KEYCORP /NEW/

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.

Net interest income (TE) was $1.19 billion for the third quarter of 2025 and the net interest margin was 2.75%. Compared to the third quarter of 2024, net interest income (TE) increased $229 million and net interest margin increased by 58 basis points. These increases primarily reflect lower deposit costs, the reinvestment of proceeds from maturing low-yielding investment securities, fixed-rate loans and swaps repricing into higher-yielding investments, and the repositioning of the available-for-sale portfolio during the third and fourth quarters of 2024. 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.

For the nine months ended September 30, 2025, net interest income (TE) increased $699 million from the same period last year and net interest margin increased by 58 basis points. Net interest income (TE) benefited from a decline in funding costs, including interest-bearing deposit costs, the reinvestment of proceeds from maturing low-yielding investment securities, fixed-rate loans and swaps repricing into higher-yielding investments, the repositioning of the available-for-sale portfolio during the third and fourth quarters of 2024, and the favorable shift in the balance sheet composition. These benefits were partially offset by the impact of lower interest rates on variable-rate earning assets.

Average loans were $106.2 billion for the third quarter of 2025, a decrease of $17 million compared to the third quarter of 2024. Average commercial loans increased by $2.3 billion, primarily driven by an increase in commercial and industrial loans. Average consumer loans declined by $2.4 billion, reflective of broad-based declines across consumer loan categories.

Average deposits totaled $150.4 billion for the third quarter of 2025, an increase of $2.6 billion compared to the year-ago quarter, reflecting growth in consumer deposits.

Figure 3 shows the various components of our balance sheet that affect interest income and expense and their respective yields or rates for the current period and comparative year ago period. This figure also presents a reconciliation of TE net interest income to net interest income reported in accordance with GAAP for each of those quarters. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less the cost of funding, is calculated by dividing annualized TE net interest income by average earning assets.

Figure 3. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates and Components of Net Interest Income Changes from Continuing Operations(g)

(a)Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (f) below, calculated using a matched funds transfer pricing methodology.

(b)Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the three months ended September 30, 2025, and September 30, 2024.

(c)For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)Commercial and industrial average balances include $214 million and $215 million of assets from commercial credit cards for the three months ended September 30, 2025, and September 30, 2024, respectively.

(e)Yield presented is calculated on the basis of amortized cost excluding fair value hedge basis adjustments. The average amortized cost for securities available for sale was $43.1 billion and $41.6 billion for the three months ended September 30, 2025 and September 30, 2024, respectively. Yield based on the fair value of securities available for sale was 4.05% and 3.25% for the three months ended September 30, 2025 and September 30, 2024, respectively.

(f)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.

(g)Average balances presented are based on daily average balances over the respective stated period.

Figure 3. Consolidated Average Balance Sheets, Net Interest Income, and Yields/Rates and Components of Net Interest Income Changes from Continuing Operations(g)

(a)Results are from continuing operations. Interest excludes the interest associated with the liabilities referred to in (f) below, calculated using a matched funds transfer pricing methodology.

(b)Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 21% for the nine months ended September 30, 2025, and September 30, 2024, respectively.

(c)For purposes of these computations, nonaccrual loans are included in average loan balances.

(d)Commercial and industrial average balances include $215 million and $215 million of assets from commercial credit cards for the nine months ended September 30, 2025, and September 30, 2024, respectively.

(e)Yield presented is calculated on the basis of amortized cost excluding fair value hedge basis adjustments. The average amortized cost for securities available for sale was $43.2 billion and $42.4 billion for the nine months ended September 30, 2025, and September 30, 2024, respectively. Yield based on the fair value of securities available for sale was 4.02% and 2.85% for the nine months ended September 30, 2025, and September 30, 2024, respectively.

(f)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.

(g)Average balances presented are based on daily average balances over the respective stated period.