in greater detail in the remainder of this section.

Federal banking regulators continue to emphasize with financial institutions the importance of relating capital management strategy to the level of risk at each institution. We believe our internal risk management processes help us achieve and maintain capital levels that are commensurate with our business activities and risks, and

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conform to regulatory expectations. The table below depicts our risk management hierarchy and associated responsibilities and activities of each group.

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[[GREPCENT_TABLE]]
[["Group","Overview and Responsibilities","Activities"],["Board of Directors","\u2013Oversight capacity\u2013Ensure Key\u2019s risks are managed in a manner that is not only effective and balanced, but also has a fiduciary duty to the shareholders","\u2013Understands Key's risk philosophy\u2013Approves the risk appetite\u2013Inquires about risk practices\u2013Reviews the portfolio of risks\u2013Compares the actual risks to the risk appetite\u2013Is apprised of significant risks, both actual and emerging, and determines whether management is responding appropriately\u2013Challenges management and ensures accountability"],["Board of Directors Audit Committee (a)","\u2013Oversight of financial statement integrity, regulatory and legal requirements, independent auditors\u2019 qualifications and independence, and the performance of the internal audit function and independent auditors\u2013Financial reporting, legal matters, and fraud risk","\u2013Meets with management and approves significant policies relating to the risk areas overseen by the Audit Committee\u2013Receives reports on enterprise risk\u2013Meets bi-monthly\u2013Convenes to discuss the content of our financial disclosures and quarterly earnings releases"],["Board of Directors Risk Committee (a)","\u2013Assist the Board in oversight of strategies, policies, procedures, and practices relating to the assessment and management of enterprise-wide risk, including credit, market, liquidity, model, operational, compliance, reputation, and strategic risks\u2013Assist the Board in overseeing risks related to capital adequacy, capital planning, and capital actions","\u2013Reviews and provides oversight of management\u2019s activities related to the enterprise-wide risk management framework, which includes an annual review of the ERM Policy, including the Risk Appetite Statement, and management and ERM reports\u2013Approves any material changes to the charter of the ERM Committee and significant policies relating to risk management, including corporate risk tolerances for major risk categories"],["ERM Committee","\u2013Chaired by the Chief Executive Officer and comprising other senior level executives\u2013Manage risk and ensure that the corporate risk profile is managed in a manner consistent with our risk appetite\u2013Oversees the ERM Program, which encompasses our risk philosophy, policy, framework, and governance structure for the management of risks across the entire company","\u2013Approves and manages the risk-adjusted capital framework we use to manage risks"],["Disclosure Committee","\u2013Includes representatives from each of the Three Lines of Defense\u2013Meets quarterly to review recent internal and external events to determine whether all appropriate disclosures have been made in reports filed with the SEC","\u2013Convenes quarterly to discuss the content of our 10-Q and 10-K"],["Tier 2 Risk Governance Committees","\u2013Include attendees from each of the Three Lines of Defense\u2013The First Line of Defense is the line of business primarily responsible to accept, own, proactively identify, monitor, and manage risk\u2013The Second Line of Defense comprises Risk Management representatives who provide independent, centralized oversight over all risk categories by aggregating, analyzing, and reporting risk information\u2013Risk Review, our internal audit function, provides the Third Line of Defense. Its role is to provide independent assessment and testing of the effectiveness of, appropriateness of, and adherence to KeyCorp\u2019s risk management policies, practices, and controls","\u2013Supports the ERM Committee by identifying early warning events and trends, escalating emerging risks, and discussing forward-looking assessments"],["Chief Risk Officer","\u2013Ensure that relevant risk information is properly integrated into strategic and business decisions\u2013Ensure appropriate ownership of risks","\u2013Provides input into performance and compensation decisions\u2013Assesses aggregate enterprise risk\u2013Monitors capabilities to manage critical risks\u2013Executes appropriate Board and stakeholder reporting"]]
[[/GREPCENT_TABLE]]

–The Audit and Risk Committees meet jointly, as appropriate, to discuss matters that relate to each committee’s responsibilities. Committee chairpersons routinely meet with management during interim months to plan agendas for upcoming meetings and to discuss emerging trends and events that have transpired since the preceding meeting. All members of the Board receive formal reports designed to keep them abreast of significant developments during the interim months.

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” and Note 6 (“Fair Value Measurements”) in this report.

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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 exposures. At December 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.

Management of trading market risks. 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.

The MRM, as the second line of defense, is an independent risk management function that partners with the lines of business to identify, measure, and monitor market risks throughout our company. The MRM is responsible for ensuring transparency of significant market risks, monitoring compliance with established limits, and escalating limit exceptions to appropriate senior management. The various business units and trading desks are responsible for ensuring that market risk exposures are well-managed and prudent. Market risk is monitored through various measures, such as VaR, and through routine stress testing, sensitivity, and scenario analyses. The MRM conducts stress tests for each position using historical worst case and standard shock scenarios. VaR, stressed VaR, and other analyses are prepared daily and distributed to appropriate management.

Covered positions. We monitor the market risk of our covered positions as defined in the Market Risk Rule, which includes all of our trading positions as well as all foreign exchange and commodity positions, regardless of whether the position is in a trading account. Key’s covered positions may also include mortgage-backed and asset-backed securities that may be identified as securitization positions or re-securitization positions under the Market Risk Rule. The MRM as well as the LOB that trades securitization positions monitor the positions, the portfolio composition and the risks identified in this section on a daily basis consistent with the Market Risk policies and procedures. At December 31, 2021, covered positions did not include any re-securitization positions. Instruments that are used to hedge nontrading activities, such as bank-issued debt and loan portfolios, equity positions that are not actively traded, and securities financing activities, do not meet the definition of a covered position. The MRM is responsible for identifying our portfolios as either covered or non-covered. The Covered Position Working Group develops the final list of covered positions, and a summary is provided to the Market Risk Committee.

Our significant portfolios of covered positions are detailed below. We analyze market risk by portfolios of covered positions and do not separately measure and monitor our portfolios by risk type. The descriptions below incorporate the respective risk types associated with each of these portfolios.

•Fixed income includes those instruments associated with our capital markets business and the trading of securities as a dealer. These instruments may include positions in municipal bonds, bonds backed by the U.S. government, agency and corporate bonds, certain mortgage-backed and asset-backed securities, securities issued by the U.S. Treasury, money markets, and certain CMOs. The activities and instruments within the fixed income portfolio create exposures to interest rate and credit spread risks.

•Interest rate derivatives include interest rate swaps, caps, and floors, which are transacted primarily to accommodate the needs of commercial loan clients. In addition, we enter into interest rate derivatives to offset or mitigate the interest rate risk related to the client positions. The activities within this portfolio create exposures to interest rate risk.

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.

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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. 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 cancellable 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.

The VaR model is an effective tool in estimating ranges of possible gains and losses on our positions. However, there are limitations inherent in the VaR model since it uses historical results over a given time interval to estimate future performance. Historical results may not be indicative of future results, and changes in the market or composition of our portfolios could have a significant impact on the accuracy of the VaR model. We regularly review and enhance the modeling techniques, inputs, and assumptions used. Our market risk policy includes the independent validation of our VaR model by Key’s internal model validation group on an annual basis. The Model Risk Committee oversees the Model Validation Program, and results of validations are discussed with the ERM Committee.

Actual losses for the total covered positions did not exceed aggregate daily VaR on any day during the quarters ended December 31, 2021, and December 31, 2020. The MRM back tests 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 back testing are provided to the Market Risk Committee. Back testing 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 $1.0 million at December 31, 2021, and $2.8 million at December 31, 2020. Figure 24 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 December 31, 2021, and December 31, 2020.

Figure 24. VaR for Significant Portfolios of Covered Positions

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","Three months ended December 31,","","","Three months ended December 31,"],["Dollars in millions","High","Low","Mean","December 31,","","High","Low","Mean","December 31,"],["Trading account assets:"],["Fixed income","$","1.5","","$",".8","","$","1.2","","$",".9","","","$","2.9","","$","1.4","","$","2.1","","$","2.1"],["Derivatives:"],["Interest rate","$",".2","","$",".1","","$",".1","","$",".1","","","$","1.0","","$",".2","","$",".5","","$",".5"]]
[[/GREPCENT_TABLE]]

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 $4.3 million at December 31, 2021, and $2.8 million at December 31, 2020. Figure 25 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 December 31, 2021, and December 31, 2020.

Figure 25. Stressed VaR for Significant Portfolios of Covered Positions

[[GREPCENT_TABLE]]
[["","2021","","2020"],["","Three months ended December 31,","","","Three months ended December 31,"],["Dollars in millions","High","Low","Mean","December 31,","","High","Low","Mean","December 31,"],["Trading account assets:"],["Fixed income","$","6.5","","$","3.4","","$","5.4","","$","3.6","","","$","2.9","","$","1.4","","$","2.1","","$","2.1"],["Derivatives:"],["Interest rate","$",".6","","$",".3","","$",".3","","$",".5","","","$",".9","","$",".2","","$",".5","","$",".5"]]
[[/GREPCENT_TABLE]]

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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 $18 million at December 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.

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 non-parallel 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 this report, LIBOR in its current form will generally not be available after 2021 for new contracts and the LIBOR Administrator will cease publishing all U.S. LIBOR 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

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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 LIBOR-based business in response to evolving regulatory and market conditions;

•Assess financial impact and risk while planning and executing mitigation actions;

•Understand and strategically address the market approach to LIBOR leading up to December 31, 2021, and then post December 31, 2021 relative to transition to alternative reference rates;

•Determine and execute system and process work to be operationally ready for additional credit sensitive benchmarks; and

•Remediate remaining LIBOR contracts.

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 operationally ready for various SOFR-based benchmarks, including but not limited to, Daily Simple SOFR in Arrears, SOFR Compounded in Arrears, SOFR Averages in Advance, and Term SOFR. We are actively quoting alternative indexes other than LIBOR, such as SOFR and Term SOFR, and have begun to originate new loans in those indexes. We have also begun to originate a small number of new loans using credit sensitive rates in a limited and managed fashion.

We have compiled an inventory of existing legal contracts that are impacted by the LIBOR transition. We have assessed the LIBOR fallback language in those contracts and are devising a strategy to address the LIBOR transition for those contracts. Our progress is well-paced, especially as many of the legacy contracts will be provided additional 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 completed our work to address contracts with LIBOR tenors that had to 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.

As of December 31, 2021, Key had the following loans, derivative contracts, and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR:

Figure 26. Amounts Directly or Indirectly Dependent upon LIBOR

[[GREPCENT_TABLE]]
[["Dollars in millions","Maturity through June 30, 2023","Maturity past June 30, 2023","Total Exposures"],["Outstanding balance of loans","$","12,830","","$","29,896","","$","42,726"],["Notional value of derivative contracts","28,927","","73,701","","102,628"],["Investment securities","\u2014","","691","691"],["Debt and equity instruments","400","","1,276","","1,676"]]
[[/GREPCENT_TABLE]]

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 over the next 12 months (subject to a floor on market interest rates at zero).

Figure 27 presents the results of the simulation analysis at December 31, 2021, and December 31, 2020. At December 31, 2021, our simulated impact to changes in interest rates was modest. Exposure to declining rates

remains nominal given the low level of market rates in comparison to the floor utilized in the scenario. Exposure to

rising rates has was relatively stable, while exposure to declining rates increased due to higher market rates, leaving room for term rates to fall. 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

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net interest income over the same period by more than 5.5%. Current modeled exposure is within Board approved tolerances.

Figure 27. Simulated Change in Net Interest Income

[[GREPCENT_TABLE]]
[["","December 31, 2021","","December 31, 2020"],["Basis point change assumption (short-term rates)","-200","","+200","","-200","","+200"],["Assumed floor in market rates (in basis points)","\u2014","","N/A","","\u2014","","N/A"],["Tolerance level","-5.50","%","-5.50","%","-5.50","%","-5.50","%"],["Interest rate risk assessment","-3.86","%","5.15","%","-2.52","%","4.98","%"]]
[[/GREPCENT_TABLE]]

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 27. 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 130 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 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 December 31, 2021.

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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 28 shows all derivative positions that we hold for A/LM purposes. The swap 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 8 (“Derivatives and Hedging Activities”).

Figure 28. Portfolio Swaps and Options by Interest Rate Risk Management Strategy

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["","","","","Weighted-Average","","December 31, 2020"],["Dollars in millions","Notional Amount","Fair Value","","Maturity (Years)","Receive Rate","Pay Rate","","Notional Amount","Fair Value"],["Receive fixed/pay variable \u2014 conventional A/LM (a)","$","23,950","","$","9","","","2.4","1.2","%","0.1","%","","$","21,035","","$","632"],["Receive fixed/pay variable \u2014 conventional debt","7,432","","137","","","3.3","1.6","","0.1","","","7,787","","415"],["Receive fixed/pay variable \u2014 forward A/LM","850","","(1)","","","2.6","0.8","","0.1","","","\u2014","","\u2014"],["Pay fixed/receive variable \u2014 conventional debt","50","","(7)","","","6.5","0.1","","3.6","","","50","","(11)"],["Pay fixed/receive variable \u2014 forward securities","6,280","","135","","","8.9","1.2","","1.1","","","2,080","","21"],["Total portfolio swaps","$","38,562","","$","273","","(c)","3.6","1.3","","0.3","","","$","30,952","","$","1,057","","(c)"],["Floors \u2014 conventional A/LM \u2014 purchased (b)","$","\u2014","","$","\u2014","","","\u2014","\u2014","","\u2014","","","$","5,000","","17"],["Floors \u2014 conventional A/LM \u2014 sold (b)","\u2014","","\u2014","","","\u2014","\u2014","","\u2014","","","\u2014","","\u2014"],["Total floors","$","\u2014","","$","\u2014","","","\u2014","\u2014","","\u2014","","","$","5,000","","17"]]
[[/GREPCENT_TABLE]]

(a)Portfolio swaps designated as A/LM are used to manage interest rate risk tied to both assets and liabilities.

(b)Conventional 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 $108 million and $145 million at December 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.

Governance structure

We manage liquidity for all of our affiliates on an integrated basis. This approach considers the unique funding sources available to each entity, as well as each entity’s capacity to manage through adverse conditions. The approach also recognizes that adverse market conditions or other events that could negatively affect the availability or cost of liquidity will affect the access of all affiliates to sufficient wholesale funding.

The management of consolidated liquidity risk is centralized within Corporate Treasury. Oversight and governance is provided by the Board, the ERM Committee, the ALCO, and the Chief Risk Officer. The Asset Liability Management Policy provides the framework for the oversight and management of liquidity risk and is administered by the ALCO. The Corporate Treasury Oversight group within the MRM, as the second line of defense, provides additional oversight. Our current liquidity risk management practices are in compliance with the Federal Reserve Board’s Enhanced Prudential Standards.

These committees regularly review liquidity and funding summaries, liquidity trends, peer comparisons, variance analyses, liquidity projections, hypothetical funding erosion stress tests, and goal tracking reports. The reviews generate a discussion of positions, trends, and directives on liquidity risk and shape a number of our decisions. When liquidity pressure is elevated, positions are monitored more closely and reporting is more intensive. To ensure that emerging issues are identified, we also communicate with individuals inside and outside of the company on a daily basis.

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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.

Our credit ratings at December 31, 2021, are shown in Figure 29. We believe these credit ratings, under normal conditions in the capital markets, will enable KeyCorp or KeyBank to issue fixed income securities to investors.

Figure 29. Credit Ratings

[[GREPCENT_TABLE]]
[["December 31, 2021","Short-Term Borrowings","Long-Term Deposits(a)","Senior Long-Term Debt","Subordinated Long-Term Debt","Capital Securities","Preferred Stock"],["KEYCORP (THE PARENT COMPANY)"],["Standard & Poor\u2019s","A-2","N/A","BBB+","BBB","BB+","BB+"],["Moody\u2019s","P-2","N/A","Baa1","Baa1","Baa2","Baa3"],["Fitch","F1","N/A","A-","BBB+","BB+","BB+"],["DBRS","R-1 (low)","N/A","A","A (low)","A (low)","BBB"],["KEYBANK"],["Standard & Poor\u2019s","A-2","N/A","A-","BBB+","N/A","N/A"],["Moody\u2019s","P-2","P-1/A1","A3","Baa1","N/A","N/A"],["Fitch","F1","F1/A","A-","BBB+","N/A","N/A"],["DBRS","R-1 (middle)","A (high)","A (high)","A","N/A","N/A"]]
[[/GREPCENT_TABLE]]

(a)P-1 rating assigned by Moody’s is specific to KeyBank’s short-term bank deposit ratings. F1 assigned by Fitch Ratings, Inc. is specific to KeyBank’s short-term deposit ratings.

Managing liquidity risk

Most of our liquidity risk is derived from our business model, which involves taking in deposits, many of which can be withdrawn at anytime, and lending them out in the form of illiquid loan assets. The assessments of liquidity risk are measured under the assumption of normal operating conditions as well as under a stressed environment. We manage these exposures in accordance with our risk appetite, and within Board-approved policy limits.

We regularly monitor our liquidity position and funding sources and measure our capacity to obtain funds in a variety of hypothetical scenarios in an effort to maintain an appropriate mix of available and affordable funding. In the normal course of business, we perform a monthly hypothetical funding erosion stress test for both KeyCorp and KeyBank. In a “heightened monitoring mode,” we may conduct the hypothetical funding erosion stress tests more frequently, and use assumptions to reflect the changed market environment. Our testing incorporates estimates for loan and deposit lives based on our historical studies. Erosion stress tests analyze potential liquidity scenarios under various funding constraints and time periods. Ultimately, they determine the periodic effects that major direct and indirect events would have on our access to funding markets and our ability to fund our normal operations. To compensate for the effect of these assumed liquidity pressures, we consider alternative sources of liquidity and maturities over different time periods to project how funding needs would be managed.

We maintain a Contingency Funding Plan that outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and responsibilities for managing liquidity through a problem period. As part of the plan, we maintain on-balance sheet liquid reserves referred to as our liquid asset portfolio, which consists of high quality liquid assets. During a problem period, that reserve could be used as a source of funding to provide time to develop and execute a longer-term strategy. The liquid asset portfolio at December 31, 2021, totaled $46.2 billion, consisting of $35.9 billion of unpledged securities, $21 million of securities available for secured funding at the FHLB, and $10.2 billion of net balances of federal funds sold and balances in our Federal Reserve account. The liquid asset portfolio can fluctuate due to excess liquidity, heightened risk, changes in market value, or prefunding of expected outflows, such as debt maturities. Additionally, as of December 31, 2021, our unused borrowing capacity secured by loan collateral was $23.9 billion at the Federal Reserve Bank of Cleveland and $12.8 billion at the FHLB of Cincinnati. In 2021, Key’s outstanding FHLB of Cincinnati advances decreased by $3.3 million due to a decrease in borrowings.

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Long-term liquidity strategy

Our long-term liquidity strategy is to be predominantly funded by core deposits. However, we may use wholesale funds to sustain an adequate liquid asset portfolio, meet daily cash demands, and allow management flexibility to execute business initiatives. Key’s client-based relationship strategy provides for a strong core deposit base that, in conjunction with intermediate and long-term wholesale funds managed to a diversified maturity structure and investor base, supports our liquidity risk management strategy. We use the loan-to-deposit ratio as a metric to monitor these strategies. Our target loan-to-deposit ratio is 90-100% (at December 31, 2021, our loan-to-deposit ratio was 68.9%), which we calculate as the sum of total loans, loans held for sale, and nonsecuritized discontinued loans divided by deposits.

Sources of liquidity

Our primary sources of liquidity include customer deposits, wholesale funding, and liquid assets. 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 programs

We have several liquidity programs, which are described in Note 20 (“Long-Term Debt”), that are designed to enable KeyCorp and KeyBank to raise funds in the public and private debt markets. The proceeds from most of these programs can be used for general corporate purposes, including acquisitions. These liquidity programs are reviewed from time to time by the Board and are renewed and replaced as necessary. There are no restrictive financial covenants in any of these programs.

On June 16, 2021, KeyBank issued $800 million Fixed-to-Floating Rate Senior Bank Notes due June 14, 2024, and $400 million Floating Rate Senior Bank Notes due June 14, 2024.

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.

We use a parent cash coverage months metric as the primary measure to assess parent company liquidity. The parent cash coverage months metric measures the number of months into the future where projected obligations can be met with the current quantity of liquidity. We generally issue term debt to supplement dividends from KeyBank to manage our liquidity position at or above our targeted levels. The parent company generally maintains cash and short-term investments in an amount sufficient to meet projected debt maturities over at least the next 24 months. At December 31, 2021, KeyCorp held $2.3 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. Federal banking law limits the amount of capital distributions that a bank can make to its holding company without prior regulatory approval. A national bank’s dividend-paying capacity is affected by several factors, including net profits (as defined by statute) for the two previous calendar years and for the current year, up to the date of dividend declaration. During 2021, KeyBank paid $1.9 billion in cash dividends to KeyCorp. At January 1, 2022, KeyBank had regulatory capacity to pay $844 million in dividends to KeyCorp without prior regulatory approval.

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Our liquidity position and recent activity

Over the past 12 months, 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 the elevated level of deposits. 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 of this report. 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 years ended December 31, 2021, and December 31, 2020.

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.

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 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan and Lease Losses.” 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. 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, will be used to estimate the appropriate level of the ALLL. For more information, see Note 5 (“Asset Quality”).

As shown in Figure 30, our ALLL from continuing operations decreased by $565 million, or 34.7%, from December 31, 2020. The commercial ALLL decreased by $411 million, or 37.4%, from December 31, 2020, driven by improvements in the economic outlook as pressures from the global COVID-19 pandemic eased and asset quality improved. The consumer ALLL decreased $154 million, or 29.2%, from December 31, 2020, driven by an improved economic outlook partially offset by growth in the portfolio.

Figure 30. Allocation of the Allowance for Loan and Lease Losses

[[GREPCENT_TABLE]]
[["","2021","","2020"],["December 31,Dollars in millions","TotalAllowance","Percent ofAllowanceto TotalAllowance","Percent ofLoan Typeto TotalLoans","","TotalAllowance","Percent ofAllowanceto TotalAllowance","Percent ofLoan Typeto TotalLoans"],["Commercial and industrial","$","445","","41.9","%","49.6","%","","$","678","","41.7","%","52.3","%"],["Commercial real estate:"],["Commercial mortgage","182","","17.2","","13.9","","","327","","20.1","","12.5"],["Construction","29","","2.7","","2.0","","","47","","2.9","","2.0"],["Total commercial real estate loans","211","","19.9","","15.9","","","374","","23.0","","14.5"],["Commercial lease financing","32","","3.0","","4.0","","","47","","2.9","","4.3"],["Total commercial loans","688","","64.8","","69.5","","","1,099","","67.6","","71.1"],["Real estate \u2014 residential mortgage","95","","9.0","","15.5","","","102","","6.3","","9.2"],["Home equity loans","110","","10.4","","8.3","","","171","","10.5","","9.2"],["Consumer direct loans","105","","9.9","","5.6","","","128","","5.3","","4.7"],["Credit cards","61","","5.7","","1.0","","","87","","7.9","","1.0"],["Consumer indirect loans","2","",".2","",".1","","","39","","2.4","","4.8"],["Total consumer loans","373","","35.2","","30.5","","","527","","32.4","","28.9"],["Total loans (a)","$","1,061","","100.0","%","100.0","%","","$","1,626","","100.0","%","100.0","%"]]
[[/GREPCENT_TABLE]]

(a)Excludes allocations of the ALLL related to the discontinued operations of the education lending business in the amount of $28 million at December 31, 2021, and $36 million at December 31, 2020,

Net loan charge-offs

Figure 31 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 33. Figure 32 shows the ratio of net charge-offs by loan category as a percentage of the respective average loan balance.

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Over the past 12 months, net loan charge-offs decreased $259 million. In 2022, we expect net loan charge-offs to average loans to be in the range of 20 to 30 basis points.

Figure 31. Net Loan Charge-offs from Continuing Operations

[[GREPCENT_TABLE]]
[["Year ended December 31,"],["Dollars in millions","2021","2020"],["Commercial and industrial","$","91","","$","317"],["Real estate \u2014 commercial mortgage","31","","16"],["Real estate \u2014 construction","\u2014","","\u2014"],["Commercial lease financing(a)","(1)","","34"],["Total commercial loans","121","","367"],["Real estate \u2014 residential mortgage(a)","(5)","","1"],["Home equity loans","4","","4"],["Consumer direct loans","21","","30"],["Credit cards","19","","31"],["Consumer indirect loans","24","","10"],["Total consumer loans","63","","76"],["Total net loan charge-offs","$","184","","$","443"],["Net loan charge-offs to average loans",".18","%",".43","%"],["Net loan charge-offs from discontinued operations \u2014 education lending business","$","2","","$","\u2014"]]
[[/GREPCENT_TABLE]]

(a)Credit amounts indicate that recoveries exceeded charge-offs.

Figure 32. Net Loan Charge-offs to Average Loans from Continuing Operations

[[GREPCENT_TABLE]]
[["Year ended December 31,"],["","2021","2020"],["Commercial and industrial","0.18","%","0.57","%"],["Real estate \u2014 commercial mortgage","0.24","","0.12"],["Real estate \u2014 construction","\u2014","","\u2014"],["Commercial lease financing(a)","(0.02)","","0.76"],["Total commercial loans","0.17","","0.49"],["Real estate \u2014 residential mortgage(a)","(0.04)","","0.01"],["Home equity loans","0.04","","0.04"],["Consumer direct loans","0.41","","0.71"],["Credit cards","2.05","","3.10"],["Consumer indirect loans","0.85","","0.21"],["Total consumer loans","0.21","","0.27"],["Total net loan charge-offs","0.18","%","0.43","%"]]
[[/GREPCENT_TABLE]]

(a)Credit amounts indicate that recoveries exceeded charge-offs.

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Figure 33. Summary of Loan and Lease Loss Experience from Continuing Operations

[[GREPCENT_TABLE]]
[["Year ended December 31,Dollars in millions","2021","2020"],["Average loans outstanding","$","100,269","","$","102,689"],["Allowance for loan and lease looses at the end of the prior period","$","1,626","","$","900"],["Cumulative effect from change in accounting principle (a)","\u2014","","204"],["Allowance for loan and lease losses at beginning of period","1,626","","1,104"],["Loans charged off:"],["Commercial and industrial","174","","351"],["Real estate \u2014 commercial mortgage","40","","19"],["Real estate \u2014 construction","\u2014","","\u2014"],["Total commercial real estate loans (c)","40","","19"],["Commercial lease financing","6","","35"],["Total commercial loans (d)","220","","405"],["Real estate \u2014 residential mortgage","(2)","","2"],["Home equity loans","9","","11"],["Consumer direct loans","29","","37"],["Credit cards","27","","39"],["Consumer indirect loans","39","","28"],["Total consumer loans","102","","117"],["Total loans charged off","322","","522"],["Recoveries:"],["Commercial and industrial","83","","34"],["Real estate \u2014 commercial mortgage","9","","3"],["Real estate \u2014 construction","\u2014","","\u2014"],["Total commercial real estate loans (c)","9","","3"],["Commercial lease financing","7","","1"],["Total commercial loans (d)","99","","38"],["Real estate \u2014 residential mortgage","3","","1"],["Home equity loans","5","","7"],["Consumer direct loans","8","","7"],["Credit cards","8","","8"],["Consumer indirect loans","15","","18"],["Total consumer loans","39","","41"],["Total recoveries","138","","79"],["Net loan charge-offs","(184)","","(443)"],["Provision (credit) for loan and lease losses","(381)","","965"],["Foreign currency translation adjustment","\u2014","","\u2014"],["Allowance for loan and lease losses at end of year","$","1,061","","$","1,626"],["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","\u2014","","7"],["Cumulative effect from change in accounting principle (a)(b)","\u2014","","66"],["Liability for credit losses on lending-related commitments at beginning of the year","197","","141"],["Provision (credit) for losses on lending-related commitments","(37)","","56"],["Liability for credit losses on lending-related commitments at end of the year (e)","$","160","","$","197"],["Total allowance for credit losses at end of the year","$","1,221","","$","1,823"],["Net loan charge-offs to average total loans",".18","%",".43","%"],["Allowance for loan and lease losses to period-end loans","1.04","","1.61"],["Allowance for credit losses to period-end loans","1.20","","1.80"],["Allowance for loan and lease losses to nonperforming loans","233.7","","207.1"],["Allowance for credit losses to nonperforming loans","268.9","","232.2"],["Discontinued operations \u2014 education lending business:"],["Loans charged off","$","4","","$","5"],["Recoveries","2","","5"],["Net loan charge-offs","$","(2)","","$","\u2014"]]
[[/GREPCENT_TABLE]]

(a)The cumulative effect from change in accounting principle relates to the January 1, 2020, adoption of ASC 2016-13.

(b)Excludes $4 million related to the provision for other financial assets.

(c)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.

(d)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.

(e)Included in “accrued expense and other liabilities” on the balance sheet.

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Nonperforming assets

Figure 34 shows the composition of our nonperforming assets. As shown in Figure 34, nonperforming assets decreased $448 million during 2021. Along with the activity as shown in Figure 35, the decrease was also partly driven by the sale of a single large property from OREO. See Note 1 (“Summary of Significant Accounting Policies”) under the headings “Nonperforming Loans,” “Impaired Loans,” and “Allowance for Loan and Lease Losses” for a summary of our nonaccrual and charge-off policies.

Figure 34. Summary of Nonperforming Assets and Past Due Loans from Continuing Operations

[[GREPCENT_TABLE]]
[["December 31,"],["Dollars in millions","2021","2020"],["Commercial and industrial","$","191","","$","385"],["Real estate \u2014 commercial mortgage","44","","104"],["Real estate \u2014 construction","\u2014","","\u2014"],["Total commercial real estate loans (a)","44","","104"],["Commercial lease financing","4","","8"],["Total commercial loans (b)","239","","497"],["Real estate \u2014 residential mortgage","72","","110"],["Home equity loans","135","","154"],["Consumer direct loans","4","","5"],["Credit cards","3","","2"],["Consumer indirect loans","1","","17"],["Total consumer loans","215","","288"],["Total nonperforming loans","454","","785"],["Nonperforming loans held for sale","24","","49"],["OREO","8","","100"],["Other nonperforming assets","3","","3"],["Total nonperforming assets","$","489","","$","937"],["Accruing loans past due 90 days or more","$","68","","$","86"],["Accruing loans past due 30 through 89 days","165","","241"],["Restructured loans \u2014 accruing and nonaccruing (c)","220","","363"],["Restructured loans included in nonperforming loans (c)","99","","229"],["Nonperforming assets from discontinued operations \u2014 education lending business","4","","5"],["Nonperforming loans to period-end portfolio loans",".45","%",".78","%"],["Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (c)",".48","",".92"]]
[[/GREPCENT_TABLE]]

(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. See Note 5 (“Asset Quality“) for more information on our TDRs.

Figure 35 shows the types of activity that caused the change in our nonperforming loans during each of the last four quarters and the years ended December 31, 2021, and December 31, 2020.

Figure 35. Summary of Changes in Nonperforming Loans from Continuing Operations

[[GREPCENT_TABLE]]
[["","","2021 Quarters"],["Dollars in millions","2021","Fourth","Third","Second","First","2020"],["Balance at beginning of period","$","785","","$","554","","$","694","","$","728","","$","785","","$","577"],["Loans placed on nonaccrual status","614","","116","","116","","186","","196","","1,199"],["Charge-offs","(326)","","(51)","","(66)","","(74)","","(135)","","(521)"],["Loans sold","(78)","","(38)","","(17)","","(10)","","(13)","","(24)"],["Payments","(333)","","(68)","","(136)","","(92)","","(37)","","(226)"],["Transfers to OREO","(5)","","(1)","","(1)","","\u2014","","(3)","","(6)"],["Loans returned to accrual status","(203)","","(58)","","(36)","","(44)","","(65)","","(214)"],["Balance at end of period","$","454","","$","454","","$","554","","$","694","","$","728","","$","785"]]
[[/GREPCENT_TABLE]]

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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 intersects with 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. While operational and compliance risk are separate risk disciplines in KeyCorp’s ERM framework, losses and/or additional regulatory compliance costs are included in operational loss reporting and 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 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. 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 their customers. Recently, there have also been numerous highly publicized cases where hackers requested ransom payments in exchange for not disclosing customer information or to restore company access to locked systems. We may incur expenses related to the

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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 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 of cyberattacks. See the risk factor entitled “Our information systems may experience an interruption or breach in security” in Part 1, Item 1A. Risk Factors for additional information on risks related to information security.

As described in more detail in “Risk Management — Overview” in Item 7 of this report, 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. Board members are updated on cybersecurity matters at each regularly-scheduled Board meeting. 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.

[[GREPCENT_TABLE]]
[["Year ended December 31,"],["Dollars in millions","2021","2020","2019"],["Tangible common equity to tangible assets at period end"],["Key shareholders\u2019 equity (GAAP)","$","17,423","","$","17,981","","$","17,038"],["Less:","Intangible assets (a)","2,820","","2,848","","2,910"],["","Preferred Stock (b)","1,856","","1,856","","1,856"],["","Tangible common equity (non-GAAP)","$","12,747","","$","13,277","","$","12,272"],["Total assets (GAAP)","$","186,346","","$","170,336","","$","144,988"],["Less:","Intangible assets (a)","2,820","","2,848","","2,910"],["","Tangible assets (non-GAAP)","$","183,526","","$","167,488","","$","142,078"],["Tangible common equity to tangible assets ratio (non-GAAP)","6.95","%","7.93","%","8.64","%"],["Average tangible common equity"],["Average Key shareholders\u2019 equity (GAAP)","$","17,665","","$","17,636","","$","16,636"],["Less:","Intangible assets (average) (c)","2,829","","2,878","","2,909"],["","Preferred Stock (average)","1,900","","1,900","","1,755"],["","Average tangible common equity (non-GAAP)","$","12,936","","$","12,858","","$","11,972"],["Return on average tangible common equity from continuing operations"],["Income (loss) from continuing operations attributable to Key common shareholders (GAAP)","$","2,506","","$","1,223","","$","1,611"],["Average tangible common equity (non-GAAP)","$","12,936","","$","12,858","","$","11,972"],["Return on average tangible common equity from continuing operations (non-GAAP)","19.37","%","9.51","%","13.46","%"],["Return on average tangible common equity consolidated"],["Net income (loss) attributable to Key common shareholders (GAAP)","$","2,519","","$","1,237","","$","1,620"],["Average tangible common equity (non-GAAP)","12,936","","12,858","","11,972"],["Return on average tangible common equity consolidated (non-GAAP)","19.47","%","9.62","%","13.53","%"]]
[[/GREPCENT_TABLE]]

(a)For the years ended December 31, 2021, December 31, 2020, and December 31, 2019,, intangible assets exclude $3 million, $4 million, and $7 million, respectively, of period-end purchased credit card relationships.

(b)Net of capital surplus.

(c)For the years ended December 31, 2021, December 31, 2020, and December 31, 2019, average intangible assets exclude $4 million, $6 million, and $10 million, respectively, of average purchased credit card relationships.

The cash efficiency ratio is a ratio of two non-GAAP performance measures. Accordingly, there is no directly

comparable GAAP performance measure. The cash efficiency ratio excludes the impact of our intangible asset

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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.

[[GREPCENT_TABLE]]
[["Year ended December 31,"],["Dollars in millions","2021","2020","2019"],["Cash efficiency ratio"],["Noninterest expense (GAAP)","$","4,429","","$","4,109","","$","3,901"],["Less:","Intangible asset amortization (GAAP)","58","","65","","89"],["Adjusted noninterest expense (non-GAAP)","$","4,371","","$","4,044","","$","3,812"],["Net interest income (GAAP)","$","4,071","","$","4,034","","$","3,909"],["Plus:","TE adjustment","27","","29","","32"],["Noninterest income (GAAP)","3,194","","2,652","","2,459"],["Total TE revenue (non-GAAP)","$","7,292","","$","6,715","","$","6,400"],["Cash efficiency ratio (non-GAAP)","59.9","%","60.2","%","59.6","%"]]
[[/GREPCENT_TABLE]]

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”) should be reviewed for a greater understanding of how we record and report our financial performance.

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. The following is a description of our current critical accounting policies.

Allowance for loan and lease losses

The allowance for loan and lease losses represents management’s estimate of all expected credit losses over the expected contractual life of our existing loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. These critical estimates include significant use of our own historical data and complex methods to interpret them. We have an ongoing process to evaluate and enhance the quality, quantity, and timeliness of our data and interpretation methods used in the determination of these allowances. These evaluations are inherently subjective, as they require material estimates and may be susceptible to significant change, and include, among others:

•PD,

•LGD,

•Outstanding balance of the loan,

•Movement through delinquency stages,

•Amounts and timing of expected future cash flows,

•Value of collateral, which may be obtained from third parties,

•Economic forecasts which are obtained from a third party provider, and

•Qualitative factors, such as changes in current economic conditions, that may not be reflected in modeled results.

As described in our accounting policy related to the ALLL in Note 1 (“Basis of Presentation and Accounting Policies”) of this report under the heading “Allowance for Loan and Lease Losses," we employ a disciplined process and methodology to establish our ALLL, which has three main components: (i) asset specific / individual loan reserves; (ii) quantitative (formulaic or pooled) reserves; and (iii) qualitative (judgmental) reserves.

We use a non-DCF factor-based approach to estimate expected credit losses that include component PD/LGD/EAD models as well as less complex estimation methods for smaller loan portfolios. Probability of default models estimate the likelihood a borrower will cease making payments as agreed. These models use observed loan-level

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information and projected paths of macroeconomic variables. Borrower credit attributes including FICO scores of consumers and internally assigned risk ratings for commercial borrowers are significant inputs to the models. Consumer FICO scores are refreshed quarterly and commercial risk ratings are updated annually with select borrowers updated more frequently. The macroeconomic trends that have a significant impact on the probability of default vary by portfolio segment. Exposure at default models estimate the loan balance at the time the borrower stops making payments. We use an amortization based formulaic approach to estimate account level EAD for all

term loans. We use portfolio specific methods in each of our revolving product portfolios. LGD models estimate the loss we will suffer once a loan is in default. Account level inputs to LGD models include collateral attributes, such as loan to value.

If we observe limitations in the data or models, we use model overlays to make adjustments to model outputs to capture a particular risk or compensate for a known limitation. These variables and others may result in actual loan losses that differ from the originally estimated amounts.

This estimate produced by our models is forward-looking and requires management to use forecasts about future economic conditions to determine the expected credit loss over the remaining life of an instrument. Moody’s Consensus forecast is the source of macroeconomic projections, including the interest rate forecasts used in the credit models. We use a two year reasonable and supportable period across all products to forecast economic conditions. As the length of the life of a financial asset increases, these inputs may become impractical to estimate as reasonable and supportable. We believe the two year time horizon appropriately aligns with our business planning, available industry guidance, and reliability of various forecasting services. 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 four quarter reversion period is used where the macroeconomic variables linearly revert to their long run average following the two year reasonable and supportable period. We use a 20 year lookback period for determining long run historical average of the macroeconomic variables. We determined the 20 year lookback period is appropriate as it captures the previous two economic cycles as well as the impact from the pandemic.

The ALLL is sensitive to various macroeconomic drivers such as GDP and unemployment as well as portfolio attributes such as remaining term, outstanding balance, risk ratings, FICO, LTV, and delinquency status. 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.

It is difficult to estimate how potential changes in any one factor or input might affect the overall ALLL because we consider a wide variety of factors and inputs in estimating the ALLL. Changes in the factors and inputs considered may not occur at the same rate and may not be consistent across all geographies or product types, and changes in factors and input may be directionally inconsistent, such that improvement in one factor may offset deterioration in others. However, to consider the impact of a hypothetical alternate economic forecast, we compared the modeled quantitative allowance results using a downside economic scenario. The maximum difference in the quarterly macroeconomic variables between the base and downside scenarios over the two year reasonable and supportable period includes an approximate 8% decline in GDP annualized growth and an approximate 5% increase in the U.S. unemployment rate. The difference between these two scenarios would have driven an increase of approximately 1.8x for commercial and 1.5x for the consumer modeled allowance results.

Similarly, deteriorating conditions for portfolio factors were also considered by moderately stressing key portfolio drivers, relative to the baseline portfolio conditions. Stressing risk ratings by two grades for commercial loans generates a 1.6x increase in the commercial modeled allowance results. Stressing FICO by ten points, and LTV and utilization by 10% for consumer loans generates a 1.2x increase in the consumer modeled allowance results.

Note that these analyses demonstrate the sensitivity of the ALLL to key quantitative assumptions; however, they are not intended to estimate changes in the overall ALLL as they do not reflect qualitative factors related to idiosyncratic risk factors, changes in current economic conditions that may not be reflected in quantitatively derived results, and other relevant factors that must be considered to ensure the ALLL reflects our best estimate of current expected credit losses.

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Valuation methodologies

Fair value measurements

We measure or monitor many of our assets and liabilities on a fair value basis. Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) as opposed to the price that would be paid to acquire the asset or received to assume the liability (an entry price), in an orderly transaction between market participants at the measurement date under current market conditions. While management uses judgment when determining the price at which willing market participants would transact when there has been a significant decrease in the volume or level of activity for the asset or liability in relation to “normal” market activity, management’s objective is to determine the point within the range of fair value estimates that is most representative of a sale to a third-party investor under current market conditions. The value to us if the asset or liability were held to maturity is not included in the fair value estimates.

A fair value measure should reflect the assumptions that market participants would use in pricing the asset or liability, including the assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset and the risk of nonperformance. Fair value is measured based on a variety of inputs. Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market prices are not available, quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations). Where observable market data is not available, the valuation is generated from model based techniques that use significant assumptions not observable in the market, but observable based on our specific data (Level 3 valuations). Unobservable assumptions reflect our estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include option pricing models, discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

The selection and weighting of the various fair value techniques may result in a fair value higher or lower than carrying value. Considerable judgment may be involved in determining the amount that is most representative of fair value.

For assets and liabilities recorded at fair value, our policy is to maximize the use of observable inputs

and minimize the use of unobservable inputs when developing fair value measurements for those items where there

is an active market. In certain cases, when market observable inputs for model-based valuation techniques may not

be readily available, we are required to make judgments about assumptions market participants would use

in estimating the fair value of the financial instrument. The models used to determine fair value adjustments are

regularly evaluated by management for relevance under current facts and circumstances.

Changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. When market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value.

Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary measure of

accounting. Fair value is used on a nonrecurring basis to measure certain assets or liabilities (including held-to-maturity securities, commercial loans held for sale, and OREO) for impairment or for disclosure purposes in accordance with current accounting guidance.

Impairment analysis also relates to long-lived assets and core deposit and other intangible assets. An

impairment loss is recognized if the carrying amount of the asset is not likely to be recoverable and exceeds its fair

value. In determining the fair value, management uses models and applies the techniques and assumptions

previously discussed.

See Note 1 under the heading “Fair Value Measurements” and Note 6 (“Fair Value Measurements”) for a detailed discussion of determining fair value, including pricing validation processes.

Goodwill

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The valuation and testing methodologies used in our analysis of goodwill impairment are summarized in Note 1

under the heading “Goodwill and Other Intangible Assets.” Goodwill is initially recorded as the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is tested for impairment for all three of our reporting units: Consumer Bank, Commercial Bank and Institutional Bank. We perform our annual impairment test as of October 1st and on an interim basis if events or changes in circumstances between annual tests suggest additional testing is needed. Testing may be either quantitative or qualitative. Fair value is measured during quantitative tests using a combination of income and market approaches. If the fair value of a reporting unit declines below its carrying value, an impairment charge will be recognized for any amount by which the carrying value exceeds the reporting unit’s fair value, to the extent that the loss recognized does not exceed the amount of the goodwill allocated to that reporting unit. When utilizing the qualitative testing approach, Key examines numerous qualitative factors such as financial performance, market capitalization and other industry and economic trends to conclude whether it is more likely than not that goodwill is impaired.

We monitor impairment indicators for goodwill and other intangible assets and evaluate the carrying amount of these assets quarterly. Additional information is provided in Note 12 (“Goodwill and Other Intangible Assets”).

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Derivatives and hedging

We primarily use interest rate swaps to hedge interest rate risk for asset and liability management purposes. These derivative instruments modify the interest rate characteristics of specified on-balance sheet assets and liabilities. Our accounting policies related to derivatives reflect the current accounting guidance, which provides that all derivatives should be recognized as either assets or liabilities on the balance sheet at fair value, after taking into account the effects of master netting agreements. Accounting for changes in the fair value (i.e., gains or losses) of a particular derivative depends on whether the derivative has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship.

The application of hedge accounting requires significant judgment to interpret the relevant accounting guidance, as well as to assess hedge effectiveness, identify similar hedged item groupings, and measure changes in the fair value of the hedged items. We believe our methods of addressing these judgments and applying the accounting guidance are consistent with both the guidance and industry practices. Additional information relating to our use of derivatives is included in Note 1 under the heading “Derivatives and Hedging,” and Note 8 (“Derivatives and Hedging Activities”).

Contingent liabilities, guarantees and income taxes

Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) summarizes contingent liabilities arising from litigation and contingent liabilities arising from guarantees in various agreements with third parties under which we are a guarantor, and the potential effects of these items on the results of our operations. We record a liability for the fair value of the obligation to stand ready to perform over the term of a guarantee. Contingent aspects of guarantees within the scope of ASC 326 are assessed a reserve under CECL. There is a risk that our actual future payments in the event of a default by the guaranteed party could exceed the recorded amount. See Note 22 (“Commitments, Contingent Liabilities, and Guarantees”) for a comparison of the liability recorded and the maximum potential undiscounted future payments for the various types of guarantees that we had outstanding at December 31, 2021.

It is not always clear how the Internal Revenue Code and various state tax laws apply to transactions that we undertake. In the normal course of business, we may record tax benefits and then have those benefits contested by the IRS or state tax authorities. We have provided tax reserves that we believe are adequate to absorb potential adjustments that such challenges may necessitate. However, if our judgment later proves to be inaccurate, the tax reserves may need to be adjusted, which could have an adverse effect on our results of operations and capital.

Additionally, we conduct quarterly assessments that determine the amount of deferred tax assets that are more-likely-than-not to be realized, and therefore recorded. The available evidence used in connection with these assessments includes a history of pretax income, projected future taxable income, potential tax-planning strategies, and projected future reversals of deferred tax liabilities. These assessments are subjective and may change. Based on these criteria, and all available positive and negative evidence, we establish a valuation allowance for deferred tax assets when we are unable to conclude it is more likely than not that they will be realized. However, if our assessments prove incorrect, they could have a material adverse effect on our results of operations in the period in which they occur. For further information on our accounting for income taxes, see Note 1 (“Summary of Significant Accounting Policies”) and Note 14 (“Income Taxes”).

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Accounting and reporting developments

Accounting guidance pending adoption

[[GREPCENT_TABLE]]
[["Standard","Required Adoption","Description","Effect on Financial Statements or Other Significant Matters"],["Reference Rate Reform (Topic 848)","December 31, 2022","London 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. This ASU provides relief from cumbersome accounting consequences for certain qualifying contract modifications undertaken as a result of reference rate reform.","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. Refer to the \u201cLIBOR Transition\u201d section under the caption \u201cRisk Management - Market risk management\u201d in MD&A for further information."],["Business Combinations (Topic 805)","January 1, 2023","At the acquisition date, an acquirer must account for any acquired revenue contracts in accordance with Topic 606 as if it had originated the contracts (i.e. measure contract assets and liabilities, generally consistent with acquiree's financial statements). The guidance should be applied on a prospective basis.","The guidance is not expected to have a material impact on Key\u2019s financial condition or results of operations."]]
[[/GREPCENT_TABLE]]