KEYCORP /NEW/ (KEY)

Item 2.    Management’s Discussion & Analysis of Financial Condition & Results of Operations

Introduction

This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for the quarterly periods ended June 30, 2026, and June 30, 2025. 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.

References to our “2025 Form 10-K” refer to our Form 10-K for the year ended December 31, 2025, which has been filed with the SEC and is available on its website (www.sec.gov) and on our website (www.key.com/ir).

Terminology

Throughout this discussion, references to “Key,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of KeyCorp and its subsidiaries. “KeyCorp” refers solely to the parent holding company, and “KeyBank” refers solely to KeyCorp’s subsidiary bank, KeyBank National Association. “KeyBank (consolidated)” refers to the consolidated entity consisting of KeyBank and its subsidiaries.

We want to explain some industry-specific terms at the outset so you can better understand the discussion that follows.

•We use the phrase continuing operations in this document to mean all of our businesses other than our government-guaranteed and private education lending business, which are accounted for as discontinued operations.

•We engage in capital markets activities primarily through business conducted by our Commercial Bank segment. These activities encompass a variety of products and services. Among other things, we trade securities as a dealer, enter into derivative contracts (both to accommodate clients’ financing needs and to mitigate certain risks), and conduct transactions in foreign currencies (to accommodate clients’ needs).

•For regulatory purposes, capital is divided into Common Equity Tier 1 capital, Tier 1 capital, and Tier 2 capital. These components of regulatory capital serve as bases for several measures of capital adequacy, which is an important indicator of financial stability and condition. The “Capital” section of this report under the heading “Capital adequacy” provides more information on total capital, Tier 1 capital, and the Regulatory Capital Rules, including Common Equity Tier 1, and describes how these measures are calculated.

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The acronyms and abbreviations identified below are used in the Management’s Discussion & Analysis of Financial Condition & Results of Operations as well as in the Notes to Consolidated Financial Statements (Unaudited). You may find it helpful to refer back to this page as you read this report.

Forward-looking Statements

From time to time, we have made or will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as “goal,” “objective,” “plan,” “expect,” “assume,” “anticipate,” “intend,” “project,” “believe,” “estimate,” “will,” “would,” “should,” “could,” or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results or aspirations. Our disclosures in this report contain forward-looking statements. We may also make forward-looking statements in other documents filed with or furnished to the SEC. In addition, we may make forward-looking statements orally to analysts, investors, representatives of the media and others.

Forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete. In addition, no assurance can be given that any plan, initiative, projection, goal, commitment, expectation, or prospect set forth in this report

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can or will be achieved. Factors that could cause our actual results to differ from those described in forward-looking statements include, but are not limited to:

•the extensive regulation of the U.S. financial services industry;

•complex and evolving laws and regulations regarding privacy and cybersecurity;

•operational or risk management failures by us or critical third parties;

•breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats;

•an ineffective risk management framework;

•negative outcomes from claims, litigation, arbitration, investigations, or governmental proceedings;

•failure or circumvention of our controls and procedures;

•our exposure to a wide range of climate-related physical risks across different geographical areas;

•evolving capital and liquidity standards under applicable regulatory rules;

•disruption of the U.S. and global financial system and markets, including the impact of inflation, tariffs or other trade policies, political instability, a prolonged shutdown of the U.S. government, a potential global economic downturn or recession, and extended military conflicts;

•unanticipated changes in our liquidity position, including but not limited to, changes in our access to or the cost of funding and our ability to secure alternative funding sources;

•our ability to receive dividends from our subsidiaries, including KeyBank;

•downgrades in our credit ratings or those of KeyBank;

•a worsening of the U.S. economy due to financial, political or other shocks;

•our ability to anticipate interest rate changes and manage interest rate risk;

•deterioration of economic conditions in the geographic regions where we operate;

•the soundness of other financial institutions, including instability in the financial industry;

•our concentrated credit exposure in commercial and industrial loans;

•deterioration of commercial real estate market fundamentals;

•defaults by our loan clients or counterparties;

•adverse changes in credit quality trends;

•declining asset prices;

•deterioration of asset quality and an increase in credit losses;

•geopolitical destabilization, including ongoing military conflicts;

•labor shortages, increases in unemployment rates, and supply chain constraints;

•our ability to develop and effectively use the quantitative models we rely upon in our business planning;

•our ability to timely and effectively implement our strategic initiatives;

•damage to our reputation;

•increased competitive pressure;

•our ability to adapt our products and services to industry standards and consumer preferences;

•our ability to attract and retain talented executives and employees;

•unanticipated adverse effects of strategic partnerships or acquisitions and dispositions of assets or businesses;

•the potential impact of Scotiabank’s significant equity interest in our business;

•inaccurate assumptions or estimates underlying our consolidated financial statements;

•changes in accounting policies, standards, and interpretations; and

•impairment of goodwill.

Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances, except as required by applicable securities laws. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our 2025 Form 10-K, in Part II, Item 1A. "Risk Factors" of this report, and in any subsequent reports filed with the SEC by Key, as well as our registration statements under the Securities Act of 1933, as amended, all of which are or will upon filing be accessible on the SEC’s website at www.sec.gov and on our website at www.key.com/ir.

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Executive Overview

Key reported $472 million in net income from continuing operations attributable to Key common shareholders, or diluted earnings per share of $0.44, in the second quarter of 2026.

Our actions and results during the second quarter of 2026 support our corporate

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Introduction

This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for 2025 and 2024. 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 2023 and a comparison between the 2023 and 2024 results, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2024 Form 10-K filed with the SEC on February 21, 2025, which discussion is incorporated herein by reference.

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 high-performing and talented workforce and fostering a culture that is fair and inclusive for all. 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 positive 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 and talented 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 and talented workforce to create an environment where everyone can make a difference, own their careers, be respected, and feel a sense of pride.

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Executive overview

Our results for 2025 saw us meet or exceed all of our financial targets communicated at the beginning of the year. We delivered full year record revenue with both net interest income and fee revenue growing greater than projected. As a result, we generated significant positive operating leverage. At December 31, 2025, our Common Equity Tier 1 and Tier 1 risk-based capital ratios stood at 11.78% and 13.46%, respectively. We are well positioned as we enter 2026.

In addition to the items described above, the following actions and results during 2025 also supported our overall corporate strategy.

•We added nearly 10% to our frontline banker staff across wealth management, commercial payments, middle market, and investment banking.

•We invested an additional $100 million in technology focused on customer-facing capabilities that make it easier for our clients to bank at Key.

•We ended the year with $70.0 billion in assets under management, a record high, reflecting the continued strong sales production in our mass affluent segment.

•We continued to maintain our strong risk discipline. Full year net charge-offs were 41 basis points. Additionally, all leading indicators: non-performing assets, criticized loans, and delinquencies moved in a favorable direction.

•We remained committed to our strategy to engage a high-performing and talented workforce and fostering an inclusive environment for all. We continue to be recognized by multiple organizations for our dedication to creating an environment where all employees are treated with respect and empowered to bring their authentic selves to work.

Business Outlook

Consistent with the forward guidance we provided on January 20, 2026, we expect these results for full year 2026 versus full year 2025.

(a)    Ranges are shown on an operating basis.

(b)    Key is unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly related GAAP financial measures due to the difficulty in forecasting when future amounts may occur. Such unavailable information could be significant for future results.

(c)    On ~$170 billion of average earning assets

(d)    Excluding commercial mortgage servicing fees, operating lease income and other leasing gains, other income, and net securities gains (losses)

(e)    Reflects the estimated full year taxable-equivalent adjustment.

We have also established the following medium-term targets reflecting expected run rates by the end of 2027:

(a)    Key is unable to provide a reconciliation of forward-looking non-GAAP financial measures to their most directly related GAAP financial measures due to the difficulty in forecasting when future amounts may occur. Such unavailable information could be significant for future results.

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Results of Operations

Earnings Overview

The following chart provides a reconciliation of net income (loss) from continuing operations attributable to Key common shareholders for the year ended December 31, 2024, to the year ended December 31, 2025 (dollars in millions):

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 across 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.

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Net interest income (TE) for 2025 was $4.7 billion, and the net interest margin was 2.69%. Compared to 2024, net interest income (TE) increased $861 million, and the net interest margin increased by 53 basis points. These increases primarily reflect lower interest-bearing deposit costs, the reinvestment of proceeds from maturing low-yielding investment securities, fixed-rate loans, and swaps into higher-yielding investments, and the repositioning of the available-for-sale portfolio during the second half of 2024, which involved the sale and reinvestment of approximately $10.0 billion of lower-yielding mortgaged-backed securities into higher-yielding investments. Additionally, the balance sheet composition shifted to reflect a more favorable mix of higher-yielding commercial and industrial loans, and an improved funding mix as lower-cost deposits increased while wholesale borrowings declined. These benefits were partially offset by the impact of lower interest rates on variable-rate earning assets.

Average loans totaled $105.7 billion for 2025, compared to $107.7 billion in 2024. The $2.1 billion decrease was driven by the intentional run-off of low-yielding consumer loans, which decreased $2.4 billion. Average commercial loans increased $380 million, primarily driven by a mix shift to commercial and industrial loans.

Average deposits totaled $149.3 billion for 2025, an increase of $3.1 billion compared to 2024, reflecting growth in consumer deposits.

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 c

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