Derivatives and Hedging Activities (Tables)

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Values, Volume of Activity and Gain (Loss) Information Related to Derivative Instruments

The following table summarizes the fair values of our derivative instruments on a gross and net basis as of June 30, 2020, and December 31, 2019. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Securities collateral related to legally enforceable master netting agreements is not offset on the balance sheet. Our derivative instruments are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the balance sheet, as follows:

	June 30, 2020								December 31, 2019
			Fair Value								Fair Value
in millions	Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate	$	34,602	$	89		$	5		$	39,208	$	191		$	20
Derivatives not designated as hedging instruments:
Interest rate	79,573		1,931			332			71,209		772			233
Foreign exchange	6,040		108			97			6,572		67			60
Commodity	6,399		487			462			5,324		208			200
Credit	591		4			20			427		1			10
Other (a)	7,818		83			23			3,337		14			10
Total	100,421		2,613			934			86,869		1,062			513
Netting adjustments (b)	—		(609		)	(629		)	—		(473		)	(335		)
Net derivatives in the balance sheet	135,023		2,093			310			126,077		780			198
Other collateral (c)	—		(3		)	(1		)	—		(2		)	(42		)
Net derivative amounts	$	135,023	$	2,090		$	309		$	126,077	$	778		$	156

(a) Other derivatives include interest rate lock commitments and forward sale commitments related to our residential mortgage banking activities, forward purchase and sales contracts consisting of contractual commitments associated with “to be announced” securities and when-issued securities, and other customized derivative contracts.

(b) Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance.

(c)

Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.

Pre-Tax Net Gains (Losses) on Fair Value Hedges

The following tables summarize the amounts that were recorded on the balance sheet as of June 30, 2020, and December 31, 2019, related to cumulative basis adjustments for fair value hedges.

	June 30, 2020
in millions	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	9,222	$	538
	December 31, 2019
	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	8,408	$	240

(a) The carrying amount represents the portion of the liability designated as the hedged item.

(b)

Basis adjustments related to de-designated hedged items that no longer qualify as fair value hedges reduced the hedge accounting basis adjustment by $9 million and $9 million at June 30, 2020, and December 31, 2019, respectively,

Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location

The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the three- and six-month periods ended June 30, 2020, and June 30, 2019.

	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships
in millions	Interest expense – long-term debt			Interest income – loans			Interest expense - deposits			Other income
Three months ended June 30, 2020
Total amounts presented in the consolidated statement of income	$	(71	)	$	980		$	(96	)	$	33
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	(5		)	—			—			—
Recognized on derivatives designated as hedging instruments	39			—			—			—
Net income (expense) recognized on fair value hedges	$	34		—			—			—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(1	)	$	90		—			—
Net income (expense) recognized on cash flow hedges	$	(1	)	$	90		—			—
Three months ended June 30, 2019
Total amounts presented in the consolidated statement of income	$	(120	)	$	1,082		$	(223	)	$	17
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	(152	)	—			$	(1	)	—
Recognized on derivatives designated as hedging instruments	142			—			—			—
Net income (expense) recognized on fair value hedges	$	(10	)	—			$	(1	)	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	—		$	(19	)	—			—
Net income (expense) recognized on cash flow hedges	$	—		$	(19	)	—			—

	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships
in millions	Interest expense – long-term debt			Interest income – loans			Interest expense - deposits			Other income
Six months ended June 30, 2020
Total amounts presented in the consolidated statement of income	$	(161	)	$	2,006		$	(265	)	$	(55	)
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	(299		)	—			—			—
Recognized on derivatives designated as hedging instruments	350			—			—			—
Net income (expense) recognized on fair value hedges	$	51		—			—			—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(2	)	$	124		—			—
Net income (expense) recognized on cash flow hedges	$	(2	)	$	124		—			—
Six months ended June 30, 2019
Total amounts presented in the consolidated statement of income	$	(240	)	$	2,148		$	(425	)	$	27
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	$	(245	)	—			$	(1	)	—
Recognized on derivatives designated as hedging instruments	224			—			—			—
Net income (expense) recognized on fair value hedges	$	(21	)	—			$	(1	)	—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(1	)	$	(43	)	—			—
Net income (expense) recognized on cash flow hedges	$	(1	)	$	(43	)	—			—

Derivative Instrument Cash Flow Hedge Earning Recognized by Income Statement Location

The following tables summarize the pre-tax net gains (losses) on our cash flow and net investment hedges for the three- and six-month periods ended June 30, 2020, and June 30, 2019, and where they are recorded on the income statement. The table includes net gains (losses) recognized in OCI during the period and net gains (losses) reclassified from OCI into income during the current period.

in millions	Net Gains (Losses) Recognized in OCI			Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income
Three months ended June 30, 2020
Cash Flow Hedges
Interest rate	$	62		Interest income — Loans	$	90
Interest rate	(1		)	Interest expense — Long-term debt	(1		)
Interest rate	10			Investment banking and debt placement fees	—
Total	$	71			$	89
Three months ended June 30, 2019
Cash Flow Hedges
Interest rate	$	270		Interest income — Loans	$	(19	)
Interest rate	(2		)	Interest expense — Long-term debt	—
Interest rate	(1		)	Investment banking and debt placement fees	—
Net Investment Hedges
Foreign exchange contracts	(1		)	Other Income	—
Total	$	266			$	(19	)

in millions	Net Gains (Losses) Recognized in OCI			Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income(a)
Six months ended June 30, 2020
Cash Flow Hedges
Interest rate	$	624		Interest income — Loans	$	124
Interest rate	(6		)	Interest expense — Long-term debt	(2		)
Interest rate	(20		)	Investment banking and debt placement fees	—
Net Investment Hedges
Foreign exchange contracts	—			Other Income	—
Total	$	598			$	122
Six months ended June 30, 2019
Cash Flow Hedges
Interest rate	$	385		Interest income — Loans	$	(43	)
Interest rate	(3		)	Interest expense — Long-term debt	(1		)
Interest rate	(6		)	Investment banking and debt placement fees	—
Net Investment Hedges
Foreign exchange contracts	(4		)	Other Income	—
Total	$	372			$	(44	)

Pre-Tax Net Gains (Losses) on Derivatives Not Designated as Hedging Instruments

The following table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the three- and six-month periods ended June 30, 2020, and June 30, 2019, and where they are recorded on the income statement.

	Three months ended June 30, 2020									Three months ended June 30, 2019
in millions	Corporate services income		Consumer mortgage income	Other income			Total			Corporate services income		Consumer mortgage income	Other income			Total
NET GAINS (LOSSES)
Interest rate	$	7	—	$	—		$	7		$	7	—	—			$	7
Foreign exchange	8		—	—			8			11		—	—			11
Commodity	6		—	—			6			2		—	—			2
Credit	6		—	(13		)	(7		)	—		—	$	(8	)	(8		)
Other	—		4	16			20			—		—	2			2
Total net gains (losses)	$	27	4	$	3		$	34		$	20	—	$	(6	)	$	14

	Six months ended June 30, 2020											Six months ended June 30, 2019
in millions	Corporate services income			Consumer mortgage income		Other income			Total			Corporate services income		Consumer mortgage income		Other income			Total
NET GAINS (LOSSES)
Interest rate	$	18		$	—	$	(9	)	$	9		$	15	—		$	(2	)	$	13
Foreign exchange	20			—		—			20			21		—		—			21
Commodity	8			—		—			8			3		—		—			3
Credit	(10		)	—		(12		)	(22		)	1		—		(15		)	(14		)
Other	—			8		25			33			—		$	—	3			3
Total net gains (losses)	$	36		$	8	$	4		$	48		$	40	$	—	$	(14	)	$	26

Fair Value of Derivative Assets by Type

The following table summarizes the fair value of our derivative assets by type at the dates indicated. These assets represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and master netting agreements and other means used to mitigate risk.

in millions	June 30, 2020		December 31, 2019
Interest rate	$	1,860	$	848
Foreign exchange	49		30
Commodity	270		95
Credit	—		—
Other	83		14
Derivative assets before collateral	2,262		987
Less: Related collateral	169		207
Total derivative assets	$	2,093	$	780

Credit Derivatives Sold and Held

The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at June 30, 2020, and December 31, 2019. The notional amount represents the amount that the seller could

be required to pay. The payment/performance risk shown in the table represents a weighted average of the default

probabilities for all reference entities in the respective portfolios. These default probabilities are implied from

observed credit indices in the credit default swap market, which are mapped to reference entities based on Key’s

internal risk rating.

	June 30, 2020					December 31, 2019
dollars in millions	Notional Amount		Average Term (Years)	Payment / Performance Risk		Notional Amount		Average Term (Years)	Payment / Performance Risk
Other	$	327	13.94	19.84	%	$	134	14.30	14.56	%
Total credit derivatives sold	$	327	—	—		$	134	—	—

Credit Risk Contingent Feature

The following table summarizes the additional cash and securities collateral that KeyBank would have been required to deliver under the ISDA Master Agreements had the credit risk contingent features been triggered for the derivative contracts in a net liability position as of June 30, 2020, and December 31, 2019. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of June 30, 2020, and December 31, 2019, and take into account all collateral already posted. A similar calculation was performed for KeyCorp, and no additional collateral would have been required as of June 30, 2020, and December 31, 2019. For more information about the credit ratings for KeyBank and KeyCorp, see the discussion under the heading “Factors affecting liquidity” in the section entitled “Liquidity risk management” in Item 2 of this report.

	June 30, 2020				December 31, 2019
in millions	Moody’s		S&P		Moody’s		S&P
KeyBank’s long-term senior unsecured credit ratings	A3		A-		A3		A-
One rating downgrade	$	1	$	1	$	1	$	1
Two rating downgrades	1		1		1		1
Three rating downgrades	1		1		1		1