KEYCORP /NEW/ 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page Number Introduction 48 Long-term financial targets 49 Corporate strategy 50 Strategic developments 50 Results of Operations 51 Earnings overview 51 Net interest income 51 Provision for credit losses 54 Noninterest income 54 Noninterest expense 56 Income taxes 58 Business Segment Results 58 Consumer Bank 58 Commercial Bank 59 Financial Condition 61 Loans and loans held for sale 61 Securities 67 Deposits and other sources of funds 70 Capital 71 Off-Balance Sheet Arrangements and Aggregate Contractual Obligations 73 Off-balance sheet arrangements 73 Guarantees 74 Risk Management 74 Overview 74 Market risk management 76 Liquidity risk management 82 Credit risk management 85 Operational and compliance risk management 88 GAAP to Non-GAAP Reconciliations 89 Critical Accounting Policies and Estimates 90 Allowance for loan and lease losses 91 Valuation methodologies 92 Derivatives and hedging 94 Contingent liabilities, guarantees and income taxes 94 Accounting and reporting developments 95 47 Table of contents Introduction This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for 2023 and 2022. Some tables may 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 and notes that we refer to are presented in the Table of Contents. To review our financial condition and results of operations for 2021 and a comparison between the 2021 and 2022 results, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K filed with the SEC on February 22, 2023, which discussion is incorporated herein by reference. 48 Table of contents 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 e fficiency ratio in the range of 54.0% to 56.0% . For the 2023 fiscal year, our cash efficiency ratio and operating leverage were affected by an increase in noninterest expense and a decrease in revenues. Noninterest expense increased 7% from prior year including the impact of the FDIC special assessment as well as efficiency-related charges as we focused on expense management, including simplifying and streamlining our businesses. Net interest income decreased 13% from prior year reflecting higher interest-bearing deposit costs and a shift in funding mix to higher cost deposits and borrowings. Positive operating leverage remains one of our long-term financial targets. 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% throug h a credit cycle. Our net charge-offs to average loans ratio remains near historically low levels and continues to reflect our proven underwrite-to-distribute model. We believe our strong risk management practices will allow us to continue supporting our clients, while maintaining our moderate risk profile, and will position Key to perform well through all business cycles. Financial Return A retur n on average tangible common equity in the range of 16.0% to 19.0%. Our full-year dividend for 2023 was $.82. Our proactive balance sheet optimization efforts drove the increase in our CET1 ratio and improved our liquidity and funding profile. We believe that these proactive efforts will better position Key to deliver sound, profitable growth and value for all of our stakeholders. 49 Table of contents 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 with respect to 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 position remains strong, and we are well-positioned relative to our capital priorities. • 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 2023 in support of our corporate strategy: • Throughout dynamic market conditions we continued to support our clients , growing in both commercial clients and consumer households and raising $80 billion in capital for our clients. • We’ve continued to focus on relationships , primacy, and quality deposits, while de-emphasizing non-relationship business and significantly improving our funding and liquidity. • Overall, credit quality remains strong reflecting our strong risk management discipline and our proven underwrite-to-distribute business model. We’ve continued to maintain low exposure in high-risk categories such as leveraged lending and office properties. • We proactively managed our balance sheet by reducing risk-weighted assets, improving our capital position . At December 31, 2023, our Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 10.02% and 11.67%, respectively. • 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 recognitions included the Human Rights Campaign naming us one of the 2023 Equality 100 Award recipients as a leader in LGBTQ+ Workplace Inclusion, 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 2023 Top 50 Companies for Diversity. 50 Table of contents Current year expectations - full year 2024 vs. full year 2023 Category Expectations (a) Average loans down 5% to 7% (c) Average deposits flat to down 2% Net interest income (TE) down 2% to 5% (c) Noninterest income up 5%+ Noninterest expense relatively stable (b) Net charge-offs to average loans 30 to 40 basis points (FY2024) Effective tax rate ~20% (FY2024) (a) Guidance range: relatively stable: +/- 2%. (b) Excludes impact of the FDIC special assessment charge of $190 million, efficiency related expenses of $131 million, and a pension settlement charge of $18 million in 2023. (c) Additional Guidance: End of period loans: relatively stable vs. year-end 2023 balances; Net interest income (TE): Up low-single digits vs. 4Q23 annualized exit rate, 10%+ 4Q24 vs. 4Q23. 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, 2022, to the year ended December 31, 2023 (dollars in millions): (a) Includes Preferred dividends. 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. 51 Table of contents Net interest income (TE) for 2023 was $3.9 billion, and the net interest margin was 2.17%. Compared to 2022, net interest income (TE) decreased $611 million, and the net interest margin decreased by 47 basis points. The decline in net interest income (TE) and the net interest margin was driven by higher interest-bearing deposit costs and a shift in funding mix to higher cost deposits and borrowings. Partly offsetting the decline in net interest income and the net interest margin were higher earning asset balances and yields. Average loans totaled $118.0 billion for 2023, compared to $111.3 billion in 2022. The $6.7 billion increase was driven by growth in commercial and industrial loans and consumer mortgage balances during the first half of 2023. Average deposits totaled $144.1 billion for 2023, a decrease of $2.8 billion compared to 2022. The decrease was driven by changing client behavior as a result of higher interest rates. 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 three 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. 52 Table of contents Figure 1. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates from Continuing Operations (h) Year ended December 31, 2023 2022 2021 Dollars in millions Average Balance Interest (a) Yield/ Rate (a) Average Balance Interest (a) Yield/ Rate (a) Average Balance Interest (a) Yield/ Rate (a) ASSETS Loans (b), (c) Commercial and industrial (d) $ 59,379 $ 3,444 5.80 % $ 54,970 $ 2,148 3.91 % $ 50,931 $ 1,795 3.52 % Real estate — commercial mortgage 15,968 931 5.83 15,572 633 4.07 13,118 472 3.60 Real estate — construction 2,755 185 6.71 2,229 99 4.44 2,113 77 3.61 Commercial lease financing 3,703 116 3.13 3,869 98 2.54 4,019 114 2.84 Total commercial loans 81,805 4,676 5.72 76,640 2,978 3.89 70,181 2,458 3.50 Real estate — residential mortgage 21,428 699 3.26 19,036 559 2.94 12,252 348 2.84 Home equity loans 7,522 433 5.76 8,115 347 4.28 8,967 336 3.74 Consumer direct loans 6,228 304 4.88 6,490 277 4.27 5,105 233 4.56 Credit cards 986 136 13.88 959 107 11.23 925 94 10.11 Consumer indirect loans 35 1 .71 62 — — 2,839 90 3.19 Total consumer loans 36,199 1,573 4.35 34,662 1,290 3.72 30,088 1,101 3.66 Total loans 118,004 6,249 5.30 111,302 4,268 3.84 100,269 3,559 3.55 Loans held for sale 1,012 61 6.06 1,278 56 4.41 1,700 50 2.96 Securities available for sale (b), (e) 37,718 793 1.80 42,325 752 1.62 35,765 546 1.53 Held-to-maturity securities (b) 9,008 312 3.46 7,676 213 2.77 7,035 185 2.63 Trading account assets 1,138 55 4.85 850 31 3.61 820 19 2.35 Short-term investments 7,349 414 5.63 4,264 97 2.28 17,529 28 .16 Other investments (e) 1,392 73 5.28 952 22 2.26 621 7 1.14 Total earning assets 175,621 7,957 4.37 168,647 5,439 3.15 163,739 4,394 2.69 Allowance for loan and lease losses (1,419) (1,101) (1,340) Accrued income and other assets 17,425 18,340 16,520 Discontinued assets 384 492 632 Total assets $ 192,011 $ 186,378 $ 179,551 LIABILITIES Money market deposits $ 34,539 $ 666 1.93 % $ 35,966 $ 52 .14 % $ 36,959 $ 15 .04 % Demand deposits 54,711 1,102 2.01 49,707 182 .37 47,777 26 .05 Savings deposits 6,343 3 .04 7,798 1 .01 6,893 1 .02 Certificates of deposit ($100,000 or more) (f) 4,517 171 3.79 1,455 8 .56 2,135 16 .72 Other time deposits 9,277 380 4.10 2,892 36 1.25 2,540 9 .37 Total interest-bearing deposits 109,387 2,322 2.12 97,818 279 .29 96,304 67 .07 Federal funds purchased and securities sold under repurchase agreements 1,647 79 4.81 2,107 41 1.93 239 — .02 Bank notes and other short-term borrowings 5,890 308 5.24 2,963 90 3.02 770 8 1.08 Long-term debt (f), (g) 20,983 1,305 6.22 14,915 475 3.19 12,391 221 1.79 Total interest-bearing liabilities 137,907 4,014 2.91 117,803 885 .75 109,704 296 .27 Noninterest-bearing deposits 34,672 49,044 48,731 Accrued expense and other liabilities 5,167 4,309 2,819 Discontinued liabilities (g) 384 492 632 Total liabilities 178,130 171,648 161,886 EQUITY Key shareholders’ equity 13,881 14,730 17,665 Noncontrolling interests — — — Total equity 13,881 14,730 17,665 Total liabilities and equity $ 192,011 $ 186,378 $ 179,551 Interest rate spread (TE) 1.46 % 2.40 % 2.42 % Net interest income (TE) and net interest margin (TE) $ 3,943 2.17 % $ 4,554 2.64 % $ 4,098 2.50 % Less: TE adjustment (b) 30 27 27 Net interest income, GAAP basis $ 3,913 $ 4,527 $ 4,071 (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 $196 million, $157 million, and $134 million of assets from commercial credit cards for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, 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. 53 Table of contents 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 2023 vs. 2022 Dollars in millions Average Volume Yield/ Rate Net Change (a) INTEREST INCOME Loans $ 261 $ 1,720 $ 1,981 Loans held for sale (13) 18 5 Securities available for sale (87) 128 41 Held-to-maturity securities 41 58 99 Trading account assets 12 12 24 Short-term investments 104 213 317 Other investments 14 37 51 Total interest income (TE) 332 2,186 2,518 INTEREST EXPENSE Money market deposits (2) 616 614 Demand deposits 20 900 920 Savings deposits — 2 2 Certificates of deposit ($100,000 or more) 43 120 163 Other time deposits 169 175 344 Total interest-bearing deposits 230 1,813 2,043 Federal funds purchased and securities sold under repurchase agreements (11) 49 38 Bank notes and other short-term borrowings 126 92 218 Long-term debt 248 582 830 Total interest expense 593 2,536 3,129 Net interest income (TE) $ (261) $ (350) $ (611) (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 charge of $489 million for 2023, compared to $502 million for 2022. The decrease in our provision for credit losses was driven by a lower reserve build, partly due to planned balance sheet optimization efforts over 2023, offset by higher net charge-offs. In 2022, the increase in provision for credit losses was a result of reserve increases largely driven by changes in the economic outlook and loan growth. 54 Table of contents Noninterest income Noninterest income for 2023 was $2.5 billion, compared to $2.7 billion during 2022. Noninterest income represented 39% of total revenue for 2023 and 37% of total revenue for 2022. 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. 55 Table of contents Trust and investment services income Trust and investment services income consists of brokerage commissions, trust and asset management commissions, and insurance income. The assets under management or administration that primarily generate these revenues are shown in Figure 4. For 2023, trust and investment services income decreased $10 million, or 1.9%. This was primarily due to a decrease in transactional commission based revenues slightly offset by an increase in investment management income and other fees stemming from increased 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, 2023, our bank, trust, and registered investment advisory subsidiaries had assets under management or administration of $54.9 billion, compared to $51.3 billion at December 31, 2022. The increase from 2022 to 2023 was attributable to movements in the equity markets and new business. Figure 4. Assets Under Administration Year ended December 31, Change 2023 vs. 2022 Dollars in millions 2023 2022 Amount Percent Discretionary assets under management by investment type: Equity $ 30,724 $ 28,313 $ 2,411 8.5 % Fixed income 13,775 14,432 (657) (4.6) Money market 6,187 5,238 949 18.1 Total discretionary assets under management $ 50,686 $ 47,983 $ 2,703 5.6 % Non-discretionary assets under administration 4,173 3,299 874 26.5 Total $ 54,859 $ 51,282 $ 3,577 7.0 % Investment banking and debt placement fees Investment banking and debt placement fees consist of syndication fees, debt and equity underwriting fees, merger and acquisition and debt placement advisor fees, gains on sales of commercial mortgages, and agency origination fees. For 2023, investment banking and debt placement fees decreased $96 million, or 15.0%, from the prior year reflective of the continued challenging environment in the capital markets. Service charges on deposit accounts Service charges on deposit accounts decreased $80 million, or 22.9%, in 2023 compared to the prior year. This decrease reflects the full year impact of new fee terms implemented in the second half of 2022 which eliminated NSF fees and introduced Key Coverage Zone TM for overdraft fees, as well as lower account analysis fees related to the interest rate environment. Cards and payments income Cards and payments income, which consists of debit card, consumer and commercial credit card, and merchant services income remained relatively flat and only decreased $1 million, or 0.3%, in 2023 compared to 2022. Other noninterest income Other noninterest income decreased $61 million, or 7.1%, in 2023 compared to 2022, driven by decreases in corporate services income from lower derivatives trading income, decreases in operating lease income as our operating lease portfolio runs off, and decreases in consumer mortgage income from lower gain on sale margins. These decreases were slightly offset by an increase in commercial mortgage servicing fees driven by a higher servicing portfolio. Noninterest expense Noninterest expense for 2023 was $4.7 billion, compared to $4.4 billion for 2022. 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, 2023. The following discussion explains the composition of certain elements of our noninterest expense and the factors that caused those elements to change. 56 Table of contents 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 $94 million, or 3.7%, in 2023 compared to 2022. Activity for the year was driven by higher salaries and severance with an offset from decreased incentive compensation costs from lower revenue generation in our variable expense businesses. Figure 6. Personnel Expense Year ended December 31, Dollars in millions Change 2023 vs. 2022 2023 2022 Amount Percent Salaries and contract labor $ 1,649 $ 1,500 $ 149 9.9 % Incentive and stock-based compensation (a) 525 693 (168) (24.2) Employee benefits 405 363 42 11.6 Severance 81 10 71 N/M Total personnel expense $ 2,660 $ 2,566 $ 94 3.7 % N/M - Not meaningful (a) Excludes directors’ stock-based compensation of $3 million in 2023 and $3 million in 2022, reported as “other noninterest expense” in Figure 5. Non-personnel expense In total, other non-personnel expense increased $230 million, or 12.5%, in 2023 compared to 2022 primarily due to the $190 million FDIC special assessment charge, as well as corporate real estate related rationalization costs recorded within other expense. 57 Table of contents Income taxes We recorded a tax provision from continuing operations of $196 million for 2023, compared to $422 million for 2022. The effective tax rate, which is the provision for income taxes as a percentage of income from continuing operations before income taxes, was 16.9% for 2023 and 18.1% for 2022. In 2023, 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, and tax credits associated with low-income housing investments, and periodic adjustments to our tax reserves as described in Note 14 (“Income Taxes”). Business Segment Results This section summarizes the 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 • Execute a relationship-oriented growth strategy, which will enable us to grow (i) stable, low-cost deposits and (ii) valuable fee income streams, including wealth management and cards and payments • Simplify our business to improve execution and efficiency while managing risk • Meet the needs of our clients and communities in markets where we operate Market and business overview As the banking industry moves forward, so do our clients. Anticipating our clients’ needs not only today, but also 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. Key Consumer Bank’s focus on durable, long-term client relationships centered in core checking has been evident through the execution of our strategic priorities through focus areas such as developing a core Consumer relationship product suite and driving long-term deposits and fee income through new and enhanced products and services. Key continues to adapt to an increasingly digital world with an increased focus on client experience across our online banking channels. The advice our bankers provide, in combination with our products, services and digital platforms, place Key in a strong position to develop long-lasting and meaningful relationships with our current and prospective clients. Our goal is to help our clients move forward on their financial journeys and to be by their sides along the way. Summary of operations • Net income attributable to Key of $248 million in 2023, compared to $365 million in 2022, a decrease of 32.1%, largely driven by higher interest rates on deposits and the FDIC special assessment charge • Taxable equivalent net interest income decreased in 2023 by $133 million, or 5.5%, from the prior year, reflecting higher interest-bearing deposit costs • Average loans and leases increased in 2023 by $1.1 billion, or 2.6%, from the prior year, driven by increases in residential mortgage loans • Average deposits decreased in 2023 by $6.2 billion, or 6.8%, from the prior year, driven by changes in client behavior due to the higher interest rate environment 58 Table of contents • Provision for credit losses decreased $82 million in 2023 compared to the prior year, driven by lower reserves due to planned balance sheet optimization efforts and changes in the economic outlook, offset by higher net charge-offs • Noninterest income decreased in 2023 by $51 million, or 5.1%, driven by decreases in service charges on deposit accounts as a result of declining overdraft fee and NSF fees. • Noninterest expense increased in 2023 by $52 million, or 1.9%, primarily reflective of the FDIC special assessment charge 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 59 Table of contents 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 $839 million in 2023, compared to $1.1 billion in 2022, a decrease of 26.7%, largely driven by an increase in reserves, increase in FDIC special assessment charges, lower investment banking and debt placement fees, and lower corporate services income • Taxable equivalent net interest income decreased in 2023 by $52 million, or 2.8%, from the prior year, reflecting higher interest-bearing deposit costs and a shift in funding mix to higher-cost deposits • Average loan and lease balances increased $5.6 billion in 2023, or 8.0%, driven by an increase in commercial and industrial loans and commercial real estate • Average deposit balances decreased $798 million in 2023, or 1.5%, driven by changing client behavior due to the current economic environment while also being impacted by our focus on growing deposits across our commercial businesses • Provision for credit losses increased $62 million in 2023 compared to the prior year, resulting from higher net-charge-offs and reserve increases driven by changes in portfolio activity and the economic outlook • Noninterest income decreased $178 million in 2023, or 11.1%, from the prior year, driven by lower investment banking and debt placement fees, reflecting lower syndication and merger and acquisition advisory revenues, as well as a decline in corporate services income • Noninterest expense increased by $69 million in 2023, or 4.0%, from the prior year, primarily due to the FDIC special assessment charge 60 Table of contents Financial Condition Loans and loans held for sale Figure 7. Breakdown of Loans as of December 31, 2023 (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. 61 Table of contents Figure 8 shows the composition of our loan portfolio at December 31 for each of the past two years. Figure 8. Composition of Loans 2023 2022 December 31, Dollars in millions Amount Percent of Total Amount Percent of Total COMMERCIAL Commercial and industrial (a) $ 55,815 49.6 % $ 59,647 50.0 % Commercial real estate: Commercial mortgage 15,187 13.5 16,352 13.7 Construction 3,066 2.7 2,530 2.1 Total commercial real estate loans 18,253 16.2 18,882 15.8 Commercial lease financing (b) 3,523 3.1 3,936 3.3 Total commercial loans 77,591 68.9 82,465 69.1 CONSUMER Real estate — residential mortgage 20,958 18.6 21,401 17.9 Home equity loans 7,139 6.4 7,951 6.6 Consumer direct loans 5,890 5.2 6,508 5.4 Credit cards 1,002 0.9 1,026 0.9 Consumer indirect loans 26 — 43 0.1 Total consumer loans 35,015 31.1 36,929 30.9 Total loans (c) $ 112,606 100.0 % $ 119,394 100.0 % (a) Loan balances include $207 million and $172 million, of commercial credit card balances at December 31, 2023, and December 31, 2022, respectively. (b) Commercial lease financing includes receivables held as collateral for a secured borrowing of $7 million and $8 million at December 31, 2023, and December 31, 2022, 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 $339 million at December 31, 2023, and $434 million at December 31, 2022, related to the discontinued operations of the education lending business. At December 31, 2023, total loans outstanding from continuing operations were $112.6 billion, compared to $119.4 billion at the end of 2022. 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 $77.6 billion at December 31, 2023, a decrease of $4.9 billion, or 5.9%, compared to December 31, 2022 . The decrease was across all major commercial loan categories as a result of our planned balance sheet optimization efforts. Figure 9 provides our commercial loan portfolio by industry classification as of December 31, 2023, and December 31, 2022. 62 Table of contents Figure 9. Commercial Loans by Industry December 31, 2023 Commercial and industrial Commercial real estate Commercial lease financing Total commercial loans Percent of total Dollars in millions Industry classification: Agriculture $ 925 $ 114 $ 74 $ 1,113 1.4 % Automotive 2,153 833 4 2,990 3.9 Business services 3,387 243 112 3,742 4.8 Commercial real estate 8,229 13,113 8 21,350 27.5 Construction materials and contractors 2,311 292 265 2,868 3.7 Consumer goods 3,851 622 268 4,741 6.1 Consumer services 4,568 774 327 5,669 7.3 Equipment 2,405 171 168 2,744 3.5 Finance 8,908 104 284 9,296 12.0 Healthcare 3,222 1,456 303 4,981 6.4 Materials and extraction 2,402 304 152 2,858 3.7 Oil and gas 2,212 37 12 2,261 2.9 Public exposure 2,241 8 513 2,762 3.6 Technology, media, and telecom 807 11 78 896 1.2 Transportation 988 97 466 1,551 2.0 Utilities 6,418 6 459 6,883 8.9 Other 788 68 30 886 1.1 Total $ 55,815 $ 18,253 $ 3,523 $ 77,591 100.0 % December 31, 2022 Commercial and industrial Commercial real estate Commercial lease financing Total commercial loans Percent of total Dollars in millions Industry classification: Agriculture $ 829 $ 110 $ 83 $ 1,022 1.2 % Automotive 1,678 751 12 2,441 2.9 Business services 3,514 246 148 3,908 4.7 Commercial real estate 8,883 13,919 10 22,812 27.7 Construction materials and contractors 2,649 318 322 3,289 4.0 Consumer goods 4,643 576 288 5,507 6.7 Consumer services 5,009 900 346 6,255 7.6 Equipment 2,584 180 161 2,925 3.5 Finance 8,805 112 461 9,378 11.4 Healthcare 3,589 1,372 330 5,291 6.4 Materials and extraction 3,128 240 145 3,513 4.3 Oil and gas 2,399 33 20 2,452 3.0 Public exposure 2,534 9 580 3,123 3.8 Technology, media, and telecom 1,082 12 89 1,183 1.4 Transportation 1,092 137 477 1,706 2.1 Utilities 6,725 5 450 7,180 8.7 Other 504 (38) 14 480 .6 Total $ 59,647 $ 18,882 $ 3,936 $ 82,465 100.0 % Commercial and industrial . Commercial and industrial loans are the largest component of our loan portfolio, representing 50% of our total loan portfolio at December 31, 2023, and 50% at December 31, 2022. This portfolio is approximately 88% variable rate and consists of loans primarily to large corporate, middle market, and small business clients. Commercial and industrial loans totaled $55.8 billion at December 31, 2023, a decrease of $3.8 billion, or 6.4%, compared to December 31, 2022 . The decrease was broad-based and spread across most industry categories, reflecting our planned balance sheet optimization efforts. Commercial real estate loans . Our commercial real estate portfolio includes project loans primarily focused in market-rate and affordable multi-family housing loans, owner-occupied commercial and industrial operating company buildings, and community center grocer-anchored retail centers. These three commercial real estate segments make up 75% of our commercial real estate portfolio. Our non-owner-occupied portfolio is focused on operators of commercial real estate who not only utilize our loan products, but also our broader industry-focused products and services and provide consistent pipelines into our agency, CMBS, and other long-term market take out products. This focus ensures our relationship clients foster and build portfolios with stable, recurring cash flows, with adequate, balanced cash reserves to support our balance sheet exposures through the economic cycle. At December 31, 2023, commercial real estate loans totaled $18.3 billion, comprised of $15.2 billion of mortgage loans and $3.1 billion of construction loans. Compared to December 31, 2022, this portfolio decreased $629 million driven by our planned balance sheet optimization efforts. 63 Table of contents Since the global financial crisis in 2008, we have limited our construction business and reduced our overall construction loans from 42% to 17% of commercial real estate loans as of December 31, 2023. Construction loans provide a stream of funding for properties not fully leased at origination to support debt service payments over the term of the contract or project. As of December 31, 2023, 78% of our construction portfolio are multi-family project loans. Our office exposure only represents 5% of commercial real estate loans at period end. As shown in Figure 10, 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 10. Commercial Real Estate Loans Geographic Region Dollars in millions West Southwest Central Midwest Southeast Northeast National Total Percent of Total Construction Commercial Mortgage December 31, 2023 Nonowner-occupied: Diversified $ 3 $ — $ — $ 3 $ — $ 16 $ 164 $ 186 1.0 % $ — $ 186 Industrial 58 24 80 110 230 280 20 802 4.4 168 634 Land & Residential 5 3 3 5 3 21 — 40 .2 18 22 Lodging 48 — 3 4 46 66 55 222 1.2 5 217 Medical Office 37 — 42 1 21 97 75 273 1.5 27 246 Multifamily 1,237 552 1,271 1,272 2,707 1,370 444 8,853 48.5 2,389 6,464 Office 142 — 153 76 118 285 50 824 4.5 — 824 Retail 213 6 84 183 102 297 213 1,098 6.0 75 1,023 Self Storage 62 — 45 15 72 32 171 397 2.2 4 393 Senior Housing 124 22 143 88 65 120 213 775 4.2 126 649 Skilled Nursing — — — 66 — 202 215 483 2.6 — 483 Student Housing — — — 27 158 — — 185 1.0 59 126 Other 1 12 8 35 37 67 160 320 1.8 — 320 Total nonowner-occupied 1,930 619 1,832 1,885 3,559 2,853 1,780 14,458 79.2 2,871 11,587 Owner-occupied 1,141 1 414 720 167 1,352 — 3,795 20.8 195 3,600 Total $ 3,071 $ 620 $ 2,246 $ 2,605 $ 3,726 $ 4,205 $ 1,780 $ 18,253 100.0 % $ 3,066 $ 15,187 Nonowner-occupied: Nonperforming loans $ 1 $ — $ 46 $ 1 $ 9 $ 5 $ 38 $ 100 N/M $ — $ 100 Accruing loans past due 90 days or more 1 — — 6 — 3 — 10 N/M — 10 Accruing loans past due 30 through 89 days 3 — 12 — 7 7 — 29 N/M — 29 December 31, 2022 Nonowner-occupied: Diversified $ 9 $ — $ — $ 4 $ — $ 24 $ 231 $ 268 1.4 % $ — $ 268 Industrial 75 25 101 135 220 284 52 892 4.7 203 689 Land & Residential 1 3 3 3 3 24 — 37 .2 15 22 Lodging 58 — 10 4 20 72 41 205 1.1 22 183 Medical Office 47 — 43 9 19 98 25 241 1.3 64 177 Multifamily 1,083 533 1,388 1,264 2,813 1,370 438 8,889 47.1 1,705 7,184 Office 189 1 173 113 128 300 95 999 5.3 — 999 Retail 282 35 112 183 69 395 235 1,311 6.9 106 1,205 Self Storage 85 13 50 20 79 37 202 486 2.6 4 482 Senior Housing 150 57 144 76 118 120 235 900 4.8 194 706 Skilled Nursing — — — 52 — 239 143 434 2.3 — 434 Student Housing — — — 53 199 13 — 265 1.4 39 226 Other 24 4 9 79 42 83 195 436 2.3 2 434 Total nonowner-occupied 2,003 671 2,033 1,995 3,710 3,059 1,892 15,363 81.4 2,354 13,009 Owner-occupied 1,149 5 364 580 128 1,293 — 3,519 18.6 176 3,343 Total $ 3,152 $ 676 $ 2,397 $ 2,575 $ 3,838 $ 4,352 $ 1,892 $ 18,882 100.0 % $ 2,530 $ 16,352 Nonperforming loans $ — $ — $ — $ 2 $ — $ 7 $ 12 $ 21 N/M $ — $ 21 Accruing loans past due 90 days or more — — — — — 8 — 8 N/M — 8 Accruing loans past due 30 through 89 days — — 1 11 — 6 — 18 N/M — 18 West – Alaska, California, Hawaii, Idaho, Montana, Oregon, Washington, and Wyoming Southwest – Arizona, Nevada, and New Mexico Central – Arkansas, Colorado, Oklahoma, Texas, and Utah Midwest – Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, South Dakota, and Wisconsin Southeast – Alabama, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C., and West Virginia Northeast – Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, and Vermont National – Accounts in three or more regions 64 Table of contents Consumer loan portfolio Consumer loans outstanding at December 31, 2023, totaled $35.0 billion, a decrease of $1.9 billion, or 5.2%, from one year ago . This decrease reflects lower residential and consumer direct loans. The residential mortgage portfolio is comprised of loans originated by our Consumer Bank and is the largest segment of our consumer loan portfolio as of December 31, 2023, representing approximately 60% of consumer loans. This is followed by our home equity portfolio comprising approximately 20% of consumer loans outstanding at year end. We held the first lien position for approximately 64% of the home equity portfolio at December 31, 2023, and 66% at December 31, 2022. 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 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 11 presents our consumer loans by geography. Figure 11. Consumer Loans by State Dollars in millions Real estate — residential mortgage Home equity loans Consumer direct loans Credit cards Consumer indirect loans Total December 31, 2023 Washington $ 4,520 $ 1,020 $ 226 $ 88 $ 1 $ 5,855 Ohio 2,704 1,029 250 203 1 4,187 New York 805 1,993 774 347 1 3,920 Colorado 3,001 277 149 32 — 3,459 California 2,294 14 496 3 4 2,811 Oregon 1,269 585 108 43 — 2,005 Pennsylvania 445 517 377 63 2 1,404 Florida 782 42 412 14 4 1,254 Utah 851 252 64 18 — 1,185 Connecticut 765 255 112 29 1 1,162 Other 3,522 1,155 2,922 162 12 7,773 Total $ 20,958 $ 7,139 $ 5,890 $ 1,002 $ 26 $ 35,015 December 31, 2022 Washington $ 4,621 $ 1,100 $ 253 $ 87 $ 2 $ 6,063 Ohio 2,766 1,173 347 214 5 4,505 New York 840 2,256 770 359 1 4,226 Colorado 3,006 301 171 32 — 3,510 California 2,357 16 538 4 6 2,921 Oregon 1,268 630 117 43 — 2,058 Pennsylvania 459 580 403 61 3 1,506 Florida 851 45 453 14 6 1,369 Texas 336 3 397 4 3 743 Illinois 134 3 212 2 1 352 Other 4,763 1,844 2,847 206 16 9,676 Total $ 21,401 $ 7,951 $ 6,508 $ 1,026 $ 43 $ 36,929 65 Table of contents Loan sales As shown in Figure 12, during 2023, we sold $8.9 billion of our loans . Sales of loans classified as held for sale generated net gains of $135 million during 2023. Figure 12 summarizes our loan sales during 2023 and 2022. Figure 12. Loans Sold (Including Loans Held for Sale) Dollars in millions Commercial Commercial Real Estate Commercial Lease Financing Residential Real Estate Total 2023 Fourth quarter $ 35 $ 1,735 $ 21 $ 339 $ 2,130 Third quarter 85 2,861 49 345 3,340 Second quarter 118 1,431 28 283 1,860 First quarter 125 1,121 164 135 1,545 Total $ 362 $ 7,148 $ 262 $ 1,103 $ 8,875 2022 Fourth quarter $ 33 $ 2,774 $ 114 $ 235 $ 3,156 Third quarter 211 1,882 43 353 2,489 Second quarter 41 1,851 150 496 2,538 First quarter 1,469 1,909 39 901 4,318 Total $ 1,754 $ 8,416 $ 346 $ 1,985 $ 12,501 Figure 13 shows loans that are either administered or serviced by us but not recorded on the balance sheet; this includes loans that were sold. Figure 13. Loans Administered or Serviced December 31, Dollars in millions 2023 2022 2021 2020 2019 Commercial real estate loans $ 499,449 $ 488,478 $ 444,131 $ 371,016 $ 347,186 Residential mortgage 11,193 11,026 10,312 8,311 6,146 Education loans 248 312 415 516 625 Commercial lease financing 1,946 1,646 1,236 1,359 1,047 Commercial loans 667 723 750 684 591 Consumer direct 408 509 699 1,711 2,243 Consumer indirect 792 1,536 2,714 — — Total $ 514,703 $ 504,230 $ 460,257 $ 383,597 $ 357,838 In the event of default by a borrower, we are subject to recourse with respect to approximately $7.5 billion of the $514.7 billion of loans administered or serviced at December 31, 2023. These are primarily associated with commercial real estate loans administered or serviced. 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”). 66 Table of contents Maturities and sensitivity of certain loans to changes in interest rates Figure 14 shows the remaining maturities of our loan portfolio and the sensitivity of certain loans to changes in interest rates as of December 31, 2023. Figure 14. Remaining Maturities and Sensitivity of Certain Loans to Changes in Interest Rates (a) December 31, 2023 Dollars in millions Within One Year One - Five Years Five - Fifteen Years Over Fifteen Years Total Commercial Commercial and industrial $ 13,086 $ 37,501 $ 5,058 $ 170 $ 55,815 Commercial Mortgage 5,261 6,553 3,025 348 15,187 Real estate — construction 1,283 1,299 135 349 3,066 Commercial lease financing 388 1,857 1,278 — 3,523 Total commercial loans $ 20,018 $ 47,210 $ 9,496 $ 867 $ 77,591 Consumer Real estate - residential mortgage $ 180 $ 40 $ 769 $ 19,969 $ 20,958 Home equity loans 96 250 2,135 4,658 7,139 Consumer direct loans 497 946 2,395 2,052 5,890 Credit Cards 1,002 — — — 1,002 Consumer indirect loans — 20 5 1 26 Total consumer loans 1,775 1,256 5,304 26,680 35,015 Total loans $ 21,793 $ 48,466 $ 14,800 $ 27,547 $ 112,606 Loans with floating or adjustable interest rates (b) $ 41,916 $ 4,428 $ 13,153 $ 59,497 Loans with predetermined interest rates (c) 6,550 10,372 14,394 31,316 Total $ 48,466 $ 14,800 $ 27,547 $ 90,813 (a) Accrued interest of $522 million at December 31, 2023, 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 is constructed to help manage overall interest rate risk and provide a source of liquidity, including holding securities used to accommodate pledging requirements. Our securities portfolio totaled $45.8 billion at December 31, 2023, compared to $47.8 billion at December 31, 2022. Available-for-sale securities were $37.2 billion at December 31, 2023, compared to $39.1 billion at December 31, 2022. Held-to-maturity securities were $8.6 billion at December 31, 2023, compared to $8.7 billion at December 31, 2022. As shown in Figure 15, 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 15. Mortgage-Backed Securities by Issuer December 31, Dollars in millions 2023 2022 FHLMC & FNMA $ 24,302 $ 25,371 GNMA 11,665 11,620 Total (a) $ 35,967 $ 36,991 (a) Includes securities held in the available-for-sale and held-to-maturity portfolios. 67 Table of contents 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 periodic 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 16 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”). 68 Table of contents Figure 16. Securities Available for Sale 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) Total Weighted-Average Yield (b) December 31, 2023 Remaining maturity: One year or less $ 7,711 $ 29 $ 1 $ 72 $ 7,813 0.50 % After one through five years 1,090 1,653 2,303 2,633 7,679 2.44 After five through ten years 117 8,949 830 5,372 15,268 2.06 After ten years 108 4,847 455 1,015 6,425 1.78 Fair value $ 9,026 $ 15,478 $ 3,589 $ 9,092 $ 37,185 — Amortized cost 9,300 18,911 4,189 10,295 42,695 1.79 % Weighted-average yield (b) 0.83 % 1.79 % 1.62 % 2.70 % 1.79 % — Weighted-average maturity 1.1 years 9.0 years 5.9 years 6.8 years 6.4 years — December 31, 2022 Fair value $ 9,415 $ 16,433 $ 3,920 $ 9,349 $ 39,117 — % Amortized cost 10,044 20,180 4,616 10,712 45,552 1.67 (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. 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 and foreign bonds. Figure 17 shows the composition, yields, and remaining maturities of these securities. Figure 17. Held-to-Maturity Securities 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, 2023 Remaining maturity: One year or less $ 14 $ — $ 4 $ 733 $ 4 $ 755 2.11 % After one through five years 1,446 112 2,155 2 25 3,740 3.34 After five through ten years 2,562 8 278 3 — 2,851 3.72 After ten years 1,148 45 36 — — 1,229 4.26 Amortized cost $ 5,170 $ 165 $ 2,473 $ 738 $ 29 $ 8,575 3.49 % Fair value 4,896 152 2,270 709 29 8,056 — Weighted-average yield (b) 3.82 % 2.81 % 3.26 % 2.09 % 4.09 % 3.49 % — Weighted-average maturity 7.5 years 7.3 years 4.0 years .6 years 2.5 years 5.9 years — December 31, 2022 Amortized cost $ 4,586 $ 181 $ 2,522 $ 1,407 $ 14 $ 8,710 3.18 % Fair value 4,308 165 2,315 1,311 14 8,113 — (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. 69 Table of contents Deposits and other sources of funds Figure 18. Breakdown of Deposits at December 31, 2023 The following presents the breakdown of our deposits by product for the noted periods. December 31, Dollars in billions 2023 2022 Money market deposits $ 37.0 $ 34.6 Demand deposits 57.7 52.1 Savings deposits 5.4 7.7 Time deposits 14.8 7.4 Noninterest bearing deposits 30.7 40.8 Total $ 145.6 $ 142.6 Our highly diversified deposit base is our primary source of funding. At December 31, 2023, our deposits totaled $145.6 billion, an increase of $3.0 billion, compared to December 31, 2022. The increase reflects our durable relationship-based business model, in addition to changing client behavior as a result of higher interest rates. Uninsured deposits totaled $61.5 billion and $67.1 billion at December 31, 2023 and December 31, 2022, respectively. Uninsured deposits are defined as the portion of deposit accounts in U.S. offices that exceed the FDIC insurance limit or similar state deposit insurance regimes and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regimes. Figure 19 presents estimated uninsured deposits for the noted periods which reflect amounts disclosed in KeyBank’s Call Report adjusted for intercompany deposits, which are not customer facing and are eliminated in consolidation, and accrued interest. 70 Table of contents Figure 19. Estimated Uninsured Deposits December 31, Dollars in billions 2023 2022 Uninsured deposits (a) $ 61.5 $ 67.1 Total deposits 145.6 142.6 Uninsured % of Deposits 42 % 47 % (a) Intercompany deposits and accrued interest excluded from uninsured deposits $ 9.5 $ 8.4 As of December 31, 2023 and December 31, 2022, approximately $13.1 billion and $11.6 billion, respectively, of uninsured deposits were collateralized by government-backed securities. Figure 20 presents the maturity distribution of estimated uninsured time deposits. Figure 20. Maturity Distribution of Uninsured Time Deposit Amounts December 31, Dollars in millions 2023 2022 Remaining maturity: Three months or less $ 480 $ 32 After three through six months 324 78 After six through twelve months 353 82 After twelve months 52 97 Total $ 1,209 $ 289 Wholesale funds, consisting of short-term borrowings and long-term debt, totaled $22.6 billion at December 31, 2023, compared to $28.8 billion at December 31, 2022. The decrease reflects our balance sheet optimization efforts, which reduced our need for wholesale borrowings. For more information regarding our wholesale funds, see Item 7. Management’s Discussion & Analysis of Financial Condition & Results of Operations under the heading “Risk Management - Liquidity risk management” of this report. Capital Our capital management objective is to maintain capital levels consistent with our risk appetite and of a sufficient amount to operate under a wide range of economic conditions. Our current capital levels position us well to execute against our capital priorities including supporting organic growth and paying dividends. 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 $.205 per Common Share for each of the four quarters of 2023. These quarterly dividend payments brought our annual dividend to $.82 per Common Share for 2023. 71 Table of contents Common Shares outstanding Our Common Shares are traded on the NYSE under the symbol KEY with 28,577 holders of record at December 31, 2023. Our book value per Common Share was $13.02 based on 936.6 million shares outstanding at December 31, 2023, compared to $11.79 based on 933.3 million shares outstanding at December 31, 2022. At December 31, 2023, our tangible book value per Common Share was $10.02, compared to $8.75 at December 31, 2022. Figure 21 shows activities that caused the change in our outstanding Common Shares over the past two years. Figure 21. Changes in Common Shares Outstanding 2023 Quarters In thousands 2023 Fourth Third Second First 2022 Shares outstanding at beginning of period 933,325 936,161 935,733 935,229 933,325 928,850 Open market repurchases and return of shares under employee compensation plans (4,383) (2) (10) (38) (4,333) (1,736) Shares issued under employee compensation plans (net of cancellations) 7,622 405 438 542 6,237 6,211 Shares outstanding at end of period 936,564 936,564 936,161 935,733 935,229 933,325 During 2023, Common Shares outstanding increased by 3.2 million shares, primarily driven by issuances under employee compensation plans. For more information on share repurchases activity, see Note 24 (“Shareholders' Equity”). At December 31, 2023, we had 320.1 million treasury shares, compared to 323.4 million treasury shares at December 31, 2022. 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, 2023. 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 7.8% at December 31, 2023, compared to 7.1% at December 31, 2022. Our tangible common equity to tangible assets ratio was 5.1% at December 31, 2023, compared to 4.4% at December 31, 2022. The minimum capital and leverage ratios under the Regulatory Capital Rules together with the estimated ratios of KeyCorp at December 31, 2023, 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. Figure 22 represents the details of our regulatory capital positions at December 31, 2023, and December 31, 2022, under the Regulatory Capital Rules. Information regarding the regulatory capital ratios of KeyCorp’s banking subsidiaries is presented in Note 24 (“Shareholders' Equity”). 72 Table of contents Figure 22. Capital Components and Risk-Weighted Assets December 31, Dollars in millions 2023 2022 COMMON EQUITY TIER 1 Key shareholders’ equity (GAAP) $ 14,637 $ 13,454 Less: Preferred Stock (a) 2,446 2,446 Add: CECL phase-in (b) 118 178 Common Equity Tier 1 capital before adjustments and deductions 12,309 11,186 Less: Goodwill, net of deferred taxes 2,594 2,612 Intangible assets, net of deferred taxes 49 88 Deferred tax assets 1 1 Net unrealized gains (losses) on available-for-sale securities, net of deferred taxes (4,296) (4,857) Accumulated gains (losses) on cash flow hedges, net of deferred taxes (656) (1,160) Amounts in AOCI attributed to pension and postretirement benefit costs, net of deferred taxes (277) (277) Total Common Equity Tier 1 capital 14,894 14,779 TIER 1 CAPITAL Common Equity Tier 1 14,894 14,779 Additional Tier 1 capital instruments and related surplus 2,446 2,446 Less: Deductions — — Total Tier 1 capital 17,340 17,225 TIER 2 CAPITAL Tier 2 capital instruments and related surplus 2,020 2,200 Allowance for losses on loans and liability for losses on lending-related commitments (c) 1,668 1,351 Less: Deductions — — Total Tier 2 capital 3,688 3,551 Total risk-based capital $ 21,028 $ 20,776 RISK-WEIGHTED ASSETS Risk-weighted assets on balance sheet $ 115,861 $ 125,900 Risk-weighted off-balance sheet exposure 31,555 35,745 Market risk-equivalent assets 1,159 826 Gross risk-weighted assets 148,575 162,471 Less: Excess allowance for loan and lease losses — — Net risk-weighted assets $ 148,575 $ 162,471 AVERAGE QUARTERLY TOTAL ASSETS $ 191,948 $ 193,986 CAPITAL RATIOS Tier 1 risk-based capital 11.67 % 10.60 % Total risk-based capital 14.15 12.79 Leverage (d) 9.03 8.88 Common Equity Tier 1 10.02 9.10 (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 $16 million and $21 million of allowance classified as “discontinued assets” on the balance sheet at December 31, 2023, and December 31, 2022, 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”). 73 Table of contents 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, 2023, 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 74 Table of contents conform to regulatory expectations. The table below depicts our risk management hierarchy and associated responsibilities and activities of each group. 75 Table of contents Group Overview and Responsibilities Activities Board of Directors – Oversight capacity – Oversees that Key’s risks are managed in a manner that is effective and balanced – Fiduciary duty to Key’s shareholders – Understands Key's risk philosophy – Approves the risk appetite – Inquires about risk practices – Reviews the portfolio of risks – Compares the actual risks to the risk appetite – Is apprised of significant risks, both actual and emerging, and determines whether management is responding appropriately – Challenges management and promotes accountability Board of Directors Audit Committee (a) – Oversight of financial statement integrity, regulatory and legal requirements, independent auditors’ qualifications and independence, and the performance of the internal audit function and independent auditors – Financial reporting, legal matters, and fraud risk – Meets with management and approves significant policies relating to the risk areas overseen by the Audit Committee – Receives reports on enterprise risk – Meets bi-monthly – Convenes to discuss the content of our financial disclosures and quarterly earnings releases Board of Directors Risk Committee (a) – Assist 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 – Assist the Board in overseeing risks related to capital adequacy, capital planning, and capital actions – Reviews and provides oversight of management’s 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 – Approves 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 – Chaired by the Chief Executive Officer and comprising other senior level executives – Manage risk and ensure that the corporate risk profile is managed in a manner consistent with our risk appetite – Oversees the ERM Program, which encompasses our risk philosophy, policy, framework, and governance structure for the management of risks across the entire company – Approves and manages the risk-adjusted capital framework we use to manage risks Disclosure Committee – Includes representatives from each of the Three Lines of Defense – Meets quarterly to review recent internal and external events to determine whether all appropriate disclosures have been made in reports filed with the SEC – Convenes quarterly to discuss the content of our 10-Q and 10-K Tier 2 Risk Governance Committees – Include attendees from each of the Three Lines of Defense – The First Line of Defense is the line of business primarily responsible to accept, own, proactively identify, monitor, and manage risk – The Second Line of Defense comprises Risk Management representatives who provide independent, centralized oversight over all risk categories by aggregating, analyzing, and reporting risk information – Risk 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’s risk management policies, practices, and controls – Supports the ERM Committee by identifying early warning events and trends, escalating emerging risks, and discussing forward-looking assessments Chief Risk Officer – Ensure that relevant risk information is properly integrated into strategic and business decisions – Ensure appropriate ownership of risks – Provides input into performance and compensation decisions – Assesses aggregate enterprise risk – Monitors capabilities to manage critical risks – Executes appropriate Board and stakeholder reporting (a) 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. Our risk management activities are focused on ensuring that we properly identify, measure, and manage such risks across the entire enterprise to maintain safety and soundness, and to maximize profitability. 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. 76 Table of contents 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, 2023, 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 take into account our tolerance for risk and consideration for the business environment. The Market Risk Committee approves market risk policies and recommends our significant market risk policy to the ERM Committee, the KeyBank Board, and the Risk Committee of the Board for approval. 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, 2023, 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 77 Table of contents 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. 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. We analyze market risk by portfolios and do not separately measure and monitor our portfolios by risk type. 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 for any day during the quarters ended December 31, 2023, and December 31, 2022. The MRM backtests 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. Backtesting 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 $1.6 million at December 31, 2023, and $1.1 million at December 31, 2022. Figure 23 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, 2023, and December 31, 2022. Figure 23. VaR for Significant Portfolios of Covered Positions 2023 2022 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 $ 1.3 $ .7 $ 1.1 $ 1.1 $ 1.1 $ .4 $ .7 $ .4 Derivatives: Interest rate $ .5 $ .3 $ .4 $ .4 $ .7 $ .2 $ .3 $ .6 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 $4.0 million at December 31, 2023, and $1.9 million at December 31, 2022. Figure 24 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, 2023, and December 31, 2022. The increase in stressed VaR is due to a change in the size and composition of our fixed income inventory. 78 Table of contents Figure 24. Stressed VaR for Significant Portfolios of Covered Positions 2023 2022 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 $ 4.7 $ 1.9 $ 3.1 $ 3.6 $ 2.4 $ 1.1 $ 1.6 $ 1.1 Derivatives: Interest rate $ .4 $ .2 $ .3 $ .3 $ .7 $ .2 $ .3 $ .6 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 $6 million at December 31, 2023, 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, the ALCO, and the Treasury Risk Oversight Committee (“TROC”) 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. 79 Table of contents LIBOR Transition Key had successfully transitioned substantially all of it its products away from LIBOR as of June 30, 2023. For most financial products, the most common alternative reference rates have been SOFR-based benchmarks. This is true for both new originations and legacy LIBOR contracts that were subject to amendment or a transition by their terms. We have also originated a small number of new loans using credit sensitive rates in a limited and managed fashion. 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 from current levels over the next 12 months (subject to a floor on market interest rates at zero). Figure 25 presents the results of the simulation analysis at December 31, 2023, and December 31, 2022. At December 31, 2023, our simulated impact to changes in interest rates was moderate low. The exposure to declining rates has decreased as a result of the change in balance sheet mix compared to the December 31, 2022 analysis. 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 net interest income over the same period by more than 5.5%. Current modeled exposure is within Board approved tolerances. If a tolerance level is breached and determined inconsistent with risk appetite, the development of a remediation plan is required to reduce exposure back to within tolerance. Figure 25. Simulated Change in Net Interest Income December 31, 2023 December 31, 2022 Basis point change assumption -200 +200 -200 +200 Assumed floor in market rates (in basis points) — N/A — N/A Rising rate beta N/A Mid 50s N/A Mid 40s Tolerance level (5.50) % (5.50) % (5.50) % (5.50) % Interest rate risk assessment (0.01) % (2.08) % (1.66) % (2.61) % +200 NII at risk beta sensitivity December 31, 2023 Beta assumption Mid 60s Low 60s Mid 50s Low 50s Interest rate risk assessment (4.65) % (3.36) % (2.08) % (0.85) % Simulation analysis produces a sophisticated estimate of interest rate exposure based on assumptions inputs within the model. Assumptions are tailored to the specific interest rate environment and validated on a regular basis. However, actual results may differ from those derived in simulation analyses 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 or repercussions from exogenous events . Regular stress tests and sensitivity analyses are performed on the model inputs that could materially change the resulting risk assessments. Assessments are performed using different yield curve shapes, including steepenings or flattenings of the 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 25. 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 29 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 123 basis points. 80 Table of contents The 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. Simulations are also conducted 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 similar manner to those based on a 12-month horizon. To capture longer-term exposures, changes in the EVE are calculated 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. EVE policy limits are measured against a +200 basis point/policy decline scenario. The resulting rate in the policy decline scenario is equal to the greater of the current fed funds target and zero. As of December 31, 2023, the policy decline scenario is minus 200 basis points. 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 forward expectations. Remediation plans are similarly developed if this analysis indicates that our EVE will decrease by more than 15% in response to an immediate increase or decrease in interest rates. The position is within these guidelines as of December 31, 2023. Management of interest rate exposure. The results of the various interest rate risk analyses are used to formulate A/LM strategies to achieve the desired risk profile while managing to objectives for capital adequacy and liquidity risk exposures. Specifically, risk positions are managed by purchasing securities, issuing term debt with floating or fixed interest rates, and using derivatives. Interest rate swaps and options are predominantly used, which modify the interest rate characteristics of certain assets and liabilities. Figure 26 shows all swap positions held for A/LM purposes. These 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 to reflect broader A/LM objectives and the balance sheet positions to be hedged. For more information about how interest rate swaps are used to manage our risk profile, see Note 8 (“Derivatives and Hedging Activities”). Figure 26. Portfolio Swaps and Options by Interest Rate Risk Management Strategy December 31, 2023 Weighted-Average December 31, 2022 Dollars in millions Notional Amount Fair Value Maturity (Years) Receive Rate Pay Rate Notional Amount Fair Value Receive fixed/pay variable — conventional loans $ 15,000 $ (641) 2.3 2.0 % 5.4 % $ 28,450 $ (1,503) Receive fixed/pay variable — conventional debt 8,976 (395) 3.9 2.5 5.4 10,995 (551) Receive fixed/pay variable — forward loans 4,000 (27) 2.6 3.5 5.0 1,300 (8) Receive fixed/pay variable — forward debt 1,411 (40) 6.6 3.1 5.3 — — Pay fixed/receive variable — conventional debt 50 1 4.5 5.6 3.6 50 1 Pay fixed/receive variable — securities 8,655 (152) 4.1 5.4 4.0 405 48 Total portfolio swaps $ 38,092 $ (1,254) (a) 3.3 3.1 % 5.0 % $ 41,200 $ (2,013) (a) Floors — forward purchased $ 3,250 $ 26 2.1 — % — % $ — $ — Floors — forward sold 3,250 (11) 2.1 — — — — Total floors $ 6,500 $ 15 — — % — % $ — $ — a. Excludes accrued interest of $58 million and $62 million at December 31, 2023, and December 31, 2022, respectively. 81 Table of contents 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 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, the TROC, 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, internal liquidity 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. 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, 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. During 2023, rating agencies reacted to the volatility in the banking industry by issuing updated ratings for numerous U.S. banks, including Key. On August 21, 2023, Standard & Poor’s downgraded KeyCorp’s and KeyBank’s Long-term Debt ratings from “BBB+” to “BBB”, and from “A-” to “BBB+”, respectively. On October 10, 2023, Fitch Ratings, Inc. downgraded both KeyCorp and KeyBank’s respective Long-Term Debt ratings from “A-” to “BBB+” and, on October 20, 2023, Moody’s downgraded KeyCorp and KeyBank's Long-term Debt ratings from "Baa1" to "Baa2", and from "A3" to "Baa1.” The rationales for Standard & Poor’s, Fitch Ratings, Inc., and Moody’s downgrades are documented in their respective credit opinions and analyses. Our credit ratings at December 31, 2023, are shown in Figure 27. While we believe these credit ratings, under normal conditions in the capital markets, will enable KeyCorp or KeyBank to issue fixed income securities to investors, downgrades in our credit ratings could increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us. 82 Table of contents Figure 27. Credit Ratings December 31, 2023 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’s A-2 N/A BBB BBB- BB BB Moody’s P-2 N/A Baa2 Baa2 Baa3 Ba1 Fitch F2 N/A BBB+ N/A BB BB DBRS R-1 (low) N/A A A (low) A (low) BBB KEYBANK Standard & Poor’s A-2 N/A BBB+ BBB N/A N/A Moody’s P-2 P-1/A2 Baa1 Baa2 N/A N/A Fitch F2 F2/A- BBB+ BBB N/A N/A DBRS R-1 (middle) A (high) A (high) A N/A N/A (a) P-1 rating assigned by Moody’s is specific to KeyBank’s short-term bank deposit ratings. F2 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 any time, 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 stressed environments. 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 internal liquidity stress test for both KeyCorp and KeyBank. In a “heightened monitoring mode,” we may conduct internal liquidity 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. Internal liquidity 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. Our primary source of funding for KeyBank are customer deposits resulting in a consolidated loan-to-deposit ratio of 78% as of December 31, 2023 . 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. We maintain a Contingency Funding Plan that outlines the process for addressing a liquidity crisis. 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. Figure 28 shows our available contingent liquidity at December 31, 2023 and December 31, 2022. In 2023, our secured term borrowings decreased $1.5 billion from a reduction in FHLB borrowings. Figure 28. Available Contingent Liquidity December 31, Dollars in billions 2023 2022 Available contingent liquidity: Unpledged securities $ 7.5 $ 33.2 Net balances of federal funds sold and balances in our Federal Reserve account 10.7 2.4 Unused secured borrowing capacity at the Federal Reserve Bank of Cleveland 54.7 33.8 Unused secured borrowing capacity at the FHLB 13.6 6.7 Total $ 86.5 $ 76.1 83 Table of contents 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, 2023, our loan-to-deposit ratio was 77.9%), which we calculate as the sum of total loans, loans held for sale, and nonsecuritized discontinued loans divided by deposits. 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 January 26, 2023, KeyBank issued $500 million of 4.70% Fixed Rate Senior Bank Notes due January 26, 2026 and $1 billion of 5.00% Fixed Rate Senior Bank Notes due January 26, 2033. Accordingly, at December 31, 2023, there was $15.5 billion available for issuance under the KeyBank Bank Note Program. 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, 2023, KeyCorp held $2.7 billion in cash and short-term investments, 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 2023, KeyBank paid $675 million in cash dividends to KeyCorp, and during the fourth quarter of 2023, KeyBank paid $150 million cash dividends to KeyCorp. At January 1, 2024, KeyBank had regulatory capacity to pay $2.3 billion in dividends to KeyCorp without prior regulatory approval. KeyCorp had no debt issuances during 2023 . 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 primarily due to an increase in Key's cash position. 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 84 Table of contents means. During the third quarter of 2023, Key repurchased $92.3 million of KeyBank senior debt consisting of $13.1 million of 3.30% Senior Unsecured Debt due June 1, 2025, $64.7 million of 4.15% Senior Unsecured Debt due August 8, 2025, and $14.5 million of 4.70% Senior Unsecured Debt due January 26, 2026. 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, 2023, and December 31, 2022. 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, distribute credit risk, 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. Allowance for loan and lease losses 85 Table of contents 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. The ALLL at December 31, 2023, represents our best estimate of the lifetime expected credit losses inherent in the loan portfolio at that date. For more information, see Note 5 (“Asset Quality”). As shown in Figure 29, our ALLL from continuing operations increased by $171 million, or 12.8%, from December 31, 2022. The commercial ALLL increased by $196 million, or 22.7%, from December 31, 2022, driven by portfolio migration and changes in the economic outlook, including the impact from higher interest rates and lower commercial real estate values, partly offset by balance sheet reductions. The consumer ALLL decreased $25 million, or 5.3%, from December 31, 2022, largely driven by changes in the economic forecasts, including improved home price values. Figure 29. Allocation of the Allowance for Loan and Lease Losses 2023 2022 December 31, Dollars in millions Total Allowance Percent of Allowance to Total Allowance Percent of Loan Type to Total Loans Total Allowance Percent of Allowance to Total Allowance Percent of Loan Type to Total Loans Commercial and industrial $ 556 36.9 % 49.6 % $ 601 45.0 % 50.0 % Commercial real estate: Commercial mortgage 419 27.8 13.5 203 15.2 13.7 Construction 52 3.4 2.7 28 2.1 2.1 Total commercial real estate loans 471 31.2 16.2 231 17.3 15.8 Commercial lease financing 33 2.2 3.1 32 2.4 3.3 Total commercial loans 1,060 70.3 68.9 864 64.7 69.1 Real estate — residential mortgage 162 10.7 18.6 196 14.7 17.9 Home equity loans 86 5.7 6.4 98 7.3 6.6 Consumer direct loans 121 8.0 5.2 111 8.3 5.4 Credit cards 78 5.2 .9 66 4.9 .9 Consumer indirect loans 1 .1 — 2 .1 .1 Total consumer loans 448 29.7 31.1 473 35.3 30.9 Total loans (a) $ 1,508 100.0 % 100.0 % $ 1,337 100.0 % 100.0 % (a) Excludes allocations of the ALLL related to the discontinued operations of the education lending business in the amount of $16 million at December 31, 2023, and $21 million at December 31, 2022. Net loan charge-offs Figure 30 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 32. Figure 31 shows the ratio of net charge-offs by loan category as a percentage of the respective average loan balance. Over the past 12 months, net loan charge-offs increased $83 million. Figure 30. Net Loan Charge-offs from Continuing Operations Year ended December 31, Dollars in millions 2023 2022 Commercial and industrial $ 144 $ 103 Real estate — commercial mortgage 37 18 Real estate — construction (1) (1) Commercial lease financing (a) (5) (2) Total commercial loans 175 118 Real estate — residential mortgage (a) (3) (7) Home equity loans (1) (2) Consumer direct loans 43 26 Credit cards 30 24 Consumer indirect loans — 2 Total consumer loans 69 43 Total net loan charge-offs $ 244 $ 161 Net loan charge-offs to average loans .21 % .14 % Net loan charge-offs from discontinued operations — education lending business $ 3 $ 4 (a) Credit amounts indicate that recoveries exceeded charge-offs. 86 Table of contents Figure 31. Net Loan Charge-offs to Average Loans from Continuing Operations Year ended December 31, 2023 2022 Commercial and industrial 0.24 % 0.19 % Real estate — commercial mortgage 0.23 0.12 Real estate — construction (0.04) (0.04) Commercial lease financing (a) (0.14) (0.05) Total commercial loans 0.21 0.15 Real estate — residential mortgage (a) (0.01) (0.04) Home equity loans (0.01) (0.02) Consumer direct loans 0.69 0.40 Credit cards 3.04 2.50 Consumer indirect loans — 3.23 Total consumer loans 0.19 0.12 Total net loan charge-offs 0.21 % 0.14 % (a) Credit amounts indicate that recoveries exceeded charge-offs. Figure 32. Summary of Loan and Lease Loss Experience from Continuing Operations Year ended December 31, Dollars in millions 2023 2022 Average loans outstanding $ 118,004 $ 111,302 Allowance for loan and lease losses at beginning of period $ 1,337 $ 1,061 Loans charged off: Commercial and industrial $ 188 $ 153 Real estate — commercial mortgage 39 23 Real estate — construction — — Total commercial real estate loans (a) 39 23 Commercial lease financing — 2 Total commercial loans (b) 227 178 Real estate — residential mortgage 1 (2) Home equity loans 2 1 Consumer direct loans 50 34 Credit cards 37 30 Consumer indirect loans 1 4 Total consumer loans 91 67 Total loans charged off 318 245 Recoveries: Commercial and industrial 44 50 Real estate — commercial mortgage 2 5 Real estate — construction 1 1 Total commercial real estate loans (a) 3 6 Commercial lease financing 5 4 Total commercial loans (b) 52 60 Real estate — residential mortgage 4 5 Home equity loans 3 3 Consumer direct loans 7 8 Credit cards 7 6 Consumer indirect loans 1 2 Total consumer loans 22 24 Total recoveries 74 84 Net loan charge-offs (244) (161) Provision (credit) for loan and lease losses 415 437 Allowance for loan and lease losses at end of year $ 1,508 $ 1,337 Liability for credit losses on lending-related commitments at beginning of the year 225 160 Provision (credit) for losses on lending-related commitments 74 65 Liability for credit losses on lending-related commitments at end of the year (c) $ 296 $ 225 Total allowance for credit losses at end of the year $ 1,804 $ 1,562 Net loan charge-offs to average total loans .21 % .14 % Allowance for loan and lease losses to period-end loans 1.34 1.12 Allowance for credit losses to period-end loans 1.60 1.31 Allowance for loan and lease losses to nonperforming loans 262.7 345.5 Allowance for credit losses to nonperforming loans 314.3 403.6 Discontinued operations — education lending business: Loans charged off $ 4 $ 6 Recoveries 1 2 Net loan charge-offs $ (3) $ (4) (a) See Figure 10 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 9 and the accompanying discussion in the “Loans and loans held for sale” section for more information related to our commercial loan portfolio. (c) Included in “accrued expense and other liabilities” on the balance sheet. 87 Table of contents Nonperforming assets Figure 33 shows the composition of our nonperforming assets. As shown in Figure 33, nonperforming assets increased $171 million during 2023. 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 33. Summary of Nonperforming Assets and Past Due Loans from Continuing Operations December 31, Dollars in millions 2023 2022 Commercial and industrial $ 297 $ 174 Real estate — commercial mortgage 100 21 Real estate — construction — — Total commercial real estate loans (a) 100 21 Commercial lease financing — 1 Total commercial loans (b) 397 196 Real estate — residential mortgage 71 77 Home equity loans 97 107 Consumer direct loans 3 3 Credit cards 5 3 Consumer indirect loans 1 1 Total consumer loans 177 191 Total nonperforming loans 574 387 Nonperforming loans held for sale — 20 OREO 17 13 Other nonperforming assets — — Total nonperforming assets $ 591 $ 420 Accruing loans past due 90 days or more $ 107 $ 60 Accruing loans past due 30 through 89 days 222 180 Restructured loans — accruing and nonaccruing (c) N/A 236 Restructured loans included in nonperforming loans (c) N/A 118 Nonperforming assets from discontinued operations — education lending business 3 3 Nonperforming loans to period-end portfolio loans .51 % .32 % Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets (c) .52 .35 (a) See Figure 10 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 9 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. These concessions are made to improve the collectability of the loan and generally take the form of a reduction of the interest rate, extension of the maturity date or reduction in the principal balance. Figure 34 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, 2023, and December 31, 2022. Figure 34. Summary of Changes in Nonperforming Loans from Continuing Operations 2023 Quarters Dollars in millions 2023 Fourth Third Second First 2022 Balance at beginning of period $ 387 $ 455 $ 431 $ 416 $ 387 $ 454 Loans placed on nonaccrual status 768 297 159 169 143 398 Charge-offs (318) (95) (87) (76) (60) (244) Loans sold (38) (9) (4) (23) (2) (15) Payments (132) (56) (25) (20) (31) (113) Transfers to OREO (9) (2) (3) (2) (2) (5) Loans returned to accrual status (84) (16) (16) (33) (19) (88) Balance at end of period $ 574 $ 574 $ 455 $ 431 $ 416 $ 387 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. 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 88 Table of contents 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, or harm to our reputation. 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 Audit Committee and updates the Risk Committee, as appropriate, on matters related to the oversight of these controls. Cybersecurity For information on our cybersecurity risk management and governance practices, please see Item 1C. Cybersecurity of this report. 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. 89 Table of contents Year ended December 31, Dollars in millions 2023 2022 2021 Tangible common equity to tangible assets at period end Key shareholders’ equity (GAAP) $ 14,637 $ 13,454 $ 17,423 Less: Intangible assets (a) 2,806 2,844 2,820 Preferred Stock (b) 2,446 2,446 1,856 Tangible common equity (non-GAAP) $ 9,385 $ 8,164 $ 12,747 Total assets (GAAP) $ 188,281 $ 189,813 $ 186,346 Less: Intangible assets (a) 2,806 2,844 2,820 Tangible assets (non-GAAP) $ 185,475 $ 186,969 $ 183,526 Tangible common equity to tangible assets ratio (non-GAAP) 5.06 % 4.37 % 6.95 % Average tangible common equity Average Key shareholders’ equity (GAAP) $ 13,881 $ 14,730 $ 17,665 Less: Intangible assets (average) (c) 2,826 2,839 2,829 Preferred Stock (average) 2,500 2,114 1,900 Average tangible common equity (non-GAAP) $ 8,555 $ 9,777 $ 12,936 Return on average tangible common equity from continuing operations Income (loss) from continuing operations attributable to Key common shareholders (GAAP) $ 821 $ 1,793 $ 2,506 Average tangible common equity (non-GAAP) $ 8,555 $ 9,777 $ 12,936 Return on average tangible common equity from continuing operations (non-GAAP) 9.60 % 18.34 % 19.37 % Return on average tangible common equity consolidated Net income (loss) attributable to Key common shareholders (GAAP) $ 824 $ 1,799 $ 2,519 Average tangible common equity (non-GAAP) 8,555 9,777 12,936 Return on average tangible common equity consolidated (non-GAAP) 9.63 % 18.40 % 19.47 % (a) For the years ended December 31, 2023, December 31, 2022, and December 31, 2021, intangible assets exclude $1 million, $2 million, and $3 million, respectively, of period-end purchased credit card relationships. (b) Net of capital surplus. (c) For the years ended December 31, 2023, December 31, 2022, and December 31, 2021, average intangible assets exclude $1 million, $2 million, and $4 million, respectively, of average purchased credit card relationships. The cash efficiency ratio is a ratio of two non-GAAP performance measures, adjusted noninterest expense and total taxable-equivalent revenue. Accordingly, there is no directly comparable GAAP performance measure. The cash efficiency ratio excludes the impact of our intangible asset 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. Year ended December 31, Dollars in millions 2023 2022 2021 Cash efficiency ratio Noninterest expense (GAAP) $ 4,734 $ 4,410 $ 4,429 Less: Intangible asset amortization (GAAP) 39 47 58 Adjusted noninterest expense (non-GAAP) $ 4,695 $ 4,363 $ 4,371 Net interest income (GAAP) $ 3,913 $ 4,527 $ 4,071 Plus: TE adjustment 30 27 27 Net interest income TE (non-GAAP) 3,943 4,554 4,098 Noninterest income (GAAP) 2,470 2,718 3,194 Total TE revenue (non-GAAP) $ 6,413 $ 7,272 $ 7,292 Cash efficiency ratio (non-GAAP) 73.2 % 60.0 % 59.9 % 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. 90 Table of contents 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 (“Summary of Significant 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 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 of default. 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 91 Table of contents 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 compare 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 4 percentage point decline in GDP annualized growth and an approximate 3 percentage point increase in the U.S. unemployment rate. The difference between these two scenarios would have driven an increase of approximately 1.7x for commercial and 1.6x 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 ratings 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, but exclude potential impacts to non-modeled allowance components and reserves for individually assessed loans. Furthermore, these analyses are not intended to estimate changes in the overall ALLL as they do not reflect qualitative 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. 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. 92 Table of contents 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 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 performed a quantitative annual goodwill impairment test as of October 1, 2023. The quantitative test estimates the fair value of the reporting units using the income approach (weighted 50%) and two market based approaches: the publicly traded company approach (weighted 25%) and the recent transactions approach (weighted 25%). For the market based approaches, valuations of reporting units considered a combination of earnings and equity multiples based on either public companies with characteristics similar to the reporting unit or actual prices paid from recent transactions. Since the fair values determined under the market approaches are representative of noncontrolling interests, the valuations incorporated a control premium. For the income approach, estimated future cash flows were derived from internal forecasts and economic expectations for each reporting unit. The inputs and assumptions utilized for the valuation of each reporting unit include projections of future cash flows, discount rates, valuation multiples of comparable public companies, and recent transaction information. Future cash flows are based on multi-year forecasts for each reporting unit and include inputs and assumptions such as net interest margin, expected credit losses, noninterest income, noninterest expense, and required capital. A terminal growth rate is estimated for each reporting unit based on market expectations of inflation and economic conditions in the financial services industry. Discount rates are developed using the CAPM which considers a risk free rate, 5-year adjusted beta based on peer companies, a market equity risk premium, a size premium, and a company specific risk premium. The discount rates used for the Consumer, Commercial, and Institutional reporting units were, 13%, 13.5%, and 13.5%, respectively. 93 Table of contents The results of the annual goodwill impairment test indicated that the fair values of the Consumer, Commercial and Institutional Bank reporting units were in excess of their respective carrying values, therefore, there was no goodwill impairment. However, for the Institutional Bank reporting unit, the fair value of the reporting united exceeded its carrying value by 7%, indicating that the $133 million of goodwill allocated to this reporting unit could be at risk of future impairment. The combined fair value of all reporting units was considered reasonable by comparison to Key's market capitalization. The estimated fair values of each reporting unit are sensitive to changes in management’s estimates and assumptions. Changes in the estimates and assumptions could result in instances in which the fair value of a reporting unit is less than its carrying value. We have performed sensitivity analyses around certain assumptions to assess their reasonableness and impact on the reporting units’ fair values. The analysis of the Institutional Bank reporting unit indicated that if the discount rate utilized in the income approach was increased or decreased by 50 basis points, the estimated fair value of the reporting unit inclusive of the weighted results of the market approaches would decrease or increase approximately 2%, respectively. If the noninterest income rate utilized in the income approach was increased or decreased by 10%, the estimated fair value of the reporting unit inclusive of the weighted results of the market approaches would increase or decrease by approximately 10%, respectively, which if a decrease would result in goodwill impairment. Determining the fair value of a reporting unit is subject to uncertainty as it is reliant on estimates of cash flows that extend far into the future, and, by their nature, are difficult to estimate over such an extended time frame. In the future, changes in the assumptions or the discount rate could produce a material non-cash goodwill impairment. Additionally, we monitored events and circumstances during the period from October 1, 2023 through December 31, 2023, including macroeconomic and market factors, industry and banking sector events, Key specific performance indicators, a comparison of management’s forecast and assumptions to those used in the October 1, 2023 quantitative impairment test, and the sensitivity of the October 1, 2023 quantitative test results to changes in assumptions through December 31, 2023. Based on these considerations, we concluded that it was not more-likely-than-not that the fair value of one or more of the reporting units was below its respective carrying value as of December 31, 2023. Additional information is provided in Note 12 (“Goodwill and Other Intangible Assets”). 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, 2023. 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 94 Table of contents 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”). Accounting and reporting developments Accounting guidance pending adoption Standard Required Adoption Description Effect on Financial Statements or Other Significant Matters ASU 2023-05 Business Combinations— Joint Venture Formations (Subtopic 805-60) January 1, 2025 Early adoption is permitted. This guidance requires that a joint venture apply a new basis of accounting upon its initial formation. By doing this, a joint venture, upon formation, will recognize and initially measure its assets and liabilities at fair value, with certain exceptions. Existing joint ventures have the option to apply this new guidance retrospectively as long as they have sufficient information to do so. The guidance is not expected to have any impact on Key’s financial condition or results of operations. ASU 2023-06 Disclosure Improvements The date on which the SEC’s removal of related disclosures from Regulation S-X or Regulation S-K becomes effective. Early adoption is prohibited. This guidance clarifies and improves disclosure requirements for a variety of topics. The amendments should be applied prospectively. The guidance is not expected to have a material impact on Key’s disclosures. ASU 2023-07 Segment Reporting (Topic 280) Annual periods beginning January 1, 2024 Interim periods beginning January 1, 2025 Early adoption is permitted. This guidance requires certain segment disclosures in annual and interim periods. It also clarifies that companies may report on additional measures if the chief operating decision maker uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The guidance should be applied on a retrospective basis. We are still assessing the impact on Key’s disclosures. ASU 2023-09 Income Taxes (Topic 740) January 1, 2025 Early adoption is permitted. This guidance requires certain tax disclosures related to rate reconciliation and income taxes paid. The guidance should be applied on a prospective or retrospective basis. We are still assessing the impact on Key’s disclosures. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information included under the caption “Risk Management — Market risk management” in the MD&A beginning on page 76 is incorporated herein by reference. 95 Table of contents