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Fair Value Measurements
 9 Months Ended
Sep. 30, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements
5. Fair Value Measurements

In accordance with GAAP, Key measures certain assets and liabilities at fair value. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between market participants in our principal market. Additional information regarding our accounting policies for determining fair value is provided in Note 6 (“Fair Value Measurements”) and Note 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements” of our 2022 Form 10-K.
Assets and Liabilities Measured at Fair Value on a Recurring Basis

Certain assets and liabilities are measured at fair value on a recurring basis in accordance with GAAP. For more information on the valuation techniques used to measure classes of assets and liabilities reported at fair value on a recurring basis as well as the classification of each in the valuation hierarchy, refer to Note 6 (“Fair Value Measurements” in our 2022 Form 10-K. The following tables present these assets and liabilities at September 30, 2023, and December 31, 2022.
September 30, 2023December 31, 2022
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Dollars in millions
ASSETS MEASURED ON A RECURRING BASIS
Trading account assets:
U.S. Treasury, agencies and corporations$— $959 $— $959 $— $698 $— $698 
States and political subdivisions— 91 — 91 — 33 — 33 
Other mortgage-backed securities— 259 — 259 — 84 — 84 
Other securities— 13 — 13 — — — — 
Total trading account securities— 1,322 — 1,322 — 815 — 815 
Commercial loans— 3 — 3 — 14 — 14 
Total trading account assets— 1,325 — 1,325 — 829 — 829 
Securities available for sale:
U.S. Treasury, agencies and corporations— 9,031 — 9,031 — 9,415 — 9,415 
States and political subdivisions— — — — — — — — 
Agency residential collateralized mortgage obligations— 14,660 — 14,660 — 16,433 — 16,433 
Agency residential mortgage-backed securities— 3,485 — 3,485 — 3,920 — 3,920 
Agency commercial mortgage-backed securities— 8,663 — 8,663 — 9,349 — 9,349 
Other securities— — — — — — — — 
Total securities available for sale$— $35,839 $— $35,839 $— $39,117 $— $39,117 
Other investments:
Principal investments:
Direct$— $— $1 $1 $— $— $1 $1 
Indirect (measured at NAV) (a)
— — — 17 — — — 34 
Total principal investments— — 1 18 — — 1 35 
Equity investments:
Direct— — 2 2 4 — 2 6 
Direct (measured at NAV) (a)
— — — 36 — — — 32 
Indirect (measured at NAV) (a)
— — — 4 — — — 4 
Total equity investments— — 2 42 4 — 2 42 
Total other investments— — 3 60 4 — 3 77 
Loans, net of unearned income (residential)— — 9 9 — — 9 9 
Loans held for sale (residential)— 112 — 112 — 24 — 24 
Derivative assets:
Interest rate— 189 1 190 — 301 2 303 
Foreign exchange106 21 — 127 112 23 — 136 
Commodity— 891 — 891 — 1,328 — 1,328 
Credit— — — — — — 1 1 
Other— 14 — 14 — 13 — 13 
Derivative assets106 1,115 1 1,222 112 1,666 3 1,781 
Netting adjustments (b)
— — — (800)— — — (757)
Total derivative assets106 1,115 1 422 112 1,666 3 1,024 
Total assets on a recurring basis at fair value$106 $38,391 $13 $37,767 $116 $41,636 $15 $41,080 
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions$8 $712 $— $720 $126 $509 $— $635 
Derivative liabilities:
Interest rate— 1,570 — 1,570 — 1,307 — 1,307 
Foreign exchange88 21 — 109 107 24 — 131 
Commodity— 870 — 870 — 1,304 — 1,304 
Credit— 3 — 3 — — 3 3 
Other— 7 1 8 — 5 — 5 
Derivative liabilities88 2,471 1 2,560 107 2,640 3 2,750 
Netting adjustments (b)
— — — (846)— — — (1,262)
Total derivative liabilities88 2,471 1 1,714 107 2,640 3 1,488 
Total liabilities on a recurring basis at fair value$96 $3,183 $1 $2,434 $233 $3,149 $3 $2,123 
(a)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.
(b)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.
The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at September 30, 2023, as well as financial support provided for the three and nine months ended September 30, 2023, and September 30, 2022.
   Financial support provided
   Three months ended September 30,Nine months ended September 30,
 September 30, 20232023202220232022
Dollars in millions
Fair
Value
Unfunded
Commit-ments		Funded
Commit-ments
Funded
Other
Funded
Commit-ments
Funded
Other
Funded
Commit-ments
Funded
Other
Funded
Commit-ments
Funded
Other
INVESTMENT TYPE
Direct investments$1 $— $— $— $— $— $— $— $— $— 
Indirect investments (measured at NAV) (a)
17 1 — — — — — — — — 
Total$18 $1 $— $— $— $— $— $— $— $— 
(a) Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. At September 30, 2023, no significant liquidation of the underlying investments has been communicated to Key. The purpose of funding our capital commitments to these investments is to allow the funds to make additional follow-on investments and pay fund expenses until the fund dissolves. We, and all other investors in the fund, are obligated to fund the full amount of our respective capital commitments to the fund based on our and their respective ownership percentages, as noted in the applicable Limited Partnership Agreement.

Changes in Level 3 Fair Value Measurements

The following table shows the components of the change in the fair values of our Level 3 financial instruments measured at fair value on a recurring basis for the three and nine months ended September 30, 2023, and September 30, 2022. 
Dollars in millionsBeginning of Period BalanceGains (Losses) Included in Other Comprehensive IncomeGains (Losses) Included in EarningsPurchasesSalesSettlementsTransfers OtherTransfers into Level 3Transfers out of Level 3End of Period BalanceUnrealized Gains (Losses) Included in Earnings
Nine months ended September 30, 2023
Other investments
Principal investments
Direct (a)
$1 $— $— $— $— $— $— $—   $—   $1 $— 
Other indirect— — — — — — — —   —   — — 
Equity investments
Direct (a)
2 — — — — — — — — 2 — 
Loans, net of unearned income (residential)9 — — — — — — — — 9 — 
Derivative instruments (b)
Interest rate2 — (23)
(c)
18 1 — — (3)
(d)
6 
(d)
1 — 
Credit(2)— — 
(c)
— 2 — — —   —   — — 
Other (e)
— — — 
(c)
— — — — — (1)(1)— 
Three months ended September 30, 2023
Other investments
Principal investments
Direct (a)
$1 $— $— $— $— $— $— $—   $—   $1 $— 
Other indirect— — — — — — — —   —   — — 
Equity investments
Direct (a)
2 — — — — — — — — 2 — 
Loans, net of unearned income (residential)9 — — — — — — — — 9 — 
Derivative instruments (b)
Interest rate5 — (6)
(c)
— — — — — 
(d)
2 
(d)
1 — 
Credit— — — 
(c)
— — — — —   —   — — 
Other (e)
1 — — 
(c)
— — — (2)— — (1)— 
Dollars in millionsBeginning of Period BalanceGains (Losses) Included in Other Comprehensive IncomeGains (Losses) Included in EarningsPurchasesSalesSettlementsTransfers OtherTransfers into Level 3Transfers out of Level 3End of Period BalanceUnrealized Gains (Losses) Included in Earnings
Nine months ended September 30, 2022
Other investments
Principal investments
Direct (a)
$1 $— $— $— $— $— $— $— $— $1 $— 
Equity investments
Direct (a)
9 — (3)— (4)— — — — 2 (3)
Loans, net of unearned income (residential)11 — (2)— (1)— 1 — — 9 — 
Derivative instruments (b)
Interest rate33 — (71)
(c)
1 (2)— — 35 
(d) 
(4)
(d) 
(8)— 
Credit(6)— 2 
(c)
— — — —   (4)— 
Other (e)
5 — — 
(c)
— — — (8)— — (3)— 
Three months ended September 30, 2022
Other investments
Principal investments
Direct (a)
$1 $— $— $— $— $— $— $—   $—   $1 $— 
Equity investments
Direct (a)
6 — — (4)— — — — 2 (1)
Loans, net of unearned income (residential)11 — (1)— (1)— — — — 9 — 
Derivative instruments (b)
Interest rate(3)— (16)
(c)
(3)— 5 
(d) 
9 
(d) 
(8)— 
Credit(3)— — 
(c)
— — — (1)—   — 
  
(4)— 
Other (e)
1 — 1 
(c)
— — (5)— — (3)— 
(a)Realized and unrealized gains and losses on principal investments and other equity investments are reported in “other income” on the income statement.
(b)Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.
(c)Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.
(d)Certain instruments previously classified as Level 2 were transferred to Level 3 because Level 3 unobservable inputs became significant. Certain derivatives previously classified as Level 3 were transferred to Level 2 because Level 3 unobservable inputs became less significant.
(e)Amounts represent Level 3 interest rate lock commitments.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis in accordance with GAAP. The adjustments to fair value generally result from the application of accounting guidance that requires assets and liabilities to be recorded at the lower of cost or fair value, or assessed for impairment. For more information on the valuation techniques used to measure classes of assets and liabilities measured at fair value on a nonrecurring basis, refer to Note 6 (“Fair Value Measurements”) in our 2022 Form 10-K. There were no liabilities measured at fair value on a nonrecurring basis at September 30, 2023, and December 31, 2022.

The following table presents our assets measured at fair value on a nonrecurring basis at September 30, 2023, and December 31, 2022:
 September 30, 2023December 31, 2022
Dollars in millionsLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
ASSETS MEASURED ON A NONRECURRING BASIS
Collateral-dependent loans$— $— $40 $40 $— $— $17 $17 
Accrued income and other assets— — 16 16 — — 14 14 
Total assets on a nonrecurring basis at fair value$— $— $56 $56 $— $— $31 $31 

We have other investments in equity securities that do not have readily determinable fair values and do not qualify for the practical expedient to measure the investment using a net asset value per share. We have elected to measure these securities at cost less impairment plus or minus adjustments due to observable orderly transactions. Impairment is recorded when there is evidence that the expected fair value of the investment has declined to below the recorded cost. At each reporting period, we assess if these investments continue to qualify for this measurement alternative. At September 30, 2023, and December 31, 2022, the carrying amount of equity investments under this method was $324 million and $249 million, respectively. No impairment was recorded for the three months ended September 30, 2023.

Quantitative Information about Level 3 Fair Value Measurements

The range and weighted-average of the significant unobservable inputs used to fair value our material Level 3
recurring and nonrecurring assets at September 30, 2023, and December 31, 2022, along with the valuation
techniques used, are shown in the following table:
Level 3 Asset (Liability) 
Valuation 
Technique
Significant
Unobservable Input
Range (Weighted-Average) (a), (b)
Dollars in millions
September 30, 2023December 31, 2022September 30, 2023December 31, 2022
Recurring    
Loans, net of unearned income (residential)$9 $9 Market comparable pricingComparability factor
62.91 - 85.00% (72.23%)
61.00-86.58% (72.21%)
Derivative instruments:
Interest rate1 2 Discounted cash flowsProbability of default
.02 - 100% (33.70%)
.02 - 100% (8.00%)
Loss given default
0 - 1 (.500)
0 - 1 (.492)
Insignificant level 3 assets, net of liabilities(c)
2 1 
Nonrecurring   
Collateral-dependent loans40 17 Fair value of collateralDiscount rate
0 - 10.00% (4.00%)
0 - 85.00% (34.00%)
Accrued income and other assets:
OREO and other Level 3 assets (d)
16 14 Appraised valueAppraised valueN/MN/M
(a)The weighted average of significant unobservable inputs is calculated using a weighting relative to fair value.
(b)For significant unobservable inputs with no range, a single figure is reported to denote the single quantitative factor used.
(c)Represents the aggregate amount of Level 3 assets and liabilities measured at fair value on a recurring basis that are individually and in the aggregate insignificant. The amount includes certain equity investments and certain financial derivative assets and liabilities.
(d)Excludes amounts pertaining to mortgage servicing assets. No mortgage servicing assets required nonrecurring valuation adjustments as of September 30, 2023, and December 31, 2022. Refer to Note 8 (“Mortgage Servicing Assets”) for significant unobservable inputs pertaining to these assets.
Fair Value Disclosures of Financial Instruments

The Levels in the fair value hierarchy ascribed to our financial instruments and the related carrying amounts at September 30, 2023, and December 31, 2022, are shown in the following tables. Assets and liabilities are further arranged by measurement category.
 September 30, 2023
  Fair Value
Dollars in millions
Carrying
Amount
Level 1Level 2Level 3
Measured
at NAV
Netting
Adjustment
 Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)
$1,325 $— $1,325 $— $— $—   $1,325 
Other investments (b)
1,356 — — 1,299 57 —   1,356 
Loans, net of unearned income (residential) (d)
9 — — 9 — —   9 
Loans held for sale (residential) (b)
112 — 112 — — —   112 
Derivative assets - trading (b)
404 106 1,080 2 — (784)
(f) 
404 
Fair value - OCI
Securities available for sale (b)
35,839 — 35,839 — — —   35,839 
Derivative assets - hedging (b)(g)
18 — 34 — — (16)
(f) 
18 
Amortized cost
Held-to-maturity securities (c)
8,853 — 8,044 — — —   8,044 
Loans, net of unearned income (d)
114,047 — — 108,500 — —   108,500 
Loans held for sale (b)
618 — — 618 — — 618 
Other
Cash and other short-term investments (a)
8,637 8,637 — — — — 8,637 
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)
$1,714 $88 $2,464 $1 $— $(839)
(f) 
$1,714 
Fair value - OCI
Derivative liabilities - hedging (b)(g)
— — 7 — — (7)
(f) 
— 
Amortized cost
Time deposits (e)
14,381 — 14,510 — — —   14,510 
Short-term borrowings (a)
3,513 8 3,505 — — —   3,513 
Long-term debt (e)
21,303 11,488 8,706 — — —   20,194 
Other
Deposits with no stated maturity (a)
129,910 — 129,910 — — — 
  
129,910 
December 31, 2022
 Fair Value
Dollars in millions
Carrying
Amount
Level 1Level 2Level 3
Measured
at NAV
Netting
Adjustment
 Total
ASSETS (by measurement category)
Fair value - net income
Trading account assets (b)
$829 $— $829 $— $— $— $829 
Other investments (b)
1,308 4 — 1,234 70 — 1,308 
Loans, net of unearned income (residential) (d)
9 — — 9 — — 9 
Loans held for sale (residential) (b)
24 — 24 — — — 24 
Derivative assets - trading (b)
927 $112 1,552 3 — (740)
(f) 
927 
Fair value - OCI
Securities available for sale (b)
39,117 — 39,117 — — — 39,117 
Derivative assets - hedging (b)(g)
97 — 114 — — (17)
(f) 
97 
Amortized cost
Held-to-maturity securities (c)
8,710 — 8,113 — — — 8,113 
Loans, net of unearned income (d)
118,048 — — 112,590 — — 112,590 
Loans held for sale (b)
939 — — 939 — — 939 
Other
Cash and other short-term investments (a)
3,319 3,319 — — — — 3,319 
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)
$1,485 $107 $2,637 $3 $— $(1,262)
(f) 
$1,485 
Fair value - OCI
Derivative liabilities - hedging (b)(g)
3 — 3 — — — 
(f) 
3 
Amortized cost
Time deposits (e)
7,373 — 7,392 — — — 7,392 
Short-term borrowings (a)
9,463 126 9,337 — — — 9,463 
Long-term debt (e)
19,307 12,196 6,685 — — — 18,881 
Other
Deposits with no stated maturity (a)
135,222 — 135,222 — — — 135,222 
Valuation Methods and Assumptions
(a)Fair value equals or approximates carrying amount. The fair value of deposits with no stated maturity does not take into consideration the value ascribed to core deposit intangibles.
(b)Information pertaining to our methodology for measuring the fair values of these assets and liabilities is included in the sections entitled “Qualitative Disclosures of Valuation Techniques” and “Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis” within our 2022 Form 10-K Note 6 (“Fair Value Measurements”). Investments accounted for under the cost method (or cost less impairment adjusted for observable price changes for certain equity investments) are classified as Level 3 assets. These investments are not actively traded in an open market as sales for these types of investments are rare. The carrying amount of the investments carried at cost are adjusted for declines in value if they are considered to be other-than-temporary (or due to observable orderly transactions of the same issuer for equity investments eligible for the cost less impairment measurement alternative). These adjustments are included in “other income” on the income statement.
(c)Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure that they are reasonable and consistent with the values placed on similar securities traded in the secondary markets.
(d)The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their fair value.
(e)Fair values of time deposits and long-term debt classified as Level 2 are based on discounted cash flows utilizing relevant market inputs.
(f)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.
(g)Derivative assets-hedging and derivative liabilities-hedging includes both cash flow and fair value hedges. Additional information regarding our accounting policies for cash flow and fair value hedges is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging” beginning on page 111 of our 2022 Form 10-K.

Discontinued assets — education lending business. Our discontinued assets include government-guaranteed and private education loans originated through our education lending business that was discontinued in September 2009. This portfolio consists of loans recorded at carrying value with appropriate valuation reserves. All of these loans were excluded from the table above as follows:
 
•Loans at carrying value, net of allowance, of $360 million ($304 million at fair value) at September 30, 2023, and $434 million ($357 million at fair value) at December 31, 2022.

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