XML 76 R17.htm IDEA: XBRL DOCUMENT
v3.21.1

Derivatives and Hedging Activities | 3 Months Ended
--- | ---
Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | 7. Derivatives and Hedging Activities We are a party to various derivative instruments, mainly through our subsidiary, KeyBank. The primary derivatives that we use are interest rate swaps, caps, floors, and futures; foreign exchange contracts; commodity derivatives; and credit derivatives. Generally, these instruments help us manage exposure to interest rate risk, mitigate the credit risk inherent in our loan portfolio, hedge against changes in foreign currency exchange rates, and meet client financing and hedging needs. At March 31, 2021, after taking into account the effects of bilateral collateral and master netting agreements, we had $103 million of derivative assets and $6 million of derivative liabilities that relate to contracts entered into for hedging purposes. As of the same date, after taking into account the effects of bilateral collateral and master netting agreements and a reserve for potential future losses, we had derivative assets of $1.4 billion and derivative liabilities of $177 million that were not designated as hedging instruments. These positions are primarily comprised of derivative contracts entered into for client accommodation purposes. Additional information regarding our accounting policies for derivatives is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives and Hedging” beginning on page 108 of our 2020 Form 10-K. Our derivative strategies and related risk management objectives are described in Note 8 (“Derivatives and Hedging Activities”) beginning on page 143 of our 2020 Form 10-K. 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 March 31, 2021, and December 31, 2020. 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:
| March 31, 2021 |  | December 31, 2020
|  | 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 | $ | 41,835 |  | $ | 44 |  | $ | 6 |  |  | $ | 36,135 |  | $ | 70 |  | $ | (3) |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Interest rate | 76,937 |  | 971 |  | 312 |  |  | 78,424 |  | 1,514 |  | 291 |
Foreign exchange | 6,412 |  | 95 |  | 84 |  |  | 6,385 |  | 109 |  | 103 |
Commodity | 11,126 |  | 638 |  | 620 |  |  | 9,702 |  | 426 |  | 408 |
Credit | 392 |  | 1 |  | 8 |  |  | 423 |  | 1 |  | 11 |
Other (a) | 5,024 |  | 33 |  | 14 |  |  | 4,951 |  | 58 |  | 16 |
Total | 99,891 |  | 1,738 |  | 1,038 |  |  | 99,885 |  | 2,108 |  | 829 |
Netting adjustments (b) | — |  | (258) |  | (861) |  |  | — |  | (380) |  | (675) |
Net derivatives in the balance sheet | 141,726 |  | 1,524 |  | 183 |  |  | 136,020 |  | 1,798 |  | 151 |
Other collateral (c) | — |  | (1) |  | (6) |  |  | — |  | (2) |  | (11) |
Net derivative amounts | $ | 141,726 |  | $ | 1,523 |  | $ | 177 |  |  | $ | 136,020 |  | $ | 1,796 |  | $ | 140 |
(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. Fair value hedges. During the three-month period ended March 31, 2021, we did not exclude any portion of fair value hedging instruments from the assessment of hedge effectiveness. The following tables summarize the amounts that were recorded on the balance sheet as of March 31, 2021, and December 31, 2020, related to cumulative basis adjustments for fair value hedges.
| March 31, 2021
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 | $ | 7,094 |  | $ | 211 |
Interest rate contracts | Securities Available for Sale(c) | 3,880 |  | 287 |
| December 31, 2020
| 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 | $ | 8,182 |  | $ | 416 |
Interest rate contracts | Securities Available for Sale(c) | 2,080 |  | 21 |
(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 $8 million and $8 million at March 31, 2021, and December 31, 2020, respectively, (c)These amounts are designed as fair value hedges under the last-of-layer method. The carrying amount represents the amortized costs basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the las t layer expected to be remaining at the end of the relationship. At March 31, 2021, and December 31, 2020, the amortized costs of the closed portfolios in these hedging relationships was $5.0 billion and $2.5 billion, respectively. Cash flow hedges. During the three-month period ended March 31, 2021, we did not exclude any portion of cash flow hedging instruments from the assessment of hedge effectiveness. Considering the interest rates, yield curves, and notional amounts as of March 31, 2021, we expect to reclassify an estimate d $215 million of after-tax net gains on derivative instruments designated as cash flow hedges from AOCI to income during the next 12 months. In addition, we expect to reclassify approximate ly $9 million of net gains related to terminated cash flow hedges from AOCI to income during the next 12 months. As of March 31, 2021, the maximum length of time over which we hedge forecasted transac tions is 6.0 years. The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the three-month periods ended March 31, 2021, and March 31, 2020.
| 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 Income - securities | Investment banking and debt placement fees | Interest expense - deposits | Other income |
Three months ended March 31, 2021 |  |  |  |  |  |  |  |
Total amounts presented in the consolidated statement of income | $ | 60 |  | $ | 889 |  |  | $ | 130 |  | $ | 162 |  | $ | 21 |  | $ | 51 |  |
Net gains (losses) on fair value hedging relationships |  |  |  |  |  |  |  |
Interest contracts |  |  |  |  |  |  |  |
Recognized on hedged items | 204 |  | — |  |  | (266) |  | — |  | — |  | — |  |
Recognized on derivatives designated as hedging instruments | (166) |  | — |  |  | 267 |  | — |  | — |  | — |  |
Net income (expense) recognized on fair value hedges | $ | 38 |  | — |  |  | $ | 1 |  | — |  | — |  | — |  |
Net gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |
Interest contracts |  |  |  |  |  |  |  |
Realized gains (losses) (pre-tax) reclassified from AOCI into net income | $ | (1) |  | $ | 89 |  |  | $ | — |  | $ | 1 |  | — |  | — |  |
Net income (expense) recognized on cash flow hedges | $ | (1) |  | $ | 89 |  |  | — |  | $ | 1 |  | — |  | — |  |
Three months ended March 31, 2020 |  |  |  |  |  |  |  |
Total amounts presented in the consolidated statement of income | $ | 90 |  | $ | 1,026 |  |  | $ | 129 |  | $ | 116 |  | $ | (169) |  | $ | (88) |  |
Net gains (losses) on fair value hedging relationships |  |  |  |  |  |  |  |
Interest contracts |  |  |  |  |  |  |  |
Recognized on hedged items | $ | (294) |  | — |  |  | — |  | — |  | — |  | — |  |
Recognized on derivatives designated as hedging instruments | 311 |  | — |  |  | — |  | — |  | — |  | — |  |
Net income (expense) recognized on fair value hedges | $ | 17 |  | — |  |  | $ | — |  | $ | — |  | $ | — |  | — |  |
Net gain (loss) on cash flow hedging relationships |  |  |  |  |  |  |  |
Interest contracts |  |  |  |  |  |  |  |
Realized gains (losses) (pre-tax) reclassified from AOCI into net income | $ | (1) |  | $ | 34 |  |  | — |  | — |  | — |  | — |  |
Net income (expense) recognized on cash flow hedges | $ | (1) |  | $ | 34 |  |  | — |  | — |  | — |  | — |  |
The following tables summarize the pre-tax net gains (losses) on our cash flow hedges for the three-month periods ended March 31, 2021, and March 31, 2020, 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 March 31, 2021 |  |  |  |
Cash Flow Hedges |  |  |  |
Interest rate | $ | (203) |  | Interest income — Loans | $ | 89 |  |
Interest rate | 3 |  | Interest expense — Long-term debt | (1) |  |
Interest rate | 10 |  | Investment banking and debt placement fees | 1 |  |
Total | $ | (190) |  |  | $ | 89 |  |
Three months ended March 31, 2020 |  |  |  |
Cash Flow Hedges |  |  |  |
Interest rate | $ | 562 |  | Interest income — Loans | $ | 34 |  |
Interest rate | (5) |  | Interest expense — Long-term debt | (1) |  |
Interest rate | (30) |  | Investment banking and debt placement fees | — |  |
Total | $ | 527 |  |  | $ | 33 |  |
Nonhedging instruments The following table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the three-month periods ended March 31, 2021, and March 31, 2020, and where they are recorded on the income statement.
| Three months ended March 31, 2021 |  | Three months ended March 31, 2020
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 | $ | 6 |  | — |  | — |  | $ | 6 |  |  | $ | 11 |  | — |  | $ | (9) |  | $ | 2 |
Foreign exchange | 11 |  | — |  | — |  | 11 |  |  | 12 |  | — |  | — |  | 12 |
Commodity | 4 |  | — |  | — |  | 4 |  |  | 2 |  | — |  | — |  | 2 |
Credit | 5 |  | — |  | $ | (9) |  | (4) |  |  | (16) |  | — |  | 1 |  | (15) |
Other | — |  | $ | 1 |  | (22) |  | (21) |  |  | — |  | $ | 4 |  | 9 |  | 13 |
Total net gains (losses) | $ | 26 |  | $ | 1 |  | $ | (31) |  | $ | (4) |  |  | $ | 9 |  | $ | 4 |  | $ | 1 |  | $ | 14 |
Counterparty Credit Risk We hold collateral in the form of cash and highly rated securities issued by the U.S. Treasury, government-sponsored enterprises, or GNMA. Cash collateral of $86 million was netted against derivative assets on the balance sheet at March 31, 2021, compared to $63 million of cash collateral netted against derivative assets at December 31, 2020. The cash collateral netted against derivative liabilities totaled $518 million at March 31, 2021, and $232 million at December 31, 2020. Our means of mitigating and managing exposure to credit risk on derivative contracts is described in Note 8 (“Derivatives and Hedging Activities”) beginning on page 147 of our 2020 Form 10-K under the heading “Counterparty Credit Risk.” 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 | March 31, 2021 | December 31, 2020
Interest rate | $ | 858 |  | $ | 1,448 |
Foreign exchange | 55 |  | 52 |
Commodity | 492 |  | 178 |
Credit | — |  | (1) |
Other | 33 |  | 58 |
Derivative assets before collateral | 1,438 |  | 1,735 |
Plus(Less): Related collateral | 86 |  | 63 |
Total derivative assets | $ | 1,524 |  | $ | 1,798 |
We enter into derivative transactions with two primary groups: broker-dealers and banks, and clients. Given that these groups have different economic characteristics, we have different methods for managing counterparty credit exposure and credit risk. We enter into transactions with broker-dealers and banks for various risk management purposes. These types of transactions are primarily high dollar volume. We enter into bilateral collateral and master netting agreements with these counterparties. We clear certain types of derivative transactions with these counterparties, whereby central clearing organizations become the counterparties to our derivative contracts. In addition, we enter into derivative contracts through swap execution facilities. Swap clearing and swap execution facilities reduce our exposure to counterpa rty credit risk. At March 31, 2021, we had gross exposure of $234 million to broker-dealers and banks. We had net exposure of $228 million after the application of master netting agreements and cash collateral, where such qualifying agreements exist. We had net exposure of $225 million after considering $3 million of additional collateral held in the form of securities. We enter into transactions using master netting agreements with clients to accommodate their business needs. In most cases, we mitigate our credit exposure by cross-collateralizing these transactions to the underlying loan collateral. For transactions that are not clearable, we mitigate our market risk by buying and selling U.S. Treasuries and Eurodollar futures or entering into offsetting positions. Due to the cross-collateralization to the underlying loan, we typically do not exchange cash or marketable securities collateral in connection with these transactions. To address the risk of default associated with these contracts, we have established a CVA reserve (included in “accrued income and other assets”) in the amount of $23 million at March 31, 2021. The CVA is calculated from potential future exposures, expected recovery rates, and market-implied probabilities of default. At March 31, 2021, we had gross exposure of $1.4 billion to client counterparties and other entities that are not broker-dealers or banks for derivatives that have associated master netting agreements. We had net exposure of $1.3 billion on our derivatives with these counterparties after the application of master netting agreements, collateral, an d the related reserve. Credit Derivatives We are a buyer and, under limited circumstances, may be a seller of credit protection through the credit derivative market. We purchase credit derivatives to manage the credit risk associated with specific commercial lending and swap obligations as well as exposures to debt securities. Our credit derivative portfolio was in a net liability position of $8 million as of March 31, 2021, and $9 million as of December 31, 2020. Our credit derivative portfolio consists of traded credit default swap indices and risk participation agreements. Additional descriptions of our credit derivatives are provided in Note 8 (“Derivatives and Hedging Activities”) beginning on page 148 of our 2020 Form 10-K under the heading “Credit Derivatives.” The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at March 31, 2021, and December 31, 2020. 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.
| March 31, 2021 |  | December 31, 2020
dollars in millions | Notional Amount | Average Term (Years) | Payment / Performance Risk |  | Notional Amount | Average Term (Years) | Payment / Performance Risk
Other | $ | 104 |  | 10.08 | 15.11 | % |  | $ | 227 |  | 12.76 | 19.53 | %
Total credit derivatives sold | $ | 104 |  | — |  | — |  |  | $ | 227 |  | — |  | — |
Credit Risk Contingent Features We have entered into certain derivative contracts that require us to post collateral to the counterparties when these contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to our long-term senior unsecured credit ratings with Moody’s and S&P. Collateral requirements also are based on minimum transfer amounts, which are specific to each Credit Support Annex (a component of the ISDA Master Agreement) that we have signed with the counterparties. In a limited number of instances, counterparties have the right to terminate their ISDA Master Agreements with us if our ratings fall below a certain lev el, usually investment-grade level (i.e., “Baa3” for Moody’s and “BBB-” for S&P). At March 31, 2021, KeyBank’s rating was “A3” with Moody’s and “A-” with S&P, and KeyCorp’s rating was “Baa1” with Moody’s and “BBB+” with S&P. As of March 31, 2021, the aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our ratings) held by KeyBank that were in a net liability position totaled $496 million, which was comprised of $121 million in derivative assets and $617 million in derivative liabilities. We had $530 million in cash and securities collateral posted to cover those positions as of March 31, 2021. There were no derivative contracts with credit risk contingent features held by KeyCorp at March 31, 2021. 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 March 31, 2021, and December 31, 2020. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of March 31, 2021, and December 31, 2020, and take into account all collateral already posted. A similar calculation was performed for Ke yCorp, and no addition al collateral would have been required as of March 31, 2021, and December 31, 2020. 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.
| March 31, 2021 |  | December 31, 2020
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 | 2 |  | 2 |  |  | 1 |  | 1 |
Three rating downgrades | 2 |  | 2 |  |  | 1 |  | 1 |
KeyBank’s long-term senior unsecured credit rating was four ratings above noninvestment grade at Moody’s and S&P as of March 31, 2021, and December 31, 2020. If Key Bank’s ratings had been downgraded below investment grade as of March 31, 2021, or December 31, 2020, payments of $3 million and $2 million, respectively, would have been required to either terminate the contracts or post additional collateral for th ose contracts in a net liability position, taking into account all collateral already posted. If KeyCorp’s ratings had been downgraded below investment grade as of March 31, 2021, or December 31, 2020, no payments would have been required to either terminate the contracts or post additional collateral for those contracts in a net liability position, taking into account all collateral already posted.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration