Company: KEY-PI
Filing Date: 2025-02-21
Form Type: 10-K
Source: 0000091576-25-000038
Chunk: 89

Company: KEYCORP /NEW/
Filing Date: 2025-02-21
Form: 10-K
Item: Item 8
Chunk 89
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 where available• Prices for other traded mortgage loans with similar characteristics• Purchase commitments and bid information received from market participantsPrices are adjusted as necessary to include:• The embedded servicing value in the loans• The specific characteristics of certain loans that are priced based on the pricing of similar loans. (These adjustments represent unobservable inputs to the valuation but are not considered significant given the relative insensitivity of the value to changes in these inputs to the fair value of the loans.)Residential loans held for investment: Certain residential loans held for sale contain salability exceptions that make them  unable to be sold into the performing loan sales market.   Loans in this category are transferred to the held to maturity loan portfolio and are included in “Loans, net of unearned income” on the balance sheet. This type of loan is classified as level 3 in the valuation hierarchy as transaction details regarding sales of this type of loan are often unavailable.  Fair value is based upon:•  Unobservable bid information from brokers and investorsHigher (lower) unobservable bid information would have resulted in higher (lower) fair value measurements.Level 2 and 3 (primarily level 2)DerivativesExchange-traded derivatives are valued using quoted prices in active markets and, therefore, are classified as Level 1 instruments.The majority of our derivative positions are Level 2 and are valued using internally developed models based on market convention and observable market inputs.  These derivative contracts include interest rate swaps, commodity swaps, certain options, floors, cross currency swaps, credit default swaps, and forward mortgage loan sale commitments. Significant inputs used in the valuation models include:•  SOFR and Overnight Index Swap (OIS) curves, index pricing curves, foreign currency curves•  Volatility surfaces (a three-dimensional graph of implied volatility against strike price and maturity)We have customized derivative instruments and risk participations that are classified as Level 3 instruments.  These derivative positions are valued using internally developed models, with inputs consisting of available market data, including: •   Credit spreads and interest ratesThe unobservable internally derived assumptions include:•   Loss given default•   Internal risk assessments of customersThe fair value represents an estimate of the amount that the risk participation counterparty would need to pay/receive as of the measurement date based on the probability of customer default on the swap transaction and the fair value of the underlying customer swap.  Therefore, for sold risk participation agreements, a higher loss probability and a lower credit rating would negatively affect the fair value of the risk participations and a