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 $1.23 billion for the first quarter of 2026 and the net interest margin was 2.87%. Compared to the first quarter of 2025, net interest income (TE) increased $125 million and net interest margin increased by 29 basis points. These increases were driven by a reduction in deposit costs as a result of declining interest rates and proactive deposit beta management, the reinvestment of proceeds from maturing low-yielding investment securities and fixed-rate swaps into higher-yielding investments, and a shift in the balance sheet composition to a more favorable mix of higher-yielding commercial and industrial loans. These benefits were partially offset by the impact of lower interest rates on variable-rate earning assets.

Average loans were $107.7 billion for the first quarter of 2026, an increase of $3.4 billion compared to the first quarter of 2025. Average commercial loans increased by $5.7 billion, primarily due to an increase in commercial and industrial loans. Average consumer loans declined by $2.3 billion, reflective of broad-based declines across all consumer loan categories.

Average deposits totaled $147.3 billion for the first quarter of 2026, a decrease of $1.2 billion compared to the year-ago quarter, driven by the intentional runoff of brokered CDs.

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 March 31, 2026, and March 31, 2025.

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

(d)Commercial and industrial average balances include $205 million and $213 million of assets from commercial credit cards for the three months ended March 31, 2026, and March 31, 2025, 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 $41.5 billion and $42.7 billion for the three months ended March 31, 2026 and March 31, 2025, respectively. Yield based on the fair value of securities available for sale was 3.75% and 3.99% for the three months ended March 31, 2026 and March 31, 2025, 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.