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Fair Value Measurements
 12 Months Ended
Dec. 31, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements 6. 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 1 (“Summary of Significant Accounting Policies”) under the heading “Fair Value Measurements.”
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 below. The following tables present assets and liabilities measured at fair value on a recurring basis at December 31, 2024, and December 31, 2023.
December 31, 2024December 31, 2023
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$— $930 $— $930 $— $685 $— $685 
States and political subdivisions— 127 — 127 — 93 — 93 
Other mortgage-backed securities— 183 — 183 — 340 — 340 
Other securities— 25 — 25 — 21 — 21 
Total trading account securities— 1,265 — 1,265 — 1,139 — 1,139 
Commercial loans— 18 — 18 — 3 — 3 
Total trading account assets— 1,283 — 1,283 — 1,142 — 1,142 
Securities available for sale:
U.S. Treasury, agencies and corporations— 8,904 — 8,904 — 9,026 — 9,026 
States and political subdivisions— — — — — — — — 
Agency residential collateralized mortgage obligations— 9,224 — 9,224 — 15,478 — 15,478 
Agency residential mortgage-backed securities— 15,169 — 15,169 — 3,589 — 3,589 
Agency commercial mortgage-backed securities— 4,410 — 4,410 — 9,092 — 9,092 
Other securities— — — — — — — — 
Total securities available for sale$— $37,707 $— $37,707 $— $37,185 $— $37,185 
Other investments:
Principal investments:
Indirect (measured at NAV) (a)
— — — 14 — — — 17 
Total principal investments— — — 14 — — — 17 
Equity investments:
Direct— — 2 2 — — 2 2 
Direct (measured at NAV) (a)
— — — 54 — — — 40 
Indirect (measured at NAV) (a)
— — — 3 — — — 4 
Total equity investments— — 2 59 — — 2 46 
Total other investments— — 2 73 — — 2 63 
Loans, net of unearned income (residential)— — 10 10 — — 9 9 
Loans held for sale (residential)— 93 — 93 — 51 — 51 
Derivative assets:
Interest rate— 114 (4)110 — 175 (2)173 
Foreign exchange93 31 — 124 74 15 — 89 
Commodity— 363 — 363 — 721 — 721 
Credit— — — — — — — — 
Other— 15 — 15 — 14 2 16 
Derivative assets93 523 (4)612 74 925 — 999 
Netting adjustments (b)
— — — (363)— — — (818)
Total derivative assets93 523 (4)249 74 925 — 181 
Total assets on a recurring basis at fair value$93 $39,606 $8 $39,415 $74 $39,303 $11 $38,631 
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions$107 $773 $— $880 $30 $774 $— $804 
Derivative liabilities:
Interest rate— 965 — 965 — 985 — 985 
Foreign exchange85 32 — 117 58 15 — 73 
Commodity— 343 — 343 — 698 — 698 
Credit— — — — — 1 — 1 
Other— 14 — 14 — 20 — 20 
Derivative liabilities85 1,354 — 1,439 58 1,719 — 1,777 
Netting adjustments (b)
— — — (411)— — — (473)
Total derivative liabilities85 1,354 — 1,028 58 1,719 — 1,304 
Total liabilities on a recurring basis at fair value$192 $2,127 $— $1,908 $88 $2,493 $— $2,108 
(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.
(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.
Qualitative Disclosures of Valuation Techniques
The following table describes the valuation techniques and significant inputs used to measure the classes of assets and liabilities reported at fair value on a recurring basis, as well as the classification of each within the valuation hierarchy.
Asset/liability classValuation techniqueValuation hierarchy classification(s)
Securities (includes trading account assets, securities available for sale, and U.S. Treasury Bills classified as short-term investments)
Fair value of level 1 securities is determined by:
• Quoted market prices available in an active market for identical securities. This includes exchange-traded equity securities.
Fair value of level 2 securities is determined by:
• Pricing models (either by a third party pricing service or internally). Inputs include: yields, benchmark securities, bids, offers, actual trade data (i.e., spreads, credit ratings, and interest rates) for comparable assets, spread tables, matrices, high-grade scales, and option-adjusted spreads.
• Observable market prices of similar securities.

The valuations provided by the third-party pricing service are based on observable market inputs, which include benchmark yields, reported trades, issuer spreads, benchmark securities, bids, offers, and reference data obtained from market research publications. Inputs used by the third-party pricing service in valuing CMOs and other mortgage-backed securities also include new issue data, monthly payment information, whole loan collateral performance, and “To Be Announced” prices. In valuations of securities issued by state and political subdivisions, inputs used by the third-party pricing service also include material event notices. We regularly validate the pricing methodologies of valuations derived from a third-party pricing service to ensure the fair value determination is consistent with applicable accounting guidance and that our assets are properly classified in the fair value hierarchy. To perform this validation, we:

•review documentation received from our third-party pricing service regarding the inputs used in its valuations and determine a level assessment for each category of securities;
•substantiate actual inputs used for a sample of securities by comparing the actual inputs used by our third-party pricing service to comparable inputs for similar securities; and
•substantiate the fair values determined for a sample of securities by comparing the fair values provided by our third-party pricing service to prices from other independent sources for the same and similar securities.

We analyze variances and conduct additional research with our third-party pricing service and take appropriate steps based on our findings.
Level 1 and 2 (primarily Level 2)
Commercial loans (trading account assets)
Fair value is based on:
• Observable market price spreads for similar loans. Valuations reflect prices within the bid-ask spread that are most representative of fair value.
Level 2
Asset/liability classValuation techniqueValuation hierarchy classification(s)
Principal investments (indirect)
Indirect principal investments include primary and secondary investments in private equity funds engaged mainly in venture- and growth-oriented investing. These investments do not have readily determinable fair values and qualify for the practical expedient to estimate fair value based upon net asset value per share (or its equivalent, such as member units or an ownership interest in partners’ capital to which a proportionate share of net assets is attributed).
Indirect principal investments are also accounted for as investment companies, whereby each investment is adjusted to fair value with any net realized or unrealized gain/loss recorded in the current period’s earnings.

Under the provisions of the Volcker Rule, we were required to dispose or conform our indirect investments to the requirements of the statute by no later than July 21, 2023. Key completed conforming and/or divesting certain indirect investments subject to the Volcker Rule as of June 30, 2023.
NAV

The following table presents the fair value of our indirect principal investments and related unfunded commitments at December 31, 2024, as well as financial support provided for the years ended December 31, 2024, and December 31, 2023.
  Financial support provided
  Year ended December 31,
 December 31, 202420242023
Dollars in millionsFair Value
Unfunded
Commitments
Funded
Commitments
Funded
Other
Funded
Commitments
Funded
Other
INVESTMENT TYPE
Indirect investments (a)
14 1 — — — — 
Total$14 $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 December 31, 2024, 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.

Asset/liability classValuation techniqueValuation hierarchy classification(s)
Other direct equity investments
Fair value is determined using:
• Discounted cash flows
• Operating performance and market/exit multiples of comparable businesses
• Other unique facts and circumstances related to each individual investment
For level 3 securities, increases in the discount rate applied in the discounted cash flow models would negatively affect the fair value. Increases in valuation multiples of comparable companies would positively affect the fair value. Level 1 investments reflect the quoted market prices of the investments available in an active market.
Level 1 and 3
Other direct and indirect equity investments (NAV)
Certain direct and indirect investments do not have readily determinable fair values and qualify for the practical expedient in the accounting guidance that allows us to estimate fair value based upon net asset value per share.
NAV
Asset/liability classValuation techniqueValuation hierarchy classification(s)
Loans held for sale and held for investment (residential)
Residential mortgage loans held for sale are accounted for at fair value. Fair values are based on:
• Quoted market prices, where available
• Prices for other traded mortgage loans with similar characteristics
• Purchase commitments and bid information received from market participants
Prices are adjusted as necessary to include:
• The embedded servicing value in the loans
• The specific characteristics of certain loans that are priced based on the pricing of similar loans. (These adjustments represent unobservable inputs to the valuation but are not considered significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans.)
Residential loans held for investment: Certain residential loans held for sale contain salability exceptions that make them unable to be sold into the performing loan sales market. Loans in this category are transferred to the held to maturity loan portfolio and are included in “Loans, net of unearned income” on the balance sheet. This type of loan is classified as level 3 in the valuation hierarchy as transaction details regarding sales of this type of loan are often unavailable.
  Fair value is based upon:
• Unobservable bid information from brokers and investors

Higher (lower) unobservable bid information would have resulted in higher (lower) fair value measurements.
Level 2 and 3 (primarily level 2)
Derivatives
Exchange-traded derivatives are valued using quoted prices in active markets and, therefore, are classified as Level 1 instruments.

The majority of our derivative positions are Level 2 and are valued using internally developed models based on market convention and observable market inputs. These derivative contracts include interest rate swaps, commodity swaps, certain options, floors, cross currency swaps, credit default swaps, and forward mortgage loan sale commitments. Significant inputs used in the valuation models include:
• SOFR and Overnight Index Swap (OIS) curves, index pricing curves, foreign currency curves
• Volatility surfaces (a three-dimensional graph of implied volatility against strike price and maturity)
We have customized derivative instruments and risk participations that are classified as Level 3 instruments. These derivative positions are valued using internally developed models, with inputs consisting of available market data, including:

• Credit spreads and interest rates

The unobservable internally derived assumptions include:

• Loss given default
• Internal risk assessments of customers
The fair value represents an estimate of the amount that the risk participation counterparty would need to pay/receive as of the measurement date based on the probability of customer default on the swap transaction and the fair value of the underlying customer swap. Therefore, for sold risk participation agreements, a higher loss probability and a lower credit rating would negatively affect the fair value of the risk participations and a lower loss probability and higher credit rating would positively affect the fair value of the risk participations. (For purchased risk participation agreements, higher loss probabilities and lower credit ratings would positively affect the fair value.)
Level 1, 2, and 3 (primarily level 2)
Asset/liability classValuation techniqueValuation hierarchy classification(s)
Derivatives (continued)
We use interest rate lock commitments for our residential mortgage business, which are classified as Level 3 instruments. The significant components of the valuation model include:
 
• Interest rates observable in the market
• Investor supplied prices for similar loans and securities
• The probability of the loan closing (i.e. the "pull-through" amount, a significant unobservable input). Increases (decreases) in the probability of the loan closing would have resulted in higher (lower) fair value measurements.
Valuation of residential mortgage forward sale commitments utilizes observable market prices of comparable commitments and mortgage securities (Level 2).

The fair values of our derivatives include a credit valuation adjustment related to both counterparty and our own creditworthiness. The credit component considers master netting and collateral agreements and is determined by the individual counterparty based on potential future exposures, expected recovery rates, and market-implied probabilities of default.
Level 1, 2, and 3 (primarily level 2)
Liability for short positions
This includes fixed income securities held by our broker dealer in its trading inventory. Fair value of level 1 securities is determined by:
• Quoted market prices available in an active market for identical securities
Fair value of level 2 securities is determined by:
• Observable market prices of similar securities
• Market activity, spreads, credit ratings and interest rates for each security type
Level 1 and 2
We also make liquidity valuation adjustments to the fair value of certain assets to reflect the uncertainty in the pricing and trading of the instruments when we are unable to observe recent market transactions for identical or similar instruments. Liquidity valuation adjustments are based on the following factors:
 
•the amount of time since the last relevant valuation;
•whether there is an actual trade or relevant external quote available at the measurement date; and
•volatility associated with the primary pricing components.

Changes in Level 3 Fair Value Measurements

The following table shows the change in the fair values of our Level 3 financial instruments measured at fair value on a recurring basis for the years ended December 31, 2024, and December 31, 2023.
 
Dollars in millions
Beginning
of Period
Balance
Gains (Losses) included in
comprehensive income
Gains
(Losses)
Included
in Earnings
 PurchasesSalesSettlementsTransfers Other
Transfers
into
Level 3
 
Transfers
out of
Level 3
 
End of
Period
Balance
Unrealized
Gains
(Losses)
Included in
Earnings
Year ended December 31, 2024
Other investments
Equity investments
Direct$2 $— $— 
(c)
$— $— $— $— $— $— $2 $— 
Loans held for investment (residential)9 — 1 — — — (2)— 2 10 — 
Derivative instruments (a)
Interest rate(2)— (8)
(d)
4 — — — 2 
(e) 
— (4)— 
Credit— — — — — — — —   —   — — 
Other (b)
2 — — — — — (2)— — — — 
Dollars in millions
Beginning
of Period
Balance
Gains (Losses) included in comprehensive income
Gains
(Losses)
Included in
Earnings
 PurchasesSalesSettlementsTransfers Other
Transfers
into
Level 3
 
Transfers
out of
Level 3
 
End of
Period
Balance
Unrealized
Gains
(Losses)
Included in
Earnings
Year ended December 31, 2023
Other investments
Principal investments
Direct$1 $— $(1)
(c) 
$— $— $— $— $—   $—   $— $— 
Equity investments
Direct2 — — — —   —   2 — 
Loans held for investment (residential)9 — — — — — — — — 9 — 
Derivative instruments (a)
Interest rate2 (23)
(d) 
19 1 — (6)
(e) 
5 
(e) 
(2)
Credit(2)— — — 2 — — —   —   — — 
Other (b)
— — — — — — 2 — — 2 — 
(a)Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.
(b)Amounts represent Level 3 interest rate lock commitments.
(c)Realized and unrealized gains and losses on principal investments are reported in “other income” on the income statement.
(d)Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.
(e)Certain derivatives 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.

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. There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2024, and December 31, 2023.

The following table presents our assets measured at fair value on a nonrecurring basis at December 31, 2024, and December 31, 2023:
 December 31, 2024December 31, 2023
Dollars in millionsLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
ASSETS MEASURED ON A NONRECURRING BASIS
Collateral-dependent loans$— $— $152 $152 $— $— $104 $104 
Accrued income and other assets— — 14 14 — — 29 29 
Total assets on a nonrecurring basis at fair value$— $— $166 $166 $— $— $133 $133 
Qualitative Disclosures of Valuation Techniques
The following table describes the valuation techniques and significant inputs used to measure the significant classes of assets and liabilities reported at fair value on a nonrecurring basis, as well as the classification of each within the valuation hierarchy.
Asset/liability classValuation techniqueValuation hierarchy classification(s)
Collateral-dependent loansWhen a loan is collateral-dependent, the fair value of the loan is determined based on the fair value of the underlying collateral less estimated selling costs. Level 3
OREO, other repossessed personal properties, and right-of-use assets(a)
OREO, other repossessed properties, and right-of-use assets are valued based on:

• Appraisals and third-party price opinions, less estimated selling costs 

Generally, we classify these assets as Level 3, but OREO and other repossessed properties for which we receive binding purchase agreements are classified as Level 2. Returned lease inventory is valued based on market data for similar assets and is classified as Level 2. 
Level 2 and 3
Other equity investments
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 December 31, 2024, and December 31, 2023, the carrying amount of equity investments recorded under this method was $394 million and $339 million, respectively. We recorded $5 million of impairment for the year ended December 31, 2024. We recorded no impairment for the year ended December 31, 2023.
Level 3
Mortgage Servicing Rights(a)
Refer to Note 9 (“Mortgage Servicing Assets”).Level 3
(a)Asset classes included in “Accrued income and other assets” on the Consolidated Balance Sheets
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 December 31, 2024, and December 31, 2023, along with the valuation techniques used, are shown in the following table:
Level 3 Asset (Liability) Valuation TechniqueSignificant
Unobservable Input
Range
(Weighted-Average) (a), (b)
Dollars in millions
December 31, 2024December 31, 2023December 31, 2024December 31, 2023
Recurring    
Loans, net of unearned income (residential)$10 $9 Market comparable pricingComparability factor
68.00%-95.00% (77.48%)
62.67 - 89.60% (70.83%)
Derivative instruments:
Interest rate(4)2 Discounted cash flowsProbability of default
.02 - 100% (5.00%)
.02 - 100% (5.30%)
Loss given default
0 - 1 (.50)
0 - 1 (.48)
Insignificant level 3 assets, net of liabilities(c)
2 4 
Nonrecurring   
Collateral dependent loans152 104 Fair value of underlying collateralLiquidity discount
0 - 100.00% (33.00%)
0 - 10.00% (5.00%)
Accrued income and other assets:(d)
OREO and other assets14 21 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 $8 million pertaining to mortgage servicing assets measured as of December 31, 2023. Refer to Note 9 (“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 December 31, 2024, and December 31, 2023, are shown in the following table. Assets and liabilities are further arranged by measurement category.
 December 31, 2024
  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)
$1,283 $— $1,283 $— $— $—   $1,283 
Other investments (b)
1,041 — — 969 72 —   1,041 
Loans, net of unearned income (residential) (d)
10 — — 10 — —   10 
Loans held for sale (residential) (b)
93 — 93 — — —   93 
Derivative assets - trading (b)
255 93 527 (4)— (361)
(f) 
255 
Fair value - OCI
Securities available for sale (b)
37,707 — 37,707 — — —   37,707 
Derivative assets - hedging (b) (g)
(6)— (4)— — (2)
(f) 
(6)
Amortized cost
Held-to-maturity securities (c)
7,395 — 6,837 — — —   6,837 
Loans, net of unearned income (d)
102,841 — — 99,105 — —   99,105 
Loans held for sale (b)
704 — — 704 — — 704 
Other
Cash and short-term investments (a)
19,247 19,247 — — — — 19,247 
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)
$1,028 $85 $1,351 $— $— $(408)
(f) 
$1,028 
Fair value - OCI
Derivative liabilities - hedging (b) (g)
— — 3 — — (3)
(f) 
— 
Amortized cost
Time deposits (e)
16,952 — 17,068 — — —   17,068 
Short-term borrowings (a)
2,144 107 2,037 — — —   2,144 
Long-term debt (e)
12,105 11,430 477 — — —   11,907 
Other
Deposits with no stated maturity (a)
132,808 — 132,808 — — — 
  
132,808 
December 31, 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)
$1,142 $— $1,142 $— $— $— $1,142 
Other investments (b)
1,244 — — 1,183 61 — 1,244 
Loans, net of unearned income (residential) (d)
9 — — 9 — — 9 
Loans held for sale (residential) (b)
51 — 51 — — — 51 
Derivative assets - trading (b)
168 74 886 — — (792)
(f) 
168 
Fair value - OCI
Securities available for sale (b)
37,185 — 37,185 — — — 37,185 
Derivative assets - hedging (b) (g)
13 — 39 — — (26)
(f) 
13 
Amortized cost
Held-to-maturity securities (c)
8,575 — 8,056 — — — 8,056 
Loans, net of unearned income (d)
111,089 — — 105,950 — — 105,950 
Loans held for sale (b)
432 — — 432 — — 432 
Other
Cash and short-term investments (a)
11,758 11,758 — — — — 11,758 
LIABILITIES (by measurement category)
Fair value - net income
Derivative liabilities - trading (b)
$1,304 $58 $1,707 $— $— $(461)
(f) 
$1,304 
Fair value - OCI
Derivative liabilities - hedging (b) (g)
— — 12 — — (12)
(f) 
— 
Amortized cost
Time deposits (e)
14,776 — 14,911 — — — 14,911 
Short-term borrowings (a)
3,091 30 3,061 — — — 3,091 
Long-term debt (e)
19,554 11,288 $7,720 — — — 19,008 
Other
Deposits with no stated maturity (a)
130,811 — 130,811 — — — 130,811 
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” in this Note. Investments accounted for under the cost method (or cost less impairment adjusted for observable price changes for certain equity investments) are classified as Level 3 assets. These investments are not actively traded in an open market as sales for these types of investments are rare. The carrying amount of the investments carried at cost are adjusted for declines in value if they are considered to be other-than-temporary (or due to observable orderly transactions of the same issuer for equity investments eligible for the cost less impairment measurement alternative). These adjustments are included in “other income” on the income statement.
(c)Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure that they are reasonable and consistent with the values placed on similar securities traded in the secondary markets.
(d)The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their fair value.
(e)Fair values of time deposits and long-term debt are based on discounted cash flows utilizing relevant market inputs.
(f)Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.
(g)Derivative assets-hedging and derivative liabilities-hedging includes both cash flow and fair value hedges. Additional information regarding our accounting policies for cash flow and fair value hedges is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging.”

We determine fair value based on assumptions pertaining to the factors that a market participant would consider in valuing the asset. A substantial portion of our fair value adjustments are related to liquidity. During 2024 and 2023, the fair values of our loan portfolios generally remained stable, primarily due to sustained liquidity in the loan markets. If we were to use different assumptions, the fair values shown in the preceding table could change. Also, because the applicable accounting guidance for financial instruments excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, the fair value amounts shown in the table above do not, by themselves, represent the underlying value of our company as a whole.

Discontinued assets - education lending business. Our discontinued assets include government-guaranteed and private education loans originated through our education lending business that was discontinued in September 2009. This portfolio consists of loans recorded at carrying value with appropriate valuation reserves and loans recorded at fair value. All of these loans were excluded from the table above as follows:

•Loans at carrying value, net of allowance, of $257 million ($192 million at fair value) at December 31, 2024, and $339 million ($264 million at fair value) at December 31, 2023

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

Short-term financial instruments. For financial instruments with a remaining average life to maturity of less than six months, carrying amounts were used as an approximation of fair values.