KeyCorp 10-K

Prompt Corrective Action. The “prompt corrective action” provisions of the FDIA create a statutory framework that applies a system of both discretionary and mandatory supervisory actions indexed to the capital level of FDIC-insured depository institutions. These provisions impose progressively more restrictive constraints on operations, management, and capital distributions of an institution as its regulatory capital decreases, or in some cases, based on supervisory information other than the institution’s capital level. This framework and the authority it confers on the federal banking agencies supplements other existing authority vested in such agencies to initiate supervisory actions to address capital deficiencies. Moreover, other provisions of law and regulation employ regulatory capital level designations the same as or similar to those established by the prompt corrective action provisions both in imposing certain restrictions and limitations and in conferring certain economic and other benefits upon institutions. These include restrictions on brokered deposits, FDIC deposit insurance limits on pass-through deposits, limits on exposure to interbank liabilities, risk-based FDIC deposit insurance premium assessments, and expedited action upon regulatory applications. FDIC-insured depository institutions are grouped into one of five prompt corrective action capital categories – well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized – using the Tier 1 risk-based, total risk-based, and Tier 1 leverage capital ratios as the relevant capital measures. An institution is considered well capitalized if it has a total risk-based capital ratio of at least

16 EX-10.13 2 l11135aexv10w13.txt EX-10.13 2004 EQUITY COMPENSATION PLAN EXHIBIT 10.13 2004 EQUITY COMPENSATION PLAN 1. PURPOSE. The KeyCorp 2004 Equity Compensation Plan is intended to promote the interests of the Corporation and its shareholders by providing equity-based incentives for effective service and high levels of performance to Employees selected by the Committee. To achieve these purposes, the Corporation may grant Awards of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units to selected Employees, all in accordance with the terms and conditions hereinafter set forth. 2. DEFINITIONS. 2.1 1934 ACT. The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. 2.2 ACQUISITION PRICE. The term "Acquisition Price" with respect to Restricted Stock and Restricted Stock Units shall mean such amount, if any, required by applicable law or as may be otherwise specified by the Committee in the Award Instrument with respect to the Restricted Stock or Restricted Stock Units as the consideration to be paid by the Employee for the Restricted Stock or Restricted Stock Units. 2.3 AWARD. The term "Award" shall mean an award granted under the Plan of Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, or Performance Units. 2.4 AWARD INSTRUMENT. The term "Award Instrument" shall mean a written instrument evidencing an Award in such form and with such provisions as the Committee may prescribe, including, without limitation, an agreement to be executed by the Employee and the Corporation, a certificate issued by the Corporation, or a letter executed by the Committee or its designee. An Award Instrument may also be in an electronic medium. Acceptance of the Award Instrument by an Employee constitutes agreement to the terms of the Award evidenced thereby. 2.5 BASE PRICE. The term "Base Price" with respect to a Free-Standing SAR shall mean the price specified in an Award of Free-Standing SARs to be used as the basis for determining the amount to which a holder of a Free-Standing SAR is entitled upon the exercise of a Free-Standing SAR. 2.6 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if, at any time after the date of the grant of the relevant Award, there is a Change of Control under any of clauses (a), (b), (c), or (d) below. For these purposes, the Corporation will be deemed to have become a subsidiary of another corporation if any other corporation (which term shall include, in addition to a corporation, a limited liability company, partnership, trust, or other organization) owns, directly or indirectly, 50 percent or more of the total combined outstanding voting power of all classes of stock of the Corporation or any successor to the Corporation. (a) A Change of Control will have occurred under this clause (a) if the Corporation is a party to a transaction pursuant to which the Corporation is merged with or into, or is consolidated with, or becomes the subsidiary of another corporation and either (i) immediately after giving effect to that transaction, less than 65% of the then outstanding voting securities of the surviving or resulting corporation or (if the Corporation becomes a subsidiary in the transaction) of the ultimate parent of the Corporation represent or were issued in exchange for voting securities of the Corporation outstanding immediately prior to the transaction, or (ii) immediately after giving effect to that transaction, individuals who were directors of the Corporation on the day before the first public announcement of (A) the pendency of the transaction or (B) the intention of any person or entity to cause the transaction to occur, cease for any reason to constitute at least 51% of the directors of the surviving or resulting corporation or (if the Corporation becomes a subsidiary in the transaction) of the ultimate parent of the Corporation. (b) A Change of Control will have occurred under this clause (b) if a tender or exchange offer shall be made and consummated for 35% or more of the outstanding voting stock of the Corporation or any person (as the term "person" is used in Section 13(d) and Section 14(d)(2) of the 1934 Act) is or becomes the beneficial owner of 35% or more of the outstanding voting stock of the Corporation or there is a report filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as adopted under the 1934 Act, disclosing the acquisition of 35% or more of the outstanding voting stock of the Corporation in a transaction or series of transactions by any person (as defined earlier in this clause (b)). (c) A Change of Control will have occurred under this clause (c) if either (i) without the prior approval, solicitation, invitation, or recommendation of the Corporation's Board of Directors any person or entity makes a public announcement of a bona fide intention (A) to engage in a transaction with the Corporation that, if consummated, would result in a Change Event (as defined below in this clause (c)), or (B) to "solicit" (as defined in Rule 14a-1 under the 1934 Act) proxies in connection with a proposal that is not approved or recommended by the Corporation's Board of Directors, or (ii) any person or entity publicly announces a bona fide intention to engage in an election contest relating to the election of directors of the Corporation (pursuant to Regulation 14A, including Rule 14a-11, under the 1934 Act), and, at any time within the 24 month period immediately following the date of the announcement of that intention, individuals who, on the day before that announcement, constituted the directors of the Corporation (the "Incumbent Directors") cease for any reason to constitute at least a majority thereof unless both (A) the election, or the nomination for election by the Corporation's shareholders, of each new director was approved by a vote of at least two-thirds of the Incumbent Directors in office at the time of the election or nomination for election of such new director, and (B) prior to the time that the Incumbent Directors no longer constitute a majority of the Board of Directors, the Incumbent Directors then in office, by a vote of at least 75% of their number, reasonably determine in good faith that the change in Board membership that has occurred before the date of that determination and that is anticipated to thereafter occur within the balance of the 24 month period to cause the Incumbent Directors to no longer be a majority of the Board of Directors was not caused by or attributable to, in whole or in any significant part, directly or indirectly, proximately or remotely, any event under subclause (i) or (ii) of this clause (c). For purposes of this clause (c), the term "Change Event" shall mean any of the events described in the following subclauses (x), (y), or (z) of this clause (c): (x) A tender or exchange offer shall be made for 25% or more of the outstanding voting stock of the Corporation or any person (as the term "person" is used in Section 13(d) and Section 14(d)(2) of the 1934 Act) is or becomes the beneficial owner of 25% or more of the outstanding voting stock of the Corporation or there is a report filed on Schedule 13D or Schedule TO (or any successor schedule, form, or report), each as adopted under the 1934 Act, disclosing the acquisition of 25% or more of the outstanding voting stock of the Corporation in a transaction or series of transactions by any person (as defined earlier in this subclause (x)). (y) The Corporation is a party to a transaction pursuant to which the Corporation is merged with or into, or is consolidated with, or becomes the subsidiary of another corporation and, after giving effect to such transaction, less than 50% of the then outstanding voting securities of the surviving or resulting corporation or (if the Corporation becomes a subsidiary in the transaction) of the ultimate parent of the Corporation represent or were issued in exchange for voting securities of the Corporation outstanding immediately prior to such transaction or less than 51% of the directors of the surviving or resulting corporation or (if the Corporation becomes a subsidiary in the transaction) of the ultimate parent of the Corporation were directors of the Corporation immediately prior to such transaction. (z) There is a sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Corporation. (d) A Change of Control will have occurred under this clause (d) if there is a sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Corporation. 2.7 COMMITTEE. The term "Committee" shall mean the Compensation Committee of the Board of Directors of the Corporation or such other committee or subcommittee as may be designated by the Board of Directors of the Corporation from time to time. 2.8 COMMON SHARES. The term "Common Shares" shall mean common shares of the Corporation, with a par value of $1 each. 2.9 CORPORATION. The term "Corporation" shall mean KeyCorp and its successors, including the surviving or resulting corporation of any merger of KeyCorp with or into, or any consolidation of KeyCorp with, any other corporation or corporations. 2.10 COVERED EMPLOYEE. The term "Covered Employee" shall mean an Employee who is, or is determined by the Committee to be likely to become, a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. 2.11 DISABILITY. The term "Disability" with respect to an Employee shall mean physical or mental impairment which entitles the Employee to receive disability payments under any long-term disability plan maintained by the Corporation. 2.12 EFFECTIVE DATE. The term "Effective Date" shall mean March 18, 2004, the date the Plan is approved and adopted by the Board of Directors of the Corporation. 2.13 EMPLOYEE. The term "Employee" shall mean any individual employed by the Corporation or by any Subsidiary and shall include officers as well as all other employees of the Corporation or of any Subsidiary (including employees who are members of the Board of Directors of the Corporation or any Subsidiary). 2.14 EMPLOYMENT TERMINATION DATE. The term "Employment Termination Date" with respect to an Employee shall mean the first date on which the Employee is no longer employed by the Corporation or any Subsidiary. 2.15 EXERCISE PRICE. The term "Exercise Price" with respect to an Option shall mean the price specified in the Option at which the Common Shares subject to the Option may be purchased by the holder of the Option. 2.16 FAIR MARKET VALUE. Except as otherwise determined by the Committee at the time of the grant of an Award, the term "Fair Market Value" with respect to Common Shares shall mean: (a) if the Common Shares are traded on a national exchange, the mean between the high and low sales price per Common Share on that national exchange on the date for which the determination of fair market value is made or, if there are no sales of Common Shares on that date, then on the next preceding date on which there were any sales of Common Shares, or (b) if the Common Shares are not traded on a national exchange, the mean between the high and low sales price per Common Share in the over-the-counter market, National Market System, as reported by the National Quotations Bureau, Inc. and NASDAQ on the date for which the determination of fair market value is made or, if there are no sales of Common Shares on that date, then on the next preceding date on which there were any sales of Common Shares. 2.17 FREE-STANDING STOCK APPRECIATION RIGHT. The term "Free-Standing Stock Appreciation Right" or "Free-Standing SAR" shall mean an Award granted to an Employee that is not granted in tandem with an Option that entitles the holder thereof to receive from the Corporation, upon exercise of the Free- Standing SAR or any portion of the Free-Standing SAR, an amount equal to 100% or such lesser percentage as the Committee may determine at the time of grant of the Award, of the excess, if any, measured at the time of the exercise of the Free-Standing SAR, of (a) the Fair Market Value of the Common Shares underlying the Free-Standing SARs being exercised over (b) the aggregate Base Price of those Common Shares underlying the Free-Standing SARs being exercised. 2.18 INCENTIVE STOCK OPTION. The term "Incentive Stock Option" shall mean an Option intended by the Committee to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 2.19 LIMITED STOCK APPRECIATION RIGHT. The term "Limited Stock Appreciation Right" or "Limited SAR" shall mean an Award granted to an Employee with respect to all or any part of any Option, that entitles the holder thereof to receive from the Corporation, upon exercise of the Limited SAR and surrender of the related Option, or any portion of the Limited SAR and the related Option, an amount equal to (unless the Committee specifies a lesser amount at the time of the grant of the Award): (a) in the case of a Limited SAR granted with respect to an Incentive Stock Option, 100% of the excess, if any, measured at the time of the exercise of the Limited SAR, of (i) the Fair Market Value of the Common Shares subject to the Incentive Stock Option with respect to which the Limited SAR is exercised over (ii) the Exercise Price of those Common Shares under the Incentive Stock Option, or (b) in the case of a Limited SAR granted with respect to a Nonqualified Option, 100% of the highest of: (i) the excess, measured at the time of the exercise of the Limited SAR, of (A) the Fair Market Value of the Common Shares subject to the Nonqualified Option with respect to which the Limited SAR is exercised over (B) the Exercise Price of those Common Shares under the Nonqualified Option, (ii) the excess of (A) the highest gross price (before brokerage commissions and soliciting dealers' fees) paid or to be paid for a Common Share (whether in cash or in property and whether by way of exchange, conversion, distribution upon liquidation, or otherwise) in connection with any Change of Control multiplied by the number of Common Shares subject to the Nonqualified Option with respect to which the Limited SAR is exercised over (B) the Exercise Price of those Common Shares under the Nonqualified Option, or (iii) the excess of (A) the highest Fair Market Value of the Common Shares subject to the Nonqualified Option with respect to which the Limited SAR is exercised on any one day during the period beginning on the sixtieth day prior to the date on which the Limited SAR is exercised multiplied by the number of Common Shares subject to the Nonqualified Option with respect to which the Limited SAR is exercised over (B) the Exercise Price of those Common Shares under the Nonqualified Option. 2.20 NONQUALIFIED OPTION. The term "Nonqualified Option" shall mean an Option intended by the Committee not to qualify as an "incentive stock option" under Section 422 of the Internal Revenue Code of 1986, as amended. 2.21 OPTION. The term "Option," shall mean an Award entitling the holder thereof to purchase a specified number of Common Shares at a specified price during a specified period of time. 2.22 OPTION EXPIRATION DATE. The term "Option Expiration Date" with respect to any Option shall mean the date selected by the Committee after which, except as provided in Section 11.4 in the case of the death of the Employee to whom the option was granted, the Option may not be exercised. 2.23 PERFORMANCE GOAL. The term "Performance Goal" shall mean a performance goal specified by the Committee in connection with the potential grant of Performance Shares or Performance Units, or when so determined by the Committee, Options, SARs, Restricted Stock, and dividend credits pursuant to this Plan. Performance Goals may be described in terms of objectives that are related to the performance by the Corporation, by any Subsidiary, or by any Employee or group of Employees in connection with services performed by that Employee or those Employees for the Corporation, a Subsidiary, or any one or more subunits of the Corporation or of any Subsidiary. The Performance Goals may be made relative to the performance of other corporations. The Performance Goals applicable to any award to a Covered Employee will be based on, and described in terms of specified levels of, growth in, or ratios involving, one or more of the following criteria: (a) earnings per share; (b) total revenue; (c) net interest income (d) noninterest income; (e) net income; (f) net income before tax; (g) noninterest expense (h) efficiency ratio; (i) return on equity; (j) return on assets; (k) economic profit added; (l) loans; (m) deposits; (n) tangible equity; (o) assets (p) net charge-offs; and (q) nonperforming assets If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Corporation, or the manner in which it conducts its business, or other events or circumstances render the Performance Goals unsuitable, the Committee may in its discretion modify such Performance Goals or the related minimum acceptable level of achievement, in whole or in part, as the Committee deems appropriate and equitable, except in the case of a Covered Employee where such action would result in the loss of the otherwise available exemption of the Award under Section 162(m) of the Internal Revenue Code of 1986, as amended. In such case, the Committee will not make any modification of the Performance Goals or minimum acceptable level of achievement. 2.24 PERFORMANCE PERIOD. The term "Performance Period" shall mean such one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be relevant in connection with one or more Awards of Performance Shares or Performance Units. 2.25 PERFORMANCE SHARES. The term "Performance Shares" shall mean an Award denominated in Common Shares and contingent upon attainment of one or more Performance Goals by the Corporation or a Subsidiary or any subunit of the Corporation or of any Subsidiary over a Performance Period. 2.26 PERFORMANCE UNITS. The term "Performance Units" shall mean a bookkeeping entry that records a unit equal to $1.00 awarded pursuant to Section 10 of this Plan, which are contingent upon attainment of one or more Performance Goals by the Corporation or a Subsidiary or any subunit of the Corporation or of any Subsidiary over a Performance Period. 2.27 PLAN. The term "Plan" shall mean this KeyCorp 2004 Equity Compensation Plan as from time to time hereafter amended in accordance with Section 21.1. 2.28 RESTRICTED STOCK. The term "Restricted Stock" shall mean Common Shares of the Corporation delivered to an Employee pursuant to an Award subject to such restrictions, conditions and contingencies as the Committee may provide in the relevant Award Instrument, including (a) the restriction that the Employee not sell, transfer, otherwise dispose of, or pledge or otherwise hypothecate the Restricted Stock during the applicable Restriction Period, (b) the requirement that the Restriction Period will terminate or terminate early upon achievement of specified Performance Goals, (c) the requirement that, subject to the provisions of Section 11, if the Employee's employment terminates so that the Employee is no longer employed by the Corporation or any Subsidiary before the end of the applicable Restriction Period, the Employee will offer to sell to the Corporation at the Acquisition Price each Common Share of Restricted Stock held by the Employee at the Employment Termination Date with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed, and (d) such other restrictions, conditions, and contingencies, if any, as the Committee may provide in the Award Instrument with respect to that Restricted Stock. 2.29 RESTRICTED STOCK UNITS. The term "Restricted Stock Units" shall mean an Award pursuant to Section 9 of this Plan, whereby an Employee receives the right to receive Common Shares or the cash equivalent thereof at a specified time in the future in consideration of the performance of services, but subject to such restrictions, conditions and contingencies as the Committee may provide in the relevant Award Instrument. 2.30 RESTRICTION PERIOD. The term "Restriction Period" with respect to an Award of Restricted Stock shall mean the period selected by the Committee and specified in the Award Instrument with respect to that Restricted Stock during which the Employee may not sell, transfer, otherwise dispose of, or pledge or otherwise hypothecate that Restricted Stock. 2.31 STOCK APPRECIATION RIGHT. The term "Stock Appreciation Right" or "SAR" shall mean a right granted pursuant to Section 7 of this Plan, and will include Tandem Stock Appreciation Rights, Limited Stock Appreciation Rights and Free-Standing Stock Appreciation Rights. 2.32 SUBSIDIARY. The term "Subsidiary" shall mean any corporation, partnership, joint venture, or other business entity in which the Corporation owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock (in the case of a corporation) or other ownership interest (in the case of any entity other than a corporation). 2.33 TANDEM STOCK APPRECIATION RIGHT. The term "Tandem Stock Appreciation Right "or "Tandem SAR" shall mean an Award granted to an Employee with respect to all or any part of any Option that entitles the holder thereof to receive from the Corporation, upon exercise of the Tandem SAR and surrender of the related Option, or any portion of the Tandem SAR and the related Option, an amount equal to 100%, or such lesser percentage as the Committee may determine at the time of the grant of the Award, of the excess, if any, measured at the time of the exercise of the Tandem SAR, of (a) the Fair Market Value of the Common Shares subject to the Option with respect to which the Tandem SAR is exercised over (b) the Exercise Price of those Common Shares under the Option. 2.34 TRANSFEREE. The term "Transferee" shall mean, with respect to Nonqualified Options only, any person or entity to which an Employee is permitted by the Committee to transfer or assign all or part of his or her Options. 3. ADMINISTRATION. The Plan shall be administered by the Committee. No Award may be made under the Plan to any member or alternate member of the Committee. The Committee shall have authority, subject to the terms of the Plan, (a) to determine the Employees who are eligible to participate in the Plan, the type, size, and terms of Awards to be granted to any Employee, the time or times at which Awards shall be exercisable or at which restrictions, conditions, and contingencies shall lapse, and the terms and provisions of the instruments by which Awards shall be evidenced, (b) to establish any other restrictions, conditions, and contingencies on Awards in addition to those prescribed by the Plan, (c) to interpret the Plan, and (d) to make all determinations necessary for the administration of the Plan. The construction and interpretation by the Committee of any provision of the Plan or any Award Instrument delivered pursuant to the Plan and any determination by the Committee pursuant to any provision of the Plan or any Award Instrument shall be final and conclusive. No member or alternate member of the Committee shall be liable for any such action or determination made in good faith. The Committee may act only by a majority of its members. Any determination of the Committee may be made, without a meeting, by a writing or writings signed by all of the members of the Committee. In addition, the Committee may authorize any one or more of their number or any officer of the Corporation to execute and deliver documents on behalf of the Committee and the Committee may delegate to one or more employees, agents, or officers of the Corporation, or to one or more third party consultants, accountants, lawyers, or other advisors, such ministerial duties related to the operation of the Plan as it may deem appropriate. 4. ELIGIBILITY. Awards may be granted to Employees of the Corporation or any Subsidiary selected by the Committee in its sole discretion. The granting of any Award to an Employee shall not entitle that Employee to, nor disqualify the Employee from, participation in any other grant of an Award. 5. STOCK SUBJECT TO THE PLAN. 5.1 TYPE OF STOCK. The stock that may be issued and distributed to Employees in connection with Awards granted under the Plan shall be Common Shares and may be authorized and unissued Common Shares, treasury Common Shares, or Common Shares acquired on the open market specifically for distribution under the Plan, as the Board of Directors may from time to time determine. 5.2 NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided in Section 5.3 and Section 14 of this Plan, the number of Common Shares that may be issued or transferred (a) upon the exercise of Options or Stock Appreciation Rights, (b) as Restricted Stock and released from a substantial risk of forfeiture thereof, (c) in payment of Restricted Stock Units, (d) in payment of Performance Shares or Performance Units that have been earned, (e) in payment of dividend equivalents paid with respect to Awards made under the Plan or (f) in payment of any other award pursuant to this Plan, following the Effective Date, shall not exceed in the aggregate 70,000,000 Common Shares, plus any shares described in Section 5.3. 5.3 ADJUSTMENTS. The number of shares available in Section 5.2 above shall be adjusted to account for shares relating to any awards that expire or are forfeited or that are transferred, surrendered or relinquished upon the payment of any exercise price by the transfer to the Corporation of Common Shares or upon satisfaction of any withholding amount, regardless of whether such expiration, forfeiture, transfer, surrender or relinquishment relates to awards that were granted under this Plan or any other plan of the Corporation, or before or after the Effective Date. Upon payment in cash of the benefit provided by any award granted under this Plan or under any other plan of the Corporation, at any time before or after the Effective Date, any shares that were covered by that award shall again be available for issue or transfer hereunder. 5.4 LIMITS. Notwithstanding anything in this Section 5, or elsewhere in this Plan to the contrary and subject to adjustment as provided in Section 14 of this Plan: (a) the aggregate number of Common Shares actually issued or transferred by the Corporation upon the exercise of Incentive Stock Options shall not exceed 15,000,000 Common Shares; (b) no Employee shall be granted Options or Stock Appreciation Rights, in the aggregate, for more than 1,000,000 Common Shares during any one calendar year; (c) the number of Common Shares that may be issued as Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units, shall not in the aggregate exceed 14,000,000 Common Shares; and (d) in no event shall any Employee in any calendar year receive Awards of Performance Shares, Performance Units and Restricted Stock with Performance Goals having an aggregate maximum value as of their respective dates of grant in excess of $7,500,000. 6. STOCK OPTIONS. 6.1 TYPE AND DATE OF GRANT OF OPTIONS. (a) The Award Instrument pursuant to which any Incentive Stock Option is granted shall specify that the Option granted thereby shall be treated as an Incentive Stock Option. The Award Instrument pursuant to which any Nonqualified Option is granted shall specify that the Option granted thereby shall not be treated as an Incentive Stock Option. (b) The day on which the Committee authorizes the grant of an Incentive Stock Option shall be the date on which that Option is granted. (c) The day on which the Committee authorizes the grant of a Nonqualified Option shall be considered the date on which that Option is granted, unless the Committee specifies a later date. (d) The Committee reserves the discretion after the date of grant of an Option to provide for (i) the payment of a cash bonus at the time of exercise; (ii) the availability of a loan at exercise; or (iii) the right to tender in satisfaction of the Exercise Price nonforfeitable, unrestricted Common Shares, which are already owned by the Employee and have a value at the time of exercise that is equal to the Exercise Price. 6.2 EXERCISE PRICE. The Exercise Price under any Option shall be not less than the Fair Market Value of the Common Shares subject to the Option on the date the Option is granted. 6.3 OPTION EXPIRATION DATE. The Option Expiration Date under any Option shall be not later than ten years from the date on which the Option is granted. 6.4 EXERCISE OF OPTIONS. (a) Except as otherwise provided in Section 11, an Option may be exercised only while the Employee to whom the Option was granted is in the employ of the Corporation or of a Subsidiary. Subject to this requirement, each Option shall become exercisable in one or more installments at the time or times provided in the Award Instrument evidencing the Option. Once any portion of an Option becomes exercisable, that portion shall remain exercisable until expiration or termination of the Option. An Employee to whom an Option is granted or, with respect to Nonqualified Options, the Employee's Transferee may exercise the Option from time to time, in whole or in part, up to the total number of Common Shares with respect to which the Option is then exercisable, except that no fraction of a Common Share may be purchased upon the exercise of any Option. (b) The Award Instrument may provide that specified Performance Goals must be achieved as a condition to the exercise of any Option. (c) An Employee or, with respect to Nonqualified Options, any Transferee electing to exercise an Option shall deliver to the Corporation (i) the Exercise Price payable in accordance with Section 6.5 and (ii) written notice of the election that states the number of whole Common Shares with respect to which the Employee is exercising the Option. (d) The exercise of an Option will result in the cancellation on a share-by-share basis of any Tandem SAR and Limited SAR authorized under Section 7 of this Plan. 6.5 PAYMENT FOR COMMON SHARES. Upon exercise of an Option by an Employee or, with respect to Nonqualified Options, any Transferee, the Exercise Price shall be payable by the Employee or Transferee in cash or in such other form of consideration as the Committee determines may be accepted, including without limitation, securities or other property, or any combination of cash, securities or other property or, to the extent permitted by applicable law, by delivery by the Employee or Transferee (with the written notice of election to exercise) of irrevocable instructions to a broker registered under the 1934 Act promptly to deliver to the Corporation the amount of sale or loan proceeds to pay the Exercise Price. The Committee, in its sole discretion, may grant to an Employee or, with respect to Nonqualified Options, any Transferee the right to transfer Common Shares acquired upon the exercise of a part of an Option in payment of the Exercise Price payable upon immediate exercise of a further part of the Option. 6.6 CONVERSION OF INCENTIVE STOCK OPTIONS. The Committee may at any time in its sole discretion take such actions as may be necessary to convert any outstanding Incentive Stock Option (or any installments or portions of installments thereof) into a Nonqualified Option with or without the consent of the Employee to whom that Incentive Stock Option was granted and whether or not that Employee is an Employee at the time of the conversion. 6.7 DIVIDEND EQUIVALENTS. The Committee may, at or after the date on which an Option is granted, provide for the payment of dividend equivalents to the holder of the Option on either a current or deferred or contingent basis or may provide that such equivalents will be credited against the Exercise Price. 7. STOCK APPRECIATION RIGHTS. 7.1 GRANT OF SARS. (a) The Committee may authorize the granting (i) to any holder of an Option, of Tandem SARs and Limited SARs in respect of Options granted hereunder, and (ii) to any Employee, of Free-Standing SARs. A Tandem SAR may be granted only in connection with an Option. A Tandem SAR granted in connection with an Incentive Stock Option may be granted only when the Incentive Stock Option is granted. A Tandem SAR granted in connection with a Nonqualified Option may be granted either when the related Nonqualified Option is granted or at any time thereafter including, in the case of any Nonqualified Option resulting from the conversion of an Incentive Stock Option, simultaneously with or after the conversion. Similarly, a Limited SAR may be granted only in connection with an Option. A Limited SAR granted in connection with an Incentive Stock Option may be granted only when the Incentive Stock Option is granted. A Limited SAR granted in connection with a Nonqualified Option may be granted either when the related Nonqualified Option is granted or at any time thereafter including, in the case of any Nonqualified Option resulting from the conversion of an Incentive Stock Option, simultaneously with or after the conversion. A Free-Standing SAR is not granted in tandem with an Option. 7.2 EXERCISE OF SARS. (a) An Employee electing to exercise an SAR shall deliver written notice to the Corporation of the election identifying the SAR and, with respect to Tandem SARs and Limited SARs, the related Option with respect to which the Tandem SAR or Limited SAR was granted to the Employee, and specifying the number of whole Common Shares with respect to which the Employee is exercising the SAR. Upon exercise of a Tandem SAR or Limited SAR, the related Option shall be deemed to be surrendered to the extent that the Tandem SAR or Limited SAR is exercised. (b) The Committee may specify in the Award Instrument pursuant to which SARs are granted that the amount payable on exercise of an SAR may not exceed a maximum specified by the Committee in the Award Instrument. (c) No SAR granted under this Plan may be exercised more than ten years from the date on which the SAR is granted. (d) The Committee may provide in the Award Instrument to which SARs are granted for the payment to the holder of the SAR of dividend equivalents thereon in cash or Common Shares on a current, deferred or contingent basis. (e) SARs may be exercised only (i) on a date when the SAR is "in the money" (i.e., when there would be positive consideration received upon exercise of the SAR), (ii) with respect to Tandem SARs and Limited SARs, at a time and to the same extent as the related Option is exercisable, (iii) with respect to Tandem SARs and Limited SARs, unless otherwise provided in the relevant Award Instrument, by surrender to the Corporation, unexercised, of the related Option or any applicable portion thereof, and (iv) in compliance with all restrictions set forth in or specified by the Committee (f) The Committee may specify in the Award Instrument pursuant to which any SAR is granted waiting periods and restrictions on permissible exercise periods in addition to the restrictions on exercise set forth in this Section 7. (g) The Committee may specify in the Award Instrument pursuant to which SARs are granted Performance Goals that must be achieved as a condition of the exercise of such SARs. (h) Each Award Instrument pursuant to which Free-Standing SARs are granted shall specify in respect of each Free-Standing SAR, a Base Price, which shall be equal to or greater than the Fair Market Value of the Common Shares subject to each Free-Standing SAR on the date the Free-Standing SAR is granted. 7.3 PAYMENT FOR SARS. The amount payable upon exercise of an SAR may be paid by the Corporation in cash or in whole Common Shares (taken at their Fair Market Value at the time of exercise of the SAR) or in a combination of cash and whole Common Shares and may either grant to the Employee or retain in the Committee the right to elect among those alternatives; provided, however, that in no event shall the total number of Common Shares that may be paid to an Employee pursuant to the exercise of a Tandem SAR or Limited SAR exceed the total number of Common Shares subject to the related Option. 7.4 TERMINATION, AMENDMENT, OR SUSPENSION OF SARS. SARs shall terminate and may no longer by exercised upon the first to occur of (a) with respect to Tandem SARs and Limited SARs, the exercise or termination of the related Option, (b) any termination date specified by the Committee at the time of grant of the SAR, or (c) with respect to Tandem SARs and Limited SARs, the transfer by the Employee of the related Option. In addition, the Committee may in its sole discretion at any time before the occurrence of a Change of Control amend, suspend, or terminate any SAR theretofore granted under the Plan without the holder's consent; provided that, in the case of amendment, no provision of the SAR, as amended, shall be in conflict with any provision of the Plan. 8. RESTRICTED STOCK. 8.1 CONDITIONS ON RESTRICTED STOCK. (a) In addition to the restrictions on disposition of Restricted Stock during the Restriction Period and the requirement to offer Restricted Stock to the Corporation if the Employee's employment terminates during the Restriction Period, the Committee may provide in the Award Instrument with respect to any Award of Restricted Stock other restrictions, conditions, and contingencies, which other restrictions, conditions, and contingencies, if any, may relate to, in addition to such other matters as the Committee may deem appropriate, the achievement of Performance Goals, the Employee's personal performance, corporate performance, or the performance of any subunit of the Corporation or any Subsidiary, in each case measured in such manner as may be specified by the Committee. The Committee may impose different restrictions, conditions, and contingencies on separate Awards of Restricted Stock granted to different Employees, whether at the same or different times, and on separate Awards of Restricted Stock granted to the same Employee, whether at the same or different times. The Committee may specify a single Restriction Period for all of the Restricted Stock subject to any particular Award Instrument or may specify multiple Restriction Periods so that the restrictions with respect to the Restricted Stock subject to the Award will expire in stages according to a schedule specified by the Committee and set forth in the Award Instrument. (b) The Committee may specify in the Award Instrument pursuant to which the Restricted Stock is granted, that any or all dividends or other distributions paid on Restricted Stock during the Restriction Period be automatically deferred and reinvested in additional shares of Restricted Stock, which may be subject to the same restrictions as the underlying Award. (c) If so directed by the Committee, all certificates representing Restricted Stock may be held in custody by the Corporation until all restrictions thereon shall have lapsed, together with a stock power or powers executed by the Employee in whose name such certificates are registered, endorsed in blank and covering such Common Shares. 8.2 PAYMENT FOR RESTRICTED STOCK. Each Employee to whom an Award of Restricted Stock is made shall pay the Acquisition Price, if any, with respect to that Restricted Stock to the Corporation not later than 30 days after the delivery to the Employee of the Award Instrument with respect to that Restricted Stock. If any Employee fails to pay any Acquisition Price with respect to an Award of Restricted Stock within that 30 day period, the Employee's right under that Award shall be forfeited. 8.3 RIGHTS AS A SHAREHOLDER. Upon payment by an Employee in full of the Acquisition Price for Restricted Stock under an Award, the Employee shall have all of the rights of a shareholder with respect to the Restricted Stock, including voting and dividend rights, subject only to such restrictions and requirements referred to in Section 8.1 as may be incorporated in the Award Instrument with respect to that Restricted Stock. 9. RESTRICTED STOCK UNITS. 9.1 GRANT OF RESTRICTED STOCK UNITS. (a) Each grant or sale of Restricted Stock Units shall provide that the Restricted Stock Units shall be subject to deferral and a risk of forfeiture, as determined by the Committee on the date the Restricted Stock Units are granted, and may provide for the earlier lapse or other modification of such period in the event of a Change in Control. (b) Each Employee to whom an Award of Restricted Stock Units is made shall pay the Acquisition Price, if any, with respect to those Restricted Stock Units to the Corporation not later than 30 days after delivery to the Employee of the Award Instrument with respect to the Restricted Stock Units being granted. If any Employee fails to pay any Acquisition Price with respect to an Award of Restricted Stock Units within that 30 day period, the Employee's right under that Award shall be forfeited. 9.2 PAYMENT FOR RESTRICTED STOCK UNITS. The Corporation shall pay each Employee who is entitled to payment for Restricted Stock Units an amount for those Restricted Stock Units (a) in cash, (b) in Common Shares, or (c) any combination of the foregoing, and may either grant to the Employee or retain in the Committee the right to elect among those alternatives. 9.3 RIGHTS AS A SHAREHOLDER. During any time that the Restricted Stock Units are outstanding, the Employee shall have no right to transfer any rights under his or her Award, shall have no rights of ownership in the Common Shares deliverable upon payment of the Restricted Stock Units and shall have no right to vote them, but the Committee may, at or after the date on which the Restricted Stock Units are granted, authorize the payment of dividend equivalents on such Common Shares underlying the Restricted Stock Units on either a current or deferred or contingent basis, either in cash or in additional Common Shares. 10.PERFORMANCE SHARES AND PERFORMANCE UNITS. 10.1 DISCRETION OF COMMITTEE WITH RESPECT TO PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee shall have full discretion to select the Employees to whom Awards of Performance Shares and Performance Units are made, the number of Performance Shares or Performance Units to be granted to any Employee so selected, the kind and level of the Performance Goals and whether those Performance Goals are to apply to the Corporation, a Subsidiary, or any one or more subunits of the Corporation or of any Subsidiary, and the dates on which each Performance Period shall begin and end, and to determine the form and provisions of the Award Instrument to be used in connection with any Award of Performance Shares or Performance Units. 10.2 CONDITIONS TO PAYMENT FOR PERFORMANCE SHARES AND PERFORMANCE UNITS. (a) Unless otherwise provided in the relevant Award Instrument, an Employee must be employed by the Corporation or a Subsidiary on the last day of a Performance Period to be entitled to payment for any Performance Shares or Performance Units. (b) The Committee may establish, from time to time, one or more formulas to be applied against the Performance Goals to determine whether all, some portion but less than all, or none of the Performance Shares or Performance Units granted with respect to a Performance Period are treated as earned pursuant to any Award. An Employee will be entitled to receive payments with respect to any Performance Shares and Performance Units only to the extent that those Performance Shares or Performance Units, as the case may be, are treated as earned under one or more such formulas. 10.3 PAYMENT FOR PERFORMANCE SHARES AND PERFORMANCE UNITS. The Corporation shall pay each Employee who is entitled to payment for Performance Shares or Performance Units earned with respect to any Performance Period an amount for those Performance Shares or Performance Units, as the case may be, (a) in cash, (b) in Common Shares, (c) in Restricted Stock, or (d) any combination of the foregoing, and may either grant to the Employee or retain in the Committee the right to elect among those alternatives. Restricted Stock issued by the Corporation in payment of Performance Shares or Performance Units shall be subject to all the provisions of Section 8. 11. TERMINATION OF EMPLOYMENT. After an Employee's Employment Termination Date, the rules set forth in this Section 11 shall apply. All factual determinations with respect to the termination of an Employee's employment that may be relevant under this Section 11 shall be made by the Committee in its sole discretion. 11.1 TERMINATION OTHER THAN UPON DEATH, DISABILITY, OR CERTAIN RETIREMENTS. Upon any termination of an Employee's employment for any reason other than the Employee's retirement (under any retirement plan of the Corporation or of a Subsidiary) as provided in Section 11.2, disability as provided on Section 11.3, or death as provided in Section 11.4: (a) Unless otherwise provided in the relevant Award Instrument, the Employee or, with respect to Nonqualified Options, any Transferee shall have the right (i) during the period ending six months after the Employment Termination Date, but not later than the Option Expiration Date, to exercise any Nonqualified Options and related Tandem SARs and Limited SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Options, Tandem SARs and Limited SARs were exercisable by the Employee or Transferee (as the case may be) on the Employment Termination Date, (ii) during the period ending three months after the Employment Termination Date, but not later than the Option Expiration Date, to exercise any Incentive Stock Options and related Tandem SARs and Limited SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Options and Tandem SARs and Limited SARs were exercisable by the Employee on the Employment Termination Date, and (iii) during the period ending six months after the Employment Termination Date, but not later than the date any Free-Standing SAR expires, to exercise any Free-Standing SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Free-Standing SARs were exercisable by the Employee on the Employment Termination Date. Notwithstanding the preceding sentence, if within two years after a Change of Control an Employee's Employment Termination Date occurs other than as a result of a Voluntary Resignation, unless otherwise provided in the relevant Award Instrument, the Employee or, with respect to Nonqualified Options, any Transferee shall have the right, during the Extended Period, but not later than the Option Expiration Date or the date of expiration of Free-Standing SARs, as the case may be, to exercise any Options and related SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Options and SARs were exercisable by the Employee or Transferee (as the case may be) on the Employment Termination Date (even though, in the case of Incentive Stock Options, exercise of those Options more than three months after the Employment Termination Date may cause the Option to fail to qualify for Incentive Stock Option treatment under the Internal Revenue Code of 1986, as amended). As used in the immediately preceding sentence, the term "Extended Period" means the longer of the period that the Option or SAR would otherwise be exercisable in the absence of the immediately preceding sentence or the period ending with the second anniversary date of the Change of Control and the term "Voluntary Resignation" means that the Employee shall have terminated his or her employment with the Corporation and its Subsidiaries by voluntarily resigning at his or her own instance without having been requested to so resign by the Corporation or its Subsidiaries except that any resignation by the Employee will not be deemed to be a Voluntary Resignation if, after the Change of Control, the Employee's base salary was reduced or the Employee was required to relocate his or her principal place of employment more than 35 miles; (b) Unless otherwise provided in the relevant Award Instrument, the Employee shall offer for resale at the Acquisition Price, if any, to the Corporation each Common Share of Restricted Stock and each Restricted Stock Unit held by the Employee at the Employment Termination Date with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed; and (c) Unless otherwise provided in the relevant Award Instrument, the Employee shall forfeit each Performance Share with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed. 11.2 TERMINATION DUE TO CERTAIN RETIREMENTS. Upon any termination of an Employee's employment with the Corporation or any Subsidiary under circumstances entitling the Employee to immediate payment of normal retirement or early retirement benefits under any retirement plan of the Corporation or of a Subsidiary (whether the Employee elects to commence or defer receipt of such payment): (a) Unless otherwise provided in the relevant Award Instrument, the Employee or, with respect to Nonqualified Options, any Transferee shall have the right (i) to exercise, from time to time during the period ending three years after the Employment Termination Date, but not later than the Option Expiration Date, any Nonqualified Options and related Tandem SARs and Limited SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Options, Tandem SARs and Limited SARs were exercisable by the Employee or Transferee (as the case may be) on the Employment Termination Date, (ii) to exercise, from time to time during the period ending three years after the Employment Termination Date, but no later than the Option Expiration Date, any Incentive Stock Options and related Tandem SARs and Limited SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Options, Tandem SARs and Limited SARs were exercisable by the Employee on the Employment Termination Date (even though exercise of the Incentive Stock Option more than three months after the Employment Termination Date may cause the Option to fail to qualify for Incentive Stock Option treatment under the Internal Revenue Code of 1986, as amended) and (iii) to exercise, from time to time during the period ending three years after the Employment Termination Date, but not later than the date any Free- Standing SAR expires, any Free-Standing SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Free-Standing SARs were exercisable by the Employee on the Employment Termination Date; (b) The relevant Award Instrument may provide that the Employee or, with respect to Nonqualified Options, any Transferee will have the right to exercise, from time to time until not later than the expiration of the relevant Award, Nonqualified Stock Options, Incentive Stock Options and SARs to the extent such Options and SARs become exercisable by their terms prior to the expiration of the relevant Award (or such earlier date as specified in the relevant Award Instrument), notwithstanding the fact that such Options and SARs were not exercisable in whole or in part (whether because a condition to exercise had not yet occurred or a specified time period had not yet elapsed or otherwise) on the Employment Termination Date; (c) Unless otherwise provided in the relevant Award Instrument, the Employee shall offer for resale at the Acquisition Price, if any, to the Corporation each Common Share of Restricted Stock and each Restricted Stock Unit held by the Employee at the Employment Termination Date with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed; and (d) Unless otherwise provided in the relevant Award Instrument, the Employee shall forfeit each Performance Share with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed. 11.3 TERMINATION DUE TO DISABILITY. Upon any termination of an Employee's employment due to disability: (a) Unless otherwise provided in the relevant Award Instrument, the Employee, the Employee's attorney in fact or legal guardian or, with respect to Nonqualified Options, any Transferee shall have the right (i) to exercise, from time to time during the period ending three years after the Employment Termination Date, but not later than the Option Expiration Date, any Nonqualified Options and related Tandem SARs and Limited SARs that were outstanding on the Employment Termination Date, if and to the same extent those Options, Tandem SARs and Limited SARs were exercisable by the Employee or Transferee (as the case may be) on the Employment Termination Date, (ii) to exercise, from time to time during the period ending three years after the Employment Termination Date, but no later than the Option Expiration Date, any Incentive Stock Options and related Tandem SARs and Limited SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Options and Tandem SARs and Limited SARs were exercisable by the Employee on the Employment Termination Date (even though exercise of the Incentive Stock Option more than one year after the Employment Termination Date may cause the Option to fail to qualify for Incentive Stock Option treatment under the Internal Revenue Code of 1986, as amended), and (iii) to exercise, from time to time during the period ending three years after the Employment Termination Date, but not later than the date any Free- Standing SAR expires, any Free-Standing SARs that were outstanding on the Employment Termination Date, if and to the same extent as those Free-Standing SARs were exercisable by the Employee on the Employment Termination Date; (b) Unless otherwise provided in the relevant Award Instrument, the Employee shall offer for resale at the Acquisition Price, if any, to the Corporation each Common Share of Restricted Stock and each Restricted Stock Unit held by the Employee at the Employment Termination Date with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed; and (c) Unless otherwise provided in the relevant Award Instrument, the Employee shall forfeit each Performance Share with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed. 11.4 DEATH OF AN EMPLOYEE. Upon the death of an Employee while employed by the Corporation or any Subsidiary or within any of the periods referred to in any Section 11.1, 11.2, or 11.3 during which any particular Option or SAR remains potentially exercisable: (a) Unless otherwise provided in the relevant Award Instrument, if the Option Expiration Date of any Nonqualified Option that had not expired before the Employee's death would otherwise expire before the first anniversary of the Employee's death, that Option Expiration Date shall automatically be extended to the first anniversary of the Employee's death or such other date as provided in the relevant Award Instrument provided that the Option Expiration Date shall not be extended beyond the date that is ten years from the date on which the Option was granted; (b) Unless otherwise provided in the relevant Award Instrument, the Employee's executor or administrator, the person or persons to whom the Employee's rights under any Option or SAR are transferred by will or the laws of descent and distribution or, with respect to Nonqualified Options, any Transferee shall have the right to exercise, from time to time during the period ending three years after the date of the Employee's death, but not later than the expiration of the relevant Award, any Options and SARs that were outstanding on the date of the Employee's death, if and to the same extent as those Options and SARs were exercisable by the Employee or Transferee (as the case may be) on the date of the Employee's death; (c) Unless otherwise provided in the relevant Award Instrument, the Employee shall offer for resale at the Acquisition Price, if any, to the Corporation each Common Share of Restricted Stock and each Restricted Stock Unit held by the Employee at the Employment Termination Date with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed; and (d) Unless otherwise provided in the relevant Award Instrument, the Employee shall forfeit each Performance Share with respect to which, as of that date, any restrictions, conditions, or contingencies have not lapsed. 12. ACCELERATION UPON CHANGE OF CONTROL. Unless otherwise specified in the relevant Award Instrument, upon the occurrence of a Change of Control of the Corporation, each Award theretofore granted to any Employee that then remains outstanding shall be automatically treated as follows: (a) any outstanding Option shall become immediately exercisable in full, (b) Tandem SARs and Limited SARs related to any such Options shall also become immediately exercisable in full, (c) any outstanding Free-Standing SAR shall become exercisable in full, (d) the Restriction Period with respect to all outstanding Awards of Restricted Stock shall immediately terminate, (e) the restrictions, conditions or contingencies on any Restricted Stock Units shall immediately terminate, and (f) the restrictions, conditions, or contingencies on any Performance Shares and Performance Units shall be modified in such manner as the Committee may specify to give the Employee the benefit of those Performance Shares or Performance Units through the date of Change of Control. 13.RESTRICTIONS. 13.1 ASSIGNMENT AND TRANSFER. Nonqualified Options may not be assigned or transferred (other than by will or by the laws of descent and distribution) unless the Committee, in its sole discretion, determines to allow such assignment or transfer and, if the Committee determines to allow any such assignment or transfer, the Transferee shall have the power to exercise such Nonqualified Option in accordance with the terms of the Award and the provisions of this Plan. No Incentive Stock Option, SAR, Restricted Stock during the Restriction Period, Restricted Stock Unit or Performance Share may be transferred other than by will or by the laws of descent and distribution. During an Employee's lifetime, only the Employee (or in the case of incapacity of an Employee, the Employee's attorney in fact or legal guardian) may exercise any Incentive Stock Option or SAR. 13.2 FURTHER RESTRICTIONS. The Committee may specify at the date of grant of any Award that part or all of the Common Shares that are (i) to be issued or transferred by the Corporation upon the exercise of Options or SARs, upon the termination of any period of deferral applicable to Restrict Stock Units or upon payment under any grant of Performance Shares or Performance Units or (ii) no longer subject to the Restriction Period, will be subject to further restrictions on transfer. 14. ADJUSTMENT UPON CHANGES IN COMMON SHARES. Automatically and without Committee action, in the event of any stock dividend, stock split, or share combination of the Common Shares, or by appropriate Committee action in the event of any reclassification, recapitalization, merger, consolidation, other form of business combination, liquidation, or dissolution involving the Corporation or any spin-off or other distribution to shareholders of the Corporation (other than normal cash dividends), appropriate adjustments to (a) the maximum number of Common Shares that may be issued under the Plan pursuant to Section 5, the maximum number of Common Shares that may be issued under the Plan pursuant to Incentive Stock Options as provided in Section 5, the maximum number of Common Shares that may be issued under the Plan as Restricted Stock, Restricted Stock Units, Performance Shares and Performance Units, and the maximum number of Common Shares with respect to which any Employee may receive Awards during any calendar year or calendar years as provided in Section 5, and (b) the number and kind of shares subject to, the price per share under, and the terms and conditions of each then outstanding Award shall be made to the extent necessary and in such manner that the benefits of Employees under all then outstanding Awards shall be maintained substantially as before the occurrence of such event. Any such adjustment shall be conclusive and binding for all purposes of the Plan and shall be effective, in the event of any stock dividend, stock split, or share combination, as of the date of such stock dividend, stock split, or share combination, and in all other cases, as of such date as the Committee may determine. In the event of any such transaction or event, the Committee, in its discretion, may provide in substitution for any or all outstanding Awards under this Plan, such alternative consideration as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all Awards so replaced. 15. PURCHASE FOR INVESTMENT. Each person acquiring Common Shares pursuant to any Award may be required by the Corporation to furnish a representation that he or she is acquiring the Common Shares so acquired as an investment and not with a view to distribution thereof if the Corporation, in its sole discretion, determines that such representation is required to insure that a resale or other disposition of the Common Shares would not involve a violation of the Securities Act of 1933, as amended, or of applicable blue sky laws. Any investment representation so furnished shall no longer be applicable at any time such representation is no longer necessary for such purposes. 16. WITHHOLDING OF TAXES. The Corporation will withhold from any payments of cash made pursuant to the Plan such amount as is necessary to satisfy all applicable Federal, state, and local withholding tax obligations. The Committee may, in its discretion and subject to such rules as the Committee may adopt from time to time, permit or require an Employee (or other person exercising an Option with respect to withholding taxes upon exercise of such Option) to satisfy, in whole or in part, any withholding tax obligation that may arise in connection with the grant of an Award, the lapse of any restrictions with respect to an Award, the acquisition of Common Shares pursuant to any Award, or the disposition of any Common Shares received pursuant to any Award by having the Corporation hold back some portion of the Common Shares that would otherwise be delivered pursuant to the Award or by delivering to the Corporation an amount equal to the withholding tax obligation arising with respect to such grant, lapse, acquisition, or disposition in (a) cash, (b) Common Shares, or (c) such combination of cash and Common Shares as the Committee may determine. The Fair Market Value of the Common Shares to be so held back by the Company or delivered by the Employee shall be determined as of the date on which the obligation to withhold first arose. 17. HARMFUL ACTIVITY. If an Employee shall engage in any "harmful activity" prior to or within six months after termination of employment with Key, then (a) any shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units held by the Employee that have vested, (b) any Profits realized upon the exercise of any Covered Option or SAR and (c) any Profits realized upon the sale of any vested shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, on or after one year prior to the termination of employment with Key shall inure to the Corporation. The aforementioned restriction shall not apply in the event that employment with Key terminates within two years after a Change of Control of the Corporation if any of the following have occurred: a relocation of an Employee's principal place of employment more than 35 miles from an Employee's principal place of employment immediately prior to the Change of Control, a reduction in an Employee's base salary after a Change of Control, or termination of employment under circumstances in which an Employee is entitled to severance benefits or salary continuation or similar benefits under a change of control agreement, employment agreement, or severance or separation pay plan. If any vested shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units or any Profits realized upon the exercise of any Covered Option or SAR or upon the sale of any vested shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units inure to the benefit of the Corporation in accordance with the first sentence of this paragraph, an Employee shall provide all such forfeited Awards and pay all such Profits to the Corporation within 30 days after first engaging in any harmful activity and all Awards that have not yet vested and all unexercised Covered Options or SARs shall immediately be forfeited and canceled. Consistent with the provisions of Section 3 of the Plan, the determination by the Committee as to whether an Employee engaged in "harmful activity" prior to or within six months after termination of employment with Key shall be final and conclusive. Unless otherwise provided in the relevant Award Instrument, the provisions of Section 17 shall apply to all Awards made under the Plan. A "harmful activity" shall have occurred if an Employee shall do any one or more of the following: (a) Use, publish, sell, trade or otherwise disclose Non-Public Information of Key unless such prohibited activity was inadvertent, done in good faith and did not cause significant harm to Key. (b) After notice from the Corporation, fail to return to Key any document, data, or thing in an Employee's possession or to which an Employee has access that may involve Non-Public Information of Key. (c) After notice from the Corporation, fail to assign to Key all right, title, and interest in and to any confidential or non-confidential Intellectual Property which an Employee created, in whole or in part, during employment with Key, including, without limitation, copyrights, trademarks, service marks, and patents in or to (or associated with) such Intellectual Property. (d) After notice from the Corporation, fail to agree to do any acts and sign any document reasonably requested by Key to assign and convey all right, title, and interest in and to any confidential or non- confidential Intellectual Property which an Employee created, in whole or in part, during employment with Key, including, without limitation, the signing of patent applications and assignments thereof. (e) Upon an Employee's own behalf or upon behalf of any other person or entity that competes or plans to compete with Key, solicit or entice for employment or hire any Employee of Key. (f) Upon an Employee's own behalf or upon behalf of any other person or entity that competes or plans to compete with Key, call upon, solicit, or do business with (other than business which does not compete with any business conducted by Key) any customer of Key an Employee called upon, solicited, interacted with, or became acquainted with, or learned of through access to information (whether or not such information is or was non-public) while employed at Key unless such prohibited activity was inadvertent, done in good faith, and did not involve a customer whom an Employee should have reasonably known was a customer of Key. (g) Upon an Employee's own behalf or upon behalf of any other person or entity that competes or plans to compete with Key, engage in any business activity in competition with Key in the same or a closely related activity that an Employee was engaged in for Key during the one year period prior to the termination of employment. For purposes of this Section 17: "Covered Option or SAR" means any Option or SAR granted under this Plan unless the granting resolution expressly excludes the Option or SAR from the provisions of this Section 17. "Intellectual Property" shall mean any invention, idea, product, method of doing business, market or business plan, process, program, software, formula, method, work of authorship, or other information, or thing. "Key" shall mean the Corporation and its Subsidiaries collectively. "Non-Public Information" shall mean, but is not limited to, trade secrets, confidential processes, programs, software, formulas, methods, business information or plans, financial information, and listings of names (e.g., employees, customers, and suppliers) that are developed, owned, utilized, or maintained by an employer such as Key, and that of its customers or suppliers, and that are not generally known by the public. "Profit" shall mean, (1) with respect to any Covered Option or SAR, the spread between the Fair Market Value of a Common Share on the date of exercise and the exercise price or the Base Price, as the case may be, multiplied by the number of shares exercised under the Covered Option or SAR; and (2) with respect to any shares of Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, any profit realized upon the sale of any Common Shares that were acquired upon the vesting of such Awards. 18. AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER COMPANIES. Awards, whether Incentive Stock Options, Nonqualified Options, SARs, Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units, may be granted under the Plan in substitution for awards held by employees of a company who become Employees of the Corporation or a Subsidiary as a result of the merger or consolidation of the employer company with the Corporation or a Subsidiary, or the acquisition by the Corporation or a Subsidiary of the assets of the employer company, or the acquisition by the Corporation or a Subsidiary of stock of the employer company as a result of which it becomes a Subsidiary. The terms, provisions, and benefits of the substitute Awards so granted may vary from the terms, provisions and benefits set forth in or authorized by the Plan to such extent as the Committee at the time of the grant may deem appropriate to conform, in whole or in part, to the terms, provisions, and benefits of the awards in substitution for which they are granted. 19. LEGAL REQUIREMENTS. No Awards shall be granted and the Corporation shall have no obligation to make any payment under the Plan, whether in Common Shares, cash, or any combination thereof, unless such payment is, without further action by the Committee, in compliance with all applicable Federal and state laws and regulations, including, without limitation, the United States Internal Revenue Code and Federal and state securities laws. 20. DURATION AND TERMINATION OF THE PLAN. The Plan shall become effective and shall be deemed to have been adopted on the Effective Date; provided, however, that if the Plan is not approved by the affirmative vote of the holders of the requisite number of outstanding Common Shares on or prior to December 31, 2004, the Plan shall be void and of no further effect. The Plan shall remain in effect until the date that is 10 years from the Effective Date. All grants made on or prior to such date of termination will continue in effect thereafter subject to the terms thereof and of this Plan. 21. MISCELLANEOUS. 21.1 AMENDMENTS. The Board of Directors, or a duly authorized committee thereof, may alter or amend the Plan from time to time prior to its termination in any manner the Board of Directors, or such duly authorized committee, may deem to be in the best interests of the Corporation and its shareholders, except that no amendment may be made without shareholder approval if shareholder approval is required by any applicable securities law or tax law, or is required by the rules of any exchange on which the Common Shares of the Corporation are traded or, if the Common Shares are not listed on an exchange, by the rules of the registered national securities association through whose inter-dealer quotation system the Common Shares are quoted. The Committee shall have the authority to amend these terms and conditions applicable to outstanding Awards (a) in any case where expressly permitted by the terms of the Plan or of the relevant Award Instrument or (b) in any other case with the consent of the Employee to whom the Award was granted. Except as expressly provided in the Plan or in the Award Instrument evidencing the Award, the Committee may not, without the consent of the holder of an Award granted under the Plan, amend the terms and conditions applicable to that Award in a manner adverse to the interests of the Employee. 21.2 DEFERRAL. The Committee also may permit Employees to elect to defer the issuance of Common Shares or the settlement of Awards in cash under the Plan pursuant to such rules, procedures or programs as it may establish for purposes of this Plan. The Committee also may provide that deferred issuances and settlements include the payment or crediting of dividend equivalents or interest on the deferral amounts. 21.3 CONDITIONS. The Committee may condition the grant of any Award or combination of Awards authorized under this Plan on the surrender or deferral by the Employee of his or her right to receive a cash bonus or other compensation otherwise payable by the Corporation or a Subsidiary to the Employee. 21.4 ACCELERATION. In case of termination of employment by reason of death, disability or normal or early retirement, or in the case of hardship or other special circumstances, of an Employee who holds an Option or SAR not immediately exercisable in full, or any Restricted Stock as to which the substantial risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any Restricted Stock Units as to which the any period of deferral has not been completed, or any Performance Shares or Performance Units which have not been fully earned, or who holds Common Shares subject to any transfer restriction imposed pursuant to Section 13(b) of this Plan, the Committee may, in its sole discretion, accelerate the time at which such Option or SAR may be exercised or the time at which such substantial risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such period of deferral will end or the time at which such Performance Shares or Performance Units will be deemed to have been fully earned or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such Award. 22. PLAN NONCONTRACTUAL. Nothing herein contained shall be construed as a commitment to or agreement with any person employed by the Corporation or a Subsidiary to continue such person's employment with the Corporation or the Subsidiary, and nothing herein contained shall be construed as a commitment or agreement on the part of the Corporation or any Subsidiary to continue the employment or the annual rate of compensation of any such person for any period. All Employees shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 23. INTEREST OF EMPLOYEES. Any obligation of the Corporation under the Plan to make any payment at any future date merely constitutes the unsecured promise of the Corporation to make such payment from its general assets in accordance with the Plan, and no Employee shall have any interest in, or lien or prior claim upon, any property of the Corporation or any Subsidiary by reason of that obligation. 24. FRACTIONAL SHARES. The Corporation will not be required to issue any fractional Common Shares pursuant to this Plan. The Committee may provide for the elimination of fractions or for the settlement of fractions in cash. 25. FOREIGN EMPLOYEES. In order to facilitate the making of any grant or combination of grants under this Plan, the Committee may provide for such special terms for awards to Employees who are foreign nationals or who are employed by the Corporation or any Subsidiary outside of the United States of America as the Committee may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Committee may approve such supplements to or amendments, restatements or alternative versions of this Plan as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of this Plan as in effect for any other purpose, and the Secretary or other appropriate officer of the Corporation may certify any such document as having been approved and adopted in the same manner as this Plan. No such special terms, supplements, amendments or restatements, however, will include any provisions that are inconsistent with the terms of this Plan as then in effect unless this Plan could have been amended to eliminate such inconsistency without further approval by the shareholders of the Corporation. 26. CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any person, firm, or corporation any legal or equitable right against the Corporation or any Subsidiary, their officers, employees, agents, or directors, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 27. ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a Subsidiary, of the Committee, of any other committee of the Board of Directors, or any officer or Employee of the Corporation or a Subsidiary shall be liable for any act or action under the Plan, whether of commission or omission, taken by any other member, or by any officer, agent, or Employee, or except in circumstances involving his bad faith or willful misconduct, for anything done or omitted to be done by himself. 28.SEVERABILITY. The invalidity or unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 29.GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the internal substantive laws of the State of Ohio. EX-10.20 3 l11135aexv10w20.txt EX-10.20 AMENDMENT TO KEYCORP DIRECTOR DEFERRED COMP PLAN EXHIBIT 10.20 AMENDMENT TO THE KEYCORP DIRECTOR DEFERRED COMPENSATION PLAN WHEREAS, KeyCorp has established the KeyCorp Director Deferred Compensation Plan (the "Plan"), a nonqualified plan of deferred compensation for Directors of KeyCorp, and WHEREAS, the Board of Directors of KeyCorp has authorized amendments to the Plan, and WHEREAS, in conjunction with the enactment of the American Jobs Creation Act of 2004, the Board of Directors of KeyCorp has determined it desirable to preserve Plan participants' earned and vested Plan benefits in accordance with the law in effect prior to the enactment of the American Jobs Creation Act of 2004 and accordingly has authorized the freezing of the Plan to preserve such benefits as of December 31, 2004. The Board of Directors of KeyCorp has accordingly directed the execution of this Amendment to effectuate the expressed intent of the Board. NOW, THEREFORE, pursuant to such action of the Board, the Plan is hereby frozen with regard to any additional accruals, deferrals, and contributions to the Plan after December 31, 2004 as follows: 1. A new Article VI has been added to the Plan to provide the following: "ARTICLE VI AMENDMENT TO FREEZE 6.1 No New Plan Deferrals. AS OF JANUARY 1, 2005 THE PLAN SHALL BE FROZEN WITH REGARD TO ALL NEW ACCRUALS, DEFERRALS, AND CONTRIBUTIONS TO THE PLAN AFTER DECEMBER 31, 2004 AND ALL PARTICIPANTS' PLAN BENEFITS THAT ARE EARNED AND VESTED AS OF DECEMBER 31, 2004 SHALL BE ADMINISTERED IN ACCORDANCE WITH THE TERMS OF THE PLAN AS FROZEN AND WITH THE REQUIREMENTS OF THE LAW IN EFFECT PRIOR TO THE ENACTMENT OF SECTION 409A OF THE CODE." 2. The amendment set forth in Paragraphs 1 shall be effective as of December 31, 2004. 3. Except as otherwise amended herein, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, KeyCorp has caused this Amendment to the Plan to be executed by its duly authorized officer as of this 28th day of December 2004. KEYCORP By: /s/ Thomas E. Helfrich ---------------------------- Title: Executive Vice President EX-10.21 4 l11135aexv10w21.txt EX-10.21 KEYCORP SECOND DIRECTOR DEFERRED COMPENSATION PLAN EXHIBIT 10.21 KEYCORP SECOND DIRECTOR DEFERRED COMPENSATION PLAN The KeyCorp Second Director Deferred Compensation Plan (the "Plan"), is hereby established December 28, 2004 to be effective January 1, 2005. The Plan, as structured, is designed to provide directors with the opportunity to defer payment of their directors' fees in accordance with the provisions of this Plan. It is the intention of KeyCorp and it is the understanding of the Directors participating in the Plan, that the Plan constitutes a nonqualified deferred compensation plan under the provisions of Section 409A of the Code and applicable regulations issued thereunder. ARTICLE I DEFINITIONS For the purposes hereof, the following words and phrases shall have the meanings indicated. 1. "ACCOUNT" shall mean the bookkeeping account established in accordance with Article II hereof. 2. "BENEFICIARY" shall mean any person designated by a Participant in accordance with the Plan to receive payment of all or a portion of the remaining balance of the Participant's Account in the event of the death of the Participant prior to receipt by the Participant of the entire amount credited to the Participant's Account. 3. "CHANGE OF CONTROL" shall be deemed to have occurred in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder, if a change in the ownership or the effective control of the Corporation occurs, or if there occurs a change in the ownership of a substantial portion of the assets of the Corporation. 4. "CORPORATION" shall mean KeyCorp, a bank holding company and its corporate successors, including the surviving corporation resulting from any merger of KeyCorp with any other corporation or corporations. 5. "DIRECTOR" shall mean (i) any member of the Board of Directors of the Corporation and (ii) any member of the Board of Directors of a Subsidiary. 6. "ELECTION AGREEMENT" shall mean the written election to defer Fees signed in writing by the Director and in the form provided by the Corporation. 7. "FEES" shall mean the fees earned as a Director. 8. "PARTICIPANT" shall mean any Director who has at any time elected to defer the receipt of Fees in accordance with the Plan. 9. "PLAN" shall mean this Second Director Deferred Compensation Plan, together with all amendments hereto. 10. "SUBSIDIARY" shall mean a corporation organized and existing under the laws of the United States or of any state or the District of Columbia of which more than 50% percent of the issued and outstanding stock is owned by the Corporation or by a Subsidiary of the Corporation, and which has been designated by the Board of Directors or the Chief Executive Officer of the Corporation as a Subsidiary eligible to participate in the Plan. 11. "YEAR" shall mean the calendar year. ARTICLE II ELECTION TO DEFER 1. ELIGIBILITY. Any Director may elect to defer receipt of all or a specified portion of his or her Fees for any Year in accordance with Section 2 of this Article. 2. ELECTION TO DEFER. A Director who desires to defer the payment of all or a portion of his or her Fees for any Year must complete and deliver an Election Agreement to the Corporation no later than the last day of the Year prior to the Year for which the Fees are earned by the Director; provided, however, that any Director hereafter elected to the Board of Directors of the Corporation or a Subsidiary who was not a Director on the preceding December 31 may make an election to defer payment of Fees for the Year in which he or she is elected to the Board of Directors by delivering the Election Agreement to the Corporation within 30 days of first becoming eligible to participate in the Plan. A Director who timely delivers the Election Agreement to the Corporation shall be a Participant in the Plan upon the Corporation's acceptance of such Election Agreement. 3. AMOUNT DEFERRED; DATE OF DEFERRAL. A Participant shall designate on the Election Agreement (a) the amount of his or her Fees that are to be deferred to the Plan for any Year, (b) the date on which the Participant's Fees shall be distributed, (c) whether the distribution of deferred Fees is to be paid in its entirety or whether such Fees shall be paid in installments, and (d) if in installments, the number of quarterly installments. Deferrals shall be until the earlier to occur: (i) the date specified by the Participant which may be not later than the date on which the Participant would attain age 72, or (ii) the date of death of the Participant, at which time payment of the amount deferred shall be made in accordance with Section 7 or 10 of this Article. A Participant may select not more than one date in each Election Agreement upon which distribution shall be made or when installments shall begin; distribution dates shall be the first business day of a calendar quarter. 4. ACCOUNT. The Corporation shall maintain an Account of the Fees deferred by each Participant. A Participant shall designate on the Election Agreement whether to have the Account valued on the basis of KeyCorp Common Shares in accordance with Section 5 of this Article or receive interest in accordance with Section 6 of this Article. The Corporation may, if necessary or desirable, establish separate Accounts for a Participant to properly account for amounts deferred under the different alternatives and Years; all such Accounts are collectively referred to herein as the Account. The Account based on KeyCorp Common Shares shall be known as the "Common Shares Account", and the interest bearing account shall be known as the "Interest Bearing Account"; a Participant may defer a portion of his or her Fees into each type of Account. 5. COMMON SHARES ACCOUNT. If a Participant elects to have all or a portion of his or her Fees deferred into the Common Shares Account, as of the last business day of any quarter, there shall be added to such Account the number of Common Shares (whole and fractional, rounded to the nearest one- hundredth of a share) equal to the dollar amount of such Fees payable for such calendar quarter plus all dividends payable during such quarter on the Common Shares held in the Account on the first day of such quarter divided by the market value of the Common Shares at the close of business on the last business day of such quarter. 6. INTEREST BEARING ACCOUNT. If a Participant elects to have all or a portion of his or her Fees deferred into the Interest Bearing Account, there shall be added to the Account as of the last business day of each calendar quarter the dollar amount of such Fees payable for such calendar quarter plus all interest payable on such Interest Bearing Account for such quarter as follows: A Participant's account will receive interest on the average daily balance in the Interest Bearing Account during each month at a rate equal to 50 basis points higher than the effective annual yield of the average of the Moody's Average Corporate Bond Yield Index for the preceding month, as published by Moody's Investor Service, Inc. (or any successor publisher thereto), or, if such index is no longer published, a substantially similar index selected by the Board. 7. PAYMENT OF ACCOUNT; PERIOD OF DEFERRAL. The amount of a Participant's Account shall be paid to the Participant in a single payment and/or in a number of substantially equal consecutive quarterly installments (not to exceed 40), as elected by the Participant in his or her Election Agreement. Distributions from the Interest Bearing Account shall be in cash. Distributions from the Common Shares Account shall be in Common Shares. The amount of the Account remaining after payment of an installment shall continue to be valued in accordance with Section 5 of this Article or bear interest in accordance with Section 6 of this Article. Full payment or the first quarterly installment, as the case may be, shall be made as soon as administratively possible after (i) the date specified in Section 3 of this Article, or (ii) the date of the Participant's death. Any installment payment shall be made pro rata from the Common Shares Account and the Interest Bearing Account. The election as to the time for and method of payment of the amount of the Account relating to Fees deferred for a particular Year shall be made on the Election Agreement(s) and may not thereafter be altered except as provided in Section 10 of this Article. In the event that a Participant elects to receive installment payments under this Section 7, (a) The amount of the distribution from the Common Shares Account shall be valued based on the fair market value of the Common Shares on the last business day of the calendar quarter immediately prior to the distribution date; (b) The amount of the distribution from the Interest Bearing Account shall be valued based on the value of such Account on the last business day of the calendar quarter immediately prior to such distribution date; (c) The amount of each installment shall be determined by dividing the value of the Common Shares Account, the Interest Bearing Account, or both, as the case may be, by the number of installments remaining to be paid to the Participant. 8. Small Payments. Notwithstanding the foregoing, if the quarterly installment payment elected under any Election Agreement would result in a quarterly payment of less than $500 in cash or Common Shares, as the case may be, the Participant shall receive an immediate lump sum payment of the entire amount of the Account to the Participant on the day the installment payments were to begin. 9. Death of Participant. In the event of the death of a Participant, the amount of the Participant's Account shall be paid to the Beneficiary or Beneficiaries designated in writing signed by the Participant in the form provided by the Corporation; in the event there is more than one Beneficiary, such form shall include the proportion to be paid to each Beneficiary and indicate the disposition of such share if a Beneficiary does not survive the Participant; in the absence of any such designation, payment from the Account shall be divided equally among all other Beneficiaries. A Participant's Beneficiary designation may be changed at any time prior to the Participant's death by execution and delivery of a new Beneficiary designation form. The form on file with the Corporation at the time of the Participant's death which bears the latest date shall govern. In the absence of a Beneficiary designation or the failure of any Beneficiary to survive the Participant, the amount of the Participant's Account shall be paid to the Participant's estate in its entirety ninety days after the appointment of an executor or administrator. In the event of the death of any Beneficiary after the death of a Participant, the remaining amount of the Account payable to such Beneficiary shall be paid in its entirety to the estate of such Beneficiary ninety days after the appointment of an executor or administrator for such estate. 10. ACCELERATION. (a) Notwithstanding any other provision of the Plan to the contrary, upon the occurrence of a Change of Control, a Participant shall be entitled to receive from the Corporation the payment of his or her Account in the manner selected as follows: within 30 days following the date that a person first becomes eligible to become a Participant, the Participant shall be entitled to make a Change of Control Election which will be applicable in the event of a Change of Control (the "Change of Control Election"). The Change of Control Election will provide the following distribution options to a Participant in the event of a Change of Control: (i) upon the occurrence of a Change of Control, the entire amount of the Participant's Account will be immediately paid in full, to the Participant regardless of whether the Participant continues as a Director after the Change of Control; (ii) upon and after the occurrence of a Change of Control, the entire amount of the Participant's Account will be immediately paid in full to the Participant, but only if either (a) the Participant is not a Director as of immediately after the Change of Control, or (b) the Participant ceases to be a Director within two Years after the Change of Control; or (iii) upon the occurrence of a Change of Control, the payment elections specified in the Participant's Election Agreement shall govern irrespective of the Change of Control. (b) The Corporation may accelerate the making of payment of the amount of a Participant's Account to a Participant in the event of an "unforeseeable emergency" of the Participant. For purposes of this Section 10(b), the term "unforeseeable emergency" shall mean a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant, the Participant's spouse, or the Participant's dependent (as defined in Section 152(a) of the Code), the loss of the Participant's property due to casualty, or such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The determination of an "unforeseeable emergency" and the ability of the Corporation to accelerate the Participant's Supplemental Retirement Benefit shall be determined in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 11. CHANGE OF CONTROL. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, no amendment or modification of this Plan may be made at any time on or after such Change of Control (1) to reduce or modify a Participant's Pre-Change of Control Account Balance, (2) to reduce or modify the Interest Bearing Account's rate of earnings on or method of crediting such earnings to a Participant's Pre-Change of Control Account Balance, (3) to reduce or modify the Common Shares Account's method of calculating all earnings, gains, and/or losses on a Participant's Pre-Change of Control Account Balance, or (4) to reduce or modify the Participant's deferrals to be credited to a Participant's Plan Account for the applicable deferral period. For purposes of this Section 11, the term "Pre- Change of Control Account Balance" shall mean, with regard to any Plan Participant, the aggregate amount of such Participant's prior deferrals with all earnings, gains, and losses thereon which are credited to the Participant's Plan Account through the close of the calendar Year in which such Change of Control occurs. 12. INTEREST BEARING ACCOUNT AFTER CHANGE OF CONTROL. In accordance with the provisions of Section 6 hereof, in the event that Moody's Average Corporate Bond Yield Index ceases to be published on or after a Change of Control, the Corporation shall reasonably select a substantially similar index to be used in crediting earnings on Participants' Pre-Change of Control Account Balances held in the Plan's Interest Bearing Account. 13 COMMON STOCK CONVERSION. In the event of a Change of Control in which the Common Shares of the Corporation are converted into or exchanged for securities, cash and/or other property as a result of any capital reorganization or reclassification of the capital stock of the Corporation, or as a result of the consolidation or merger of the Corporation with or into another corporation or entity, or the sale of all or substantially all of its assets to another corporation or entity, the Corporation shall cause the Common Shares Account to reflect the securities, cash and other property to be received in such reorganization, reclassification, consolidation, merger or sale on the balance in the Common Shares Account and, from and after such reorganization, reclassification, consolidation, merger or sale, the Common Shares Account shall reflect all dividends, interest, earnings and losses attributable to such securities, cash, and other property (with any cash earning interest at the rate applicable to the Interest Bearing Account). 14. AMENDMENT IN THE EVENT OF A CHANGE OF CONTROL. On or after a Change of Control, the provisions of Article I and Article II may not be amended or modified as such provisions apply to Participants' Pre-Change of Control Account Balances. 15. STATEMENT. Each Participant shall receive a statement of his or her Account not less than annually. 16. VALUATION OF THE ACCOUNT. Each Account shall be valued as of the last day of each calendar quarter until payment of a Participant's Fees in full. If a Participant has elected to have his or her Fees deferred into the Common Shares Account, the Corporation shall ascertain the number of shares in the Account (whole and fractional, rounded to the nearest one-hundredth of a share) after taking into account earnings to the Account under this Article and distributions from the Account under this Article, based on the fair market value of the Common Shares on the last business day of such calendar quarter. Automatically and without further action by the Corporation, in the event of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination, exchange of shares, or a similar corporate change, appropriate adjustments in the number and kind of shares held in a Participant's Account shall be made by the Corporation to reflect such change. If a Participant has elected to have his or her Fees deferred into the Interest Bearing Account, the Corporation shall ascertain the value of such Interest Bearing Account by adding to the value of the Account at the beginning of such calendar quarter the dollar amount of the Fees deferred into the Account for such quarter, plus the value of any interest paid on the Account in accordance with this Article, less any distributions made from the Account in accordance with this Article. 17. PLAN TRANSFERS. Participants may elect to transfer vested performance awards (other than stock option awards) granted under a KeyCorp Equity Compensation Plan to the Plan, provided, the Participant's election to transfer such vested award is made in accordance with the requirements of the grant agreement under which the award was issued and in accordance with the requirements of Section 409A of the Code. Transferred awards shall be subject to full investment diversification if cash based, and transferred awards shall be invested in the in the Plan's Common Stock Account if equity based. Awards invested in the Plan's Common Stock Account will not be subject to investment direction or diversification. Transferred awards shall be separately maintained under the Plan. ARTICLE III ADMINISTRATION The Corporation shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Corporation shall have all such powers as may be necessary to carry out its duties under the Plan, including the power to determine all questions relating to eligibility for and the amount in an Account, all questions pertaining to claims for benefits and procedures for claim review, and the power to resolve all other questions arising under the Plan, including any questions of construction. The Corporation may take such further action as the Corporation shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Corporation hereunder shall be final and binding upon all interested parties. ARTICLE IV AMENDMENT AND TERMINATION The Corporation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors, the Compensation and Organization Committee or any other duly authorized Committee of the Board of Directors; provided, however, that no such action shall adversely affect any Participant or Beneficiary with respect to the amount credited to a Deferred Compensation Account and further provided that any such action shall be subject to the limitations set forth in Article II, Sections 10 and 13, hereof. No amendment or termination of the Plan shall result in an acceleration of Plan benefits in violation of Section 409A of the Code. ARTICLE V MISCELLANEOUS 1. NO PRESENT INTEREST. Subject to any federal statute to the contrary, no right or benefit under the Plan and no right or interest in each Participant's Plan Account shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under the Plan, or Participant's Plan Account shall be void. No right, interest, or benefit under the Plan or Participant's Plan Account shall be liable for or subject to the debts, contracts, liabilities, or torts of the Participant or Beneficiary. If the Participant or Beneficiary becomes bankrupt or attempts to alienate, sell, assign, pledge, encumber, or charge any right under the Plan or Participant's Plan Account, such attempt shall be void and unenforceable. 2. PLAN NONCONTRACTUAL. Nothing herein contained shall be construed as a commitment to or agreement with any Director of the Corporation or a Subsidiary to continue such person's directorship with the Corporation or Subsidiary, and nothing herein contained shall be construed as a commitment or agreement on the part of the Corporation or any Subsidiary to continue the directorship or the rate of director compensation of any such person for any period. All Directors shall remain subject to removal to the same extent as if the Plan had never been put into effect. 3. INTEREST OF DIRECTOR. The obligation of the Corporation under the Plan to make payment of amounts reflected on an Account merely constitutes the unsecured promise of only the Corporation to make payments from its general assets as provided herein. Further, no Participant or Beneficiary shall have any claim whatsoever against any Subsidiary for amounts reflected on an Account. At its discretion, the Corporation may establish one or more trusts, with such trustees as the Corporation may approve, for the purpose of providing for the payment of benefits owed under the Plan. Although such a trust may be irrevocable, in the event of insolvency or bankruptcy of the Corporation, such assets will be subject to the claims of the Corporation's general creditors. To the extent any benefits provided under the Plan are paid from any such trust, the Corporation shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of the Corporation. 4. CLAIMS OF OTHER PERSONS. The provisions of the Plan shall in no event be construed as giving any person, firm, or corporation any legal or equitable rights against the Corporation or any Subsidiary, or the officers, employees, or directors of the Corporation or any Subsidiary, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 5. DELEGATION OF AUTHORITY. Any action to be taken by the Corporation's Board of Directors under this Plan may be taken by such Board's Compensation and Organization Committee, Executive Committee or any other duly authorized Committee of the Board of Directors. 6. SEVERABILITY. The invalidity and unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provisions were omitted herefrom. 7. GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. ARTICLE VI COMPLIANCE WITH SECTION 409A CODE The Plan is intended to provide for the deferral of compensation in accordance with the provisions of Section 409A of the Code and regulations and published guidance issued pursuant thereto. Accordingly, the Plan shall be construed in a manner consistent with those provisions and may at any time be amended in the manner and to the extent determined necessary or desirable by the Corporation to reflect or otherwise facilitate compliance with such provisions with respect to amounts deferred on and after January 1, 2005, including as contemplated by Section 855(f) of the American Jobs Creation Act of 2004. Notwithstanding any provision of the Plan to the contrary, no otherwise permissible election, deferral, accrual, or distribution shall be made or given effect under the Plan that would result in early taxation or assessment of penalties or interest of any amount under Section 409A of the Code. IN WITNESS WHEREOF, KeyCorp has caused this KeyCorp Second Director Deferred Compensation Plan to be executed by its duly authorized officer this 28th day of December, to be effective as of January 1, 2005. KEYCORP By: /s/ Thomas E. Helfrich ---------------------------- Title: Executive Vice President EX-10.28 5 l11135aexv10w28.txt EX-10.28 KEYCORP SECOND EXCESS CASH BALANCE PENSION PLAN EXHIBIT 10.28 KEYCORP SECOND EXCESS CASH BALANCE PENSION PLAN ARTICLE I THE PLAN The KeyCorp Second Excess Cash Balance Pension Plan ("Plan"), is hereby established December 28, 2004 to be effective January 1, 2005. The Plan, as structured, is designed to provide certain select employees of KeyCorp with a Plan benefit that is generally equal to the benefit that the employee would have been eligible to receive under the KeyCorp Cash Balance Pension Plan but for the compensation and accrual limitations imposed by Section 401(a)(17) and Section 415 of the Internal Revenue Code of 1986, as amended, as well as any vested benefit provided to the employee under the KeyCorp Excess Cash Balance Pension Plan. It is the intention of the Plan and it is the understanding of those employees covered under the Plan that the Plan is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE II DEFINITIONS 2.1 MEANINGS OF DEFINITIONS. As used herein, the following words and phrases shall have the meanings hereinafter set forth, unless a different meaning is plainly required by the context: (a) "BENEFICIARY" shall mean the person, persons or entity entitled to receive the Participant's Plan benefits, if any, that are payable after a Participant's death. (b) "CREDITED SERVICE" shall be calculated by measuring the period of service commencing on the Participant's Employment Commencement Date and Re- Employment Commencement Date, if applicable, and ending on the Participant's Severance from Service Date. Credited Service shall be computed based on each full month that the Employee is employed by an Employer. (c) "COMPENSATION" of a Participant for any Plan Year or any partial Plan Year in which the Participant incurs a Severance From Service Date shall mean the entire amount of compensation paid to such Participant during such period by reason of his employment as an Employee, as reported for federal income tax purposes, or which would have been paid except for (1) the timing of an Employer's payroll processing operations, (2) the Participant's written election to defer the receipt of compensation during the Plan Year, (3) the provisions of the KeyCorp 401(k) Savings Plan, or (4) the provisions of the KeyCorp Flexible Benefits Plan and/or any transportation reimbursement plan for the applicable Plan year provided, however, the term shall not include: (i) any amount attributable to the Participant's exercise of stock appreciation rights and the amount of any gain to the Participant upon the exercise of stock options; (ii) any amount attributable to the Participant's receipt of non- cash remuneration whether or not it is included in the Participant's income for federal income tax purposes; (iii) any amount attributable to the Participant's receipt of moving expenses and any relocation bonus paid to the Participant during the Plan Year; (iv) any amount attributable to any severance paid by an Employer or the Corporation to the Participant; (v) any amount attributable to fringe benefits (cash and non- cash); (vi) any amount attributable to any bonus or payment made as an inducement for the Participant to accept employment with an Employer; (vii) any amount attributable to salary deferrals paid to the Participant during the Plan Year, which have been previously included as Compensation under the Plan during the Plan Year or any prior Plan Year; (viii)any amount paid to the Participant during the Plan Year which is attributable to interest earned on Compensation deferred under a plan of an Employer or the Corporation; and (ix) any amount paid for any period after the Participant's Termination or Retirement date. In determining a Participant's Compensation under the provisions of this Section 2.1(c), for those Plan Participants who participate in a line of business incentive plan (other than the KeyCorp Annual Incentive Plan, the KeyCorp Long Term Incentive Plan and/or the KeyCorp Staff Incentive Plan), compensation up to a Plan maximum of $500,000 minus the amount of the Participant's compensation utilized in computing his or her Pension Plan benefit in accordance with Section 401(a)(17) of the Code shall be utilized in calculating the Participant's benefit under the Plan. In the case of a Disabled Participant, such Participant's Compensation for each year while Disabled shall equal an amount which shall reflect the Participant's Compensation for the calendar year preceding the date of the Participant's Disability. (d) "CORPORATION" shall mean KeyCorp, an Ohio corporation, its corporate successors, and any corporation or corporations into or with which it may be merged or consolidated. (e) "DISABILITY" shall mean (1) the physical or mental disability of a permanent nature which prevents a Participant from performing the duties such Participant was employed to perform for his or her Employer when such disability commenced, (2) qualifies for disability benefits under the federal Social Security Act within 30 months following the Participant's disability, and (3) qualifies the Participant for disability coverage under the KeyCorp Long Term Disability Plan. In addition to the foregoing, the disability requirements addressed in Section 409A of the Code are incorporated into the provisions of this definition. (f) "EMPLOYEE" shall mean a common law employee who is employed by an Employer; provided, however, the term "Employee" shall not include any person who at the time services are performed is not classified as a common law employee by the Employer even though such person may for federal income tax purposes, federal employment tax purposes, or any other purpose be reclassified by the Employer as a common law employee retroactive to when such services were performed by reason of administrative, judicial, regulatory or other governmental action. (g) "EMPLOYER" shall mean KeyCorp and all of its subsidiaries or affiliates unless specifically excluded as an Employer for Plan purposes by written action by an officer of the Corporation. An Employer's participation shall be subject to any and all conditions and requirements made by the Corporation as the Plan Administrator, and each Employer shall be deemed to have appointed the Plan Administrator as its exclusive agent under the Plan. (h) "EXCESS PENSION BENEFIT" shall mean the vested pension benefit payable pursuant to the terms of this Plan to a Participant meeting the eligibility requirements of Section 3.1 of the Plan. (i) "EXCESS PENSION PROGRAM BENEFIT" shall mean the Participant's collective nonqualified pension benefit accrued under the KeyCorp Excess Cash Balance Pension Plan and KeyCorp Second Excess Cash Balance Pension Plan, subject to the terms and conditions of each respective Plan. (j) "EXECUTIVE SUPPLEMENTAL PENSION PROGRAM BENEFIT" shall mean the Participants' collective nonqualified pension benefit accrued under the KeyCorp Executive Supplemental Pension Plan and KeyCorp Second Executive Supplemental Pension Plan, subject to the terms and conditions of each respective Plan. (k) "INTEREST CREDIT" shall mean the rate at which a Participant's Opening Account Balance as provided for under Section 3.3 of the Plan is periodically increased on a bookkeeping basis. The Interest Credit allocated to a Participant's Opening Account Balance shall be determined based on one- quarter of the effective annual calendar-year interest rate equal to the average (rounded to the nearest one-hundredth of one percent) 5-year United States Treasury Bill rate in effect each month during the twelve (12) month period ending on October 31 or the last business day in October of the preceding calendar year. The procedures to determine such Interest Credit shall be determined by the Pension Trust Oversight Committee, and the Pension Trust Oversight Committee in its sole and exclusive discretion may modify the Interest Credit to be allocated under the Plan. (l) "PARTICIPANT" shall mean an Employee who is a participant in the Pension Plan and who is selected by the Corporation to become a Participant in the Plan, and whose participation in the Plan has not been terminated by the Corporation. (m) "PENSION PLAN" shall mean the KeyCorp Cash Balance Pension Plan, as the same shall be in effect on the date of a Participant's Retirement, death, Disability or other termination of employment. (n) "RETIREMENT" shall mean the termination of employment of a Participant under circumstances in which entitle the Participant to receive an Early Retirement or Normal Retirement Date benefit under the KeyCorp Cash Balance Pension Plan. (o) "SUPPLEMENTAL RETIREMENT PLAN" shall mean the KeyCorp Supplemental Retirement Plan (formerly known as the Society Corporation Supplemental Retirement Plan), the KeyCorp Excess Pension Benefit Plan, and the KeyCorp Excess Pension Benefit Plan for Key Executives, with all amendments made thereto. (p) "TERMINATION" shall mean the voluntary or involuntary and permanent termination of a Participant's employment from his or her Employer and any other Employer, whether by resignation or otherwise. All other capitalized and undefined terms used herein shall have the meanings given them in the Pension Plan, unless a different meaning is plainly required by the context. The masculine gender includes the feminine, and singular references include the plural, unless the context clearly requires otherwise. ARTICLE III EXCESS PENSION BENEFIT 3.1 ELIGIBILITY. A Participant selected by the Corporation to participate in the Plan shall be eligible for an Excess Pension Benefit hereunder if the Participant (i) terminates employment with an Employer on or after age 55 with five or more years of Credited Service, (ii) terminates his or her active employment with an Employer in conjunction with his or her Disability after completing five or more years of Credited Service and disability benefits have ceased under the KeyCorp Long-Term Disability Plan due to the Participant's election of an Early or Normal Retirement under the Pension Plan, or (iii) dies after completing five years of Credited Service and has a Beneficiary who is eligible for a benefit under the Pension Plan. A Participant shall also be eligible for an Excess Pension Benefit if the Participant becomes involuntarily terminated from his or her employment with an Employer for reasons other than the Participant's Discharge for Cause, and (i) as of the Participant's termination date the Participant has a minimum of twenty-five (25) or more years of Credited Service, and (ii) the Participant enters into a written non-solicitation and non-compete agreement with the Employer under terms that are satisfactory to the Employer. For purposes of this Section 3.1, hereof, the term "Discharge for Cause" shall mean a Participant's employment termination that is the result of the Participant's violation of the Employer's policies, practices or procedures, violation of city, state, or federal law, or failure to perform his or her assigned job duties in a satisfactory manner. The Employer shall determine whether a Participant has been Discharged for Cause. Notwithstanding any of the forgoing provisions of this Section 3.1, however, a Participant's eligibility for an Excess Pension Benefit shall be subject to the requirements of Article V of the Plan. 3.2 AMOUNT OF EXCESS PENSION BENEFIT. The Excess Pension Benefit payable to a Participant shall be in such amount as is required, when added to the excess pension benefit payable in lump sum form to the Participant under the KeyCorp Excess Cash Balance Pension Plan (if any) and the Accrued Benefit payable in lump sum form to the Participant under the Pension Plan as of the Participant's Retirement or Termination date to produce a lump sum cash aggregate benefit equal to the benefit which would have been payable under the Pension Plan formula in lump sum form to the Participant if the limitations of Section 401(a)(17) of the Code and the limitations of Section 415 of the Code had not been in effect. For purposes of this Section 3.2 hereof, the term "Pension Plan formula" means the method of calculating a Participant's pension benefit as reflected in Article IV of the Pension Plan and shall not include any Predecessor Plan Grandfathered Benefits formula. 3.3 OPENING ACCOUNT BALANCE. Effective January 1, 2005, Participants in the frozen KeyCorp Excess Cash Balance Pension Plan who as of December 31, 2004 were not vested in their Excess Cash Balance Pension Plan benefit shall have their accrued but not vested benefit transferred to this Plan and reflected in a bookkeeping opening account balance ("Opening Account Balance") established for the Participant. Such Opening Account Balance shall be credited with Interest Credit as of the last day of each calendar quarter, based on the value of the Participant's Opening Account Balance as of the first day of the applicable quarter. A Participant's entitlement to this Opening Account Balance shall be governed by the eligibility provisions of Section 3.1 of this Plan, and the value of the Opening Account Balance shall be added to and become a part of such Participant's Excess Pension Benefit, if any, which shall be payable in accordance with the terms of this Plan. The establishment of the Participant's Plan Opening Account Balance shall terminate the Participant's entitlement to any benefit under the frozen KeyCorp Excess Cash Balance Pension Plan. ARTICLE IV PAYMENT OF EXCESS PENSION BENEFIT 4.1 IMMEDIATE PAYMENT UPON TERMINATION OR RETIREMENT OF PARTICIPANT. Subject to the provisions of Section 4.2, Section 4.4, and Section 4.5 hereof, a Participant meeting the age and service eligibility requirements of Section 3.1 shall receive an immediate distribution of his or her Excess Pension Benefit upon the Participant's Termination date. Such Excess Pension Benefit shall be paid in the form of a single life annuity, unless the Participant elects in writing, a minimum of thirty days prior to the Participant's Termination date to receive his or her distribution under a different form of payment that is actuarially equivalent to the Participant's Excess Pension Benefit when paid as a single life annuity payment. The forms of payment from which a Participant may elect shall be identical to those forms of payment provided under the Pension Plan, provided however, that the lump sum payment option available under the Pension Plan shall not be a form of distribution available under this Plan. Such payment method, once elected by the Participant, shall be irrevocable. In calculating the Participant's actuarially equivalent form of distribution the Corporation shall rely upon calculations made by independent actuaries for the Pension Plan, who shall apply the actuarial assumptions and interest rate then in use under the Pension Plan for converting to the form of payment elected by the Participant. 4.2 SUSPENSION OF DISTRIBUTION. Notwithstanding the foregoing provisions of this Section 4.2, however, in the event of the Participant's Termination and within twelve months of such Termination date the Participant engages in any Harmful Activity, and upon notice by the Corporation of such Harmful Activity the Participant fails to terminate such Activity, then by operation of this Section 4.2 hereof and without any further notice to the Participant all further distributions of the Participant's Excess Pension Benefit shall be immediately suspended for a period of five (5) years following the Corporation's notice to the Participant of his or her Harmful Activity. For purposes of this Section 4.2, a "Harmful Activity" shall have occurred if the Participant shall do any one or more of the following: (i) Use, publish, sell, trade or otherwise disclose Non-Public Information of KeyCorp unless such prohibited activity was inadvertent, done in good faith and did not cause significant harm to KeyCorp. (ii) After notice from KeyCorp, fail to return to KeyCorp any document, data, or thing in his or her possession or to which the Participant has access that may involve Non-Public Information of KeyCorp. (iii) After notice from KeyCorp, fail to assign to KeyCorp all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, copyrights, trademarks, service marks, and patents in or to (or associated with) such Intellectual Property. (iv) After notice from KeyCorp, fail to agree to do any acts and sign any document reasonably requested by KeyCorp to assign and convey all right, title, and interest in and to any confidential or non- confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, the signing of patent applications and assignments thereof. (v) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, solicit or entice for employment or hire any KeyCorp employee. (vi) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, call upon, solicit, or do business with (other than business which does not compete with any business conducted by KeyCorp) any KeyCorp customer the Participant called upon, solicited, interacted with, or became acquainted with, or learned of through access to information (whether or not such information is or was non-public) while the Participant was employed at KeyCorp unless such prohibited activity was inadvertent, done in good faith, and did not involve a customer whom the Participant should have reasonably known was a customer of KeyCorp. (vii) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, after notice from KeyCorp, continue to engage in any business activity in competition with KeyCorp in the same or a closely related activity that the Participant was engaged in for KeyCorp during the one year period prior to the termination of the Participant's employment. For purposes of this Section 4.2 the term: "INTELLECTUAL PROPERTY" shall mean any invention, idea, product, method of doing business, market or business plan, process, program, software, formula, method, work of authorship, or other information, or thing relating to KeyCorp or any of its businesses. "NON-PUBLIC INFORMATION" shall mean, but is not limited to, trade secrets, confidential processes, programs, software, formulas, methods, business information or plans, financial information, and listings of names (e.g., employees, customers, and suppliers) that are developed, owned, utilized, or maintained by an employer such as KeyCorp, and that of its customers or suppliers, and that are not generally known by the public. "KEYCORP" shall include KeyCorp, its subsidiaries, and its affiliates. 4.3 PAYMENT UPON DEATH OF PARTICIPANT. (a) Upon the death of a Participant who has met the service requirement of Section 3.1, but who has not yet commenced distribution of his or her Excess Pension Benefit, there shall be paid to the Participant's Beneficiary the Excess Pension Benefit that the Participant would have been entitled to receive had the Participant retired on his or her date of death and commenced distribution of his or her Excess Pension Benefit. Such Excess Pension Benefit shall be paid in the form of a single life annuity. (b) In the event of a Participant's death after the Participant has commenced distribution of his or her Excess Pension Benefit, there shall be paid to the Participant's Beneficiary only those survivor benefits provided under the form of benefit payment elected by the Participant. 4.4 DISTRIBUTION OF SMALL ACCOUNTS. Notwithstanding any Plan provision other than Section 4.5 hereof, if the value of a Participant's vested Excess Pension Benefit as of the Participant's Termination date is under $50,000, such balance shall be distributed to the Participant as a single lump sum distribution as soon as reasonably practicable following the Participant's Termination date. 4.5 PAYMENT LIMITATION FOR KEY EMPLOYEES. Notwithstanding any other provision of the Plan to the contrary, in the event that the Participant constitutes a "key" employee of the Corporation (as that term is defined in accordance with Section 416(i) of the Code without regard to paragraph (5) thereof), distributions of the Participant's Excess Pension Benefit may not be made before the date which is six months after the Participant's date of separation from service (or, if earlier, the date of death of the Participant). The term "separation from service" shall be defined for Plan purposes in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. ARTICLE V DISTRIBUTION OF LARGEST PLAN BENEFIT 5.1 DISTRIBUTION OF LARGEST PLAN BENEFIT. A Participant who meets the eligibility requirements for an Excess Pension Program Benefit and who also meets the eligibility requirements for an Executive Supplemental Pension Program Benefit, shall automatically be provided at the Participant's Termination the larger of the two Program benefits (i.e. the greater of the Participant's Excess Pension Program Benefit or the Participant's Executive Supplemental Pension Program Benefit). In making the determination required under this Section 5.1 hereof, the Corporation shall rely upon calculations made by independent actuaries for the Pension Plan, who shall apply the actuarial assumptions and interest rate then in use under the Pension Plan for converting the Participant's Excess Pension Program Benefit to a single life annuity form of payment. The Participant automatically shall receive the Program Benefit that provides the Participant with the largest monthly single life annuity benefit. 5.2 BENEFICIARY DISTRIBUTION OF LARGEST PLAN BENEFIT. (a) Upon the death of a Participant meeting eligibility requirements for an Excess Pension Program Benefit and the eligibility requirements for an Executive Supplemental Pension Program Benefit there shall be paid to the Participant's Beneficiary the larger of the two Programs' death benefit. Such death benefit shall be paid to the Beneficiary in the form of a single life annuity. (b) In the event of a Participant's death after the Participant has commenced distribution of his or her Plan benefit, there shall be paid to the Participant's Beneficiary only those survivor benefits provided under the form of benefit payment elected by the Participant. ARTICLE VI ADMINISTRATION 6.1 ADMINISTRATION. The Corporation, which shall be the "Administrator" of the Plan for purposes of ERISA and the "Plan Administrator" for purposes of the Code, shall be responsible for the general administration of the Plan, for carrying out the provisions hereof, and for making payments hereunder. The Corporation shall have the sole and absolute discretionary authority and power to carry out the provisions of the Plan, including, but not limited to, the authority and power (a) to determine all questions relating to the eligibility for and the amount of any benefit to be paid under the Plan, (b) to determine all questions pertaining to claims for benefits and procedures for claim review, (c) to resolve all other questions arising under the Plan, including any questions of construction and/or interpretation, and (d) to take such further action as the Corporation deems necessary or advisable in the administration of the Plan. All findings, decisions and determinations of any kind made by the Plan Administrator shall not be disturbed unless the Plan Administrator has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Plan Administrator shall be the sole judge of the standard of proof required in any claim for benefits and in any determination of eligibility for a benefit. All decisions of the Plan Administrator shall be final and binding on all parties. The Plan Administrator may employ such attorneys, investment counsel, agents, and accountants as it may deem necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and the decisions made by the Plan Administrator hereunder shall be final and binding upon all interested parties subject, however, to the provisions of Section 6.2. The Plan Year, for purposes of Plan administration, shall be the calendar year. 6.2 CLAIMS REVIEW PROCEDURE. Whenever the Plan Administrator decides for whatever reason to deny, whether in whole or in part, a claim for benefits under the Plan filed by any person (herein referred to as the "Claimant"), the Plan Administrator shall transmit a written notice of its decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which the Claimant receives such notice, Claimant may obtain review of the decision of the Plan Administrator in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or Claimant's authorized representative may request that the claim denial be reviewed by filing with the Plan Administrator a written request therefore, which request shall contain the following information: (i) the date on which the request was filed with the Plan Administrator; provided, however, that the date on which the request for review was in fact filed with the Plan Administrator shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph (i); (ii) the specific portions of the denial of the Claimant's claim which the Claimant requests the Plan Administrator to review; (iii) a statement by the Claimant setting forth the basis upon which Claimant believes the Plan Administrator should reverse its previous denial of the Claimant's claim and accept the Claimant's claim as made; and (iv) any written material which the Claimant desires the Plan Administrator to examine in its consideration of the Claimant's position as stated pursuant to paragraph (iii) above. In accordance with this Section, if the Claimant requests a review of the Plan Administrator's decision, such review shall be made by the Plan Administrator, which shall, within sixty (60) days after receipt of the request form, review and render a written decision on the claim containing the specific reasons for the decision including reference to Plan provisions upon which the decision is based. All findings, decisions, and determinations of any kind made by the Plan Administrator shall not be modified unless the Plan Administrator has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Plan Administrator shall be the sole judge of the standard of proof required in any claim for benefits, and any determination of eligibility for a benefit. All decisions of the Plan Administrator shall be binding on the Claimant and upon all other Persons. If the Participant or Beneficiary shall not file written notice with the Plan Administrator at the times set forth above, such individual shall have waived all benefits under the Plan other than as already provided, if any, under the Plan. ARTICLE VII CORPORATE ASSETS All benefits paid under the Plan shall be payable solely out of the general assets of the Corporation. The Corporation shall have no obligation to establish a trust to fund its obligation to pay benefits under the Plan or to insure any benefits under the Plan and nothing contained in the Plan shall create or be construed as creating a trust of any kind or any other fiduciary relationship between the Participant, the Corporation, or any other person. It is the intention of the Corporation and the Participant that the Plan be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. The Corporation may, in its sole discretion, combine the payment due and owing under the Plan with one or more other payments owing to the Participant or the Participant's Beneficiary under any other plan, contract, or otherwise (other than any payment due under the Pension Plan) in one check, direct deposit, wire transfer, or other means of payment. ARTICLE VIII AMENDMENT AND TERMINATION 8.1 TERMINATION OR AMENDMENT. The Corporation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors, or any duly authorized Committee thereof; provided, however, that no such action shall adversely affect any Participant who has met the age and service requirements of Section 3.1 or any Participant or Participant's Beneficiary who is receiving or who is eligible to receive an Excess Pension Benefit hereunder, unless an equivalent benefit is provided under another plan maintained by an Employer. No amendment or termination will result in an acceleration of Excess Pension Benefits in violation of Section 409A of the Code. 8.2 EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary contained in the Plan, the termination of the Plan shall terminate the liability of the Corporation and all Employers to provide for future benefits under the Plan. ARTICLE IX MISCELLANEOUS 9.1 INTEREST OF PARTICIPANT. The obligation of the Employer and of the Corporation to provide a Participant or the Participant's Beneficiary with an Excess Pension Benefit under the Plan merely constitutes the unsecured promise of the Employer and the Corporation to make payments as provided herein and no person shall have any interest in, or a lien or prior claim on any property of the Employer or Corporation. 9.2 BENEFITS. Nothing in the Plan shall be construed to confer any right or claim upon any person, firm, or corporation other than the Participant and the Participant's Beneficiary who may become entitled to an Excess Pension Benefit under the Plan. 9.3 NO PRESENT INTEREST. Subject to any federal statute to the contrary, no right or benefit under the Plan and no right or interest in each Participant's Plan benefit shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under the Plan, or Participant's Plan Account shall be void. No right, interest, or benefit under the Plan or the Participant's Plan benefit shall be liable for or subject to the debts, contracts, liabilities, or torts of the Participant or his or her Beneficiary. If the Participant or the Participant's Beneficiary becomes bankrupt or attempts to alienate, sell, assign, pledge, encumber, or charge any right under the Plan or the Participant's Plan benefit, such attempt shall be void and unenforceable. 9.4 UNFUNDED PLAN. This Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly-compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA, and therefore is exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. 9.5 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be construed as a commitment or agreement upon the part of any Employee hereunder to continue his or her employment with an Employer, and nothing herein contained shall be construed as a commitment on the part of any Employer to continue the employment, rate of compensation or terms and conditions of employment of any Employee hereunder for any period. All Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 9.6 ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a subsidiary or committee authorized by the Board of Directors, or any officer of the Corporation or a subsidiary shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or Employee, except in circumstances involving bad faith or willful misconduct for anything done or omitted to be done. 9.7 EXPENSES. The Corporation will pay all Plan expenses. 9.8 PRECEDENT. Except as otherwise specifically agreed to by the Corporation in writing, no action taken in accordance with the Plan by the Corporation shall be construed or relied upon as a precedent for similar action under similar circumstances. 9.9 WITHHOLDING. The Corporation shall withhold any tax which the Corporation in its discretion deems necessary to be withheld from any payment to any Participant, former Participant, or Beneficiary hereunder, by reason of any present or future law. 9.10 VALIDITY OF PLAN. The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the provisions of ERISA, the Code, and, to the extent applicable, the laws of the State of Ohio. The invalidity or illegality of any provision of the Plan shall not affect the validity or legality of any other part thereof. 9.11 PARTIES BOUND. The Plan shall be binding upon the Employers, Participants, former Participants, and Beneficiaries hereunder, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them. 9.12 HEADINGS. All headings used in the Plan are for convenience of reference only and are not part of the substance of the Plan. 9.13 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each Participant, former Participant, or Beneficiary any documents, reports, returns, statements, or other information that it reasonably deems necessary to perform its duties imposed hereunder or otherwise imposed by law. 9.14 TRUST FUND. At its discretion, the Corporation may establish one or more trusts, with such trustees as the Corporation may approve, for the purpose of providing for the payment of benefits owed under the Plan. Although such a trust may be irrevocable in the event of insolvency or bankruptcy of the Corporation, such assets will be subject to the claims of the Corporation's general creditors. To the extent any benefits provided under the Plan are paid from any such trust, the Employer shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of the Employer. 9.15 NOTICE. Any notice required or permitted under the Plan shall be deemed sufficiently provided if such notice is in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification. Mailed notice to the Corporation shall be directed to the Corporation's address, attention: KeyCorp Compensation and Benefits Department. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in the Employer's records 9.16 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of each Employer and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of an Employer. ARTICLE X CHANGE OF CONTROL Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, a Participant's interest in his or her Excess Pension Benefit shall vest, and the Participant shall be entitled to receive an immediate distribution of his or her Excess Pension Benefit, if on and after a Change of Control the Participant has at least five (5) years of Credited Service, and (i) the Participant's employment is terminated by his or her Employer and any other Employer without cause, or (ii) the Participant resigns within two years following a Change of Control as a result of the Participant's mandatory relocation, reduction in the Participant's base salary, reduction in the Participant's average annual incentive compensation (unless such reduction is attributable to the overall corporate or business unit performance) or the Participant's exclusion from stock option programs as compared to comparably situated Employees. For purposes of this Article X hereof, "Change of Control" shall be deemed to have occurred if under a rabbi trust arrangement established by KeyCorp ("Trust"), as such Trust may from time to time be amended or substituted, the Corporation is required to fund the Trust because a "Change of Control", as defined in the Trust, has occurred. ARTICLE XI COMPLIANCE WITH SECTION 409A CODE The Plan is intended to provide for the deferral of compensation in accordance with the provisions of Section 409A of the Code and regulations and published guidance issued pursuant thereto. Accordingly, the Plan shall be construed in a manner consistent with those provisions and may at any time be amended in the manner and to the extent determined necessary or desirable by the Corporation to reflect or otherwise facilitate compliance with such provisions with respect to amounts deferred on and after January 1, 2005, including as contemplated by Section 855(f) of the American Jobs Creation Act of 2004. Notwithstanding any provision of the Plan to the contrary, no otherwise permissible election, deferral, accrual, or distribution shall be made or given effect under the Plan that would result in early taxation or assessment of penalties or interest of any amount under Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, the Participant's Excess Pension Benefits shall not be distributed to the Participant earlier than: (a) the Participant's separation from service, as determined by the Secretary of the Treasury (except as provided below with respect to a key employee of the Corporation); or (b) the death of the Participant. If it is determined that a Participant constitutes a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Corporation, the Participant shall not commence the distribution of his or her Excess Pension Benefits before the date which is six months after the date of the Participant's separation from service (or, if earlier, the date of death of the Participant). IN WITNESS WHEREOF, KeyCorp has caused this KeyCorp Second Excess Cash Balance Pension Plan to be executed by its duly authorized officer this 28th day of December, to be effective as of January 1, 2005. KEYCORP By: /s/Thomas E. Helfrich ----------------------------- Title: Executive Vice President EX-10.34 6 l11135aexv10w34.txt EX-10.34 KEYCORP SECOND DEFERRED COMPENSATION PLAN EXHIBIT 10.34 KEYCORP SECOND DEFERRED COMPENSATION PLAN ARTICLE I The KeyCorp Second Deferred Compensation Plan (the "Plan"), is hereby established December 28, 2004, to be effective January 1, 2005. The Plan, as structured, is designed to provide a certain select group of employees of KeyCorp with the opportunity to defer their compensation to the Plan. It is the intention of KeyCorp and it is the understanding of the employees covered under the Plan, that the Plan constitutes a nonqualified deferred compensation plan for a select group of KeyCorp employees, and as such, the Plan is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II DEFINITIONS 2.1 MEANING OF DEFINITIONS. For the purposes of this Plan, the following words and phrases shall have the meanings hereinafter set forth, unless a different meaning is clearly required by the context: (a) "BENEFICIARY" shall mean the person, persons or entity entitled under Article VII to receive any Plan benefits payable after a Participant's death. (b) "BOARD" shall mean the Board of Directors of KeyCorp, the Board's Compensation Committee, or any other committee designated by the Board or subcommittee designated by the Board's Compensation Committee. (c) "CHANGE OF CONTROL" shall be deemed to have occurred if under a rabbi trust arrangement established by KeyCorp ("Trust"), as such Trust may from time to time be amended or substituted, the Corporation is required to fund the Trust because a "Change of Control", as defined in the Trust, has occurred. (d) "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, together with all regulations promulgated thereunder. Reference to a section of the Code shall include such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (e) "COMMON STOCK ACCOUNT" shall mean the investment account established under the Plan for bookkeeping purposes in which a Participant may elect to have his or her Participant Deferrals credited. Participant Deferrals to the Common Stock Account shall be credited based on a bookkeeping allocation of KeyCorp Common Shares (both whole and fractional rounded to the nearest one- hundredth of a share), which shall be equal to the amount of Participant Deferrals invested by the Participant in the Common Stock Account. The Common Stock Account shall also reflect on a bookkeeping basis all dividends, gains, and losses attributable to such Common Shares. All Corporate Contributions and all Participant Deferrals credited to the Common Stock Account shall be based on the New York Stock Exchange's closing price for such Common Shares as of the day such Participant Deferrals are credited to the Participants' Plan Accounts. (f) "COMPENSATION" of a Participant for any Plan Year or any partial Plan Year shall mean the entire amount of base salary paid to such Participant during such period by reason of his or her employment with an Employer, including any base salary which would have been paid except for (1) the Participant's written deferral of such Compensation to this Plan during the Plan Year, (2) the Participant's deferral of such Compensation to the KeyCorp 401(k) Savings Plan and the KeyCorp Excess 401(k) Savings Plan, and/or (3) the Participant's participation in the KeyCorp Flexible Benefits Plan and/or transportation reimbursement plan. (g) "CORPORATE CONTRIBUTIONS" shall mean the amount that an Employer has agreed to contribute on a bookkeeping basis to the Participant's Plan Account in accordance with the provisions of Article V of the Plan. (h) "CORPORATION" shall mean KeyCorp, an Ohio corporation, its corporate successors, and any corporation or corporations into or with which it may be merged or consolidated. (i) "DEFERRAL PERIOD" shall mean each Plan Year, provided however, that a Participant's initial Deferral Period shall be from his or her first day of participation in the Plan through the last day of the applicable Plan Year. (j) "DETERMINATION DATE" shall mean the last day of each calendar month. (k) "DISABILITY" shall mean (1) the physical or mental disability of a permanent nature which prevents a Participant from performing the duties such Participant was employed to perform for his or her Employer when such disability commenced, (2) qualifies for disability benefits under the federal Social Security Act within 30 months following the Participant's disability, and (3) qualifies the Participant for disability coverage under the KeyCorp Long Term Disability Plan. In addition to the foregoing, the disability requirements addressed in Section 409A of the Code are incorporated into the provisions of this definition. (l) "EARLY RETIREMENT" shall mean the Participant's retirement from employment with an Employer on or after the Participant's attainment of age 55 and completion of a minimum of five years of Vesting Service, but prior to the Participant's Normal Retirement Date. (m) "EMPLOYEE" shall mean a common law employee who is employed by an Employer. (n) "EMPLOYER" shall mean the Corporation and any of its subsidiaries, unless specifically excluded as an Employer for Plan purposes by written action of an officer of the Corporation. An Employer's participation shall be subject to all conditions and requirements made by the Corporation, and each Employer shall be deemed to have appointed the Plan Administrator as its exclusive agent under the Plan as long as it continues as an Employer. (o) "UNFORESEEABLE EMERGENCY" shall mean a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant, the Participant's spouse, or the Participant's dependent (as defined in Section 152(a) of the Code), the loss of the Participant's property due to casualty, or such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The determination of an "unforeseeable emergency" and the ability of the Corporation to accelerate the Participant's distribution of Participant Deferrals shall be determined in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. (p) "INCENTIVE COMPENSATION" shall mean the incentive compensation awarded to a Participant under an Incentive Compensation Plan. (q) "INCENTIVE COMPENSATION DEFERRALS" shall mean a percentage or whole dollar amount of any Incentive Compensation payable to a Participant during the applicable Plan Year, which the Participant has elected in accordance with his or her Participation Agreement to defer under this Plan. (r) "INCENTIVE COMPENSATION PLAN" shall mean a line of business or management incentive compensation plan that is sponsored by KeyCorp or an affiliate of KeyCorp that the Corporation has determined constitutes an Incentive Compensation Plan for purposes of the Plan. (s) "INTEREST BEARING ACCOUNT" shall mean the investment account established under the Plan for bookkeeping purposes in which a Participant may elect to have his or her Participant Deferrals credited. Participant Deferrals invested for bookkeeping purposes in the Interest Bearing Account shall be credited with earnings as of each Determination Date based on the effective annual yield of the average of Moody's Average Corporate Bond Yield Index for the previous calendar month increased by 50 basis points. In the event that Moody's Investor Services Inc. ceases to publish such Index (or any successor publisher thereto) the Board shall select a substantially similar index to be used in crediting earnings under the Interest Bearing Account. (t) "INVESTMENT ACCOUNTS" shall collectively mean those investment accounts established under the Plan for bookkeeping purposes in which a Participant may elect to have his or her Participant Deferrals credited. Investment Accounts shall include the Plan's (1) Interest Bearing Account, (2) Common Stock Account, and (3) Investment Funds. (u) "INVESTMENT FUNDS" shall mean those investment accounts established under the Plan for bookkeeping purposes in which a Participant may elect to have his or her Participant Deferrals credited and which mirror the investment funds established in accordance with the KeyCorp 401(k) Savings Plan ("Savings Plan") as may be amended from time to time, provided, however, that the Savings Plan's Corporation Stock Fund, for Plan purposes, shall be excluded from the definition of Investment Funds. Participant Deferrals invested for bookkeeping purposes in the Investment Funds shall be credited on a bookkeeping basis with those earnings, gains, and losses experienced by the investment funds. (v) "NORMAL RETIREMENT" shall mean the Participant's retirement under the KeyCorp Cash Balance Pension Plan on or after the Participant's Normal Retirement Date. (w) "PARTICIPANT" shall mean an Employee who meets the eligibility requirements set forth in Section 3.1(a) and who becomes a Plan Participant pursuant to Section 3.1(b) or Section 3.1(c) of the Plan. (x) "PARTICIPATION AGREEMENT" shall mean the written agreement submitted by the Participant to the Corporation, which contains, in pertinent part, the Participant's deferral commitment for the applicable Deferral Period, the Participant's investment instructions, and the distribution option for such Participant Deferrals. Participants' Participation Agreements for Salary Deferrals shall be provided to the Corporation by no later than the close of the year prior to the year in which the deferred salary is earned by the Participant. Participants' Participation Agreements for Incentive Compensation Deferrals shall be provided to the Corporation by no later than the close of the year prior to the year in which such Incentive Compensation is earned by the Participant or as otherwise permitted under Section 409A of the Code and applicable regulations. (y) "PARTICIPANT DEFERRALS" shall mean those Incentive Compensation Deferrals and Salary Deferrals the Participant has elected to defer under this Plan for each applicable Deferral Period. (z) "PLAN" shall mean the KeyCorp Second Deferred Compensation Plan with all amendments hereafter made. (aa) "PLAN ACCOUNT" shall mean those bookkeeping accounts established by the Corporation for each Plan Participant, which shall reflect Corporate Contributions and Participant Deferrals invested for bookkeeping purposes in the Plan's Investment Accounts with all earnings, dividends, gains, and losses thereon. Plan Accounts shall not constitute separate Plan funds or separate Plan assets. Neither the maintenance of, nor the crediting of amounts to such Plan Accounts shall be treated (i) as the allocation of any Corporation assets to, or a segregation of any Corporation assets in any such Plan Accounts, or (ii) as otherwise creating a right in any person or Participant to receive specific assets of the Corporation. Benefits under the Plan shall be paid from the general assets of the Corporation. (bb) "PLAN YEAR" shall mean the calendar year. (cc) "RETIREMENT" shall mean the termination of a Participant's employment under circumstances in which the Participant begins to receive an Early Retirement or Normal Retirement Date benefit under the KeyCorp Cash Balance Pension Plan. (dd) "SALARY DEFERRALS" shall mean the percentage or whole dollar amount of a Participant's annual Compensation, which the Participant has elected pursuant to his or her Participation Agreement to defer to the Plan. (ee) "TERMINATION" shall mean the voluntary or involuntary and permanent termination of a Participant's employment from his or her Employer and any other Employer, whether by resignation or otherwise, but shall not include the Participant's Retirement or termination as a result of Disability. (ff) "TERMINATION UNDER LIMITED CIRCUMSTANCES" shall mean a Participant's termination of employment from the Employer (i) within two years after a Change of Control under circumstances in which the Participant is entitled to severance benefits or salary continuation or similar benefits under a Change of Control agreement, employment agreement, or severance or separation pay plan, (ii) Normal Retirement, (iii) Early Retirement with the approval of the Compensation Committee in its sole discretion, or (iv) due to Disability or death. 2.2 ADDITIONAL REFERENCE. All other words and phrases used herein shall have the meaning given them in the KeyCorp Cash Balance Pension Plan, unless a different meaning is clearly required by the context. 2.3 PRONOUNS. The masculine pronoun wherever used herein includes the feminine in any case so requiring, and the singular may include the plural. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 ELIGIBILITY AND PARTICIPATION. (a) ELIGIBILITY. An Employee shall be eligible to participate in the Plan if (1) the Employee is a Participant in an Incentive Compensation Plan, (2) the Employee is employed in a job grade (or job grade equivalent) 86 and above, and (3) the Corporation selects such Employee to participate in the Plan. Notwithstanding the foregoing provisions of this Section 3.1(a), all Participants in the KeyCorp Deferred Compensation Plan as of December 31, 2004 may elect to participate in this Plan regardless of the Participant's job grade (or job grade equivalent). (b) PARTICIPATION. An Employee meeting the eligibility criteria of Section 3.1(a) may elect to participate in the Plan by submitting a Participation Agreement to the Corporation prior to the beginning of the applicable Deferral Period. (c) MID-YEAR PARTICIPATION. When an Employee first becomes eligible to participate in the Plan during a Deferral Period, the Employee shall submit a Participation Agreement to the Corporation within thirty days (30) of the date that the Corporation first notifies the Employee of his or her Plan eligibility. Such Participation Agreement will become effective only if it is provided to the Corporation within 30 days of the Participant's notice of Plan eligibility. 3.2 DEFERRAL LIMITATIONS. The following Participant Deferral limitations shall apply for each Deferral Period: (a) SALARY DEFERRALS. A Participant whose Compensation equals or exceeds $160,000 as of January 1 of the applicable Plan Year may defer no less than one hundred twenty-five dollars ($125) on a per- pay basis and no more than 50% of the Participant's Compensation on a per-pay basis during the applicable Deferral Period. (b) INCENTIVE COMPENSATION DEFERRALS. A Participant may defer no less than three thousand dollars ($3,000) and no more than 100% of any Incentive Compensation which becomes payable to the Participant during the applicable Deferral Period. 3.3 COMMITMENT LIMITED BY TERMINATION, RETIREMENT, DISABILITY OR DEATH. As of the Participant's Termination date, Retirement date, date of Disability or date of death, all Participant Deferrals under the Plan shall cease. 3.4 MODIFICATION OF DEFERRAL COMMITMENT. Except as provided in Section 6.1(b) below, a Participant's deferral commitment as evidenced by his or her Participation Agreement for the applicable Deferral Period shall be irrevocable. 3.5 CHANGE IN EMPLOYMENT STATUS. If the Corporation determines that a Participant's performance is no longer at a level that deserves to be rewarded through participation in the Plan, but does not terminate the Participant's employment with the Employer, the Participant's existing Participation Agreement shall terminate at the end of the Deferral Period, and no new Participation Agreement may be made by such Participant. 3.6 OPENING ACCOUNT BALANCE. Effective January 1, 2005, Participants in the frozen KeyCorp Deferred Compensation Plan who as of December 31, 2004 were not vested in all or any portion of those KeyCorp Deferred Compensation Plan corporate contributions allocated to their plan account shall have such allocated but not vested corporate contributions on a bookkeeping basis, transferred to the Plan and reflected in a bookkeeping opening account balance ("Opening Account Balance") established for the Participant. Such Opening Account Balance shall be invested on a bookkeeping basis in the Plan's Corporation Stock Fund, and shall be credited with all earnings, gains, and losses attributable to the investment performance of such Fund. The value of the Participant's Opening Account Balance shall be added to and shall become a part of such Participant's Plan benefit which shall be payable in accordance with the terms of this Plan, provided, however, that the Participant shall receive distribution of his or her Opening Account Balance in accordance with the distribution instructions contained within the Participant's participation agreement under the KeyCorp Deferral Compensation Plan for the applicable deferral period. The establishment of the Participant's Plan Opening Account Balance shall terminate the Participant's entitlement to such transferred benefit under the frozen KeyCorp Deferred Compensation Plan. 3.7 ROLLOVERS. The Plan may accept on behalf of a Participant, a rollover of the Participant's bookkeeping account balance from such other deferred compensation plan of the Employer in which the Participant also participates. The bookkeeping account balance so rolled shall be known as plan transfer contributions ("Plan Transfer Contributions"). The Participant's Plan Transfer Contributions shall be credited to the Participant's Plan Account on a bookkeeping basis in such a manner as the Corporation shall be able to separately identify such Plan Transfer Contributions and determine the net gains or losses attributable thereto. Such Plan Transfer Contributions shall, at all times, be invested in the Plan's Common Stock Account and shall not be subject to the Participant's investment direction or diversification. Plan Transfer Contributions shall be fully vested under the Plan and shall be subject to the distribution requirements contained within the Participant's Rollover Election Form provided, however, that such Plan Transfer Contributions must be deferred under the Plan for a minimum of five (5) years from the date of the rollover regardless of the Participant's termination, retirement, or distribution instructions contained in the Participant's Rollover Election Form, and further, must conform with subsequent deferral election requirements mandated under Section 409A of the Code. 3.8. PLAN TRANSFERS. Participants may elect to transfer vested performance awards (other than stock option awards) granted under a KeyCorp Equity Compensation Plan to the Plan, provided, the Participant's election to transfer such vested award is made in accordance with the requirements of the grant agreement under which the award was issued and in accordance with the requirements of Section 409A of the Code. Transferred awards shall be subject to full investment diversification if cash based, and transferred awards shall be invested in the in the Plan's Common Stock Account if equity based. Awards invested in the Plan's Common Stock Account will not be subject to investment direction or diversification. Transferred awards shall be separately maintained under the Plan. ARTICLE IV PARTICIPANT DEFERRALS 4.1 PLAN ACCOUNT. All Participant Deferrals and Corporate Contributions shall be credited on a bookkeeping basis to a Plan Account established in the Participant's name. Separate sub-accounts may be established to reflect the Participant's investment elections, with all earnings, gains or losses attributable to such elections. 4.2 INVESTMENT OF PARTICIPANT DEFERRALS. Subject to the provisions of Section 4.3 hereof, each Participant shall direct the manner in which his or her Participant Deferrals are to be invested for bookkeeping purposes under the Plan. All Participant Deferrals may be invested for bookkeeping purposes in any one or more of the Plan's Investment Accounts, in such amounts, as the Participant shall select. Subject to the provisions of Section 4.4 hereof, Participants may modify their investment elections at such times and in such manner as permitted by the Corporation. 4.3 COMPLIANCE WITH CORPORATION'S STOCK OWNERSHIP GUIDELINES. Notwithstanding the foregoing provisions of Section 4.2 hereof, Participants who have not met the ownership requirements of the Corporation's stock ownership guidelines shall be required to defer all Participant Deferrals into the Common Stock Account until such time as the Corporation stock ownership guidelines have been met. 4.4 INVESTMENT OF PARTICIPANT DEFERRALS INVESTED IN THE COMMON STOCK ACCOUNT. The Participant's election to have his or her Participant Deferrals invested on a bookkeeping basis in the Common Stock Account shall be irrevocable; Participant Deferrals invested in the Common Stock Account shall not be subject to investment direction by the Participant. 4.5 CREDITING OF PARTICIPANT DEFERRALS; WITHHOLDING. Participant Salary Deferrals shall be credited to the Participant's Plan Account as of each pay period during the applicable Deferral Period. Participant Incentive Compensation Deferrals shall be credited to the Participant's Plan Account as of the date the Incentive Compensation would have been payable to the Participant but for the Participant's election to defer such Incentive Compensation to this Plan. The withholding of taxes with respect to Participant Deferrals as required by state, federal or local law will be withheld from the Participant's Compensation to the maximum extent possible; any taxes remaining due shall reduce the amount of Participant Deferrals credited to the Participant's Plan Account. ARTICLE V CORPORATE CONTRIBUTIONS 5.1 CREDITING OF CORPORATION CONTRIBUTIONS. Corporate Contributions shall be credited on a bookkeeping basis to the Participant's Plan Account in proportion to the respective amount of the Participant's Participant Deferrals made to the Plan during the applicable Deferral Period. Corporate Contributions shall be credited to the Participant's Plan Account as of the date that the Participant's Participant Deferrals are credited to the Plan. Notwithstanding the forgoing provisions of this Section 5.1, however, if the Participant is an "Officer" of the Corporation, as that term is defined in accordance with Section 16 of the Securities Act of 1934, such Corporate Contributions shall be credited to the Participant's Plan Account as follows: (a) INCENTIVE COMPENSATION DEFERRALS. Corporate Contributions shall be credited on a bookkeeping basis to the Participant's Plan Account as of the date the Incentive Compensation Deferrals would have been payable to the Participant but for the Participant's election to defer such Incentive Compensation to the Plan. (b) SALARY DEFERRALS. Corporate Contributions shall be credited to the Participant's Plan Account as of June 30 and December 31 of each Plan year, provided, however, that if a Participant has elected on a bookkeeping basis to invest his or her Salary Deferrals in the Plan's Common Stock Account then such Salary Deferrals shall be credited with Corporate Contributions as of the date such Salary Deferrals would have been paid to the Participant but for the Participant's election to defer such Salary Deferrals to the Plan. Participant Deferrals invested on a bookkeeping basis in the Plan's Interest Bearing Fund and/or Investment Funds shall be credited with Corporate Contributions equal to 6% of such Participant's Participant Deferrals; Participant Deferrals invested on a bookkeeping basis in the Plan's Common Stock Account shall be credited with Corporate Contributions equal to 10% of such Participant's Participant Deferrals. Corporate Contributions (equal to 6% or 10%, as the case may be) shall also be credited on behalf of those Participants whose Participant Deferrals become mandated under the requirements of Section 162(m) of the Code. 5.2 INVESTMENT OF CORPORATE CONTRIBUTIONS. All Corporate Contributions credited to the Participant's Plan Account shall be invested for bookkeeping purposes in the Plan's Common Stock Account. Corporate Contributions are not subject to Participant investment directions. 5.3 VESTING IN CORPORATE CONTRIBUTIONS. A Participant shall become vested in those Corporate Contributions credited on a bookkeeping basis to the Participant's Plan Account upon the Participant's (1) completion of three years of vested service, (2) Disability, or (3) death. For purposes of this Section 5.3 hereof, the term "vested service" shall be calculated from the Participant's employment commencement date through the Participant's Termination, Retirement, or Disability date (whichever shall first occur), and shall be based on consecutive twelve-month periods during which time an Employer employs the Participant. 5.4 FORFEITURE OF CORPORATE CONTRIBUTIONS. Notwithstanding the provisions of Sections 5.1 or 5.3 hereof, if the Participant terminates his or her employment with the Corporation for any reason other than Normal Retirement or Termination Under Limited Circumstances, the Participant shall forfeit 4% out of the 10% of Corporate Contributions (so that the remaining Corporate Contribution is 6%) allocated on Participant Deferrals which the Participant has elected to irrevocably defer into the Common Stock Account. All earnings on the 4% of Corporate Contributions forfeited shall also be forfeited. 5.5 DETERMINATION OF AMOUNT. The Plan Administrator shall verify the amount of Participant Deferrals, Corporate Contributions, dividends, and earnings, if any, to be credited to each Participant's Plan Account in accordance with the provisions of the Plan. The reasonable and equitable decision of the Plan Administrator as to the value of each Investment Account shall be conclusive and binding upon all Participants and the Beneficiary of each deceased Participant having any interest, direct or indirect in the Participant's Plan Account. The value of an Investment Account on any day not a Determination Date, shall be the value on the last preceding Determination Date. As soon as reasonably practicable after the close of the Plan Year, the Corporation shall send to each Participant an itemized accounting statement which shall reflect the Participant's Plan Account balance. 5.6 CORPORATE ASSETS. All Participant Deferrals, Corporate Contributions, dividends, earnings and any other gains and losses credited to a Participant's Plan Account remain the assets and property of the Corporation, which shall be subject to distribution to the Participant only in accordance with Articles VI, IX and X of the Plan. Payments made under the Plan shall be in the form of cash and shares and shall be made from the general assets of the Corporation, and Participants and Beneficiaries shall have the status of general unsecured creditors of the Corporation. Nothing contained in the Plan shall create, or be construed as creating a trust of any kind or any other fiduciary relationship between the Participant, the Corporation, or any other person. It is the intention of the Corporation and the Participant that the Plan be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended, and Section 409A of the Code. 5.7 NO PRESENT INTEREST. Subject to any federal statute to the contrary, no right or benefit under the Plan and no right or interest in each Participant's Plan Account shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under the Plan, or Participant's Plan Account shall be void. No right, interest, or benefit under the Plan or Participant's Plan Account shall be liable for or subject to the debts, contracts, liabilities, or torts of the Participant or Beneficiary. If the Participant or Beneficiary becomes bankrupt or attempts to alienate, sell, assign, pledge, encumber, or charge any right under the Plan or Participant's Plan Account, such attempt shall be void and unenforceable. 5.8 EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary contained in the Plan, the termination of the Plan shall terminate the liability of the Corporation and all Employers to make further Corporate Contributions to the Plan. ARTICLE VI DISTRIBUTION OF PLAN BENEFITS 6.1 DISTRIBUTIONS AT TERMINATION OR RETIREMENT. A Participant's vested Plan benefit shall be distributed to the Participant at the Participant's Termination or Retirement (whichever shall first occur) subject to the following limited early distribution circumstances: (a) SECTION 162(m) DEFERRALS. If a Participant is required to defer in conjunction with the provisions of Section 162(m) of the Code, such Participant Deferrals shall be distributed upon the Participant's termination of employment, unless such Participant constitutes a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Corporation, in which the Participant shall not commence any distribution of his or her Plan benefits before the date which is six months after the date of the Participant's separation from service (or, if earlier, the date of death of the Participant). (b) UNFORESEEABLE EMERGENCY. Upon a finding that a Participant has suffered an Unforseeable Emergency, the Corporation shall permit the Participant to obtain an Emergency Withdrawal from his or her vested Plan Account. The amount of such Emergency Withdrawal shall be limited to the amount reasonably necessary to meet the Participant's immediate needs resulting from the Unforeseeable Emergency, as provided for in accordance with the provisions of Section 409A of the Code and applicable regulations issued thereunder. (c) FORM OF PAYMENT AND TIME. Distributions made to a Participant pursuant to Section 6.1(b) hereof shall be paid in a lump sum amount. Distributions made under this Section 6.1 shall be made as soon as administratively practicable following (i) the distribution date permitted under the provisions of Section 6.1(a), or (ii) as soon as administratively practicable following the Participant's Emergency Withdrawal request under the provisions of Section 6.1(b). 6.2 DISTRIBUTION OPTIONS FOR INTEREST BEARING ACCOUNT AND/OR INVESTMENT FUNDS. Subject to the provisions of Section 6.4 and Section 6.5 hereof, a Participant shall elect, as reflected in the Participant's Participation Agreement, to receive a distribution of his or her vested Plan Account balance from the Plan's Interest Bearing Account and /or Investment Funds under the following payment options: (a) a single lump sum distribution, or (b) a series of monthly installment distributions over a period of 60, 120, or 180 months. Distributions of Participant Deferrals from the Plan's Interest Bearing Account and/or Investment Funds shall be made in cash. 6.3 DISTRIBUTION OPTIONS FOR COMMON STOCK ACCOUNT. Subject to the provisions of Section 6.4 and Section 6.5 of the Plan, a Participant shall elect, as reflected in the Participant's Participation Agreement, to receive the distribution of his or her vested Plan Account balance from the Plan's Common Stock Account under the following payment options: (a) a single lump sum distribution, or (b) a series of annual installment distributions over a period of 5, 10, or 15 years. Distributions of Participant Deferrals and vested Corporate Contributions from the Plan's shall be made in KeyCorp Common Shares. 6.4 SUSPENSION OF DISTRIBUTIONS. Notwithstanding the foregoing provisions of this Section 6.4, however, in the event of the Participant's Termination or Retirement and within twelve months of such Termination or Retirement date the Participant engages in any Harmful Activity, and upon notice by the Corporation of such Harmful Activity the Participant fails to terminate such Activity, then by operation of this Section 6.4 hereof, and without any further notice to the Participant all further distributions under the Plan benefit shall be immediately suspended for a period of five (5) years following the Corporation's notice to the Participant of his or her Harmful Activity. For purposes of this Section 6.4, a "Harmful Activity" shall have occurred if the Participant shall do any one or more of the following: (i) Use, publish, sell, trade or otherwise disclose Non-Public Information of KeyCorp unless such prohibited activity was inadvertent, done in good faith and did not cause significant harm to KeyCorp. (ii) After notice from KeyCorp, fail to return to KeyCorp any document, data, or thing in his or her possession or to which the Participant has access that may involve Non-Public Information of KeyCorp. (iii) After notice from KeyCorp, fail to assign to KeyCorp all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, copyrights, trademarks, service marks, and patents in or to (or associated with) such Intellectual Property. (iv) After notice from KeyCorp, fail to agree to do any acts and sign any document reasonably requested by KeyCorp to assign and convey all right, title, and interest in and to any confidential or non- confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, the signing of patent applications and assignments thereof. (v) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, solicit or entice for employment or hire any KeyCorp employee. (vi) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, call upon, solicit, or do business with (other than business which does not compete with any business conducted by KeyCorp) any KeyCorp customer the Participant called upon, solicited, interacted with, or became acquainted with, or learned of through access to information (whether or not such information is or was non-public) while the Participant was employed at KeyCorp unless such prohibited activity was inadvertent, done in good faith, and did not involve a customer whom the Participant should have reasonably known was a customer of KeyCorp. (vii) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, after notice from KeyCorp, continue to engage in any business activity in competition with KeyCorp in the same or a closely related activity that the Participant was engaged in for KeyCorp during the one year period prior to the termination of the Participant's employment. For purposes of this Section 6.4 the term: "INTELLECTUAL PROPERTY" shall mean any invention, idea, product, method of doing business, market or business plan, process, program, software, formula, method, work of authorship, or other information, or thing relating to KeyCorp or any of its businesses. "NON-PUBLIC INFORMATION" shall mean, but is not limited to, trade secrets, confidential processes, programs, software, formulas, methods, business information or plans, financial information, and listings of names (e.g., employees, customers, and suppliers) that are developed, owned, utilized, or maintained by an employer such as KeyCorp, and that of its customers or suppliers, and that are not generally known by the public. "KEYCORP" shall include KeyCorp, its subsidiaries, and its affiliates. 6.5 DISTRIBUTION OF ACCOUNT BALANCE. The Participant's vested Plan Account shall be valued as of the Determination Date immediately preceding his or her Termination, Retirement or Disability (the "valuation date"). (a) LUMP SUM DISTRIBUTIONS. If a Participant has elected to receive a lump sum distribution of all or any portion of his or her vested Plan Account, such lump sum distribution shall be made as soon as administratively practicable but in no event later than 60 days following the Participant's Termination, Retirement or Disability date. (b) INSTALLMENT DISTRIBUTIONS. If a Participant has elected to receive an installment distribution of all or any portion of his or her Plan Account, such installment distribution shall commence as soon as administratively practicable but in no event later than 60 days following the Participant's Termination, Retirement or Disability date. (i) The Participant's vested unpaid Plan Account balance invested for bookkeeping purposes in the Plan's Interest Bearing Account and Investment Funds shall be reflected in a distribution sub-account, which shall be credited with interest based on a 36 month average (as of the valuation date) of the monthly earnings credited under the Interest Bearing Account for the Participant's installment distribution period. (ii) The Participant's vested unpaid Plan Account balance invested for bookkeeping purposes in the Plan's Common Stock Account shall be reflected as a number of whole and fractional Common Shares in a distribution sub-account and shall be credited with dividends on a bookkeeping basis which shall be reinvested in the Plan's Common Stock Account throughout the installment distribution period; all such reinvested dividends shall be paid to the Participant in Common Shares in conjunction with the Participant's final installment payment under the Plan. 6.6 DISTRIBUTION OF SMALL ACCOUNTS. Notwithstanding the provisions of Sections 6.2, 6.3, 6.4, and 6.5, hereof, if the value of a Participant's vested Account balance as of the Determination Date immediately preceding the Participant's Termination, Retirement or Disability date is under $50,000, such account balance shall be distributed to the Participant as a single distribution as soon as administratively practicable following such date. 6.7 PAYMENT LIMITATION FOR KEY EMPLOYEES. Notwithstanding any other provision of the Plan to the contrary, including the provisions contained within this Article VI hereof, in the event that the Participant constitutes a "key" employee of the Corporation (as that term is defined in accordance with Section 416(i) of the Code without regard to paragraph (5) thereof), distributions of the Participant's Plan benefit at the Participant's Termination, Disability, or Retirement may not commence before the date which is six months after the Participant's date of separation from service (or, if earlier, the date of death of the Participant). The term "separation from service" shall be defined for Plan purposes in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 6.8 FACILITY OF PAYMENT. If it is found that any individual to whom an amount is payable hereunder is incapable of attending to his or her financial affairs because of any mental or physical condition, including the infirmities of advanced age, such amount (unless prior claim therefore shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Corporation, be paid to another person for the use or benefit of the individual found incapable of attending to his or her financial affairs or in satisfaction of legal obligations incurred by or on behalf of such individual. Any such payment shall be charged to the Participant's Plan Account from which any such payment would otherwise have been paid to the individual found incapable of attending to his or her financial affairs, and shall be a complete discharge of any liability therefore under the Plan. ARTICLE VII BENEFICIARY DESIGNATION 7.1 BENEFICIARY DESIGNATION. Subject to Section 7.3 hereof, each Participant shall have the right, at any time, to designate one or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of Participant's death prior to complete distribution of the Participant's Plan Account. Each Beneficiary designation shall be in a written form prescribed by the Corporation and shall be effective only when filed with the Corporation during the Participant's lifetime. 7.2 CHANGING BENEFICIARY. Subject to Section 7.3, any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by the filing of a new designation with the Corporation. The filing of a new designation shall cancel all designations previously filed. 7.3 NO BENEFICIARY DESIGNATION. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary (including all contingent Beneficiaries) designated by a deceased Participant dies before the Participant or before complete distribution of the Participant's benefits, the Participant's Beneficiary shall be the person in the first of the following classes in which there is a survivor: (a) The Participant's spouse; (b) The Participant's children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take, by right of representation the share the parent would have taken if living; and (c) The Participant's estate. 7.4 DISTRIBUTION UPON DEATH. If a Participant dies after the distribution of his or her interest under the Plan has commenced, the remaining portion of the Participant's entire interest under the Plan, if any, shall be distributed to the Participant's Beneficiary in a single lump sum benefit. If the Participant dies before the distribution of the Participant's Plan Account has commenced, the Participant's entire interest under the Plan shall be valued as of the Determination Date immediately preceding the Participant's date of death, and shall be distributed to his or her Beneficiary in a lump sum payment as soon as reasonably practicable following the Participant's date of death. ARTICLE VIII ADMINISTRATION 8.1 ADMINISTRATION. The Corporation, which shall be the "Administrator" of the Plan for purposes of ERISA and the "Plan Administrator" for purposes of the Code, shall be responsible for the general administration of the Plan, for carrying out the provisions hereof, and for making payments hereunder. The Corporation shall have the sole and absolute discretionary authority and power to carry out the provisions of the Plan, including, but not limited to, the authority and power (a) to determine all questions relating to the eligibility for and the amount of any benefit to be paid under the Plan, (b) to determine all questions pertaining to claims for benefits and procedures for claim review, (c) to resolve all other questions arising under the Plan, including any questions of construction and/or interpretation, and (d) to take such further action as the Corporation shall deem necessary or advisable in the administration of the Plan. All findings, decisions, and determinations of any kind made by the Plan Administrator shall not be disturbed unless the Plan Administrator has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Plan Administrator shall be the sole judge of the standard of proof required in any claim for benefits and in any determination of eligibility for a benefit. All decisions of the Plan Administrator shall be final and binding on all parties. The Corporation may employ such attorneys, investment counsel, agents, and accountants, as it may deem necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and the decisions made by the Corporation hereunder shall be final and binding upon all interested parties subject, however, to the provisions of Section 8.2. The Plan Year, for purposes of Plan administration, shall be the calendar year. 8.2 CLAIMS REVIEW PROCEDURE. Whenever the Plan Administrator decides for whatever reason to deny, whether in whole or in part, a claim for benefits under this Plan filed by any person (herein referred to as the "Claimant"), the Plan Administrator shall transmit a written notice of its decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which he or she receives such notice, he or she may obtain review of the decision of the Plan Administrator in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his or her authorized representative may request that the claim denial be reviewed by filing with the Plan Administrator a written request therefore, which request shall contain the following information: (a) the date on which the request was filed with the Plan Administrator; provided, however, that the date on which the request for review was in fact filed with the Plan Administrator shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph (a); (b) the specific portions of the denial of his or her claim, which the Claimant requests the Plan Administrator to review; (c) a statement by the Claimant setting forth the basis upon which he or she believes the Plan Administrator should reverse its previous denial of the claim and accept the claim as made; and (d) any written material, which the Claimant desires the Plan Administrator to examine in its consideration of his or her position as stated pursuant to paragraph (b) above. In accordance with this Section, if the Claimant requests a review of the Plan Administrator's decision, such review shall be made by the Plan Administrator, who shall, within sixty (60) days after receipt of the request form, review and render a written decision on the claim containing the specific reasons for the decision including reference to Plan provisions upon which the decision is based. All findings, decisions, and determinations of any kind made by the Plan Administrator shall not be modified unless the Plan Administrator has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Plan Administrator shall be the sole judge of the standard of proof required in any claim for benefits, and any determination of eligibility for a benefit. All decisions of the Plan Administrator shall be binding on the claimant and upon all other Persons. If the Participant or Beneficiary shall not file written notice with the Plan Administrator at the times set forth above, such individual shall have waived all benefits under the Plan other than as already provided, if any, under the Plan. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1 RESERVATION OF RIGHTS. The Corporation reserves the right to amend or terminate the Plan at any time by action of the Board of Directors of the Corporation, or any duly authorized committee thereof, and to modify or amend the Plan, in whole or in part, at any time and for any reason. No amendment or termination will result in an acceleration of Plan Benefits in violation of Section 409A of the Code. (a) PRESERVATION OF ACCOUNT BALANCE. No termination, amendment, or modification of the Plan shall reduce (i) the amount of Plan Transfer Contributions, Participant Deferrals and Corporate Contributions, and (ii) all earnings and gains on such Plan Transfer Contributions, Participant Deferrals, and Corporate Contributions that have accrued up to the effective date of the termination, amendment, or modification. (b) CHANGES IN EARNINGS RATE. No amendment or modification of the Plan shall reduce the rate of earnings to be credited on all Plan Transfer Contributions, Participant Deferrals, and Corporate Contributions and all earnings accrued thereon until the close of the applicable Deferral Period in which such amendment or modification is made. 9.2 EFFECT OF PLAN TERMINATION. The Corporation may terminate the Plan by instructing the Plan Administrator to not accept any additional Participation Agreements. If such a termination occurs, the Plan shall continue to operate and be effective with regard to Participation Agreements entered into prior to the effective date of such termination. ARTICLE X CHANGE OF CONTROL 10.1 CHANGE OF CONTROL. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control as defined in accordance with Section 2.2 of the Plan, no amendment or modification of the Plan may be made at any time on or after such Change of Control (1) to reduce or modify a Participant's Pre-Change of Control Account Balance, (2) to reduce or modify the Interest Bearing Account's rate of earnings on or method of crediting such earnings to a Participant's Pre-Change of Control Account Balances, (3) to reduce or modify the Common Stock Accounts' method of calculating all earnings, gains, and/or losses on a Participant's Pre-Change of Control Account Balance, (4) to reduce or modify any Investment Funds' method of calculating all earnings, gains, and/or losses on a Participant's Pre-Change of Control Account Balance, or (5) to reduce or modify the Participant's Participant Deferrals and/or Corporate Contributions to be credited to a Participant's Plan Account for the applicable Deferral Period. For purposes of this Section 10.1, the term "Pre-Change of Control Account Balance" shall mean, with regard to any Plan Participant, the aggregate amount of such Participant's Plan Transfer Contributions, Participant Deferrals, and Corporate Contributions with all earnings, gains, and losses thereon which are credited to the Participant's Plan Account through the close of the calendar year in which such Change of Control occurs. 10.2 INTEREST BEARING ACCOUNT. In accordance with the provisions of clause (b) of Section 10.1 hereof, in the event that Moody's Average Corporate Bond Yield Index ceases to be published on or after a Change of Control, the Corporation shall reasonably select a substantially similar index to be used in crediting earnings on Participants' Pre-Change of Control Account Balances held in the Plan's Interest Bearing Account. 10.3 COMMON STOCK CONVERSION. In the event of a Change of Control in which the common shares of the Corporation are converted into or exchanged for securities, cash and/or other property as a result of any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with or into another corporation or entity, or the sale of all or substantially all of its assets to another corporation or entity, the Corporation shall cause the Common Stock Account to reflect on a bookkeeping basis the securities, cash and other property that would have been received in such reorganization, reclassification, consolidation, merger or sale on an equivalent amount of common shares equal to the balance in the Common Stock Account and, from and after such reorganization, reclassification, consolidation, merger or sale, the Common Stock Account shall reflect on a bookkeeping basis all dividends, interest, earnings and losses attributable to such securities, cash, and other property (with any cash earning interest at the rate applicable to the Interest Bearing Account). 10.4 CHANGE OF CONTROL PROVISIONS. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, (i) the Participant's employment is terminated by his or her Employer and any other Employer without cause, or (ii) the Participant resigns within two years following a Change of Control as a result of the Participant's mandatory relocation, reduction in the Participant's base salary, reduction in the Participant's average annual incentive compensation (unless such reduction is attributable to the overall corporate or business unit performance), or the Participant's exclusion from stock option programs as compared to comparably situated Employees, the provisions of Section 6.4 of the Plan which limit a Participant's ability to provide services to a financial services organization, business, or company upon the Participant's Termination or Retirement, shall become null and void. 10.5 AMENDMENT IN THE EVENT OF A CHANGE OF CONTROL. On or after a Change of Control, the provisions of Article II, Article IV, Article V, Article VI, Article VII, Article VIII, Article IX and Article X may not be amended or modified as such Sections and Articles apply with regard to the Participants' Pre-Change of Control Account Balances. ARTICLE XI MISCELLANEOUS PROVISIONS 11.1 UNFUNDED PLAN. This Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly-compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA, and therefore is exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. 11.2 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be construed as a commitment or agreement upon the part of any Employee hereunder to continue his or her employment with an Employer, and nothing herein contained shall be construed as a commitment on the part of any Employer to continue the employment, rate of compensation or terms and conditions of employment of any Employee hereunder for any period. All Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 11.3 BENEFITS. Nothing in the Plan shall be construed to confer any right or claim upon any person, firm, or corporation other than the Participants, former Participants, and Beneficiaries. 11.4 ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a subsidiary or committee authorized by the Board of Directors, or any officer of the Corporation or a subsidiary or officer of a subsidiary shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or Employee, except in circumstances involving bad faith or willful misconduct, for anything done or omitted to be done. 11.5 EXPENSES. The expenses of administration of the Plan shall be paid by the Corporation. 11.6 PRECEDENT. Except as otherwise specifically agreed to by the Corporation in writing, no action taken in accordance with the Plan by the Corporation shall be construed or relied upon as a precedent for similar action under similar circumstances. 11.7 WITHHOLDING. The Corporation shall withhold any tax, which the Corporation in its discretion deems necessary to be withheld from any payment to any Participant, former Participant, or Beneficiary hereunder, by reason of any present or future law. 11.8 VALIDITY OF PLAN. The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the provisions of ERISA, the Code, and, to the extent applicable, the laws of the State of Ohio. The invalidity or illegality of any provision of the Plan shall not affect the validity or legality of any other part thereof. 11.9 PARTIES BOUND. The Plan shall be binding upon the Employers, Participants, former Participants, and Beneficiaries hereunder, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them. 11.10 HEADINGS. All headings used in the Plan are for convenience of reference only and are not part of the substance of the Plan. 11.11 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each Participant, former Participant, or Beneficiary any documents, reports, returns, statements, or other information that it reasonably deems necessary to perform its duties imposed hereunder or otherwise imposed by law. 11.12 TRUST FUND. At its discretion, the Corporation may establish one or more trusts, with such trustees as the Corporation may approve, for the purpose of providing for the payment of benefits owed under the Plan. Although such a trust may be irrevocable, in the event of insolvency or bankruptcy of the Corporation, such assets will be subject to the claims of the Corporation's general creditors. To the extent any benefits provided under the Plan are paid from any such trust, the Employer shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of the Employer. 11.13 VALIDITY. In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 11.14 NOTICE. Any notice required or permitted under the Plan shall be deemed sufficiently provided if such notice is in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification. Mailed notice to the Corporation shall be directed to the Corporation's address, attention: KeyCorp Compensation and Benefits Department. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in the Employer's records 11.15 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of each Employer and its successors and assigns. The term successors as used herein shall include any corporate or other business entity, which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of an Employer. ARTICLE XII COMPLIANCE WITH SECTION 409A CODE 12.1 COMPLIANCE WITH SECTION 409A. The Plan is intended to provide for the deferral of compensation in accordance with the provisions of Section 409A of the Code and regulations and published guidance issued pursuant thereto. Accordingly, the Plan shall be construed in a manner consistent with those provisions and may at any time be amended in the manner and to the extent determined necessary or desirable by the Corporation to reflect or otherwise facilitate compliance with such provisions with respect to amounts deferred on and after January 1, 2005, including as contemplated by Section 855(f) of the American Jobs Creation Act of 2004. Moreover, to the extent permitted in guidance issued by the Secretary of the Treasury and in accordance with procedures established by the Corporation, a Participant may be permitted to terminate participation in the Plan or cancel an outstanding deferral election with regard to amounts deferred after December 31, 2004. Notwithstanding any provision of the Plan to the contrary, no otherwise permissible election, deferral, accrual, or distribution shall be made or given effect under the Plan that would result in early taxation or assessment of penalties or interest of any amount under Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, Plan benefits shall not be distributed to a Participant earlier than: (a) the Participant's separation from service as determined by the Secretary of the Treasury (except as provided below with respect to a key employee of the Corporation); (b) a specified time (or pursuant to a fixed schedule) specified under the Plan and Participant's Participation Agreement prior to the date of the Participant's deferral of Compensation; (c) the date of the Participant's Disability (within the meaning of Section 409A(a)(2)(C) of the Code as well as Disability requirements of the Plan); or (d) death of the Participant. If it is determined that a Participant constitutes a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Corporation, the Participant shall not commence any distribution of his or her Plan benefits before the date which is six months after the date of the Participant's separation from service (or, if earlier, the date of death of the Participant). IN WITNESS WHEREOF, KeyCorp has caused this KeyCorp Second Deferred Compensation Plan to be executed by its duly authorized officer this 28th day of December, to be effective as of January 1, 2005. KEYCORP By: /s/ Thomas E. Helfrich ------------------------------ Title: Executive Vice President EX-10.45 7 l11135aexv10w45.txt EX-10.45 KEYCORP SECOND EXCESS 401(K) SAVINGS PLAN EXHIBIT 10.45 KEYCORP SECOND EXCESS 401(K) SAVINGS PLAN The KeyCorp Second Excess 401(k) Savings Plan (the "Plan"), is hereby established December 28, 2004 to be effective January 1, 2005. The Plan, as structured, is intended to provide certain select employees of KeyCorp with a Plan benefit that is generally equal to the benefit that the Participant would have been eligible to receive under the KeyCorp 401(k) Savings Plan on and after January 1, 2005 but for the deferral limits imposed by Section 402(g) of the Internal Revenue Code of 1986, as amended (Code) and the compensation limits imposed by Section 401(a)(17) of the Code. It is the intention of KeyCorp and it is the understanding of the employees covered under the Plan, that the Plan constitutes a nonqualified retirement plan for a select group of employees, and as such, the Plan is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE I DEFINITIONS 1.1 MEANING OF DEFINITIONS. For the purposes hereof, the following words and phrases shall have the meanings hereinafter set forth, unless a different meaning is plainly required by the context: (a) "401(k) SAVINGS PLAN" shall mean the KeyCorp 401(k) Savings Plan, as shall be amended from time to time. (b) "BENEFICIARY" shall mean the same person, persons or entity as designated by the Participant under the 401(k) Savings Plan to receive any Plan benefits payable after a Participant's death. (c) "CHANGE OF CONTROL" shall be deemed to have occurred if under a rabbi trust arrangement established by KeyCorp ("Trust"), as such Trust may from time to time be amended or substituted, the Corporation is required to fund the Trust because a "Change of Control", as defined in the Trust, has occurred. (d) "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, together with all regulations promulgated thereunder. Reference to a section of the Code includes such section and any comparable section or sections of any future legislation that amends, supplements, or supersedes such section. (e) "COMPENSATION" of a Participant for any Plan Year or any partial Plan Year in which the Participant incurs a Severance From Service Date shall mean the entire amount of compensation paid to such Participant during such period by reason of his or her employment with an Employer, as reported for federal income tax purposes, plus that compensation which would have been paid except for (1) the timing of an Employer's payroll processing operations, (2) the provisions of the 401(k) Savings Plan, or (3) the provisions of the KeyCorp Flexible Benefits Plan, or transportation reimbursement plan, provided, however, that the term shall not include: (i) any amount attributable to the Employee's receipt of stock appreciation rights and the amount of any gain to the Employee upon the exercise of a stock option; (ii) any amount attributable to the Employee's receipt of non-cash remuneration which is included in the Employee's income for federal income tax purposes; (iii) any amount attributable to the Employee's receipt of moving expenses and any relocation bonus paid to the Employee during the Plan Year; (iv) any amount attributable to any severance paid by an Employer or the Corporation to the Employee; (v) any amount attributable to fringe benefits (cash and non- cash), regardless of whether any or all such items are includible in such Participant's gross income for federal tax purposes; (vi) any amount attributable to any bonus or payment made as an inducement for the Employee to accept employment with an Employer; (vii) any amount attributable to compensation of any type including bonus or incentive compensation payments paid on or after the Employee's Severance From Service Date; or (viii)any amount attributable to compensation deferred by the Participant. In determining a Participant's Compensation under the provisions of this Section 1.1(e), for those Plan Participants who participate in a line of business incentive plan, only that Compensation up to a maximum amount of $500,000 minus the amount of the Participant's Compensation utilized in computing his or her 401(k) Savings Plan benefit in accordance with Section 401(a)(17) of the Code shall be utilized in calculating the Participant's Participant Deferrals under this Plan. (f) "CORPORATE CONTRIBUTIONS" shall mean the amount an Employer has agreed to credit on a bookkeeping basis to the Participant's Plan Account in accordance with the provisions of Article IV of the Plan. (g) "CORPORATION STOCK FUND" shall mean the investment account established under the Plan for bookkeeping purposes under which a Participant may elect to have his or her Participant Deferrals credited and which mirrors the Corporation Stock Fund established in accordance with the 401(k) Savings Plan, as shall be amended from time to time. Participant Deferrals to the Corporation Stock Fund shall be credited based on a bookkeeping allocation of KeyCorp Common Shares (both whole and fractional rounded to the nearest one-hundredth of a share) which shall be equal to the amount of Participant Deferrals invested by the Participant in the Corporation Stock Fund. The Corporation Stock Fund shall also reflect on a bookkeeping basis all dividends, gains, and losses attributable to such Common Shares. All Corporate Contributions and all Participant Deferrals credited to the Corporation Stock Fund, shall be based on the New York Stock Exchange's closing price for such Common Shares as of the day such Participant Deferrals are credited to the Participants' Plan Account. (h) "CORPORATION" shall mean KeyCorp, an Ohio Corporation, its corporate successors, and any corporation or corporations into or with which it may be merged or consolidated. (i) "DEFERRAL COMMENCEMENT DATE" shall mean the first pay period coinciding with or immediately following the date on which the Participant reaches his or her maximum contribution limit under Section 402(g) of the Code and/or the Participant's maximum compensation limit under Section 401(a)(17) of the Code which effectively terminates the Participant's deferral of Compensation under the 401(k) Savings Plan. (j) "DEFERRAL ELECTION" shall mean the written commitment made by the Participant to defer up to 6% of his or her Compensation on a per- pay basis under the Plan, commencing as of the Participant's Deferral Commencement Date. Except as otherwise provided in Section 2.2 of the Plan, a Participant's Deferral Election shall be made no later than the last day of the year preceding the year for which the Participant's Compensation is earned by the Participant. (k) "DEFERRAL PERIOD" shall mean each Plan year, provided, however, that a Participant's initial Deferral Period shall be from his or her first day of participation in the Plan through the last day of the applicable Plan year. (l) "DISABILITY" shall mean (1) the physical or mental disability of a permanent nature which prevents a Participant from performing the duties such Participant was employed to perform for his or her Employer when such disability commenced, (2) qualifies for disability benefits under the federal Social Security Act within 30 months following the Participant's disability, and (3) qualifies the Participant for disability coverage under the KeyCorp Long Term Disability Plan. In addition to the foregoing, the disability requirements addressed in Section 409A of the Code are incorporated into the provisions of this definition. (m) "EMPLOYEE" shall mean a common law employee who is employed by an Employer; provided, however, the term "Employee" shall not include any person who at the time services are performed is not classified as a common law employee by the Employer even though such person may for federal income tax purposes, federal employment tax purposes, or any other purpose be reclassified by the Employer as a common law employee retroactive to when such services were performed by reason of administrative, judicial, regulatory or other governmental action. (n) "EMPLOYER" shall mean the Corporation and any of its subsidiaries, unless specifically excluded as an Employer for Plan purposes by written action of an officer of the Corporation. An Employer's participation shall be subject to all conditions and requirements made by the Corporation, and each Employer shall be deemed to have appointed the Plan Administrator as its exclusive agent under the Plan as long as it continues as a subsidiary. (o) "INVESTMENT FUNDS" shall mean those investment accounts established under the Plan for bookkeeping purposes in which a Participant may elect to have his or her Participant Deferrals credited and which mirror the investment funds established in accordance with and pursuant to Article VIII of the 401(k) Savings Plan as shall be amended from time to time. Participant Deferrals invested for bookkeeping purposes in the Investment Funds shall be credited on a bookkeeping basis with the same earnings, gains, and losses as experienced by the 401(k) Savings Plan's investment funds. (p) "MATCHING EMPLOYER CONTRIBUTIONS" shall mean the contribution amount that an Employer has agreed to contribute to the Plan in accordance with the provisions of Article IV of the Plan. (q) "PARTICIPANT" shall mean an Employee who meets the eligibility requirements set forth in Section 2.1 and becomes a Plan Participant pursuant to Section 2.2 of the Plan. (r) "PARTICIPANT DEFERRALS" shall mean the Participant's elective deferral of Compensation under this Plan. (s) "PLAN" shall mean the KeyCorp Second Excess 401(k) Savings Plan, with all amendments hereafter made. (t) "PLAN ACCOUNT" shall mean those bookkeeping accounts established by the Corporation for each Plan Participant, which shall reflect all Participant Deferrals and Corporate Contributions with all earnings, gains, and losses attributable thereto, as if such Participant Deferrals and Corporate Contributions had been invested pursuant to Article V of the Plan in the various Plan Investment Funds. Plan Accounts shall not constitute separate Plan funds or Plan assets. Neither the maintenance of, nor the crediting of amounts on a bookkeeping basis to such Plan Accounts shall be treated as (i) the allocation of any Corporation assets to, or a segregation of any Corporation assets in any such Plan Accounts, or (ii) as otherwise creating a right in any person or Participant to receive specific assets of the Corporation. Benefits under the Plan shall be paid from the general assets of the Corporation. (u) "PROFIT SHARING CONTRIBUTIONS" shall mean those discretionary contributions that an Employer may contribute to the Plan pursuant to Article IV of the Plan. (v) "VALUATION DATE" shall mean each "business day" or "business days" designated by the Plan Administrator on which Investment Funds will be valued for bookkeeping purposes. (w) "RETIREMENT" shall mean the termination of employment of a Participant under circumstances in which the Participant is eligible to receive an Early Retirement or Normal Retirement Date benefit under the KeyCorp Cash Balance Pension Plan. (x) "TERMINATION" shall mean the voluntary or involuntary and permanent termination of a Participant's employment from his or her Employer and any other Employer, whether by resignation or otherwise, but shall not include the Participant's Retirement or termination as a result of Disability. 1.2 PRONOUNS: The masculine pronoun wherever used herein includes the feminine in any case so requiring, and the singular may include the plural. 1.3 ADDITIONAL REFERENCE: All other words and phrases used herein shall have the meaning given them in the 401(k) Savings Plan, unless a different meaning is clearly required by the context. ARTICLE II EMPLOYEE PARTICIPATION 2.1 EMPLOYEE ELIGIBILITY. An Employee shall be eligible to participate in the Plan, provided (1) the Employee is a participant in the 401(k) Savings Plan, (2) the Corporation selects such Employee to participate in the Plan, (3) the Employee's elective deferrals of compensation under the 401(k) Savings Plan reach the deferral limitations prescribed by Section 402(g) of the Code, or the compensation limitations prescribed by Section 401(a)(17) of the Code, and (4) the Employee has made a timely Deferral Election to defer Compensation for the applicable Plan year in accordance with the Deferral Election requirements of the Plan and Section 409A of the Code. 2.2 NOTIFICATION OF NEW PARTICIPANTS. When an Employee first becomes eligible to participate in the Plan, the Corporation shall notify the Employee of his or her Plan eligibility. An Employee electing to participate in the Plan shall submit a Deferral Election to the Corporation within 30 days of the Corporation's notification of the Employee's Plan eligibility. The Employee's Deferral Election shall be effective only if timely provided to the Corporation. 2.3 EFFECT AND DURATION. Upon becoming a Participant, an Employee shall be entitled to the benefits and shall be bound by all terms and conditions of the Plan. If the Corporation determines that a Participant's performance is no longer at a level that deserves to be rewarded through participation in the Plan, but does not terminate the Participant's employment with an Employer, the Participant's Plan participation shall terminate at the end of the Deferral Period and no new Participant Deferrals thereafter may be made by the Participant. 2.4 AUTHORIZED LEAVE OF ABSENCE. A Participant on an authorized leave of absence who is not receiving Compensation during such leave period shall continue as a Plan Participant during such leave, provided, however, that no Corporate Contributions shall be credited to the Participant's Plan Account on behalf of the Participant during such leave period. Upon the Participant's return to active employment with an Employer, the Participant's Participant Deferrals shall resume in accordance with the Participant's Deferral Election for the applicable Deferral Period. ARTICLE III PARTICIPANT DEFERRALS 3.1 PARTICIPANT DEFERRALS. In accordance with a Participant's Deferral Election, upon meeting the eligibility criteria of Section 2.1 and Section 2.2 of the Plan, a Participant may defer on a bookkeeping basis not less than one percent not more than six percent of his or her Compensation to the Plan. Such Participant Deferrals shall commence with the first payment of Compensation to the Participant coinciding with (1) the date on which the Participant's elective deferral of Compensation under the 401(k) Savings Plan reaches the maximum deferral limitations prescribed under Section 402(g) of the Code, or (2) the date on which the Participant's elective deferral of Compensation under the 401(k) Savings Plan reaches the maximum compensation limits prescribed under Section 401(a)(17) of the Code. Participant Deferrals shall be credited on a bookkeeping basis to the Participant's Plan Account as of each applicable pay period in which the Participant makes Participant Deferrals under the Plan. ARTICLE IV CORPORATE CONTRIBUTIONS 4.1 MATCHING EMPLOYER CONTRIBUTIONS. Matching Employer Contributions shall be credited on a bookkeeping basis to the Participant's Plan Account as of each pay period in proportion to the respective amount of the Participant's Participant Deferrals deferred under the Plan for such pay period. Credited Matching Employer Contributions shall equal 100% of those Participant Deferrals deferred under the Plan for such pay period. 4.2 PROFIT SHARING CONTRIBUTIONS. Profit Sharing Contributions, if any, shall be credited to Participant's Plan Account at such time and in such manner as the Corporation directs. 4.3 OPENING ACCOUNT BALANCE. Effective January 1, 2005 those Participants in the frozen KeyCorp 401(k) Excess Savings Plan who as of December 31, 2004 were not vested in the KeyCorp 401(k) Excess Savings Plan corporate contributions allocated to their plan account as of December 31, 2004 shall have such not vested corporate contributions, on a bookkeeping basis, transferred to the Plan and reflected in a bookkeeping opening account balance ("Opening Account Balance") established for the Participant. Such Opening Account Balance shall be invested on a bookkeeping basis in the Plan's Corporation Stock Fund, and shall be credited with all earnings, gains, and losses attributable to the investment performance of such Fund. The value of the Participant's Opening Account Balance shall be added to and shall become a part of such Participant's Plan benefit which shall be payable in accordance with the terms of this Plan. The establishment of the Participant's Plan Opening Account Balance shall terminate the Participant's entitlement to that transferred benefit under the frozen KeyCorp Excess 401(k) Savings Plan. ARTICLE V INVESTMENTS 5.1 PLAN ACCOUNT. All Participant Deferrals and Corporate Contributions shall be credited on a bookkeeping basis to a Plan Account established in the Participant's name. Separate sub-accounts may be established to reflect Participant's Opening Account Balance (if any) and investment elections on a bookkeeping basis, with all earnings, gains, or losses attributable to such elections. 5.2 INVESTMENT OF PARTICIPANT DEFERRALS. Each Participant shall direct the manner in which his or her Participant Deferrals are to be invested for bookkeeping purposes under the Plan, provided, however, that the initial Participant Deferral of income for the 2005 Plan year shall be based on the Participant's investment instructions provided under the frozen KeyCorp Excess 401(k) Savings Plan. All Participant Deferrals may be invested for bookkeeping purposes in the Plan's Corporation Stock Fund or any one or more of the Plan Investment Funds in such amount as the Participant shall select. Participants may modify their investment elections at such times and in such manner as permitted by the Corporation. 5.3 INVESTMENT OF CORPORATE CONTRIBUTIONS. All Corporate Contributions credited to the Participant's Plan Account shall be invested for bookkeeping purposes in the Corporation Stock Fund. Corporate Contributions are not subject to Participant investment directives. 5.4 VESTING IN CORPORATE CONTRIBUTIONS. A Participant shall become vested in those Corporate Contributions credited on a bookkeeping basis to the Participant's Plan Account upon the Participant's (1) completion of three years of vested service, (2) Disability, or (3) death. For purposes of this Section 5.4 hereof, the term "vested service" shall be calculated based on the Participant's employment commencement date through the Participant's Termination or Retirement date (which ever first occurs), and shall be based on consecutive twelve-month periods during which time the Participant is employed by an Employer. 5.5 VALUATION OF PLAN ACCOUNTS. As of each Valuation Date, the Plan Administrator shall verify the amount of Participant Deferrals, Corporate Contributions, dividends, earnings, and losses, if any, to be credited to the Participant's Plan Account in accordance with the provisions of the Plan. The reasonable and equitable decision of the Plan Administrator as to the value of the Participant's Plan Account shall be conclusive and binding upon all Participants and the Beneficiary of each deceased Participant having any interest, direct or indirect in the Participant's Plan Account. The value of the Participant's Plan Account on any day not a Valuation Date, shall be the value on the last preceding Valuation Date. 5.6 CORPORATE ASSETS. All Participant Deferrals, Corporate Contributions, dividends, and all earnings and losses credited to a Participant's Plan Account remain the assets and property of the Corporation, which shall be subject to distribution to the Participant only in accordance with Articles VI and VII of the Plan. All payments hereunder shall be in the form of cash and KeyCorp Common Shares and shall be made from the general assets of the Corporation, and Participants and Beneficiaries shall have the status of general unsecured creditors of the Corporation. Nothing contained in the Plan shall create, or be construed as creating a trust of any kind or any other fiduciary relationship between the Participant, the Corporation, or any other person. It is the intention of the Corporation and the Participant that the Plan be unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. 5.7 NO PRESENT INTEREST. Subject to any federal statute to the contrary, no right or benefit under the Plan and no right or interest in each Participant's Plan Account shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any right or benefit under the Plan, or Participant's Plan Account shall be void. No right, interest, or benefit under the Plan or Participant's Plan Account shall be liable for or subject to the debts, contracts, liabilities, or torts of the Participant or Beneficiary. If the Participant or Beneficiary becomes bankrupt or attempts to alienate, sell, assign, pledge, encumber, or charge any right under the Plan or Participant's Plan Account, such attempt shall be void and unenforceable. 5.8 EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary contained in the Plan, the termination of the Plan or the termination of the 401(k) Savings Plan shall terminate the liability of the Corporation to make further Corporate Contributions to the Plan. ARTICLE VI DISTRIBUTION OF PLAN BENEFITS 6.1 DISTRIBUTION OF PLAN BENEFITS. Subject to the provisions of Section 6.3 and Section 6.4 hereof, a Participant shall receive a distribution of his or her vested Plan Account balance from the Plan's Investment Funds (other than from the Corporation Stock Account) in a series of monthly installment distributions over a period of ten (10) years. Distributions of Participant Deferrals from the Plan's Investment Funds other than the Corporation Stock Fund shall be made in cash. 6.2 DISTRIBUTION OPTIONS FROM THE CORPORATION STOCK ACCOUNT. Subject to the provisions of Section 6.3 and Section 6.4 of the Plan, the Participant shall receive a distribution of his or her vested Plan Account balance from the Plan's Corporation Stock Account as series of annual installment distributions over a period of ten (10) years. Distributions of Participant Deferrals and vested Corporate Contributions from the Plan's Corporation Stock Account shall be made in KeyCorp Common Shares. 6.3 DISTRIBUTION. The Participant's vested Plan Account shall be valued as of the Valuation Date immediately preceding his or her Termination, Retirement or Disability (the "valuation date"). Distribution of a Participant's Plan Account shall commence as soon as administratively practicable following the Participant's Termination, Retirement or Disability (whichever shall first occur) as follows: (i) The Participant's vested unpaid Plan Account balance invested for bookkeeping purposes in the Plan's Investment Funds (other than Corporation Stock Fund) shall be reflected in a distribution sub- account, which on a bookkeeping basis shall be credited with all earnings, gains and losses on such Investment Funds during the Participant's installment distribution period. (ii) The Participant's vested unpaid Plan Account balance invested for bookkeeping purposes in the Plan's Corporation Stock Fund shall be reflected as a number of whole and fractional Common Shares in a distribution sub-account and shall be credited with dividends on a bookkeeping basis which shall be reinvested in the Plan's Corporation Stock Fund throughout the installment distribution period; all such reinvested dividends shall be paid to the Participant in Common Shares in conjunction with the Participant's final installment payment under the Plan. 6.4 PAYMENT LIMITATION FOR KEY EMPLOYEES. Notwithstanding any other provision of the Plan to the contrary, in the event that the Participant constitutes a "key" employee of the Corporation (as that term is defined in accordance with Section 416(i) of the Code without regard to paragraph (5) thereof), distributions of the Participant's Plan benefit may not be made before the date which is six months after the Participant's date of separation from service (or, if earlier, the date of death of the Participant). The term "separation from service" shall be defined for Plan purposes in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 6.5 DISTRIBUTION OF SMALL ACCOUNTS. Notwithstanding the provisions of Sections 6.1, 6.2, and 6.3 hereof, but subject to the requirements of Section 6.4 hereof, if the value of a Participant's vested Account balance as of the Valuation Date immediately preceding the Participant's Termination, Retirement or Disability date is under $50,000, such balance shall be distributed to the Participant as a single lump sum distribution as soon as reasonably practicable following such Termination, Retirement or Disability date. 6.6 FACILITY OF PAYMENT. If it is found that any individual to whom an amount is payable hereunder is incapable of attending to his or her financial affairs because of any mental or physical condition, including the infirmities of advanced age, such amount (unless prior claim therefore shall have been made by a duly qualified guardian or other legal representative) may, in the discretion of the Corporation, be paid to another person for the use or benefit of the individual found incapable of attending to his or her financial affairs or in satisfaction of legal obligations incurred by or on behalf of such individual. Any such payment shall be charged to the Participant's Plan Account from which any such payment would otherwise have been paid to the individual found incapable of attending to his or her financial affairs, and shall be a complete discharge of any liability therefore under the Plan. 6.7 SUSPENSION OF DISTRIBUTIONS. Notwithstanding the foregoing provisions of this Section 6.7, however, in the event of the Participant's Termination, Retirement or Disability and within twelve months of such Termination, Retirement or Disability date the Participant engages in any Harmful Activity, and upon notice by the Corporation of such Harmful Activity the Participant fails to terminate such Activity, then by operation of this Section 6.7 hereof, and without any further notice to the Participant all further distributions of the Participant's Plan benefit shall be immediately suspended for a period of five (5) years following the Corporation's notice to the Participant of his or her Harmful Activity. For purposes of this Section 6.7, a "Harmful Activity" shall have occurred if the Participant shall do any one or more of the following: (i) Use, publish, sell, trade or otherwise disclose Non-Public Information of KeyCorp unless such prohibited activity was inadvertent, done in good faith and did not cause significant harm to KeyCorp. (ii) After notice from KeyCorp, fail to return to KeyCorp any document, data, or thing in his or her possession or to which the Participant has access that may involve Non-Public Information of KeyCorp. (iii) After notice from KeyCorp, fail to assign to KeyCorp all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, copyrights, trademarks, service marks, and patents in or to (or associated with) such Intellectual Property. (iv) After notice from KeyCorp, fail to agree to do any acts and sign any document reasonably requested by KeyCorp to assign and convey all right, title, and interest in and to any confidential or non- confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, the signing of patent applications and assignments thereof. (v) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, solicit or entice for employment or hire any KeyCorp employee. (vi) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, call upon, solicit, or do business with (other than business which does not compete with any business conducted by KeyCorp) any KeyCorp customer the Participant called upon, solicited, interacted with, or became acquainted with, or learned of through access to information (whether or not such information is or was non-public) while the Participant was employed at KeyCorp unless such prohibited activity was inadvertent, done in good faith, and did not involve a customer whom the Participant should have reasonably known was a customer of KeyCorp. (vii) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, after notice from KeyCorp, continue to engage in any business activity in competition with KeyCorp in the same or a closely related activity that the Participant was engaged in for KeyCorp during the one year period prior to the termination of the Participant's employment. For purposes of this Section 6.7 the term: "INTELLECTUAL PROPERTY" shall mean any invention, idea, product, method of doing business, market or business plan, process, program, software, formula, method, work of authorship, or other information, or thing relating to KeyCorp or any of its businesses. "NON-PUBLIC INFORMATION" shall mean, but is not limited to, trade secrets, confidential processes, programs, software, formulas, methods, business information or plans, financial information, and listings of names (e.g., employees, customers, and suppliers) that are developed, owned, utilized, or maintained by an employer such as KeyCorp, and that of its customers or suppliers, and that are not generally known by the public. "KEYCORP" shall include KeyCorp, its subsidiaries, and its affiliates. ARTICLE VII BENEFICIARY DESIGNATION 7.1 BENEFICIARY DESIGNATION. Subject to Section 7.3 hereof, the Participant shall have the right, at any time, to designate one or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of Participant's death prior to complete distribution of the Participant's Plan Account. Each Beneficiary designation shall be in a written form prescribed by the Corporation and shall be effective only when filed with the Corporation during the Participant's lifetime. 7.2 CHANGING BENEFICIARY. Subject to Section 7.3, any Beneficiary designation may be changed by the Participant without the consent of the previously named Beneficiary by the filing of a new designation with the Corporation. The filing of a new designation shall cancel all designations previously filed. 7.3 NO BENEFICIARY DESIGNATION. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary (including all contingent Beneficiaries) designated by a deceased Participant dies before the Participant or before complete distribution of the Participant's benefits, the Participant's Beneficiary shall be the person in the first of the following classes in which there is a survivor: (a) The Participant's spouse; (b) The Participant's children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take, by right of representation the share the parent would have taken if living; or (c) The Participant's estate. 7.4 DISTRIBUTION UPON DEATH. If a Participant dies after the distribution of his or her vested interest under the Plan has commenced, the remaining portion of the Participant's entire interest under the Plan, if any, shall be distributed to the Participant's Beneficiary under the method of distribution being used as of the Participant's date of death. If the Participant dies before the distribution of the Participant's Plan Account has commenced, the Participant's entire interest under the Plan shall be valued as of the Valuation Date immediately preceding the Participant's date of death, and shall be distributed to his or her Beneficiary in a lump sum payment as soon as reasonably practicable following the Participant's date of death. ARTICLE VIII ADMINISTRATION 8.1 ADMINISTRATION. The Corporation, which shall be the "Administrator" of the Plan for purposes of ERISA and the "Plan Administrator" for purposes of the Code, shall be responsible for the general administration of the Plan, for carrying out the provisions hereof, and for making payments hereunder. The Corporation shall have the sole and absolute discretionary authority and power to carry out the provisions of the Plan, including, but not limited to, the authority and power (a) to determine all questions relating to the eligibility for and the amount of any benefit to be paid under the Plan, (b) to determine all questions pertaining to claims for benefits and procedures for claim review, (c) to resolve all other questions arising under the Plan, including any questions of construction and/or interpretation, and (d) to take such further action as the Corporation shall deem necessary or advisable in the administration of the Plan. All findings, decisions, and determinations of any kind made by the Plan Administrator shall not be disturbed unless the Plan Administrator has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Plan Administrator shall be the sole judge of the standard of proof required in any claim for benefits and in any determination of eligibility for a benefit. All decisions of the Plan Administrator shall be final and binding on all parties. The Plan Administrator may employ such attorneys, investment counsel, agents, and accountants as it may deem necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and the decisions made by the Plan Administrator hereunder shall be final and binding upon all interested parties subject, however, to the provisions of Section 8.2. The Plan Year, for purposes of Plan administration, shall be the calendar year. 8.2 CLAIMS REVIEW PROCEDURE. Whenever the Plan Administrator decides for whatever reason to deny, whether in whole or in part, a claim for benefits under this Plan filed by any person (herein referred to as the "Claimant"), the Plan Administrator shall transmit a written notice of its decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which he or she receives such notice, he or she may obtain review of the decision of the Plan Administrator in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his or her authorized representative may request that the claim denial be reviewed by filing with the Plan Administrator a written request therefor, which request shall contain the following information: (a) the date on which the request was filed with the Plan Administrator; provided, however, that the date on which the request for review was in fact filed with the Plan Administrator shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph (a); (b) the specific portions of the denial of his or her claim which the Claimant requests the Plan Administrator to review; (c) a statement by the Claimant setting forth the basis upon which he or she believes the Plan Administrator should reverse its previous denial of the claim and accept the claim as made; and (d) any written material which the Claimant desires the Plan Administrator to examine in its consideration of his or her position as stated pursuant to paragraph (b) above. In accordance with this Section, if the claimant requests a review of the Plan Administrator's decision, such review shall be made by the Plan Administrator, who shall, within sixty (60) days after receipt of the request form, review and render a written decision on the claim containing the specific reasons for the decision including reference to Plan provisions upon which the decision is based. All findings, decisions, and determinations of any kind made by the Plan Administrator shall not be modified unless the Plan Administrator has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Plan Administrator shall be the sole judge of the standard of proof required in any claim for benefits, and any determination of eligibility for a benefit. All decisions of the Plan Administrator shall be binding on the claimant and upon all other Persons. If the Participant or Beneficiary shall not file written notice with the Plan Administrator at the times set forth above, such individual shall have waived all benefits under the Plan other than as already provided, if any, under the Plan. ARTICLE IX AMENDMENT AND TERMINATION OF PLAN 9.1 RESERVATION OF RIGHTS. The Corporation reserves the right to terminate the Plan at any time by action of the Board of Directors of the Corporation, or any duly authorized committee thereof, and to modify or amend the Plan, in whole or in part, at any time and for any reason. No amendment or termination will result in an acceleration of Plan benefits in violation of Section 409A of the Code. (a) PRESERVATION OF ACCOUNT BALANCE. No termination, amendment, or modification of the Plan shall reduce (i) the amount of Participant Deferrals and Corporate Contributions, and (ii) all earnings and gains on such Participant Deferrals and Corporate Contributions that have accrued up to the effective date of the termination, amendment, or modification. (b) CHANGES IN EARNINGS RATE. No amendment or modification of the Plan shall reduce or modify the method of accruing earnings, gains, and losses under the Plan's Investment Funds that differ from the method of accruing earnings, gains, and losses under the 401(k) Savings Plan's investment funds until the close of the applicable Deferral Period in which such amendment or modification is made. ARTICLE X CHANGE OF CONTROL 10.1 CHANGE OF CONTROL. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control as defined in accordance with Section 1.1 of the Plan, no amendment or modification of this Plan may be made at any time on or after such Change of Control (1) to reduce or modify a Participant's Pre-Change of Control Account Balance, (2) to reduce or modify the Corporation Stock Fund's method of calculating all earnings, gains, and/or losses on a Participant's Pre-Change of Control Account Balance, (3) to reduce or modify any other Investment Funds' method of calculating all earnings, gains, and/or losses on a Participant's Pre-Change of Control Account Balance, or (4) to reduce or modify the Participant's Participant Deferrals and/or Corporate Contributions to be credited to a Participant's Plan Account for the applicable Deferral Period. For purposes of this Section 10.1, the term "Pre- Change of Control Account Balance" shall mean, with regard to any Plan Participant, the aggregate amount of such Participant's Participant Deferrals and Corporate Contributions with all earnings, gains, and losses thereon which are credited to the Participant's Plan Account through the close of the calendar year in which such Change of Control occurs. 10.2 COMMON STOCK CONVERSION. In the event of a Change of Control in which the common shares of the Corporation are converted into or exchanged for securities, cash and/or other property as a result of any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with or into another corporation or entity, or the sale of all or substantially all of its assets to another corporation or entity, the Corporation shall cause the Corporation Stock Fund to reflect on a bookkeeping basis the securities, cash and other property that would have been received in such reorganization, reclassification, consolidation, merger or sale on an equivalent amount of common shares equal to the balance in the Corporation Stock Fund and, from and after such reorganization, reclassification, consolidation, merger or sale, the Corporation Stock Fund shall reflect on a bookkeeping basis all dividends, interest, earnings and losses attributable to such securities, cash, and other property. 10.3 CHANGE OF CONTROL PROVISIONS. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control and, (i) the Participant's employment is terminated by his or her Employer and any other Employer without cause, or (ii) the Participant resigns within two years following a Change of Control as a result of the Participant's mandatory relocation, reduction in the Participant's base salary, reduction in the Participant's average annual incentive compensation (unless such reduction is attributable to the overall corporate or business unit performance) or the Participant's exclusion from stock option programs as compared to comparably situated, the provisions of Section 6.7 of the Plan which limit a Participant's ability to provide services to a financial services organization, business, or company upon the Participant's Termination or Retirement, shall become null and void. 10.4 AMENDMENT IN THE EVENT OF A CHANGE OF CONTROL. On or after a Change of Control, the provisions of Article II, Article IV, Article V, Article VI, Article VII, Article VIII, Article IX and Article X may not be amended or modified as such Sections and Articles apply with regard to the Participants' Pre-Change of Control Account Balances. ARTICLE XI SECURITIES LAWS COMPLIANCE 11.1 Restrictions Imposed on Transactions Involving the Corporation Stock Fund. Notwithstanding any contrary provision in this Plan, the Corporation may, in its discretion, but in a uniform, non-discriminatory manner, delay, suspend or otherwise limit any investment in or withdrawal from the Corporation Stock Fund for such time and to the extent the Corporation, on advice of legal counsel, determines is necessary or desirable to avoid violating any applicable state or federal securities laws, rules or regulations. ARTICLE XII MISCELLANEOUS PROVISIONS 12.1 UNFUNDED PLAN. This Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of "management or highly-compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA, and therefore is exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. 12.2 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be construed as a commitment or agreement upon the part of any Employee hereunder to continue his or her employment with an Employer, and nothing herein contained shall be construed as a commitment on the part of any Employer to continue the employment, rate of compensation or terms and conditions of employment of any Employee hereunder for any period. All Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 12.3 BENEFITS. Nothing in the Plan shall be construed to confer any right or claim upon any person, firm, or corporation other than the Participants, former Participants, and Beneficiaries. 12.4 ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a subsidiary or committee authorized by the Board of Directors, or any officer of the Corporation or a subsidiary or officer of a subsidiary shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or Employee, except in circumstances involving bad faith or willful misconduct, for anything done or omitted to be done. 12.5 EXPENSES. The expenses of administration of the Plan shall be paid by the Corporation. 12.6 PRECEDENT. Except as otherwise specifically agreed to by the Corporation in writing, no action taken in accordance with the Plan by the Corporation shall be construed or relied upon as a precedent for similar action under similar circumstances. 12.7 WITHHOLDING. The Corporation shall withhold any tax which the Corporation in its discretion deems necessary to be withheld from any payment to any Participant, former Participant, or Beneficiary hereunder, by reason of any present or future law. 12.8 VALIDITY OF PLAN. The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the provisions of ERISA, the Code, and, to the extent applicable, the laws of the State of Ohio. The invalidity or illegality of any provision of the Plan shall not affect the validity or legality of any other part thereof. 12.9 PARTIES BOUND. The Plan shall be binding upon the Employers, Participants, former Participants, and Beneficiaries hereunder, and, as the case may be, the heirs, executors, administrators, successors, and assigns of each of them. 12.10 HEADINGS. All headings used in the Plan are for convenience of reference only and are not part of the substance of the Plan. 12.11 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each Participant, former Participant, or Beneficiary any documents, reports, returns, statements, or other information that it reasonably deems necessary to perform its duties imposed hereunder or otherwise imposed by law. 12.12 TRUST FUND. At its discretion, the Corporation may establish one or more trusts, with such trustees as the Corporation may approve, for the purpose of providing for the payment of benefits owed under the Plan. Although such a trust may be irrevocable, in the event of insolvency or bankruptcy of the Corporation, such assets will be subject to the claims of the Corporation's general creditors. To the extent any benefits provided under the Plan are paid from any such trust, the Employer shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of the Employer. 12.13 VALIDITY. In case any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but this Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein. 12.14 NOTICE. Any notice required or permitted under the Plan shall be deemed sufficiently provided if such notice is in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for registration or certification. Mailed notice to the Corporation shall be directed to the Corporation's address, attention: KeyCorp Compensation and Benefits Department. Mailed notice to a Participant or Beneficiary shall be directed to the individual's last known address in the Employer's records 12.15 SUCCESSORS. The provisions of this Plan shall bind and inure to the benefit of each Employer and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise, acquire all or substantially all of the business and assets of an Employer. ARTICLE XIII COMPLIANCE WITH SECTION 409A CODE 13.1 COMPLIANCE WITH SECTION 409A. The Plan is intended to provide for the deferral of compensation in accordance with the provisions of Section 409A of the Code and regulations and published guidance issued pursuant thereto. Accordingly, the Plan shall be construed in a manner consistent with those provisions and may at any time be amended in the manner and to the extent determined necessary or desirable by the Corporation to reflect or otherwise facilitate compliance with such provisions with respect to amounts deferred on and after January 1, 2005. Notwithstanding any provision of the Plan to the contrary, no otherwise permissible election or distribution shall be made or given effect under the Plan that would result in early taxation or assessment of penalties or interest of any amount under Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, Plan benefits shall not be distributed to a Participant earlier than: (a) the Participant's separation from service as determined by the Secretary of the Treasury (except as provided below with respect to a key employee of the Corporation); (b) the date the Participant becomes Disabled (within the meaning of Section 409A(a)(2)(C) of the Code) as well as Disability requirements of the 401(k) Savings Plan); or (c) death of the Participant. If it is determined that a Participant constitutes a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Corporation, the Participant shall not commence the distribution of his or her Plan benefits before the date which is six months after the date of the Participant's separation from service (or, if earlier, the date of death of the Participant). IN WITNESS WHEREOF, KeyCorp has caused the KeyCorp Second Excess 401(k) Savings Plan to be executed by its duly authorized officer this 28th day of December, to be effective as of January 1, 2005. KEYCORP By: /s/ Thomas E. Helfrich ------------------------------ Title: Executive Vice President EX-10.51 8 l11135aexv10w51.txt EX-10.51 2ND AMENDMENT TO THE KEYCORP SUPP RETIREMENT PLAN EXHIBIT 10.51 SECOND AMENDMENT TO THE KEYCORP SUPPLEMENTAL RETIREMENT PLAN WHEREAS, KeyCorp has established the KeyCorp Supplemental Retirement Plan (the "Plan"), and WHEREAS, the Board of Directors of KeyCorp has authorized its Compensation Committee to permit amendments to the Plan, and WHEREAS, the Compensation Committee of the Board of Directors of KeyCorp on September 16, 2004 determined it desirable to amend the Plan and accordingly authorized the execution of this Second Amendment, NOW, THEREFORE, pursuant to such action of the Compensation Committee, the Plan is hereby amended as follows: 1. ARTICLE II, Section 2.1(c) shall be amended to include the term "Equity/Compensation Award" as a new definition to the Plan, with all remaining Sections under Article II thereafter sequentially renumbered: "2.1(c) "EQUITY/COMPENSATION AWARD" shall mean one-half (50%) of the value of an award granted under the KeyCorp 2004 Equity Compensation Plan for any Plan year. The term "Equity/Compensation Award" may include "Stock Appreciation Rights", "Restricted Stock", "Restricted Stock Units", "Performance Shares", and/or "Performance Units", but shall specifically not include "Options" as those terms have been defined in accordance with the provisions of the KeyCorp 2004 Equity Compensation Plan." 2. Article II, Section 2.1(l) shall be amended to delete it in its entirety and to substitute therefore the following: "2.1(l) "INCENTIVE COMPENSATION AWARD" for any Plan year shall collectively mean the short term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) and the long term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) (if any) granted to a Grandfathered Employee under an Incentive Compensation Plan, as follows: - An incentive compensation award granted under the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Management Incentive Compensation Plan, and/or such other Employer-sponsored line of business Incentive Compensation Plan which shall constitute an Incentive Compensation Award for the year in which the award is earned (without regard to the actual time of payment). - An incentive compensation award granted under the KeyCorp Long Term Incentive Compensation Plan ("LTIC Plan") with respect to any multi-year performance period which shall be deemed to be for the last year of the multi-year period without regard to the actual time of payment of the award. Accordingly, an incentive compensation award granted under the LTIC Plan with respect to the three-year performance period of 1993, 1994, and 1995 will be deemed to be for 1995 (without regard to the actual time of payment), and the entire incentive compensation award under the LTIC Plan for that performance period will be an Incentive Compensation Award for the year 1995. - An incentive compensation award granted under the KeyCorp Long Term Incentive Plan ("Long Term Plan") with respect to any multi-year period which shall be deemed to be for the last year of the multi-year performance period and for the year immediately following such year (without regard to the actual time of payment). Accordingly, an award granted under the Long Term Plan with respect to the four-year performance period of 1998, 1999, 2000, and 2001 shall be deemed to be for the years 2001 and 2002, with one-half the award allocated to the year 2001, and one-half the award allocated to the year 2002. - An incentive compensation award granted in the form of restricted stock under the KeyCorp Amended and Restated 1991 Equity Compensation Plan with respect to any multi-year period (but specifically excluding those awards applicable to the 2002-2003 multi-year period), which shall be deemed to be for the year in which the award (grant) is made to the Grandfathered Employee; provided, however, that only those shares of restricted stock that have vested as of the Grandfathered Employee's termination date shall be utilized for purposes of determining the Grandfathered Employee's Incentive Compensation Award. The fair market value of such shares as of the date of the restricted stock grant multiplied by the number of vested shares as of the Grandfathered Employee's termination date shall be included in determining the value of such award for purposes of calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing, however, in calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan, if it is determined that an incentive compensation award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan would produce a larger Plan benefit for the Grandfathered Employee if the award was included in the year in which the award (or any part of the award) was initially vested rather than in the year in which the award was granted, then such incentive compensation award shall be included for the year in which the award (or any part of the award) initially vested rather than for the year in which the award was granted. If at the time of the Grandfathered Employee's termination date, the Grandfathered Employee maintains shares of not forfeited restricted stock and such restricted stock later vests in conjunction with the passage of time or with the Corporation's attainment of certain performance criteria, or otherwise, then as of such subsequent vesting date the Grandfathered Employee's Monthly Supplemental Retirement Benefit shall be recalculated to include such newly vested shares. Such newly vested shares shall relate to the award in which such shares were granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan and shall be included as a part of that award (based on either the date of grant or the date of initially vesting, whichever date was actually used by the Plan in calculating the Grandfathered Employee's initial Monthly Supplemental Retirement Benefit). - An incentive compensation award granted in the form of either restricted stock and/or phantom shares (hereinafter collectively referred to as "shares") under the KeyCorp Chief Executive Officer Plan with respect to any multi-year period (but specifically excluding those awards applicable to the 2002-2003 multi-year period), shall be deemed to be for the year in which the award (grant) is made to the Grandfathered Employee; provided, however, that only those shares that have vested as of the Grandfathered Employee's termination date shall be utilized in calculating the Grandfathered Employee's Incentive Compensation Award. The fair market value of such shares as of the date of the share grant multiplied by the number of vested shares as of the Grandfathered Employee's termination date shall be used in determining value of such award for purposes of calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan. - Notwithstanding the foregoing, however, in calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan, if it is determined that an incentive compensation award granted under the KeyCorp Chief Executive Officer Plan would produce a larger Plan benefit for the Grandfathered Employee if the award was included in the year in which the award (or any part of the award) initially vested rather than in the year in which the award was granted, then such incentive compensation award shall be included in year in which the award (or any part of the award) initially vested rather than for the year for which the award was granted. If at the time of the Grandfathered Employee's termination date, the Grandfathered Employee maintains not forfeited shares, and such shares later vest in conjunction with the passage of time or with the Corporation's attainment of certain performance criteria, or otherwise, then as of such subsequent vesting date, the Grandfathered Employee's Monthly Supplemental Retirement Benefit shall be recalculated to include such newly vested shares. Such newly vested shares shall relate to the award in which such shares were granted under the under the KeyCorp Chief Executive Officer Plan, and shall be included as part of that award (based on either the date granted or the date initially vested, whichever date was actually used by the Plan in calculating the Grandfathered Employee's initial Monthly Supplemental Retirement Benefit). - For those Grandfathered Employees who, for Plan purposes, received Incentive Compensation Award(s) granted in the form of time-lapsed restricted stock award(s) and/or performance shares under the KeyCorp Amended and Restated 1991 Equity Compensation Plan or the KeyCorp Chief Executive Officer Plan with respect to any multi-year period, the term Incentive Compensation Award shall also include those Equity/Compensation Award(s) granted to the Grandfathered Employee under the 2004 Equity Compensation Plan. An Equity/Compensation Award shall be deemed to be for the year in which the Equity/Compensation Award vests. If the Equity/Compensation Award is in the form of Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, the fair market value of such shares as of the date of the Equity/Compensation Award grant multiplied by the number of vested shares as of the Grandfathered Employee's termination date shall determine the value of such Incentive Compensation Award for purposes of calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing provisions of this Section 2.1(l) hereof, in calculating a Grandfathered Employee's Incentive Compensation Award for any 12 month period, there shall be included only one award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan, the KeyCorp Chief Executive Officer Plan, or Equity/Compensation Award under the KeyCorp 2004 Equity Compensation Plan for purposes of determining such Incentive Compensation Award for such 12 month period. 3. Article II, Section 2.1(m) shall be amended to delete it in its entirety and to substitute therefore the following: "2.1(m) "INCENTIVE COMPENSATION PLAN" shall mean the KeyCorp Management Incentive Compensation Plan, the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Plan, the KeyCorp Amended and Restated 1991 Equity Compensation Plan, the KeyCorp Chief Executive Officer Plan, the KeyCorp 2004 Equity Compensation Plan, and/or such other Employer or KeyCorp-sponsored incentive compensation plan that KeyCorp in its sole discretion determines constitutes an "Incentive Compensation Plan" for purposes of this Section 2.1(m), as may be amended from time to time." 4. Article III, Section 3.4 shall be amended to delete it in its entirety and to substitute therefore the following: "3.4 RECALCULATION AS A RESULT OF HARMFUL ACTIVITY. Notwithstanding the foregoing provisions of Section 3.2 and Section 3.3 hereof, the Corporation reserves the right at all times to recalculate a Grandfathered Employee's Supplemental Retirement Benefit, if it is determined that within six months of the Grandfathered Employee's termination date the Grandfathered Employee engaged in any Harmful Activity, as that term is defined in accordance with Section 2.1(k) of the Plan, which resulted in the forfeiture of all or any portion of the Grandfathered Employee's restricted share award(s) under the KeyCorp Amended and Restated 1991 Equity Compensation Plan or the KeyCorp Chief Executive Officer Plan, or Equity/Compensation Awards granted under the KeyCorp 2004 Equity Compensation Plan. Such recalculation shall relate back to the Grandfathered Employee's original date of termination, and any Supplemental Retirement Benefit payment paid to the Grandfathered Employee in excess of such recalculated Supplemental Retirement Benefit amount shall be offset against any future Supplemental Retirement Benefit payments to be paid to the Grandfathered Employee." 5. The amendment set forth in Paragraphs 1 through 4 shall be effective as of September 16, 2004. 6. Except as otherwise amended herein, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, KeyCorp has caused this Second Amendment to the Plan to be executed by its duly authorized officer to be effective as of the sixteenth day of September 2004. KEYCORP By: /s/ Thomas E. Helfrich --------------------------- Title: Executive Vice President EX-10.53 9 l11135aexv10w53.txt EX-10.53 KEYCORP SECOND SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10.53 KEYCORP SECOND SUPPLEMENTAL RETIREMENT PLAN ARTICLE I THE PLAN The KeyCorp Second Supplemental Retirement Plan (the "Plan"), is hereby established December 28, 2004 to be effective January 1, 2005. The Plan, as structured, is designed to provide an additional supplemental retirement benefit to certain employees of KeyCorp and its subsidiaries that is in addition to the December 31, 2004 frozen nonqualified supplemental retirement benefit to be provided to those employees under the KeyCorp Supplemental Retirement Plan. It is the intention of KeyCorp and it is the understanding of the employees covered under the Plan, that the Plan constitutes a nonqualified retirement plan for a select group of employees, and as such, the Plan is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II DEFINITIONS 2.1 MEANINGS OF DEFINITIONS. As used herein, the following words and phrases shall have the meanings hereinafter set forth, unless a different meaning is plainly required by the context: (a) "AVERAGE INTEREST CREDIT" shall mean the average of the Interest Credits (as defined in the Retirement Plan) for the three (3) consecutive calendar years ending with the year of the Grandfathered Employee's termination. (b) "AVERAGE TREASURY RATE" shall mean the average of the Treasury Rates (as defined in the Retirement Plan) for the three (3) consecutive calendar years ending with the year of the Grandfathered Employee's termination. (c) "EQUITY/COMPENSATION AWARD" shall mean one-half (50%) of the value of an award granted under the KeyCorp 2004 Equity Compensation Plan for any Plan year. The term "Equity/Compensation Award" may include "Stock Appreciation Rights", "Restricted Stock", "Restricted Stock Units", "Performance Shares", and/or "Performance Units", but shall specifically not include "Options" as those terms have been defined in accordance with the provisions of the KeyCorp 2004 Equity Compensation Plan." (d) "BENEFICIARY" shall mean the Grandfathered Employee's surviving spouse or such other Beneficiary determined pursuant to Article VII of the Retirement Plan in the event the Grandfathered Employee dies before his or her Supplemental Retirement Benefit shall have been distributed to him or her in full. (e) "COMPENSATION" for any Plan year or any partial Plan year in which the Grandfathered Employee incurs a severance from service date shall mean the entire amount of base compensation paid to such Grandfathered Employee during such period by reason of his employment as an Employee as reported for federal income tax purposes, or such base compensation which would have been paid except for (1) the timing of an Employer's payroll processing operations, (2) the Grandfathered Employee's election to participate in the KeyCorp 401(k) Savings Plan, KeyCorp Excess 401(k) Savings Plan, the KeyCorp Flexible Benefits Plan, a transportation reimbursement plan, the KeyCorp Automatic Deferral Plan, and/or (3) the Grandfathered Employee's election to defer such base compensation election of under the KeyCorp Deferred Compensation Plan for the applicable Plan year(s), provided, however, that the term Compensation shall specifically exclude: (i) any amount attributable to the Grandfathered Employee's exercise of stock appreciation rights and the amount of any gain to the Grandfathered Employee upon the exercise of stock options; (ii) any amount attributable to the Grandfathered Employee's receipt of non-cash remuneration whether or not it is included in the Grandfathered Employee's income for federal income tax purposes; (iii) any amount attributable to the Grandfathered Employee's receipt of moving expenses and any relocation bonus paid to the Grandfathered Employee during the Plan year; (iv) any amount attributable to a lump sum severance payment paid by an Employer or the Corporation to the Grandfathered Employee; (v) any amount attributable to fringe benefits (cash and non-cash); (vi) any amount attributable to any bonus or payment made as an inducement for the Grandfathered Employee to accept employment with an Employer; (vii) any amount paid to the Grandfathered Employee during the Plan year which is attributable to interest earned and any KeyCorp matching contributions allocated on compensation deferred under a plan of an Employer or the Corporation; (viii) any amount attributable to salary deferrals paid to the Grandfathered Employee during the Plan year, which have been previously included as compensation under the Plan; and (ix) any amount paid for any period after the Grandfathered Employee's termination or retirement date. (f) "CORPORATION" shall mean KeyCorp, an Ohio corporation, its corporate successors, and any corporation or corporations into or with which it may be merged or consolidated. (g) "DISABILITY" shall mean (1) the physical or mental disability of a permanent nature which prevents a Participant from performing the duties such Participant was employed to perform for his or her Employer when such disability commenced, (2) qualifies for disability benefits under the federal Social Security Act within 30 months following the Participant's disability, and (3) qualifies the Participant for disability coverage under the KeyCorp Long Term Disability Plan. In addition to the foregoing, the disability requirements addressed in Section 409A of the Code are incorporated into the provisions of this definition. (h) "EARLY RETIREMENT DATE" shall mean the date of the Grandfathered Employee's retirement from his or her employment with an Employer on or after the Grandfathered Employee's attainment of age 55 and completion of a minimum of five years of Benefit Service, but prior to the Grandfathered Employee's Normal Retirement Date. (i) "EMPLOYER" shall mean the Corporation and any of its subsidiaries or affiliates unless specifically excluded as an Employer for Plan purposes by written action of an officer of the Corporation. An Employer's participation shall be subject to any conditions or requirements made by the Corporation, and each Employer shall be deemed to appoint the Corporation as its exclusive agent under the Plan as long as it continues as an Employer. (j) "FINAL AVERAGE COMPENSATION" shall mean with respect to any Grandfathered Employee, the annual average of his or her highest aggregate Compensation for any period of five consecutive years within the period of ten consecutive full years immediately prior to his or her retirement or other termination of employment, or termination of the Plan, whichever first occurs; provided, however, that if a Grandfathered Employee is employed for less than five consecutive years prior to such date, the term shall mean the monthly average of the aggregate amount of his or her Compensation for the entire period of the Grandfathered Employee's employment, multiplied by 12. If a Grandfathered Employee receives no Compensation for any portion of such five consecutive years because of absence from work, there shall be treated as Compensation received during such period of absence an amount equal to the Compensation he or she would have received had the Grandfathered Employee not been absent, such amount to be determined by the Corporation on the basis of such Grandfathered Employee's salary or wage rate in effect immediately prior to such absence; provided, however, that no Compensation shall be credited hereunder for the period during which the Grandfathered Employee is permanently and totally disabled and for which he receives benefits under the long term disability program maintained in effect by his Employer. (k) "GRANDFATHERED EMPLOYEE" shall mean an Employee who is listed on Exhibit A attached hereto. (l) "HARMFUL ACTIVITY" shall have occurred if the Grandfathered Employee shall do any one or more of the following: (i) Use, publish, sell, trade or otherwise disclose Non-Public Information of KeyCorp unless such prohibited activity was inadvertent, done in good faith and did not cause significant harm to KeyCorp. (ii) After notice from KeyCorp, fail to return to KeyCorp any document, data, or thing in his or her possession or to which the Grandfathered Employee has access that may involve Non-Public Information of KeyCorp. (iii) After notice from KeyCorp, fail to assign to KeyCorp all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Grandfathered Employee created, in whole or in part, during employment with KeyCorp, including, without limitation, copyrights, trademarks, service marks, and patents in or to (or associated with) such Intellectual Property. (iv) After notice from KeyCorp, fail to agree to do any acts and sign any document reasonably requested by KeyCorp to assign and convey all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Grandfathered Employee created, in whole or in part, during employment with KeyCorp, including, without limitation, the signing of patent applications and assignments thereof. (v) Upon the Grandfathered Employee's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, solicit or entice for employment or hire any KeyCorp employee. (vi) Upon the Grandfathered Employee's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, call upon, solicit, or do business with (other than business which does not compete with any business conducted by KeyCorp) any KeyCorp customer the Grandfathered Employee called upon, solicited, interacted with, or became acquainted with, or learned of through access to information (whether or not such information is or was non-public) while the Grandfathered Employee was employed at KeyCorp unless such prohibited activity was inadvertent, done in good faith, and did not involve a customer whom the Grandfathered Employee should have reasonably known was a customer of KeyCorp. (vii) Upon the Grandfathered Employee's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, after notice from KeyCorp, continue to engage in any business activity in competition with KeyCorp in the same or a closely related activity that the Grandfathered Employee was engaged in for KeyCorp during the one year period prior to the termination of the Grandfathered Employee's employment. For purposes of this Section 2.1(l) the term: "INTELLECTUAL PROPERTY" shall mean any invention, idea, product, method of doing business, market or business plan, process, program, software, formula, method, work of authorship, or other information, or thing relating to KeyCorp or any of its businesses. "NON-PUBLIC INFORMATION" shall mean, but is not limited to, trade secrets, confidential processes, programs, software, formulas, methods, business information or plans, financial information, and listings of names (e.g., employees, customers, and suppliers) that are developed, owned, utilized, or maintained by an employer such as KeyCorp, and that of its customers or suppliers, and that are not generally known by the public. "KEYCORP" shall include KeyCorp, its subsidiaries, and its affiliates. (m) "INCENTIVE COMPENSATION AWARD" for any Plan year shall collectively mean the short term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) and the long term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) (if any) granted to a Grandfathered Employee under an Incentive Compensation Plan, as follows: - An incentive compensation award granted under the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Management Incentive Compensation Plan, and/or such other Employer-sponsored line of business Incentive Compensation Plan which shall constitute an Incentive Compensation Award for the year in which the award is earned (without regard to the actual time of payment). - An incentive compensation award granted under the KeyCorp Long Term Incentive Compensation Plan ("LTIC Plan") with respect to any multi-year performance period which shall be deemed to be for the last year of the multi-year period without regard to the actual time of payment of the award. Accordingly, an incentive compensation award granted under the LTIC Plan with respect to the three-year performance period of 1993, 1994, and 1995 will be deemed to be for 1995 (without regard to the actual time of payment), and the entire incentive compensation award under the LTIC Plan for that performance period will be an Incentive Compensation Award for the year 1995. - An incentive compensation award granted under the KeyCorp Long Term Incentive Plan ("Long Term Plan") with respect to any multi-year period which shall be deemed to be for the last year of the multi-year performance period and for the year immediately following such year (without regard to the actual time of payment). Accordingly, an award granted under the Long Term Plan with respect to the four-year performance period of 1998, 1999, 2000, and 2001 shall be deemed to be for the years 2001 and 2002, with one-half the award allocated to the year 2001, and one-half the award allocated to the year 2002. - An incentive compensation award granted in the form of restricted stock under the KeyCorp Amended and Restated 1991 Equity Compensation Plan with respect to any multi-year period (but specifically excluding those awards applicable to the 2002-2003 multi-year period), which shall be deemed to be for the year in which the award (grant) is made to the Grandfathered Employee; provided, however, that only those shares of restricted stock that have vested as of the Grandfathered Employee's termination date shall be utilized for purposes of determining the Grandfathered Employee's Incentive Compensation Award. The fair market value of such shares as of the date of the restricted stock grant multiplied by the number of vested shares as of the Grandfathered Employee's termination date shall be included in determining the value of such award for purposes of calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing, however, in calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan, if it is determined that an incentive compensation award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan would produce a larger Plan benefit for the Grandfathered Employee if the award was included in the year in which the award (or any part of the award) was initially vested rather than in the year in which the award was granted, then such incentive compensation award shall be included for the year in which the award (or any part of the award) initially vested rather than for the year in which the award was granted. If at the time of the Grandfathered Employee's termination date, the Grandfathered Employee maintains shares of not forfeited restricted stock and such restricted stock later vests in conjunction with the passage of time or with the Corporation's attainment of certain performance criteria, or otherwise, then as of such subsequent vesting date the Grandfathered Employee's Monthly Supplemental Retirement Benefit shall be recalculated to include such newly vested shares. Such newly vested shares shall relate to the award in which such shares were granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan and shall be included as a part of that award (based on either the date of grant or the date of initially vesting, whichever date was actually used by the Plan in calculating the Grandfathered Employee's initial Monthly Supplemental Retirement Benefit). - An incentive compensation award granted in the form of either restricted stock and/or phantom shares (hereinafter collectively referred to as "shares") under the KeyCorp Chief Executive Officer Plan with respect to any multi-year period (but specifically excluding those awards applicable to the 2002-2003 multi-year period), shall be deemed to be for the year in which the award (grant) is made to the Grandfathered Employee; provided, however, that only those shares that have vested as of the Grandfathered Employee's termination date shall be utilized in calculating the Grandfathered Employee's Incentive Compensation Award. The fair market value of such shares as of the date of the share grant multiplied by the number of vested shares as of the Grandfathered Employee's termination date shall be used in determining value of such award for purposes of calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan. - Notwithstanding the foregoing, however, in calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan, if it is determined that an incentive compensation award granted under the KeyCorp Chief Executive Officer Plan would produce a larger Plan benefit for the Grandfathered Employee if the award was included in the year in which the award (or any part of the award) initially vested rather than in the year in which the award was granted, then such incentive compensation award shall be included in year in which the award (or any part of the award) initially vested rather than for the year for which the award was granted. If at the time of the Grandfathered Employee's termination date, the Grandfathered Employee maintains not forfeited shares, and such shares later vest in conjunction with the passage of time or with the Corporation's attainment of certain performance criteria, or otherwise, then as of such subsequent vesting date, the Grandfathered Employee's Monthly Supplemental Retirement Benefit shall be recalculated to include such newly vested shares. Such newly vested shares shall relate to the award in which such shares were granted under the under the KeyCorp Chief Executive Officer Plan, and shall be included as part of that award (based on either the date granted or the date initially vested, whichever date was actually used by the Plan in calculating the Grandfathered Employee's initial Monthly Supplemental Retirement Benefit). - For those limited Grandfathered Employees who, for Plan purposes and in accordance with the provisions of this Section 2.1(m) received Incentive Compensation Award(s) granted in the form of time-lapsed restricted stock award(s) and/or performance shares under the KeyCorp Amended and Restated 1991 Equity Compensation Plan or the KeyCorp Chief Executive Officer Plan with respect to any multi-year period, the term Incentive Compensation Award shall also include those Equity/Compensation Award(s) granted to the Grandfathered Employee under the 2004 Equity Compensation Plan. An Equity/Compensation Award shall be deemed to be for the year in which the Equity/Compensation Award vests. If the Equity/Compensation Award is in the form of Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, the fair market value of such shares as of the date of the Equity/Compensation Award grant multiplied by the number of vested shares as of the Grandfathered Employee's termination date shall determine the value of such Incentive Compensation Award for purposes of calculating the Grandfathered Employee's Supplemental Retirement Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing provisions of this Section 2.1(m) hereof, in calculating a Grandfathered Employee's Incentive Compensation Award for any 12 month period, there shall be included only one award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan, the KeyCorp Chief Executive Officer Plan, or Equity/Compensation Award under the KeyCorp 2004 Equity Compensation Plan for purposes of determining the Grandfathered Employee's Incentive Compensation Award for such 12 month period. (n) "INCENTIVE COMPENSATION PLAN" shall mean the KeyCorp Management Incentive Compensation Plan, the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Plan, the KeyCorp Amended and Restated 1991 Equity Compensation Plan, the KeyCorp Chief Executive Officer Plan, the KeyCorp 2004 Equity Compensation Plan, and/or such other Employer or KeyCorp-sponsored incentive compensation plan that KeyCorp in its sole discretion determines constitutes an "Incentive Compensation Plan" for purposes of this Section 2.1(n), as may be amended from time to time." (o) "KEYCORP CHIEF EXECUTIVE OFFICER PLAN" shall mean the KeyCorp Chief Executive Officer Restricted Stock Plan, as may be amended from time to time, including any other successor or replacement plan. (p) "NORMAL RETIREMENT DATE" shall mean the first day of the month coinciding with or immediately following a Grandfathered Employee's 65th birthday, or if later, the fifth anniversary of the Grandfathered Employee's employment commencement date. (q) "RETIREMENT PLAN" shall mean the KeyCorp Cash Balance Pension Plan with all amendments, modifications and supplements which may be made thereto, as in effect on the date of a Grandfathered Employee's retirement, death, or other termination of employment. (r) "SUPPLEMENTAL RETIREMENT BENEFIT" shall mean the benefit paid under this Plan as determined under Article III of the Plan. All other capitalized and undefined terms used herein shall have the meanings given them in the Retirement Plan for Employees of Society Corporation and Subsidiaries (January 1, 1993 Restatement) ("Society Retirement Plan"), unless a different meaning is plainly required by the context. The masculine gender includes the feminine, and singular references include the plural, unless the context clearly requires otherwise. ARTICLE III SUPPLEMENTAL RETIREMENT BENEFIT 3.1 ELIGIBILITY. A Grandfathered Employee shall be eligible for a Supplemental Retirement Benefit hereunder if the Grandfathered Employee (i) retires on or after age 65 with five or more years of Benefit Service, (ii) terminates employment with an Employer on or after age 55 with ten or more years of Benefit Service, (iii) terminates his or her active employment with an Employer upon becoming Disabled after completing five or more years of Benefit Service and disability benefits have ceased under the KeyCorp Long-Term Disability Plan due to the Grandfathered Employee's election for Early or Normal Retirement under the Retirement Plan, or (iv) dies after completing five or more years of Benefit Service, and has a Beneficiary who is eligible for a benefit under the Retirement Plan. A Grandfathered Employee shall also be eligible for a Supplemental Retirement Benefit if the Grandfathered Employee becomes involuntarily terminated from his or her employment with an Employer for reasons other than the Grandfathered Employee's Discharge for Cause, and (i) as of the Grandfathered Employee's termination date the Grandfathered Employee has a minimum of twenty-five (25) or more years of Benefit Service, and (ii) the Grandfathered Employee enters into a written non-solicitation and non-compete agreement under terms that are satisfactory to the Employer. For purposes of this Section 3.1, hereof, the term "Discharge for Cause" shall mean a Grandfathered Employee's employment termination that is the result of the Grandfathered Employee's violation of the Employer's policies, practices or procedures, violation of city, state, or federal law, or failure to perform his or her assigned job duties in a satisfactory manner. The Employer in its sole and absolute discretion shall determine whether a Grandfathered Employee has been Discharged for Cause. 3.2 AMOUNT AND PAYMENT. Subject to the provisions of Section 3.4 hereof, a Grandfathered Employee's Supplemental Retirement Benefit shall be (a) minus (b) as follows: (a) The monthly Supplemental Retirement Benefit payable to a Grandfathered Employee shall be such amount as is required, when added to the monthly benefit payable (before the reduction applicable to any optional method of payment) under the Retirement Plan, to produce an aggregate monthly benefit equal to the monthly benefit which would have been payable in the form of a single life annuity (determined without regard to the annual limitation on Plan benefits imposed pursuant to Section 415 of the Code, the limitation on annual compensation imposed pursuant to Section 401(a)(17) of the Code, or the reduction applicable to any optional method of payment) under either the Society Retirement Plan formula in effect on and after January 1, 1989, or the applicable Society Retirement Plan formula in effect prior to January 1, 1989, whichever results in a larger monthly benefit, if there was added to the Grandfathered Employee's Final Average Monthly Compensation an amount equal to the monthly average of the highest five Incentive Compensation Awards granted to the Grandfathered Employee under an Incentive Compensation Plan during the ten-year period preceding the earliest of his or her Retirement, death, disability, or other termination of employment (if the Grandfathered Employee was granted fewer than five Incentive Compensation Awards, such monthly average is determined by adding the amount of such awards and dividing by 60), MINUS (b) The Grandfathered Employee's accrued and vested Normal Retirement Date supplemental retirement benefit payable in the form of a single life annuity under the KeyCorp Supplemental Retirement Plan as actuarially adjusted in accordance with Section 3.5 of the KeyCorp Supplemental Retirement Plan. Solely for purposes of reference, the alternative benefit formulas in effect under the Society Retirement Plan prior to January 1, 1989, and the eligibility criteria applicable to each are reproduced in Exhibit B attached hereto. 3.3 EARLY RETIREMENT ELECTION. Subject to the provisions of Section 3.4 hereof, if a Grandfathered Employee elects to receive his or her Supplemental Retirement Benefit on or after the Grandfathered Employee's Early Retirement Date but prior to the Grandfathered Employee's Normal Retirement Date, the Grandfathered Employee's Supplemental Retirement Benefit shall be calculated in accordance with the provisions of Section 3.2 hereof, provided, however, that the benefit payable under the Retirement Plan for purposes of Section 3.2 and this Section 3.3 hereof, shall be the Grandfathered Employee's Normal Retirement Date benefit. In calculating this Normal Retirement Date benefit, if the Grandfathered Employee is not eligible for, or chooses not to elect his or her monthly benefit under the provisions of Section 6.5(b) of the Retirement Plan, then such Grandfathered Employee's Retirement Plan benefit as of his or her termination date shall be increased for purposes of this Plan with an imputed Average Interest Credit to reflect the Grandfathered Employee's benefit at his or her Normal Retirement Date, and shall be converted to the form of a single life annuity option using the Average Treasury Rate and GATT Mortality Table. The amount of the Grandfathered Employee's monthly Supplemental Retirement Benefit otherwise determined under Section 3.2 and this Section 3.3 hereof shall then be reduced by .3% for each month between the ages of 55 and 60 and .4% for each month after age 60 that the commencement of the Grandfathered Employee's Supplemental Retirement Benefit precedes his or her Normal Retirement Date. 3.4 RECALCULATION AS A RESULT OF HARMFUL ACTIVITY. Notwithstanding the foregoing provisions of Section 3.2 and Section 3.3 hereof, the Corporation reserves the right at all times to recalculate a Grandfathered Employee's Supplemental Retirement Benefit, if it is determined that within six months of the Grandfathered Employee's termination date the Grandfathered Employee engaged in any Harmful Activity, as that term is defined in accordance with Section 2.1(l) of the Plan, which resulted in the forfeiture of all or any portion of the Grandfathered Employee's restricted share award(s) granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan, phantom share awards granted under the KeyCorp Chief Executive Officer Plan, or Equity/Compensation Awards granted under the KeyCorp 2004 Equity Compensation Plan. Such recalculation shall relate back to the Grandfathered Employee's original date of termination, and any Supplemental Retirement Benefit payment paid to the Grandfathered Employee in excess of such recalculated Supplemental Retirement Benefit amount shall be offset against any future Supplemental Retirement Benefit payments to be paid to the Grandfathered Employee. 3.5 ACTUARIAL FACTORS. The Supplemental Retirement Benefit payable to a Grandfathered Employee or Grandfathered Employee's Beneficiary in a form other than a single life annuity shall be actuarially equivalent to such single life annuity payment option. In making the determination provided for in this Article III, the Corporation shall rely upon calculations made by the independent actuaries for the Plan, who shall determine actuarially equivalent benefits under the Plan by applying the UP-1984 Mortality Table (set back two years) and using an interest rate of 6%. ARTICLE IV PAYMENT OF SUPPLEMENTAL RETIREMENT BENEFIT 4.1 IMMEDIATE PAYMENT UPON TERMINATION OR RETIREMENT OF GRANDFATHERED EMPLOYEE. Subject to the provisions of Section 4.2 and Section 4.4 hereof, a Grandfathered Employee meeting the age and service eligibility requirements of Section 3.1 shall receive an immediate distribution of his or her Supplemental Retirement Benefit upon the Grandfathered Employee's retirement or termination of employment, payable in the form of a single life annuity unless the Grandfathered Employee elects in writing a minimum of thirty days prior to his or her retirement or termination date to receive his or her Supplemental Retirement Benefit under a different form of payment. The forms of payment from which a Grandfathered Employee may elect shall be actuarially equivalent to the Grandfathered Employee's single life annuity payment option, and shall be identical to those forms of payment specified in the Retirement Plan, provided, however, that the lump sum payment option available under the Retirement Plan shall not be available under this Plan. Such method of payment, once elected by the Grandfathered Employee, shall be irrevocable. 4.2 DEFERRED BENEFIT PAYMENT. A Grandfathered Employee who retires or terminates his or her employment with an Employer after meeting the age and service requirements of Section 3.1 hereof, may elect to defer the receipt of his or her Supplemental Retirement Benefit until a date specified by the Grandfathered Employee, subject to the following requirements: (i) the Grandfathered Employee notifies the Corporation in writing of his or her deferral election a minimum of one year prior to the Grandfathered Employee's retirement or termination of employment, (ii) the Grandfathered Employee specifies the future date on which such Supplemental Retirement Benefit shall be distributed, (iii) the Grandfathered Employee's requested deferral period is for a period of not less than five years following the Grandfathered Employee's retirement or termination of employment, (iv) the Grandfathered Employee's Supplemental Retirement Benefit commencement date mirrors the benefit commencement date of the Grandfathered Employee's supplemental retirement benefit under the KeyCorp Supplemental Retirement Plan, and (v) the Grandfathered Employee commences distribution of his or her Supplemental Retirement Benefit no later than the first day of the month immediately following the Grandfathered Employee's sixty-fifth (65th) birthday. The election to defer, once made by the Grandfathered Employee, shall be irrevocable. Notwithstanding the foregoing, in the case of an "unforeseeable emergency", upon written application by the Grandfathered Employee to the Corporation, the Corporation may accelerate the distribution of the Grandfathered Employee's deferred Supplemental Retirement Benefit. For purposes of this Section 4.2, the term "unforeseeable emergency" shall mean a severe financial hardship to the Grandfathered Employee resulting from a sudden and unexpected illness or accident of the Grandfathered Employee, the Grandfathered Employee's spouse, or the Grandfathered Employee's dependent (as defined in Section 152(a) of the Code), the loss of the Grandfathered Employee's property due to casualty, or such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Grandfathered Employee. The determination of an "unforeseeable emergency" and the ability of the Corporation to accelerate the Grandfathered Employee's Supplemental Retirement Benefit shall be determined in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 4.3 PAYMENT LIMITATION FOR KEY EMPLOYEES. Notwithstanding any other provision of the Plan to the contrary, in the event that the Grandfathered Employee constitutes a "key" employee of the Corporation (as that term is defined in accordance with Section 416(i) of the Code without regard to paragraph (5) thereof), distributions of the Grandfathered Employee's Supplemental Retirement Benefit may not be commenced before the date which is six months after the Grandfathered Employee's date of separation from service (or, if earlier, the date of death of the Grandfathered Employee). The term "separation from service" shall be defined for Plan purposes in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 4.4 PAYMENT UPON DEATH OF GRANDFATHERED EMPLOYEE. (a) Upon the death of a Grandfathered Employee who has met the service requirement of Section 3.1, but who has not yet commenced distribution of his or her Supplemental Retirement Benefit there shall be paid to the Grandfathered Employee's Beneficiary 50% of the Supplemental Retirement Benefit which the Grandfathered Employee would have been entitled to receive under the Provisions of Section 3.2 of the Plan calculated as if the Grandfathered Employee had retired on his or her Normal Retirement Date and elected to receive his or her Supplemental Retirement Benefit. For purposes of this Section 4.4(a) only, the following shall apply: (i) The Grandfathered Employee's Benefit Service shall be calculated as of the Grandfathered Employee's date of death. (ii) The Grandfathered Employee's Retirement Plan benefit shall be calculated under the provisions of Article IV of the Retirement Plan as if the Grandfathered Employee retired on his or her Normal Retirement Date, with such Retirement Plan benefit being increased for purposes of this Section 4.4(a) with an imputed Average Interest Credit to reflect what the Grandfathered Employee's Retirement Plan benefit would have been as of the Grandfathered Employee's Normal Retirement Date; such Retirement Plan benefit shall be converted to a single life annuity option using the Average Treasury Rate and the Gatt Mortality Table. Payment of this death benefit shall be made in the form of a single life annuity, and will be subject to distribution any time after the date the Grandfathered Employee would have attained his or her Early Retirement Date, as actuarially adjusted in accordance with Section 3.3 hereof, if paid prior to the Grandfathered Employee's Normal Retirement Date. (b) In the event of a Grandfathered Employee's death after the Grandfathered Employee has commenced distribution of his or her Supplemental Retirement Benefit, there shall be paid to the Grandfathered Employee's Beneficiary only those survivor benefits provided under the form of benefit payment elected by the Grandfathered Employee ARTICLE V ADMINISTRATION AND CLAIMS PROCEDURE 5.1 ADMINISTRATION. The Corporation, which shall be the "Administrator" of the Plan for purposes of ERISA and the "Plan Administrator" for purposes of the Code, shall be responsible for the general administration of the Plan, for carrying out the provisions hereof, and for making payments hereunder. The Corporation shall have the sole and absolute discretionary authority and power to carry out the provisions of the Plan, including, but not limited to, the authority and power (a) to determine all questions relating to the eligibility for and the amount of any benefit to be paid under the Plan, (b) to determine all questions pertaining to claims for benefits and procedures for claim review, (c) to resolve all other questions arising under the Plan, including any questions of construction, and (d) to take such further action as the Corporation shall deem necessary or advisable in the administration of the Plan. All findings, decisions, and determinations of any kind made by the Corporation shall not be disturbed unless the Corporation has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Corporation shall be the sole judge of the standard of proof required in any claim for benefits and in any determination of eligibility for a benefit. All decisions of the Corporation shall be final and binding on all parties. The Corporation may employ such attorneys, investment counsel, agents, and accountants, as it may deem necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and the decisions made by the Corporation hereunder shall be final and binding upon all interested parties subject, however, to the provisions of Section 5.2. The Plan year, for purposes of Plan administration, shall be the calendar year. 5.2 CLAIMS REVIEW PROCEDURE. Whenever the Corporation decides for whatever reason to deny, whether in whole or in part, a claim for benefits under this Plan filed by any person (herein referred to as the "Claimant"), the Corporation shall transmit a written notice of its decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which he receives such notice, he may obtain review of the decision of the Corporation in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his authorized representative may request that the claim denial be reviewed by filing with the Corporation a written request therefore, which request shall contain the following information: (a) the date on which the request was filed with the Corporation; provided, however, that the date on which the request for review was in fact filed with the Corporation shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph (a); (b) the specific portions of the denial of his claim which the Claimant requests the Corporation to review; (c) a statement by the Claimant setting forth the basis upon which he believes the Corporation should reverse its previous denial of his or her claim and accept his or her claim as made; and (d) any written material which the Claimant desires the Corporation to examine in its consideration of the Claimant's position as stated pursuant to paragraph (c) above. In accordance with this Section, if the Claimant requests a review of the Corporation's decision, such review shall be made by the Corporation, who shall, within sixty (60) days after receipt of the request form, review and render a written decision on the claim containing the specific reasons for the decision including reference to Plan provisions upon which the decision is based. All findings, decisions, and determinations of any kind made by the Corporation shall not be modified unless the Corporation has acted in an arbitrary and capricious manner. Subject to the requirements of a law, the Corporation shall be the sole judge of the standard of proof required in any claim for benefits, and any determination of eligibility for a benefit. All decisions of the Corporation shall be binding on the Claimant and upon all other Persons. If the Claimant shall not file written notice with the Corporation at the times set forth above, such individual shall have waived all benefits under the Plan other than as already provided, if any, under the Plan. ARTICLE VI FUNDING All benefits under the Plan shall be payable solely in cash from the general assets of the Corporation or a subsidiary, and Grandfathered Employees, and Grandfathered Employees' Beneficiaries shall have the status of general unsecured creditors of the Corporation. The obligations of the Corporation to make distributions in accordance with the provisions of the Plan constitute a mere promise to make payments in the future. The Corporation shall have no obligation to establish a trust or fund to fund its obligation to pay benefits under the Plan or to insure any benefits under the Plan. Notwithstanding any provision of this Plan, the Corporation may, in its sole discretion, combine the payment due and owing under this Plan with one or more other payments owing to a Grandfathered Employee, or a Grandfathered Employee's Beneficiary under any other plan, contract, or otherwise (other than any payment due under the Retirement Plan), in one check, direct deposit, wire transfer, or other means of payment. Finally, it is the intention of the Corporation and the Grandfathered Employees that the Plan be unfunded for tax purposes and for the purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended, and that the Plan be administered in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. ARTICLE VII AMENDMENT AND TERMINATION The Corporation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors or a duly authorized committee of such Board of Directors; provided, however, that no such action shall adversely affect the benefit accrued up to the date of the Plan amendment or termination for any Grandfathered Employee who has met the age and service requirements of Section 3.1 of the Plan, or any Grandfathered Employee or Grandfathered Employee's Beneficiary who is receiving a Supplemental Retirement Benefit, unless an equivalent benefit is provided under another plan maintained by an Employer. No amendment or termination will result in an acceleration of Supplemental Retirement Benefits in violation of Section 409A of the Code. ARTICLE VIII MISCELLANEOUS 8.1 INTEREST OF GRANDFATHERED EMPLOYEE. The obligation of the Corporation under the Plan to provide a Grandfathered Employee, or Grandfathered Employee's Beneficiary, with a Supplemental Retirement Benefit merely constitutes the unsecured promise of the Corporation to make payments as provided herein, and no person shall have any interest in, or a lien or prior claim on, any property of the Corporation. 8.2 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be construed as a commitment or agreement upon the part of any Grandfathered Employee hereunder to continue his or her employment with an Employer, and nothing herein contained shall be construed as a commitment on the part of any Employer to continue the employment or rate of compensation of any Grandfathered Employee hereunder for any period. All Grandfathered Employees shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 8.3 BENEFITS. Nothing in the Plan shall be construed to confer any right or claim upon any person, firm, or corporation other than Grandfathered Employees, or Grandfathered Employees' Beneficiaries who become entitled to a benefit under the Plan. 8.4 RESTRICTIONS ON ALIENATION. Except to the extent required by law, no benefit under the Plan shall be subject to anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy, execution, or other legal or equitable process. No person shall have power in any manner to anticipate, transfer, assign, (either at law or in equity), alienate or subject to attachment, garnishment, levy, execution, or other legal or equitable process, or in any way encumber his benefits under the Plan, or any part thereof, and any attempt to do so shall be void. 8.5 ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a subsidiary or any officer of the Corporation or a subsidiary shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or employee, except in circumstances involving his bad faith or willful misconduct, for anything done or omitted to be done by himself. 8.6 EXPENSES. The expenses of administration of the Plan shall be paid by the Corporation. 8.7 PRECEDENT. Except as otherwise specifically provided, no action taken in accordance with the Plan by the Corporation shall be construed or relied upon as a precedent for similar action under similar circumstances. 8.8 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each Grandfathered Employee or Grandfathered Employee's Beneficiary any documents, reports, returns statements, or other information that it reasonably deems necessary to perform its duties imposed hereunder or otherwise imposed by law. 8.9 WITHHOLDING. The Corporation shall withhold any tax required by any present or future law to be withheld from any payment hereunder to any Grandfathered Employee or Grandfathered Employee's Beneficiary. 8.10 VALIDITY OF PLAN. The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the provisions of the Act, the Code, and, to the extent applicable, the laws of the State of Ohio. The invalidity or illegality of any provision of the Plan shall not affect the validity or legality of any other part thereof. 8.11 PARTIES BOUND. The Plan shall be binding upon the Employer, all Grandfathered Employees, and all Grandfathered Employees' Beneficiaries, and the executors, administrators, successors, and assigns of each of them. 8.12 HEADINGS. All headings used in the Plan are for convenience of reference only and are not part of the substance of the Plan. ARTICLE IX CHANGE OF CONTROL Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, a Grandfathered Employee's interest in his or her Supplemental Retirement Benefit shall vest. On and after a Change of Control, a Grandfathered Employee shall be entitled to receive an immediate distribution of his or her Supplemental Retirement Benefit if the Grandfathered Employee has at least five (5) years of Benefit Service, and (i) the Grandfathered Employee's employment is terminated by his or her Employer and any other Employer without cause, or (ii) the Grandfathered Employee resigns within two years following a Change of Control as a result of the Grandfathered Employee's mandatory relocation, reduction in the Grandfathered Employee's base salary, reduction in the Grandfathered Employee's average annual incentive compensation (unless such reduction is attributable to the overall corporate or business unit performance), or the Grandfathered Employee's exclusion from stock option programs as compared to comparably situated Employees. For purposes of this Article IX hereof, a "Change of Control" shall be deemed to have occurred if under a rabbi trust arrangement established by KeyCorp ("Trust"), as such Trust may from time to time be amended or substituted, the Corporation is required to fund the Trust because a "Change of Control", as defined in the Trust, has occurred. ARTICLE X COMPLIANCE WITH SECTION 409A CODE The Plan is intended to provide for the deferral of compensation in accordance with the provisions of Section 409A of the Code and regulations and published guidance issued pursuant thereto. Accordingly, the Plan shall be construed in a manner consistent with those provisions and may at any time be amended in the manner and to the extent determined necessary or desirable by the Corporation to reflect or otherwise facilitate compliance with such provisions with respect to amounts deferred on and after January 1, 2005, including as contemplated by Section 855(f) of the American Jobs Creation Act of 2004. Notwithstanding any provision of the Plan to the contrary, no otherwise permissible election or distribution shall be made or given effect under the Plan that would result in early taxation or assessment of penalties or interest of any amount under Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, Supplemental Retirement Benefits shall not be distributed to a Grandfathered Employee earlier than: (a) the Grandfathered Employee's separation from service as determined by the Secretary of the Treasury (except as provided below with respect to a key employee of the Corporation); (b) death of the Grandfathered Employee; (c) upon the occurrence to the Grandfathered Employee, the Grandfathered Employee's spouse, or the Grandfathered Employee's dependent an unforeseeable emergency as defined in Section 409A(a)(2)(B)(ii) of the Code. If it is determined that a Grandfathered Employee constitutes a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Corporation, the Grandfathered Employee shall not commence the distribution of his or her Supplemental Retirement Benefits before the date which is six months after the date of the Grandfathered Employee's separation from service (or, if earlier, the date of death of the Grandfathered Employee). IN WITNESS WHEREOF, KeyCorp has caused the KeyCorp Second Supplemental Retirement Plan to be executed by its duly authorized officer this 28th day of December, to be effective as of January 1, 2005. KEYCORP By:/s/ Thomas E. Helfrich ---------------------------- Title: Executive Vice President EXHIBIT A LIST OF GRANDFATHERED EMPLOYEES NAME OF EMPLOYEE Andrews, James Auletta, Patrick Bailey, Raymond Barger, C. Michael Beran, John Blake, John T. Brooks, Craig Bullard, Janet Carlini, Lawrence Colao Jr., Anthony Cortelli, John Cruse Jr., Donald Deal, Frederick Doland, Michael Dorland, David Edmonds, David Egan, Richard Fishell, James Flowers, James Gill, Michael Gillespie, Jr., Robert Greer, Michael Gula, Allen Haas, Robert Hancock, John Hann, Jr., William Hartman, Sheldon Hawthorne, Douglas Hedberg, Douglas Heintel, Jr., Carl Heisler, Jr., Robert Herron, David Heyworth, Anthony Hitchcock, Thomas Holloway, Ruben L. Johannsen, Rolland D. Jones, Robert G. Kamerer, James Kaplan, Stephen Karnatz, William Kleinhenz, Karen R. Klimas, Daniel Knapp, Peter O. Koontz, Cary Kucler, Jack Malone, Michael Mayer, George McGuire, James McDaniel, D. A. McGinty, Kevin Melluzzo, Sebastian Meyer, John R. Meyer III, Henry Moody Jr., John Murray, Bruce Neel, Thomas M. Newman, Michael Noall, Roger Nucerino, Donald O'Donnell, F. Scott Patrick, Robert Platt, Craig, T. Ponchak, Frank Purinton II, Arthur Rapacz, Richard Rasmussen, Eric Roark, Michael Rusnak, Joseph Saddler, Thomas Schaedel, Elroy Seink, Edward Simon, William Smith, James J. Swisher, Trace Tracy, Robert Trigg, Michael Uzl, Ralph R. Walker, Martin Wall, Stephen Wert, James W. Willet, Richard EXHIBIT B FOR PERIODS OF TIME PRIOR TO JANUARY 1, 1989, THREE ALTERNATIVE BENEFIT FORMULAS WERE IN EFFECT UNDER THE SOCIETY RETIREMENT PLAN. THE MONTHLY AMOUNT OF THE NORMAL RETIREMENT BENEFIT PAYABLE TO AN ELIGIBLE GRANDFATHERED EMPLOYEE WAS EQUAL TO: (a) IF HE BECAME A GRANDFATHERED EMPLOYEE AND THEREFORE BEGAN TO ACCRUE BENEFITS UNDER THE PLAN PRIOR TO JULY 1, 1981, THE GREATER OF: (i) his final average monthly compensation multiplied by the sum of: (A) 3.2% multiplied by his years of benefit service not in excess of 15, plus (B) 1% multiplied by his years of benefit service in excess of 15 but not in excess of 25, plus (C) 0.5% multiplied by his years of benefit service in excess of 25; reduced by: (D) 3.33% of his Social Security Benefit Amount multiplied by his years of benefit service not in excess of 15; or (ii) the amount determined in accordance with the formula set forth in paragraph (b) below which is otherwise applicable to a person who becomes an Employee on or after July 1, 1981; or (b) IF HE BECAME AN EMPLOYEE AND THEREFORE BEGAN TO ACCRUE BENEFITS UNDER THE PLAN ON OR AFTER JULY 1, 1981, HIS FINAL AVERAGE MONTHLY COMPENSATION MULTIPLIED BY THE SUM OF: (i) 2% multiplied by his years of benefit service not in excess of 30, plus (ii) 0.5% multiplied by his years of benefit service in excess of 30; reduced by: (iii) 1.67% of his Social Security Benefit Amount multiplied by his years of benefit service not in excess of 30 to a maximum of 50% of such Amount; or (c) IF HE BECAME AN EMPLOYEE AND THEREFORE BEGAN TO ACCRUE BENEFITS UNDER THE PLAN ON JANUARY 1, 1985, AND IMMEDIATELY PRIOR TO SUCH DATE WAS A GRANDFATHERED EMPLOYEE IN THE THIRD NATIONAL BANK AND TRUST COMPANY OF DAYTON, OHIO RETIREMENT PLAN, THE GREATER OF: (i) the amount determined in accordance with the formula set forth in paragraph (b) above which is otherwise applicable to a person who becomes an Employee on or after July 1, 1981; or (ii) the sum of: (A) 2.2% of his final average monthly compensation, reduced by 2% of his Social Security Benefit Amount; the difference to be multiplied by his years of benefit service at normal retirement date not in excess of 25, plus (B) 1.1% of his final average monthly compensation, reduced by 1% of his Social Security Benefit Amount; the difference to be multiplied by his years of benefit service at normal retirement date in excess of 25, adjusted as necessary to produce the actuarial equivalent value on a straight life annuity basis of a benefit otherwise payable on a ten-year certain and continuous basis; provided, however, that in the case of each Employee who was in the employment of Society National Bank of Cleveland on December 31, 1971, and whose continuous service is not broken after the date and prior to the date of his retirement, the monthly amount of his normal retirement benefit otherwise determined under this Section shall be not less than the monthly amount of his normal retirement benefit determined under the normal retirement benefit formula of the Plan as in effect on December 31, 1971, based on the assumption that he received no increases in the rate of his compensation after December 31, 1971, and using the rules for computing continuous service specified in Article II of the Plan as in effect on June 30, 1976 (hereinafter referred to as his "minimum benefit"); and provided, further, that the monthly amount so determined under the provisions of this Exhibit B shall be reduced to the extent provided in Section 14.10 of the Society Retirement Plan as in effect on December 31, 1988. Notwithstanding anything to the contrary contained in the Society Retirement Plan, in no event shall an Employee receive a benefit commencing at his normal retirement date which is less than the largest early retirement benefit to which he had been entitled under the Society Retirement Plan prior to his normal retirement date. EX-10.62 10 l11135aexv10w62.txt EX-10.62 5TH AMENDMENT TO KEYCORP EXEC SUPP PENSION PLAN EXHIBIT 10.62 FIFTH AMENDMENT TO THE KEYCORP EXECUTIVE SUPPLEMENTAL PENSION PLAN WHEREAS, KeyCorp has established the KeyCorp Executive Supplemental Pension Plan (the "Plan"), and WHEREAS, the Board of Directors of KeyCorp has authorized its Compensation Committee to permit amendments to the Plan, and WHEREAS, on March 18, 2004 the Compensation Committee of the Board of Directors of KeyCorp determined it desirable to amend the Plan and accordingly authorized the execution of this Fifth Amendment, NOW, THEREFORE, pursuant to such action of the Compensation Committee, the Plan is hereby amended as follows: 1. Article II, Section 2.1(n) is amended to delete it in its entirety and to substitute therefore the following: "(n) "INCENTIVE COMPENSATION AWARD" for any Plan year shall collectively mean the short term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) and the long term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) (if any) granted to a Employee under an Incentive Compensation Plan, as follows: - An incentive compensation award granted under the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Management Incentive Compensation Plan, and/or such other Employer-sponsored line of business Incentive Compensation Plan which shall constitute an incentive compensation award for the year in which the award is earned (without regard to the actual time of payment). - An incentive compensation award granted under the KeyCorp Long Term Incentive Compensation Plan ("LTIC Plan") with respect to any multi-year performance period, which shall be deemed to be for the last year of the multi-year period without regard to the actual time of payment of the award. Accordingly, an incentive compensation award granted under the LTIC Plan with respect to the three-year performance period of 1993, 1994, and 1995 will be deemed to be for 1995 (without regard to the actual time of payment), and the entire Incentive Compensation award under the LTIC Plan for that performance period will be a LTIC Plan award for the year 1995. - An incentive compensation award granted under the KeyCorp Long Term Incentive Plan ("Long Term Plan") with respect to any multi-year period which shall be deemed to be for the last year of the multi-year performance period and for the year immediately following such year (without regard to the actual time of payment). Accordingly, an award granted under the Long Term Plan with respect to the four-year performance period of 1998, 1999, 2000, and 2001 shall be deemed to be for the years 2001 and 2002, with one-half the award allocated to the year 2001, and one-half the award allocated to the year 2002. - An incentive compensation award granted in the form of restricted stock under the KeyCorp Amended and Restated 1991 Equity Compensation Plan with respect to any multi-year period (but specifically excluding those awards applicable to the 2002-2003 multi-year period), which shall be deemed to be for the year in which the award (grant) is made to the Participant; provided, however, that only those shares of restricted stock that have vested as of the Participant's termination date shall be utilized for purposes of determining the Participant's incentive compensation award. The fair market value of such shares as of the date of the restricted stock grant multiplied by the number of vested shares as of the Participant's termination date shall determine the value of such incentive compensation award for purposes of calculating the Participant's Supplemental Pension Benefit under the provisions of Article III of the Plan. - Notwithstanding the foregoing, however, if at the time of the Participant's termination date, the Participant maintains shares of not forfeited restricted stock and such restricted stock later vests in conjunction with the passage of time or with the Corporation's attainment of certain performance criteria, or otherwise, then as of such vesting date(s), the Participant's Monthly Supplemental Pension Benefit shall be recalculated to include such newly vested shares for purposes of determining the value of the Participant's incentive compensation award(s) in accordance with Article III of the Plan." 2. ARTICLE II, SECTION 2.1(o) is amended to delete it in its entirety and to substitute therefore the following: "(o) "INCENTIVE COMPENSATION PLAN" shall mean the KeyCorp Management Incentive Compensation Plan, the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Plan, the KeyCorp Amended and Restated 1991 Equity Compensation Plan, and/or such other Employer or KeyCorp sponsored incentive compensation plan that KeyCorp in its sole discretion determines constitutes an "Incentive Compensation Plan" for purposes of this Section 2.1(o), as may be amended from time to time." 3. ARTICLE II, SECTION 2.1(w) shall be added to the provisions of Article II to include the term "Harmful Activity" as a new definition to the Plan as follows: "(w) "HARMFUL ACTIVITY" shall have occurred if the Participant shall do any one or more of the following: (i) Use, publish, sell, trade or otherwise disclose Non-Public Information of KeyCorp unless such prohibited activity was inadvertent, done in good faith and did not cause significant harm to KeyCorp. (ii) After notice from KeyCorp, fail to return to KeyCorp any document, data, or thing in his or her possession or to which the Participant has access that may involve Non-Public Information of KeyCorp. (iii) After notice from KeyCorp, fail to assign to KeyCorp all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, copyrights, trademarks, service marks, and patents in or to (or associated with) such Intellectual Property. (iv) After notice from KeyCorp, fail to agree to do any acts and sign any document reasonably requested by KeyCorp to assign and convey all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, the signing of patent applications and assignments thereof. (v) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, solicit or entice for employment or hire any KeyCorp employee. (vi) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, call upon, solicit, or do business with (other than business which does not compete with any business conducted by KeyCorp) any KeyCorp customer the Participant called upon, solicited, interacted with, or became acquainted with, or learned of through access to information (whether or not such information is or was non-public) while the Participant was employed at KeyCorp unless such prohibited activity was inadvertent, done in good faith, and did not involve a customer whom the Participant should have reasonably known was a customer of KeyCorp. (vii) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, after notice from KeyCorp, continue to engage in any business activity in competition with KeyCorp in the same or a closely related activity that the Participant was engaged in for KeyCorp during the one year period prior to the termination of the Participant's employment. For purposes of this Section 2.1(w) the term: "INTELLECTUAL PROPERTY" shall mean any invention, idea, product, method of doing business, market or business plan, process, program, software, formula, method, work of authorship, or other information, or thing relating to KeyCorp or any of its businesses. "NON-PUBLIC INFORMATION" shall mean, but is not limited to, trade secrets, confidential processes, programs, software, formulas, methods, business information or plans, financial information, and listings of names (e.g., employees, customers, and suppliers) that are developed, owned, utilized, or maintained by an employer such as KeyCorp, and that of its customers or suppliers, and that are not generally known by the public. "KEYCORP" shall include KeyCorp, its subsidiaries, and its affiliates." 4. Article III of the Plan shall be amended to include a new Section 3.5 Supplemental Pension Benefit Recalculation as a Result of Harmful Activity as follows: "3.5 SUPPLEMENTAL PENSION BENEFIT RECALCULATION AS A RESULT OF HARMFUL ACTIVITY. Notwithstanding the foregoing provisions of Section 2.1(n) of the Plan and this Article III, the Corporation reserves the right at all times to recalculate a Participant's Supplemental Pension Benefit, if it is determined that within six months of the Participant's termination date the Participant has engaged in any Harmful Activity, as that term is defined in accordance with Section 2.1(w) of the Plan, which results in the forfeiture of all or any portion of the Participant's restricted share award(s) under the KeyCorp Amended and Restated 1991 Equity Compensation Plan. Such recalculation shall relate back to the Participant's original date of termination, and any Supplemental Pension Benefit payment paid to the Participant in excess of such recalculated Supplemental Pension Benefit amount shall be offset against any future Supplemental Pension Benefit payments to be paid to the Participant." 5. Except as otherwise amended herein, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, KeyCorp has caused this Fifth Amendment to the Plan to be executed by its duly authorized officer to be effective as of the 18th day of March, 2004. KEYCORP By: /s/ Thomas E. Helfrich --------------------------- Title: Executive Vice President EX-10.63 11 l11135aexv10w63.txt EX-10.63 6TH AMENDMENT TO KEYCORP EXEC SUPP PENSION PLAN EXHIBIT 10.63 SIXTH AMENDMENT TO THE KEYCORP EXECUTIVE SUPPLEMENTAL PENSION PLAN WHEREAS, KeyCorp has established the KeyCorp Executive Supplemental Pension Plan (the "Plan"), and WHEREAS, the Board of Directors of KeyCorp has authorized its Compensation Committee to permit amendments to the Plan, and WHEREAS, the Compensation Committee of the Board of Directors of KeyCorp on September 16, 2004 determined it desirable to amend the Plan and accordingly authorized the execution of this Sixth Amendment, NOW, THEREFORE, pursuant to such action of the Compensation Committee, the Plan is hereby amended as follows: 1. ARTICLE II, Section 2.1(c), shall be amended to include the term "Equity/Compensation Award" as a new definition to the Plan, with all remaining Sections under Article II thereafter sequentially re-numbered: "2.1(c) "EQUITY/COMPENSATION AWARD" shall mean one-half (50%) of the value of an award granted under the KeyCorp 2004 Equity Compensation Plan for any Plan year. The term "Equity/Compensation Award" may include "Stock Appreciation Rights", "Restricted Stock", "Restricted Stock Units", "Performance Shares", and/or "Performance Units", but shall specifically not include "Options" as those terms have been defined in accordance with the provisions of the KeyCorp 2004 Equity Compensation Plan." 2. Article II, Section 2.1(n) shall be amended to delete it in its entirety and to substitute therefore the following: "2.1(n) "INCENTIVE COMPENSATION AWARD" for any Plan year shall collectively mean the short term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) and the long term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) (if any) granted to a Participant under an Incentive Compensation Plan, as follows: - An incentive compensation award granted under the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Management Incentive Compensation Plan, and/or such other Employer-sponsored line of business Incentive Compensation Plan which shall constitute an Incentive Compensation Award for the year in which the award is earned (without regard to the actual time of payment). - An incentive compensation award granted under the KeyCorp Long Term Incentive Compensation Plan ("LTIC Plan") with respect to any multi-year performance period which shall be deemed to be for the last year of the multi-year period without regard to the actual time of payment of the award. Accordingly, an incentive compensation award granted under the LTIC Plan with respect to the three-year performance period of 1993, 1994, and 1995 will be deemed to be for 1995 (without regard to the actual time of payment), and the entire incentive compensation award under the LTIC Plan for that performance period will be an Incentive Compensation Award for the year 1995. - An incentive compensation award granted under the KeyCorp Long Term Incentive Plan ("Long Term Plan") with respect to any multi-year period which shall be deemed to be for the last year of the multi-year performance period and for the year immediately following such year (without regard to the actual time of payment). Accordingly, an award granted under the Long Term Plan with respect to the four-year performance period of 1998, 1999, 2000, and 2001 shall be deemed to be for the years 2001 and 2002, with one-half the award allocated to the year 2001, and one-half the award allocated to the year 2002. - An incentive compensation award granted in the form of restricted stock under the KeyCorp Amended and Restated 1991 Equity Compensation Plan with respect to any multi-year period (but specifically excluding those awards applicable to the 2002-2003 multi-year period), which shall be deemed to be for the year in which the award (grant) is made to the Participant; provided, however, that only those shares of restricted stock that have vested as of the Participant's termination date shall be utilized for purposes of determining the Participant's Incentive Compensation Award. The fair market value of such shares as of the date of the restricted stock grant multiplied by the number of vested shares as of the Participant's termination date shall determine the value of such Incentive Compensation Award for purposes of calculating the Participant's Supplemental Pension Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing, however, in calculating the Participant's Supplemental Pension Benefit under the provisions of Article III of the Plan, if it is determined that an incentive compensation award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan would produce a larger Monthly Supplemental Pension Benefit for the Participant if the award was included in the year in which the award (or any part of the award) initially vested rather than in the year in which the award was granted, then such incentive compensation award shall be included in the year in which the award (or any part of the award) initially vested rather than for the year in which the award was granted. If at the time of the Participant's termination date, the Participant maintains shares of not forfeited restricted stock and such restricted stock later vests in conjunction with the passage of time or with the Corporation's attainment of certain performance criteria, or otherwise, then as of such subsequent vesting date the Participant's Monthly Supplemental Pension Benefit shall be recalculated to include such newly vested shares. Such newly vested shares shall relate to the award in which such shares were granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan, and shall be included as a part of that award (based on either the date granted or the date initially vested, whichever date was actually used by the Plan in calculating the Participant's initial Monthly Supplemental Pension Benefit). For those Participants who, for Plan purposes, received Incentive Compensation Award(s) granted in the form of time-lapsed restricted stock award(s) and/or performance shares under the KeyCorp Amended and Restated 1991 Equity Compensation Plan with respect to any multi-year period, the term Incentive Compensation Award shall also include those Equity/Compensation Award(s) granted to the Participant under the 2004 Equity Compensation Plan. An Equity/Compensation Award shall be deemed to be for the year in which the Equity/Compensation Award vests. If the Equity/Compensation Award is in the form of Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, the fair market value of such shares as of the date of the Equity/Compensation Award grant multiplied by the number of vested shares as of the Participant's termination date shall determine the value of such Incentive Compensation Award for purposes of calculating the Participant's Supplemental Pension Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing provisions of this Section 2.1(n) hereof, in calculating a Participant's Incentive Compensation Award for any 12 month period, there shall be included only one award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan, the KeyCorp Chief Executive Officer Plan, or Equity/Compensation Award under the KeyCorp 2004 Equity Compensation Plan included for purposes of determining such Incentive Compensation Award for such 12 month period. 3. Article II, Section 2.1(o) shall be amended to delete it in its entirety and to substitute therefore the following: "2.1(o) "INCENTIVE COMPENSATION PLAN" shall mean the KeyCorp Management Incentive Compensation Plan, the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Plan, the KeyCorp Amended and Restated 1991 Equity Compensation Plan, the KeyCorp Chief Executive Officer Plan, the KeyCorp 2004 Equity Compensation Plan, and/or such other Employer or KeyCorp-sponsored incentive compensation plan that KeyCorp in its sole discretion determines constitutes an "Incentive Compensation Plan" for purposes of this Section 2.1(m), as may be amended from time to time." 4. Article III, Section 3.5 shall be amended to delete it in its entirety and to substitute therefore the following: "3.5 RECALCULATION AS A RESULT OF HARMFUL ACTIVITY. Notwithstanding the foregoing provisions of Section 3.2 and Section 3.3 hereof, the Corporation reserves the right at all times to recalculate a Participant's Supplemental Pension Benefit, if it is determined that within six months of the Participant's termination date the Participant engaged in any Harmful Activity, as that term is defined in accordance with Section 2.1(w) of the Plan, which resulted in the forfeiture of all or any portion of the Participant's restricted share award(s) under the KeyCorp Amended and Restated 1991 Equity Compensation Plan or Equity/Compensation Awards granted under the KeyCorp 2004 Equity Compensation Plan. Such recalculation shall relate back to the Participant's original date of termination, and any Supplemental Pension Benefit payment paid to the Participant in excess of such recalculated Supplemental Pension Benefit amount shall be offset against any future Supplemental Pension Benefit payments to be paid to the Participant." 5. The amendment set forth in Paragraphs 1 through 4 shall be effective as of September 16, 2004. 6. Except as otherwise amended herein, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, KeyCorp has caused this Sixth Amendment to the Plan to be executed by its duly authorized officer to be effective as of the sixteenth day of September 2004. KEYCORP By: /s/ Thomas E. Helfrich --------------------------- Title: Executive Vice President EX-10.65 12 l11135aexv10w65.txt EX-10.65 KEYCORP SECOND EXECUTIVE SUPP PENSION PLAN EXHIBIT 10.65 KEYCORP SECOND EXECUTIVE SUPPLEMENTAL PENSION PLAN ARTICLE I THE PLAN The KeyCorp Second Executive Supplemental Pension Plan (the "Plan"), is hereby established December 28, 2004 to be effective January 1, 2005. The Plan, as structured, is designed to provide an additional retirement benefit for certain select employees of KeyCorp that is in addition to the December 31, 2004 vested frozen nonqualified benefit to be provided to such employees under the KeyCorp Executive Supplemental Pension Plan. It is the intention of KeyCorp and it is the understanding of the employee covered under the Plan, that the Plan constitutes a nonqualified retirement plan for a select group of employees, and as such, the Plan is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE II DEFINITIONS 2.1 Meanings of Definitions. As used herein, the following words and phrases shall have the meanings hereinafter set forth, unless a different meaning is plainly required by the context: (a) "AVERAGE INTEREST CREDIT" shall mean the average of the Interest Credits (as defined in the Pension Plan) for the three (3) consecutive calendar years ending with the year of the Participant's termination. (b) "AVERAGE TREASURY RATE" shall mean the average of the Treasury Rates (as defined in the Pension Plan) for the three (3) consecutive calendar years ending with the year of the Participant's termination. (c) "EQUITY/COMPENSATION AWARD" shall mean one-half (50%) of the value of an award granted under the KeyCorp 2004 Equity Compensation Plan for any Plan year. The term "Equity/Compensation Award" may include "Stock Appreciation Rights", "Restricted Stock", "Restricted Stock Units", "Performance Shares", and/or "Performance Units", but shall specifically not include "Options" as those terms have been defined in accordance with the provisions of the KeyCorp 2004 Equity Compensation Plan." (d) "BENEFICIARY" shall mean the Participant's surviving spouse who is entitled to receive the benefits hereunder in the event the Participant dies before his or her Supplemental Pension Benefit shall have been distributed to him or her. (e) "CREDITED SERVICE" shall be calculated with respect to a Participant by measuring the period of service commencing on the Participant's Employment Commencement Date and Re-Employment Commencement Date, if applicable, and ending on the Participant's Severance from Service Date, and shall be computed based on each full month during which time the Employee is employed by an Employer. (f) "COMPENSATION" for any Plan Year or any partial Plan Year in which the Participant incurs a Severance From Service Date shall mean the entire amount of base compensation paid to such Participant during such period by reason of his employment as an Employee, as reported for federal income tax purposes, or such base compensation which would have been paid except for (1) the timing of an Employer's payroll processing operations, (2) the Participant's election to participate in the KeyCorp 401(k) Savings Plan, the KeyCorp Excess 401(k) Savings Plan, a transportation reimbursement plan, and/or the KeyCorp Flexible Benefits Plan, and/or (3) the Participant's election to defer such base compensation under the KeyCorp Deferred Compensation Plan for the applicable Plan Year, provided, however, that the term Compensation shall specifically exclude: (i) any amount attributable to the Participant's exercise of stock appreciation rights and the amount of any gain to the Participant upon the exercise of stock options; (ii) any amount attributable to the Participant's receipt of non-cash remuneration whether or not it is included in the Participant's income for federal income tax purposes; (iii) any amount attributable to the Participant's receipt of moving expenses and any relocation bonus paid to the Participant during the Plan Year; (iv) any amount attributable to a lump sum severance payment paid by an Employer or the Corporation to the Participant; (v) any amount attributable to fringe benefits (cash and non-cash); (vi) any amount attributable to any bonus or payment made as an inducement for the Participant to accept employment with an Employer; (vii) any amount paid to the Participant during the Plan Year which is attributable to interest earned on compensation which had been deferred under a plan of an Employer or the Corporation; and (viii) any amount paid for any period after the Participant's termination or retirement date. In the case of a Disabled Participant, such Participant's Compensation for each year while Disabled shall equal an amount which shall reflect the Participant's Compensation for the calendar year preceding the date of the Participant's Disability. (g) "CORPORATION" shall mean KeyCorp, an Ohio Corporation, its corporate successors, and any corporation or corporations into or with which it may be merged or consolidated. (h) "DISABILITY" shall mean (1) the physical or mental disability of a permanent nature which prevents a Participant from performing the duties such Participant was employed to perform for his or her Employer when such disability commenced, (2) qualifies for disability benefits under the federal Social Security Act within 30 months following the Participant's disability, and (3) qualifies the Participant for disability coverage under the KeyCorp Long Term Disability Plan. In addition to the foregoing, the disability requirements addressed in Section 409A of the Code are incorporated into the provisions of this definition. (i) "EARLY RETIREMENT DATE" shall mean the date of Participant's retirement from his or her employment with Employer on or after the Participant's attainment of age 55 and completion of a minimum of ten years of Credited Service, but prior to the Participant's Normal Retirement Date. (j) "EMPLOYEE" shall mean the employees listed on Exhibit A attached hereto. (k) "EMPLOYER" shall mean the Corporation and its subsidiaries unless specifically excluded as an Employer for Plan purposes by written action by an officer of the Corporation and approved by the Corporation. An Employer's participation in the Plan shall be subject to any conditions or requirements made by the Corporation, and each Employer shall be deemed to appoint the Corporation as its exclusive agent under the Plan as long as it continues as a subsidiary of the Corporation. (l) "EXCESS PENSION PROGRAM BENEFIT" shall mean the Participant's collective nonqualified pension benefit accrued under the KeyCorp Excess Cash Balance Pension Plan and the KeyCorp Second Excess Cash Balance Pension Plan subject to the terms and conditions of each respective Plan. (m) "EXECUTIVE SUPPLEMENTAL PENSION PROGRAM BENEFIT" shall mean the Participant's collective nonqualified pension benefit accrued under the KeyCorp Executive Supplemental Pension Plan and the KeyCorp Second Executive Supplemental Pension Plan subject to the terms and conditions of each respective Plan. (n) "FINAL AVERAGE COMPENSATION" shall mean with respect to any Participant the annual average of his or her highest aggregate Compensation for any period of five consecutive years within the period of ten consecutive years immediately prior to his or her retirement, death, or other termination of employment, or any termination of the Plan, whichever first occurs. If the Participant receives no Compensation for any portion of such five years because of an absence from work, there shall be treated as Compensation received during such period of absence an amount equal to the Compensation the Participant would have received had he or she not been absent, such amount to be determined by the Corporation on the basis of such Participant's Compensation in effect immediately prior to such absence. In computing a Participant's Final Average Compensation, there shall be included the Participant's highest five Incentive Compensation Awards granted under an Incentive Compensation Plan during the ten year period immediately preceding the earliest of his or her retirement, death, disability, or other termination of employment. (o) "EMPLOYMENT COMMENCEMENT DATE" of a Participant shall mean the date on which he or she first performs an Hour of Service for an Employer. (p) "HOUR OF SERVICE" shall mean any hour for which an Employee is paid or entitled to payment by an Employer for the performance of duties. (q) "INCENTIVE COMPENSATION AWARD" for any Plan year shall collectively mean the short term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) and the long term incentive compensation award (whether in cash or common shares of the Corporation, and whether paid or deferred, or a combination of both) (if any) granted to a Participant under an Incentive Compensation Plan, as follows: - An incentive compensation award granted under the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Management Incentive Compensation Plan, and/or such other Employer-sponsored line of business Incentive Compensation Plan which shall constitute an Incentive Compensation Award for the year in which the award is earned (without regard to the actual time of payment). - An incentive compensation award granted under the KeyCorp Long Term Incentive Compensation Plan ("LTIC Plan") with respect to any multi-year performance period which shall be deemed to be for the last year of the multi-year period without regard to the actual time of payment of the award. Accordingly, an incentive compensation award granted under the LTIC Plan with respect to the three-year performance period of 1993, 1994, and 1995 will be deemed to be for 1995 (without regard to the actual time of payment), and the entire incentive compensation award under the LTIC Plan for that performance period will be an Incentive Compensation Award for the year 1995. - An incentive compensation award granted under the KeyCorp Long Term Incentive Plan ("Long Term Plan") with respect to any multi-year period which shall be deemed to be for the last year of the multi-year performance period and for the year immediately following such year (without regard to the actual time of payment). Accordingly, an award granted under the Long Term Plan with respect to the four-year performance period of 1998, 1999, 2000, and 2001 shall be deemed to be for the years 2001 and 2002, with one-half the award allocated to the year 2001, and one-half the award allocated to the year 2002. - An incentive compensation award granted in the form of restricted stock under the KeyCorp Amended and Restated 1991 Equity Compensation Plan with respect to any multi-year period (but specifically excluding those awards applicable to the 2002-2003 multi-year period), which shall be deemed to be for the year in which the award (grant) is made to the Participant; provided, however, that only those shares of restricted stock that have vested as of the Participant's termination date shall be utilized for purposes of determining the Participant's Incentive Compensation Award. The fair market value of such shares as of the date of the restricted stock grant multiplied by the number of vested shares as of the Participant's termination date shall determine the value of such Incentive Compensation Award for purposes of calculating the Participant's Supplemental Pension Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing, however, in calculating the Participant's Supplemental Pension Benefit under the provisions of Article III of the Plan, if it is determined that an incentive compensation award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan would produce a larger monthly Supplemental Pension Benefit for the Participant if the award was included in the year in which the award (or any part of the award) initially vested rather than in the year in which the award was granted, then such incentive compensation award shall be included in the year in which the award (or any part of the award) initially vested rather than for the year in which the award was granted. If at the time of the Participant's termination date, the Participant maintains shares of not forfeited restricted stock and such restricted stock later vests in conjunction with the passage of time or with the Corporation's attainment of certain performance criteria, or otherwise, then as of such subsequent vesting date the Participant's monthly Supplemental Pension Benefit shall be recalculated to include such newly vested shares. Such newly vested shares shall relate to the award in which such shares were granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan, and shall be included as a part of that award (based on either the date granted or the date initially vested, whichever date was actually used by the Plan in calculating the Participant's initial monthly Supplemental Pension Benefit). For those limited Participants who, for Plan purposes and in accordance with the provisions of this Section 2.1(q) hereof, received Incentive Compensation Award(s) granted in the form of time-lapsed restricted stock award(s) and/or performance shares under the KeyCorp Amended and Restated 1991 Equity Compensation Plan with respect to any multi-year period, the term Incentive Compensation Award shall also include those Equity/Compensation Award(s) granted to the Participant under the 2004 Equity Compensation Plan. An Equity/Compensation Award shall be deemed to be for the year in which the Equity/Compensation Award vests. If the Equity/Compensation Award is in the form of Restricted Stock, Restricted Stock Units, Performance Units or Performance Shares, the fair market value of such shares as of the date of the Equity/Compensation Award grant multiplied by the number of vested shares as of the Participant's termination date shall determine the value of such Incentive Compensation Award for purposes of calculating the Participant's Supplemental Pension Benefit under the provisions of Article III of the Plan. Notwithstanding the foregoing provisions of this Section 2.1(q) hereof, in calculating a Participant's Incentive Compensation Award for any 12 month period, there shall be included only one award granted under the KeyCorp Amended and Restated 1991 Equity Compensation Plan, or Equity/Compensation Award under the KeyCorp 2004 Equity Compensation Plan included for purposes of determining the Participant's Incentive Compensation Award for such 12 month period. (r) "INCENTIVE COMPENSATION PLAN" shall mean the KeyCorp Management Incentive Compensation Plan, the KeyCorp Annual Incentive Plan, the KeyCorp Short Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Compensation Plan, the KeyCorp Long Term Incentive Plan, the KeyCorp Amended and Restated 1991 Equity Compensation Plan, the KeyCorp 2004 Equity Compensation Plan, and/or such other Employer or KeyCorp-sponsored incentive compensation plan that KeyCorp in its sole discretion determines constitutes an "Incentive Compensation Plan" for purposes of this Section 2.1(r), as may be amended from time to time." (s) "HARMFUL ACTIVITY" shall have occurred if the Participant shall do any one or more of the following: (i) Use, publish, sell, trade or otherwise disclose Non-Public Information of KeyCorp unless such prohibited activity was inadvertent, done in good faith and did not cause significant harm to KeyCorp. (ii) After notice from KeyCorp, fail to return to KeyCorp any document, data, or thing in his or her possession or to which the Participant has access that may involve Non-Public Information of KeyCorp. (iii) After notice from KeyCorp, fail to assign to KeyCorp all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, copyrights, trademarks, service marks, and patents in or to (or associated with) such Intellectual Property. (iv) After notice from KeyCorp, fail to agree to do any acts and sign any document reasonably requested by KeyCorp to assign and convey all right, title, and interest in and to any confidential or non-confidential Intellectual Property which the Participant created, in whole or in part, during employment with KeyCorp, including, without limitation, the signing of patent applications and assignments thereof. (v) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, solicit or entice for employment or hire any KeyCorp employee. (vi) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, call upon, solicit, or do business with (other than business which does not compete with any business conducted by KeyCorp) any KeyCorp customer the Participant called upon, solicited, interacted with, or became acquainted with, or learned of through access to information (whether or not such information is or was non-public) while the Participant was employed at KeyCorp unless such prohibited activity was inadvertent, done in good faith, and did not involve a customer whom the Participant should have reasonably known was a customer of KeyCorp. (vii) Upon the Participant's own behalf or upon behalf of any other person or entity that competes or plans to compete with KeyCorp, after notice from KeyCorp, continue to engage in any business activity in competition with KeyCorp in the same or a closely related activity that the Participant was engaged in for KeyCorp during the one year period prior to the termination of the Participant's employment. For purposes of this Section 2.1(s) the term: "INTELLECTUAL PROPERTY" shall mean any invention, idea, product, method of doing business, market or business plan, process, program, software, formula, method, work of authorship, or other information, or thing relating to KeyCorp or any of its businesses. "NON-PUBLIC INFORMATION" shall mean, but is not limited to, trade secrets, confidential processes, programs, software, formulas, methods, business information or plans, financial information, and listings of names (e.g., employees, customers, and suppliers) that are developed, owned, utilized, or maintained by an employer such as KeyCorp, and that of its customers or suppliers, and that are not generally known by the public. "KEYCORP" shall include KeyCorp, its subsidiaries, and its affiliates. (t) "NORMAL RETIREMENT DATE" shall mean the first day of the month coinciding with or immediately following a Participant's 65th birthday or, if later, the fifth anniversary of the Participant's Employment Commencement Date. (u) "PARTICIPANT" shall mean an Employee employed by an Employer in a position classified as a job grade 89 or above, who is selected by the Corporation to become a Participant in the Plan, and whose participation in the Plan has not been terminated by the Corporation. The Corporation retains the right at all times, in its sole and absolute discretion to determine who shall become and remain a Participant in the Plan. (v) "PENSION PLAN" shall mean the KeyCorp Cash Balance Pension Plan with all amendments that may be made thereto. (w) "SEVERANCE FROM SERVICE DATE" shall occur on the earlier of the date on which a Participant quits, retires, is discharged or dies. (x) "SOCIAL SECURITY PRIMARY INSURANCE AMOUNT" shall mean the amount estimated by the Corporation that is expected to be paid to a Participant under the Federal Insurance Contributions Act. Such amount shall be calculated assuming the Participant receives payment at age 65 or the Participant's Normal Retirement Date, whichever is later, and that he or she receives no earnings for the purpose of calculating this amount after the date of the Participant's termination of employment. All compensation prior to the Participant's date of termination of employment with an Employer shall be based upon a salary scale, projected backwards, which is the actual change in the average compensation from year to year, as indexed, and determined by the Social Security Administration. (y) "SUPPLEMENTAL PENSION BENEFIT" shall mean the pension benefit payable pursuant to the terms of the Plan to a Participant meeting the eligibility requirements of Section 3.1 of the Plan. 2.2 CONSTRUCTION. Unless the context otherwise indicates, the masculine wherever used shall include the feminine and neuter, the singular shall include the plural, words such as "herein", "hereof", "hereby", "hereunder" and words of similar import shall refer to the Plan as a whole and not any particular part thereof. All other capitalized but undefined terms used herein, shall have the meaning given to them in the Pension Plan. ARTICLE III SUPPLEMENTAL PENSION BENEFIT 3.1 ELIGIBILITY. Subject to the provisions of Article V hereof, a Participant shall be eligible for a Supplemental Pension Benefit hereunder if the Participant (i) retires on or after age 65 with five or more years of Credited Service, (ii) terminates employment with an Employer on or after age 55 with ten or more years of Credited Service, (iii) terminates active employment with an Employer upon becoming Disabled after completing five or more years of Credited Service and disability benefits have ceased under the KeyCorp Long-Term Disability Plan due to the Participant's election for Early or Normal Retirement under the Pension Plan, or (iv) dies after completing five years of Credited Service, and has a Beneficiary who is eligible for a benefit under the Pension Plan. A Participant shall also be eligible for an Supplemental Pension Benefit if the Participant becomes involuntarily terminated from his or her employment with an Employer for reasons other than the Participant's Discharge for Cause, and (i) as of the Participant's termination date the Participant has a minimum of twenty-five (25) or more years of Credited Service, and (ii) the Participant enters into a written non-solicitation and non-compete agreement under terms that are satisfactory to the Employer. For purposes of this Section 3.1, hereof, the term "Discharge for Cause" shall mean a Participant's employment termination that is the result of the Participant's violation of the Employer's policies, practices or procedures, violation of city, state, or federal law, or failure to perform his or her assigned job duties in a satisfactory manner. The Employer shall determine whether a Participant has been Discharged for Cause. Notwithstanding any of the forgoing provisions of this Section 3.1, however, a Participant's eligibility for a Supplemental Pension Benefit shall be subject to the requirements of Article V of the Plan. 3.2 SUPPLEMENTAL PENSION BENEFIT CALCULATION. The amount of any Supplemental Pension Benefit to be paid to a Participant under the terms of the Plan on or after the Participant's Normal Retirement Date shall be calculated as follows: A Participant's Supplemental Pension Benefit shall equal the difference between "(a)" and"(b)" where: 1. "(a)" is equal to 2% times the Participant's years of Credited Service (up to a Plan maximum of 25 years) times the Participant's Final Average Compensation, and 2. "(b)" is equal to the sum of: (i) the Participant's accrued and vested annual supplemental pension benefit under the KeyCorp Executive Supplemental Pension Plan calculated as of the Participant's Normal Retirement Date payable in the form of a single life annuity option, (ii) the Participant's accrued and vested annual pension benefit under the Pension Plan calculated as of the participant's Normal Retirement Date, payable in the form of a single life annuity option, and (iii) the Participant's annual estimated Social Security Primary Insurance Amount payable at the Participant's Normal Retirement Date. For purposes of calculating a Participant's Supplemental Pension Benefit under this Section 3.2 hereof, the Participant's "annual pension benefit" under the Pension Plan shall be the Participant's Accrued Benefit as of the Participant's termination date calculated in accordance with the provisions of Article IV of the Pension Plan as if such benefit were to be paid in the form of a single life annuity; if the Participant is eligible for and elects to receive his or her Pension Plan benefit under a Predecessor Plan grandfathered formula, such "annual pension benefit" for purposes of this Section 3.2 hereof, shall be the benefit payable to the Participant under the terms of the Pension Plan's Predecessor Plan grandfathered formula as of the Participant's termination date, as if such benefit were to be paid in the form of a single life annuity. 3.3 EARLY RETIREMENT ELECTION. In the event the Participant elects to receive his or her Supplemental Pension Benefit on or after the Participant's Early Retirement Date but prior to the Participant's Normal Retirement Date, the Participant's Supplemental Pension Benefit shall be calculated as provided in accordance with Section 3.2 hereof, provided, however, that in determining the Participant's annual Pension Plan benefit as of the Participant's Normal Retirement Date, the Participant's Accrued Benefit under the Pension Plan as of his or her termination date shall be increased for purposes of this Plan with an imputed Average Interest Credit to reflect the Participant's Pension Plan benefit at his or her Normal Retirement Date and shall be converted to the form of a single life annuity option using the Average Treasury Rate and the GATT Mortality Table. The amount of the Participant's annual Supplemental Pension Benefit otherwise determined under Section 3.2 and Section 3.3 hereof, shall be reduced by 3.6% for each year that the Participant is between the ages of 55 and 60 and by 4.8% for each year after the Participant attains age 60 to actuarially adjust the commencement of the Participant's Supplemental Pension Benefit prior to his or her Normal Retirement Date. 3.4 ACTUARIAL FACTORS. The Supplemental Pension Benefit payable to a Participant or Participant's Beneficiary in a form other than a single life annuity shall be actuarially equivalent to such single life annuity payment option. In making the determination provided for in this Article III, the Corporation shall rely upon calculations made by the independent actuaries for the Plan, who shall determine actuarially equivalent benefits under the Plan by applying the UP-1984 Mortality Table (set back two years) and using an interest rate of 6%. 3.5 RECALCULATION AS A RESULT OF HARMFUL ACTIVITY. Notwithstanding the foregoing provisions of Section 3.2 and Section 3.3 hereof, the Corporation reserves the right at all times to recalculate a Participant's Supplemental Pension Benefit, if it is determined that within six months of the Participant's termination date the Participant engaged in any Harmful Activity, as that term is defined in accordance with Section 2.1(s) of the Plan, which resulted in the forfeiture of all or any portion of the Participant's restricted share award(s) under the KeyCorp Amended and Restated 1991 Equity Compensation Plan or Equity/Compensation Awards granted under the KeyCorp 2004 Equity Compensation Plan (if applicable). Such recalculation shall relate back to the Participant's original date of termination, and any Supplemental Pension Benefit payment paid to the Participant in excess of such recalculated Supplemental Pension Benefit amount shall be offset against any future Supplemental Pension Benefit payments to be paid to the Participant." ARTICLE IV PAYMENT OF SUPPLEMENTAL PENSION BENEFIT 4.1 IMMEDIATE PAYMENT UPON TERMINATION OR RETIREMENT OF PARTICIPANT. Subject to the provisions of Section 4.2 and Section 4.3 hereof, a Participant meeting the age and service eligibility requirements of Section 3.1, shall receive an immediate distribution of his or her Supplemental Pension Benefit upon the Participant's termination of employment in the form of a single life annuity, unless the Participant elects in writing a minimum of thirty days prior to his or her termination date to receive payment of his or her Supplemental Pension Benefit under a different form of payment. The forms of payment from which a Participant may elect shall provide a benefit that is actuarially equivalent to the Participant's single life annuity payment as calculated under the provisions of Section 3.2 hereof, and shall be identical to those forms of payment specified in the Pension Plan, provided, however, that the lump sum payment option available under the Pension Plan shall not be available under this Plan. Such method of payment, once elected by the Participant, shall be irrevocable. 4.2 DEFERRED BENEFIT PAYMENT. A Participant who terminates his or her employment with an Employer after meeting the age and service requirements of Section 3.1, may elect to defer the receipt of his or her Supplemental Pension Benefit until a date specified by the Participant, subject to the following requirements: (i) the Participant notifies the Corporation in writing of his or her deferral election a minimum of twelve months prior to the Participant's termination of employment, (ii) the Participant specifies the future date on which such Supplemental Pension Benefit shall be distributed, (iii) the Participant's requested deferral period is for a period of not less than five years following the Participant's retirement or termination of employment, (iv) the Participant's Supplemental Pension Benefit commencement date mirrors the benefit commencement date of the Participant's Supplemental Pension Benefit under the KeyCorp Executive Supplemental Pension Plan, and (v) the Participant commences distribution of his or her Supplemental Pension Benefit no later than the first day of the month immediately following the Participant's sixty-fifth (65th) birthday. The election to defer, once made by the Participant, shall be irrevocable. Notwithstanding the foregoing, in the case of an "unforeseeable emergency", upon written application by the Participant to the Corporation, the Corporation may accelerate the distribution of the Participant's deferred Supplemental Pension Benefit. For purposes of this Section 4.2, the term "unforeseeable emergency" shall mean a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant, the Participant's spouse, or the Participant's dependent (as defined in Section 152(a) of the Code), the loss of the Participant's property due to casualty, or such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The determination of an "unforeseeable emergency" and the ability of the Corporation to accelerate the Participant's Supplemental Pension Benefit shall be determined in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 4.3 PAYMENT LIMITATION FOR KEY EMPLOYEES. Notwithstanding any other provision of the Plan to the contrary, in the event that the Participant constitutes a "key" employee of the Corporation (as that term is defined in accordance with Section 416(i) of the Code without regard to paragraph (5) thereof), distributions of the Participant's Supplemental Pension Benefit may not be made before the date which is six months after the Participant's date of separation from service (or, if earlier, the date of death of the Participant). The term "separation from service" shall be defined for Plan purposes in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 4.4 PAYMENT UPON DEATH OF PARTICIPANT. (a) Upon the death of a Participant who has met the service requirements of Section 3.1, but who has not yet commenced distribution of his or her Supplemental Pension Benefit, there shall be paid to the Participant's Beneficiary 50% of the Supplemental Pension Benefit which the Participant would have been entitled to receive under the provisions of Section 3.2 of the Plan calculated as if the Participant had retired on his or her Normal Retirement Date and elected to receive his or her Supplemental Pension Benefit. For purposes of this Section 4.4(a) only, the following shall apply: (i) The Participant's Credited Service shall be calculated as of the Participant's date of death. (ii) The Participant's Pension Plan benefit shall be calculated under the provisions of Article IV of the Pension Plan as if the Participant had died on his or her Normal Retirement Date, with such Pension Plan benefit being increased for purposes of this Section 4.4(a) with an imputed Average Interest Credit to reflect what the Participant's Pension Plan benefit would have been as of the Participant's Normal Retirement Date; such Pension Plan benefit shall be converted to a single life annuity option using the Average Treasury Rate and Gatt Mortality Table. (iii) The Participant's Social Security Primary Amount shall be calculated as if the Participant had retired as of his or her Normal Retirement Date. Payment of this death benefit shall be made in the form of a single life annuity and will be subject to distribution any time after the Participant's Early Retirement Date, which shall be calculated in accordance with the actuarial reduction provisions contained within Section 3.3 hereof, if paid prior to the Participant's Normal Retirement Date. (b) In the event of a Participant's death after the Participant has commenced distribution of his or her Supplemental Pension Benefit, there shall be paid to the Participant's Beneficiary only those survivor benefits provided under the form of benefit payment elected by the Participant. ARTICLE V DISTRIBUTION OF LARGEST PLAN BENEFIT 5.1 DISTRIBUTION OF LARGEST PLAN BENEFIT. A Participant who meets the eligibility requirements for an Executive Supplemental Pension Program Benefit and who is also eligible for an Excess Pension Program Benefit shall automatically be provided at the Participant's termination the larger of the two Program benefits (i.e. the greater of the Participant's Excess Pension Program Benefit or the Executive Supplemental Pension Program Benefit). In making the determination required under this Section 5.1 hereof, the Corporation shall rely upon calculations made by independent actuaries for the Pension Plan, who shall apply the actuarial assumptions and interest rate then in use under the Pension Plan for converting the Participant's Excess Pension Program Benefit to a single life annuity form of payment. The Participant automatically will receive the Program Benefit that provides the Participant with the largest monthly single life annuity benefit. 5.2 BENEFICIARY DISTRIBUTION OF LARGEST PLAN BENEFIT. (a) Upon the death of a Participant meeting eligibility requirements for an Excess Pension Program Benefit and the eligibility requirements for an Executive Supplemental Pension Program Benefit there shall be paid to the Participant's Beneficiary the larger of the two Programs' death benefit. Such death benefit shall be paid to the Beneficiary in the form of a single life annuity. (b) In the event of a Participant's death after the Participant has commenced distribution of his or her Plan benefit, there shall be paid to the Participant's Beneficiary only those survivor benefits provided under the form of benefit payment elected by the Participant. ARTICLE VI ADMINISTRATION AND CLAIMS PROCEDURE 6.1 ADMINISTRATION. The Corporation, which shall be the "Administrator" of the Plan for purposes of ERISA and the "Plan Administrator" for purposes of the Code, shall be responsible for the general administration of the Plan, for carrying out the provisions hereof, and for making payments hereunder. The Corporation shall have the sole and absolute discretionary authority and power to carry out the provisions of the Plan, including, but not limited to, the authority and power (a) to determine all questions relating to the eligibility for and the amount of any benefit to be paid under the Plan, (b) to determine all questions pertaining to claims for benefits and procedures for claim review, (c) to resolve all other questions arising under the Plan, including any questions of construction and interpretation, and (d) to take such further action as the Corporation shall deem necessary or advisable in the administration of the Plan. All findings, decisions, and determinations of any kind made by the Corporation shall not be disturbed unless the Corporation has acted in an arbitrary and capricious manner. Subject to the requirements of law, the Corporation shall be the sole judge of the standard of proof required in any claim for benefits and in any determination of eligibility for a benefit. All decisions of the Corporation shall be final and binding on all parties. The Corporation may employ such attorneys, investment counsel, agents, and accountants as it may deem necessary or advisable to assist it in carrying out its duties hereunder. The actions taken and the decisions made by the Corporation hereunder shall be final and binding upon all interested parties subject, however, to the provisions of Section 6.2. The Plan Year, for purposes of Plan administration, shall be the calendar year. 6.2 CLAIMS REVIEW PROCEDURE. Whenever the Corporation decides for whatever reason to deny, whether in whole or in part, a claim for benefits under this Plan filed by any person (herein referred to as the "Claimant"), the Corporation shall transmit a written notice of its decision to the Claimant, which notice shall be written in a manner calculated to be understood by the Claimant and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Claimant that, within 60 days of the date on which he or she receives such notice, he or she may obtain review of the decision of the Corporation in accordance with the procedures hereinafter set forth. Within such 60-day period, the Claimant or his or her authorized representative may request that the claim denial be reviewed by filing with the Corporation a written request therefore, which request shall contain the following information: (a) the date on which the request was filed with the Corporation; provided, however, that the date on which the request for review was in fact filed with the Corporation shall control in the event that the date of the actual filing is later than the date stated by the Claimant pursuant to this paragraph (a); (b) the specific portions of the denial of his claim which the Claimant requests the Corporation to review; (c) a statement by the Claimant setting forth the basis upon which he believes the Corporation should reverse its previous denial of his claim and accept his claim as made; and (d) any written material which the Claimant desires the Corporation to examine in its consideration of his position as stated pursuant to paragraph (c) above. In accordance with this Section 6.2, if the Claimant requests a review of the Corporation's decision, such review shall be made by the Corporation, who shall, within sixty (60) days after receipt of the request form, review and render a written decision on the claim containing the specific reasons for the decision including reference to Plan provisions upon which the decision is based. All findings, decisions, and determinations of any kind made by the Corporation shall not be modified unless the Corporation has acted in an arbitrary and capricious manner. Subject to the requirements of a law, the Corporation shall be the sole judge of the standard of proof required in any claim for benefits, and any determination of eligibility for a benefit. All decisions of the Corporation shall be binding on the Claimant and upon all other Persons. If the Participant, or Beneficiary shall not file written notice with the Corporation at the times set forth above, such individual shall have waived all benefits under the Plan other than as already provided, if any, under the Plan. ARTICLE VII FUNDING All benefits under the Plan shall be payable solely in cash from the general assets of the Corporation or a subsidiary, and Participants and Beneficiaries shall have the status of general unsecured creditors of the Corporation. The obligations of the Corporation to make distributions in accordance with Article III and Article IV of the Plan constitute a mere promise to make payments in the future. The Corporation shall have no obligation to establish a trust or fund to fund its obligation to pay benefits under the Plan or to insure any benefits under the Plan. Notwithstanding any provision of this Plan, the Corporation may, in its sole discretion, combine the payment due and owing under this Plan with one or more other payments owing to a Participant or a Participant's Beneficiary under any other plan, contract, or otherwise (other than any payment due under the Pension Plan), in one check, direct deposit, wire transfer, or other means of payment. Finally, it is the intention of the Corporation and the Participants that the Plan be unfunded for tax purposes and for the purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. ARTICLE VIII AMENDMENT AND TERMINATION The Corporation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors or a duly authorized committee of such Board of Directors; provided, however, that no such action shall adversely affect the benefit accrued up to the date of the Plan amendment or termination for any Participant who has met the age and service requirements of Section 3.1 of the Plan, or any Participant or Participant's Beneficiary who is receiving, or who is eligible to receive a Supplemental Pension Benefit hereunder, unless an equivalent benefit is provided under another plan maintained by the Corporation. No amendment or termination will result in an acceleration of Supplemental Pension Benefits in violation of Section 409A of the Code. ARTICLE IX MISCELLANEOUS 9.1 INTEREST OF PARTICIPANT. The obligation of the Corporation under the Plan to provide the Participant or the Participant's Beneficiary with a Supplemental Pension Benefit merely constitutes the unsecured promise of the Corporation to make payments as provided herein, and no person shall have any interest in, or a lien, or prior claim on any property of the Corporation. 9.2 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be construed as a commitment or agreement upon the part of any Participant hereunder to continue his or her employment with an Employer, and nothing herein contained shall be construed as a commitment on the part of any Employer to continue the employment or rate of compensation of any Participant hereunder for any period. All Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 9.3 BENEFITS. Nothing in the Plan shall be construed to confer any right or claim upon any person, firm, or corporation other than Participants and Participants' Beneficiaries who become entitled to a benefit under the Plan. 9.4 RESTRICTIONS ON ALIENATION. Except to the extent permitted by law, no benefit under the Plan shall be subject to anticipation, alienation, assignment (either at law or in equity), encumbrance, garnishment, levy, execution, or other legal or equitable process. No person shall have power in any manner to anticipate, transfer, assign, (either at law or in equity), alienate or subject to attachment, garnishment, levy, execution, or other legal or equitable process, or in any way encumber his or her benefits under the Plan, or any part thereof, and any attempt to do so shall be void. 9.5 ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a subsidiary, or any officer of the Corporation or a subsidiary shall be liable for any act or action hereunder, whether of commission or omission, taken by any other member, or by any officer, agent, or Employee except in circumstances involving his or her bad faith or willful misconduct. 9.6 EXPENSES. The expenses of administration of the Plan shall be paid by the Corporation. 9.7 PRECEDENT. Except as otherwise specifically provided, no action taken in accordance with the Plan by the Corporation shall be construed or relied upon as a precedent for similar action under similar circumstances. 9.8 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each Participant or Participant's Beneficiary any documents, reports, returns statements, or other information that it reasonably deems necessary to perform its duties imposed hereunder or otherwise imposed by law. 9.9 WITHHOLDING. The Corporation shall withhold any tax required by any present or future law to be withheld from any payment hereunder to any Participant or Participant's Beneficiary. 9.10 VALIDITY OF PLAN. The validity of the Plan shall be determined and the Plan shall be construed and interpreted in accordance with the provisions of the Act, the Code, and, to the extent applicable, the laws of the State of Ohio. The invalidity or illegality of any provision of the Plan shall not affect the validity or legality of any other part thereof. 9.11 PARTIES BOUND. The Plan shall be binding upon the Corporation, all Participants, all Participants' Beneficiaries, and the executors, administrators, successors, and assigns of each of them. 9.12 HEADINGS. All headings used in the Plan are for convenience of reference only and are not part of the substance of the Plan. ARTICLE X CHANGE OF CONTROL Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control, a Participant's interest in his or her Supplemental Pension Benefit shall vest. On and after a Change of Control, a Participant shall be entitled to receive an immediate distribution of his or her Supplemental Pension Benefit if the Participant has at least five (5) years of Credited Service, and (i) the Participant's employment is terminated by his or her Employer and any other Employer without cause, or (ii) the Participant resigns within two years following a Change of Control as a result of the Participant's mandatory relocation, reduction in the Participant's base salary, reduction in the Participant's average annual incentive compensation (unless such reduction is attributable to the overall corporate or business unit performance), or the Participant's exclusion from stock option programs as compared to comparably situated Employees. For purposes of this Article X hereof, a "Change of Control" shall be deemed to have occurred if under a rabbi trust arrangement established by KeyCorp ("Trust"), as such Trust may from time to time be amended or substituted, the Corporation is required to fund the Trust because a "Change of Control", as defined in the Trust, has occurred. ARTICLE XI COMPLIANCE WITH SECTION 409A CODE The Plan is intended to provide for the deferral of compensation in accordance with the provisions of Section 409A of the Code and regulations and published guidance issued pursuant thereto. Accordingly, the Plan shall be construed in a manner consistent with those provisions and may at any time be amended in the manner and to the extent determined necessary or desirable by the Corporation to reflect or otherwise facilitate compliance with such provisions with respect to amounts deferred on and after January 1, 2005, including as contemplated by Section 855(f) of the American Jobs Creation Act of 2004. Notwithstanding any provision of the Plan to the contrary, no otherwise permissible election or distribution shall be made or given effect under the Plan that would result in early taxation or assessment of penalties or interest of any amount under Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, Supplemental Pension Benefits shall not be distributed to a Participant earlier than: (a) the Participant's separation from service as determined by the Secretary of the Treasury (except as provided below with respect to a key employee of the Corporation); (b) death of the Participant; or (c) upon the occurrence to the Participant, the Participant's spouse, or the Participant's dependent an unforeseeable emergency as defined in Section 409A(a)(2)(B)(ii) of the Code. If it is determined that a Participant constitutes a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of the Corporation, the Participant shall not commence the distribution of his or her Supplemental Pension Benefits before the date which is six months after the date of the Participant's separation from service (or, if earlier, the date of death of the Participant). IN WITNESS WHEREOF, KeyCorp has caused this KeyCorp Second Executive Supplemental Pension Plan to be executed as of December 28, 2004, and to be effective as of January 1, 2005. KEYCORP By: /s/ Thomas E. Helfrich ----------------------------- Title:Executive Vice President EXHIBIT A EMPLOYEE EX-10.70 13 l11135aexv10w70.txt EX-10.70 4TH AMENDMENT TO KEYCORP SUPP RETIRE PLAN FOR KEY EXEC EXHIBIT 10.70 AMENDMENT TO THE KEYCORP SUPPLEMENTAL RETIREMENT BENEFIT PLAN FOR KEY EXECUTIVES WHEREAS, KeyCorp has established the KeyCorp Supplemental Retirement Benefit Plan for Key Executives (the "Plan"), a nonqualified plan of deferred compensation for a certain select group of KeyCorp employees, and WHEREAS, the Board of Directors of KeyCorp has authorized its Compensation Committee to permit amendments to the Plan, and WHEREAS, in conjunction with the enactment of the American Jobs Creation Act of 2004, the Compensation Committee of the Board of Directors of KeyCorp has determined it desirable to preserve Plan participants' earned and vested Plan benefits in accordance with the law in effect prior to the enactment of the American Jobs Creation Act of 2004 and accordingly has authorized the freezing of the Plan to preserve such benefits as of December 31, 2004. The Compensation Committee has accordingly directed the execution of this Amendment to effectuate the expressed intent of the Committee. NOW, THEREFORE, pursuant to such action of the Compensation Committee, the Plan is hereby frozen with regard to any additional accruals, deferrals, and contributions to the Plan after December 31, 2004 as follows: 1. A new Article X has been added to the Plan to provide the following: "ARTICLE X AMENDMENT TO FREEZE 10.1 NO NEW ACCRUALS. As of January 1, 2005 the Plan shall be frozen with regard to all new accruals, deferrals, and contributions to the Plan after December 31, 2004 and all Participants' Plan benefits that are earned and vested as of December 31, 2004 shall be administered in accordance with the terms of the Plan as frozen and with the requirements of the law in effect prior to the enactment of Section 409A of the Code." 2. The amendment set forth in Paragraphs 1 shall be effective as of December 31, 2004. 3. Except as otherwise amended herein, the Plan shall remain in full force and effect. IN WITNESS WHEREOF, KeyCorp has caused this Amendment to the Plan to be executed by its duly authorized officer as of this 28th day of December 2004. KEYCORP By: /s/ Thomas E. Helfrich ---------------------- Title: Executive Vice President EX-10.71 14 l11135aexv10w71.txt EX-10.71 KEYCORP 2ND SUPP RETIREMENT BENEFIT PLAN KEY EXECS EXHIBIT 10.71 KEYCORP SECOND SUPPLEMENTAL RETIREMENT BENEFIT PLAN FOR KEY EXECUTIVES PREAMBLE The KeyCorp Second Supplemental Retirement Benefit Plan For Key Executives (the "Plan"), is hereby established December 28, 2004 to be effective January 1, 2005. The Plan, as structured, is designed to provide an additional retirement benefit for a certain select employee of KeyCorp that is in addition to the December 31, 2004 frozen benefit to be provided under the KeyCorp Supplemental Retirement Benefit Plan for Key Executives. It is the intention of KeyCorp and it is the understanding of the employee covered under the Plan, that the Plan constitutes a nonqualified retirement plan for a select group of employees, and as such, the Plan is unfunded for tax purposes and for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ARTICLE I DEFINITIONS For the purposes herein, the following terms shall have the meaning indicated: 1.0(a) "AVERAGE INTEREST CREDIT" shall mean the average of the Interest Credits (as defined in the Pension Plan) for the three (3) consecutive calendar years ending with the year of termination. 1.0(b) "AVERAGE TREASURY RATE" shall mean the average of the Treasury Rates (as defined in the Pension Plan) for the three (3) consecutive calendar years ending with the year of termination. 1.1 "BOARD" shall mean the Board of Directors of KeyCorp as from time to time constituted. 1.2 "CREDITED SERVICE" shall mean the same period of time as constitutes Credited Service for that Participant under the KeyCorp Pension Plan (1989 Restatement) except that: (a) It shall not be subject to a thirty-five (35) year maximum, and (b) It shall continue to accrue during periods of total and permanent disability to the extent provided by Article VI hereof. 1.3 "EFFECTIVE DATE" shall mean January 1, 2005. 1.4 "EMPLOYEE" shall mean any person actively employed by the Employer, including officers, but not including directors unless a director is also an officer or employee of the Employer, nor attorneys or other persons doing independent professional work who are retained by the Employer. 1.5 "EMPLOYER" shall mean KeyCorp and all of its wholly owned subsidiaries, each with respect to its own Employees. 1.6 "FINAL AVERAGE SALARY" shall mean the average of the annual Salary of a Participant for the highest three (3) calendar years out of the last five (5) calendar years preceding the Participant's termination of employment; if the Participant has less than three (3) years of employment, the average shall be for all of the Participant's years of employment. If the Participant is not compensated for all or a part of a year in such period because of an absence, the number of complete months in which the Participant received no compensation during such year shall be disregarded in determining Final Average Salary. 1.7 "INCENTIVE COMPENSATION AWARD" shall mean an incentive compensation award granted to a Plan Participant under the KeyCorp Annual Incentive Plan and/or such other Employer-sponsored line of business incentive compensation plans that KeyCorp in its sole discretion determines to be included herein for purposes of determining a Participant's Incentive Compensation Award under the Plan. For purposes of this Section 1.7 hereof, an Incentive Compensation Award shall be deemed to be for the year in which the Incentive Compensation Award is earned (without regard to the actual time of payment), provided, however, that in no event shall more than one Incentive Compensation Award be included in determining a Participant's Salary for any applicable year. 1.8 "PARTICIPANT" shall mean an Employee entitled to participate in this Plan in accordance with Article II hereof. 1.9 "PENSION PLAN" shall mean the KeyCorp Cash Balance Pension Plan as amended from time to time. 1.10 "PLAN" shall mean the KeyCorp Second Supplemental Retirement Benefit Plan for Key Executives as contained herein or as amended from time to time. 1.11 "PLAN YEAR" shall mean the calendar year. 1.12 "SALARY" shall mean the base salary and Incentive Compensation Award of an Employee exclusive of bonuses, overtime pay and other extra compensation. For this purpose, the basic salary of an Employee shall include: (a) Amounts that are the subject of a deferred compensation agreement between the Employee and the Employer; (b) Amounts that are the subject of a Salary Reduction Agreement within the meaning of the KeyCorp Profit Sharing Plus Plan as amended; and (c) Amounts that are the subject of a salary reduction arrangement between the Employee and the Employer in accordance with Internal Revenue Code Section 125. 1.13 "SERVICE" shall mean the same period of time as constitutes Service for that Participant under the Pension Plan. ARTICLE II PARTICIPATION 2.1 GENERAL RULE. Only those individuals designated by the Employer as a Participant shall participate in the Plan. 2.2 REEMPLOYMENT OF PARTICIPANT. A Participant who has terminated his employment and subsequently is reemployed shall become a Participant immediately upon his reemployment provided that the Board again designates him for participation in the Plan. 2.3 PROSPECTIVE CHANGES IN PARTICIPATION REQUIREMENTS. The Employer, in its sole discretion, reserves the right to alter the requirements for participation in Section 2.1 at any time and from time to time; provided, however, that any such change shall not cause any Employee who became a Plan Participant hereunder prior to the effective date of such change to become ineligible hereunder by virtue of such change. 2.4 VESTING. A Participant shall be one-hundred percent (100%) vested in benefits under this Plan upon completion of five (5) years of Credited Service. ARTICLE III RETIREMENT CONDITIONS 3.1 NORMAL RETIREMENT. The Normal Retirement Date of a Participant shall be the earliest of: (a) The first day of the month coinciding with or next following the date he attains the age of sixty-five (65); or (b) The first day of the month coinciding with or next following the date that the Participant both attains the age of sixty-two (62) and completes fifteen (15) years of Credited Service. 3.2 DELAYED RETIREMENT DATE. A Participant may continue in the employment of the Employer beyond his Normal Retirement Date, but, to the extend permitted by applicable law, he may continue in the employment of the Employer beyond his seventieth (70th) birthday only if agreed to by the Employer. To the extent permitted by applicable law, a Participant continuing in employment beyond his seventieth (70th) birthday shall retire from the employment of the Employer on the first day of the month coinciding with or next following the end of the last approved period of employment. 3.3 EARLY RETIREMENT DATE. A Participant may retire from employment of the Employer prior to his Normal Retirement Date, on the first day of any month coinciding with or following the date on which he has either attained the age of sixty (60), or attained the age of fifty (50) and completed at least fifteen (15) years of Credited Service. ARTICLE IV RETIREMENT ALLOWANCES 4.1 NORMAL RETIREMENT ALLOWANCE. Upon termination after his Normal Retirement Date, a Participant shall receive a monthly allowance which shall commence on the first day of the month coincident with or next following the Participant's termination date in the form of a single life annuity, unless the Participant elects in writing a minimum of thirty days prior to his or her termination date, to receive payment of his or her benefit under a different form of payment. The forms of payment from which a Participant may elect shall be identical to those forms of payment specified in the Pension Plan, provided, however, that the lump sum payment option available under the Pension Plan shall not be available under this Plan. Such method of payment, once elected by the Participant shall be irrevocable. The amount of each such monthly retirement payable in the form of a single life annuity allowance shall be equal to (a) plus (b) minus (c) as follows: (a) One-twelfth (1/12th) of seventy-five percent (75%) of his Final Average Salary reduced by two (2) percentage points for the number of years by which the Participant's total years of Credited Service at his Normal Retirement Date is less than twenty-five (25) years (rounded down to the nearest whole year), multiplied by a fraction, the numerator of which is the Participant's years of Credited Service earned prior to January 1, 1988, and the denominator of which is the Participant's total years of Credited Service at his Normal Retirement Date. (b) One-twelfth (1/12th) of sixty-five percent (65%) of his Final Average Salary reduced by 2.6 percentage points for the number of years by which the Participant's total years of Credited Service at his Normal Retirement Date is less than twenty-five (25) years (rounded down to nearest whole year), multiplied by a fraction, the numerator of which is the Participant's years of Credited Service earned after December 31, 1987, and the denominator of which is the Participant's total Years of Credited Service at his Normal Retirement Date. (c) The sum of: (i) His monthly accrued and vested retirement benefit under the Pension Plan determined at his Normal Retirement Date; (ii) His monthly Primary Social Security Benefit as defined in the Pension Plan; and (iii) His monthly accrued and vested supplemental retirement benefit under the KeyCorp Supplemental Retirement Benefit Plan for Key Executives determined as of his Normal Retirement Date. 4.2 DELAYED RETIREMENT ALLOWANCE. Upon termination after his Normal Retirement Date, a Participant shall receive a monthly retirement allowance which shall commence on the first day of the month coincident with or next following the Participant's termination date, payable in the form of a single life annuity, unless the Participant elects in writing a minimum of thirty days prior to his or her retirement or termination date, to receive payment of his or her benefit under a different form of payment. The forms of payment from which a Participant may elect shall be identical to those forms of payment specified in the Pension Plan, provided, however, that the lump sum payment option available under the Pension Plan shall not be available under this Plan. Such method of payment, once elected by the Participant shall be irrevocable. The amount of each such monthly retirement allowance shall be computed in the same manner as the Normal Retirement Allowance except that Final Average Salary will be determined as of the Delayed Retirement Date. A Participant shall not accrue additional Credited Service beyond his Normal Retirement Date, unless the Participant has less than twenty-five (25) years of Credited Service; in which case such Participant shall continue to accrue Credited Service (up to a total of twenty-five (25) years), for purposes or reducing or eliminating the short service reductions of Section 4.1(a) and (b). Credited Service accrued after a Participant's Normal Retirement Date shall not be used in the multiplier fractions of Section 4.1(a) and (b). 4.3 EARLY RETIREMENT ALLOWANCE. Upon retirement at his Early Retirement Date, a Participant shall receive a monthly retirement allowance, which shall commence on the first day of any month coinciding with his Early Retirement Date payable in the form of a single life annuity, unless the Participant elects in writing a minimum of thirty days prior to his or her retirement date to receive payment of his or her benefit under a different form of payment. The forms of payment from which a Participant may elect shall be identical to those forms of payment specified in the Pension Plan, provided, however, that the lump sum payment option available under the Pension Plan shall not be available under this Plan. Such method of payment, once elected by the Participant shall be irrevocable. The amount of each such monthly retirement allowance shall be equal to the product of items (a), (b) and (c) below: (a) A monthly retirement allowance determined in the same manner as for retirement at his Normal Retirement Date except that: (i) Credited Service shall be determined as if the Participant had in fact continued in active employment until his Normal Retirement Date; and (ii) Final Average Salary shall be determined as of the date of his actual retirement. (b) The ratio that the Participant's Credited Service to the date of his actual retirement bears to the Credited Service that he would have had if he had continued in employment until his Normal Retirement Date. For this purpose, the Normal Retirement Date of a Participant shall be the earliest date on which the Participant could have retired under Section 3.1. (c) Actuarial reduction factors which take into account the commencement of benefits prior to a Participant's Normal Retirement Date. Such actuarial reduction factors shall be the same factors as are then applicable under the Pension Plan with respect to the commencement of benefits before a Participant's Normal Retirement Date under the Pension Plan. Notwithstanding the foregoing, in calculating a Participant's Early Retirement Allowance under the terms of this Section 4.3, the Participant's monthly retirement allowance at his or her Normal Retirement Date for purposes of this Section 4.3 hereof shall be the Participant's monthly retirement allowance under the Pension Plan as of the Participant's Normal Retirement Date. In calculating this Normal Retirement Date benefit, if the Participant is not eligible for, or chooses not to elect his or her monthly retirement allowance under the provisions of Section 6.5(b) of the Pension Plan, such Participant's Pension Plan benefit as of his or her termination date shall be increased for purposes of this Plan with an imputed Average Interest Credit to reflect the Participant's benefit at his or her Normal Retirement Date and shall be converted to the form of a Single Life Annuity option using the Average Treasury Rate and the GATT Mortality Table. 4.4 ACTUARIAL FACTORS. The same actuarial reduction factors and method of calculating actuarial equivalence under the former KeyCorp Pension Plan (1989 Restatement) shall be applicable under this Plan. Any such optional method of retirement payment shall be the actuarial equivalent of the actual dollar amount of lifetime retirement allowance otherwise payable from this Plan after adjustment for the benefit payable from the Pension Plan and the Primary Social Security Benefit. 4.5 IMMEDIATE PAYMENT UPON NORMAL RETIREMENT DATE OF PARTICIPANT. (a) A Participant meeting the age and service eligibility requirements entitling a Participant to a Normal Retirement Allowance or Delayed Retirement Allowance, shall receive an immediate distribution of his or her Normal Retirement Allowance or Delayed Retirement Allowance upon the Participant's termination of employment. (b) DEFERRED BENEFIT PAYMENT. A Participant who terminates his or her employment with an Employer after meeting the age and service requirements for an Early Retirement Allowance shall receive an immediate distribution of his or her Early Retirement Allowance, unless: (i) the Participant notifies KeyCorp in writing his or her deferral election a minimum of one year prior to the Participant's termination of employment, (ii) the Participant specifies the future date on which such benefit shall be distributed, (iii) the Participant's requested deferral period is for a period of not less than five years following the Participant's termination of employment, (iv) the Participant's benefit commencement date mirrors the benefit commencement date of the Participant's benefit under the KeyCorp Supplemental Retirement Plan for Key Executives, and (v) the Participant commences distribution of his or her Plan benefit no later than the first day of the month immediately following the Participant's sixty-fifth (65th) birthday. The election to defer, once made by the Participant, shall be irrevocable. Notwithstanding the foregoing, in the case of an "unforeseeable emergency", upon written application by the Participant to KeyCorp, KeyCorp may accelerate the distribution of the Participant's deferred benefit. For purposes of this Section 4.6, the term "unforeseeable emergency" shall mean a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant, the Participant's spouse, or the Participant's dependent (as defined in Section 152(a) of the Code), the loss of the Participant's property due to casualty, or such other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The determination of an "unforeseeable emergency" and the ability of KeyCorp to accelerate the Participant's benefit shall be determined in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. 4.6 PAYMENT LIMITATION FOR KEY EMPLOYEES. Notwithstanding any other provision of the Plan to the contrary, in the event that the Participant constitutes a "key" employee of KeyCorp (as that term is defined in accordance with Section 416(i) of the Code without regard to paragraph (5) thereof), distributions of the Participant's Benefit may not be made before the date which is six months after the Participant's date of separation from service (or, if earlier, the date of death of the Participant). The term "separation from service" shall be defined for Plan purposes in accordance with the requirements of Section 409A of the Code and applicable regulations issued thereunder. ARTICLE V DEATH BENEFITS 5.1 DEATH PRIOR TO RETIREMENT. (a) If a Participant dies in active employment after completion of five or more years of Credited Service and is survived by a surviving spouse, a monthly retirement allowance shall be paid to the Participant's surviving spouse commencing on the first day of the month coincident with or next following the Participant's date of death. Each such monthly retirement allowance shall equal 50 percent of the monthly retirement allowance to which the Participant would have been entitled under the provisions of Section 4.1 hereof, had the Participant retired as of the Participant's Normal Retirement Date. Such death benefit shall be paid in the form of a single life annuity and shall be subject to distribution on and after the Participant's earliest retirement date. For purposes of calculating the death benefit contained within this Section 5.1(a) only, the following shall apply: (i) The Participant's Primary Social Security Benefit shall be calculated as if the Participant had retired as of his Normal Retirement Date; (ii) The Participant's Pension Plan benefit shall be calculated under the provisions of Article IV of the Pension Plan, as if the Participant had died on his Normal Retirement Date, with such Pension Plan benefit being increased for purposes of this Section 5.1(a) with an imputed Average Interest Credit to reflect the Participant's Normal Retirement Date monthly retirement benefit converted to a single life annuity option using the Average Treasury Rate and Gatt Mortality Tables; and (iii) The monthly retirement allowance paid to the Participant's spouse upon the Participant's death shall be reduced if paid prior to the Participant's Normal Retirement Date using those actuarial factors as are applicable under the KeyCorp Pension Plan (1989 Restatement). (b) If a Participant dies in active employment but after becoming eligible for either an Early Retirement Allowance or a Normal Retirement Allowance, and is survived by his spouse, a monthly retirement allowance shall be paid to his surviving spouse commencing on the first day of the month coincident with or next following his date of death and continuing on the first day of each month thereafter during his spouse's lifetime. Each such monthly retirement allowance shall equal seventy-five percent (75%) of the monthly retirement allowance to which the Participant would have been entitled had he retired on his date of death. For the purpose of calculating this death benefit only, the following special rules apply with respect to the calculation of the Primary Social Security Benefit which the Participant would have been entitled to receive: (i) If both the Participant had attained his sixty-second (62nd) birthday and his spouse had attained her sixtieth (60th) birthday on the Participant's date of death, then the Primary Social Security Benefit to which the Participant would have been entitled had he retired on his date of death instead of dying and then commenced receiving Social Security benefits will be applied. (ii) In all other cases, the Primary Social Security Benefit shall be deemed to be zero. 5.2 DEATH AFTER COMMENCEMENT OF RETIREMENT ALLOWANCE. All rights to any benefits under the Plan will cease upon the death of any Participant for whom retirement allowance under the Plan has already begun, other than as otherwise provided by the retirement form of payment elected by the Participant. ARTICLE VI DISABILITY BENEFITS 6.1 TOTAL AND PERMANENT DISABILITY DEFINED. Total and permanent disability shall mean a "disability" as defined in accordance with Section 409A(a)(2)(C) of the Code, as well as the requirements of the Pension Plan, which after the expiration of the waiting period provided by law, entitles the Participant to receive disability benefit payments in accordance with Title II of the United States Social Security Act. 6.2 TERMINATION PRIOR TO FIVE (5) YEARS OF CREDIT SERVICe. A Participant who terminates his employment with the Employer because of total and permanent disability and who has completed less than five (5) years of Credited Service at such time shall not thereby be entitled to any benefits from the Plan. 6.3 TERMINATION AFTER FIVE (5) YEARS OF CREDITED SERVICE. A Participant who terminates his employment with the Employer because of total and permanent disability and who has completed five (5) or more years of Credited Service shall be subject to whichever of the following subsections shall be applicable: (a) If he shall (after the applicable statutory waiting period) be continuously disabled and entitled to Social Security disability benefits until his attainment of age sixty-five (65), then he shall receive a monthly retirement allowance from this Plan commencing upon the first day of the month coincident with or next following the attainment of his sixty-fifth (65th) birthday and payable on the first day of each month thereafter for his remaining lifetime. Such monthly retirement allowance shall be determined in the same manner as for retirement at his Normal Retirement Date, except that: (i) Credited Service shall be determined as if the Participant had in fact continued in active employment until his sixty-fifth (65th) birthday; and (ii) Final Average Salary shall be determined as of the date of his actual termination of employment due to disability. (b) If he shall (after the applicable statutory waiting period) not be continually disabled and entitled to Social Security disability benefits until his attainment of age sixty-five (65), he shall not be entitled to a disability benefit from this Plan, but shall be subject to the provisions of Section 6.4 hereof. 6.4 RECOVERY FROM DISABILITY PRIOR TO NORMAL RETIREMENT DATE. If a Participant who became totally and permanently disabled thereafter recovers from such disability prior to attaining age sixty-five (65) (as evidenced solely by the fact that he is no longer eligible for Social Security disability benefits), then his benefits from this Plan shall be determined as follows: (a) If he returns to employment with the Employer upon such recovery, then he shall not be entitled to any disability benefits in accordance with this Article VI. For the purpose of determining his entitlement to, and amount of, benefits under any other provision of this Plan, however, his period of Credited Service and Service shall include the period during which he was totally and permanently disabled. (b) If he fails to return to employment with the Employer upon such recovery, then he shall not be entitled to any disability benefits in accordance with this Article VI. This shall not, however, deprive him of the benefits, if any, to which he is otherwise entitled under this Plan based upon his age, Credited Service, Service and Final Average Salary, as of his termination of employment due to disability. ARTICLE VII ADMINISTRATION 7.1 CONTRIBUTIONS BY PARTICIPANTS. No contributions by Participants shall be required or permitted under this Plan. 7.2 CONTRIBUTIONS BY EMPLOYER. (a) This Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of management or highly compensated employees. (b) The Employer shall be responsible for the payment of all benefits provided under the Plan. At its discretion, the Employer may establish one or more trusts, with such trustees as the Employer may approve for the purpose of providing for the payment of such benefits. Such trust or trusts may be irrevocable, but the assets thereof shall be subject to the claims of the Employer's creditors. To the extent any benefits provided under the Plan are actually paid from any such trust, the Employer shall have no further obligation with respect thereto, but to the extent not so paid, such benefits shall remain the obligations of, and shall be paid by, the Employer. Employer's obligation under the Plan shall be that of an unfunded and unsecured promise of Employer to pay money in the future. 7.3 DESIGNATION AND DUTIES OF ADMINISTRATOR. The Board shall designate the administrator of this Plan who shall administer this Plan and who shall serve until the Board designates another administrator. All decisions of such administrator with respect to the administration of this Plan shall be final and binding upon the Employer, the Participants and all other parties hereto. 7.4 AMENDMENT. The Board shall have the right at any time, and from time to time, to amend, in whole or in part, any or all of the provisions of this Plan. However, no such amendment shall reduce or eliminate any benefit to which the Participant would then be entitled to receive (based upon his age, Credited Service, Service and Final Average Salary as of the date of such amendment) as of the date of such amendment. 7.5 PLAN TERMINATION. The Board shall have the right at any time to terminate this Plan. However, no such termination shall reduce or eliminate any benefit to which the Participant would then be entitled to receive (based upon his age, Credited Service, Service and Final Average Salary as of the date of such termination) as of the date of such termination. 7.6 SECTION 409A COMPLIANCE. The Plan shall not be amended or terminated if such amendment or termination would result in a violation of Section 409A of the Code. ARTICLE VIII CLAIMS PROCEDURES 8.1 CLAIM. The Committee shall establish rules and procedures to be followed by Participants and Beneficiaries in (a) filing claims for benefits, and (b) for furnishing and verifying proofs necessary to establish the right to benefits in accordance with the Plan, consistent with the remainder of this Article. Such rules and procedures shall require that claims and proofs be made in writing and directed to the Committee. 8.2 REVIEW OF CLAIM. The Committee shall review all claims for benefits. Upon receipt by the Committee of such a claim, it shall determine all facts which are necessary to establish the right of the claimant to benefits under the provisions of the Plan and the amount thereof as herein provided within sixty (60) days of receipt of such claim. If prior to the expiration of the initial sixty (60) day period, the Committee determines additional time is needed to come to a determination on the claim, the Committee shall provide written notice to the Participant, Beneficiary or other claimant of the need for the extension, not to exceed a total of one hundred eighty (180) days from the date the application was received. 8.3 NOTICE OF DENIAL OF CLAIM. In the event that any Participant, Beneficiary or other claimant claims to be entitled to a benefit under the Plan, and the Committee determines that such claim should be denied in whole or in part, the Committee shall, in writing, notify such claimant that the claim has been denied, in whole or in part, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by such claimant and shall refer to the specific sections of the Plan relied on, shall describe any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary, and where appropriate, shall include an explanation of how the claimant can obtain reconsideration of such denial. 8.4 RECONSIDERATION OF DENIED CLAIM. (a) Within a sixty (60) days after receipt of the notice of the denial of a claim, such claimant or duly authorized representative may request, by mailing or delivery of such written notice to the Committee, a reconsideration by the Committee of the decision denying the claim. If the claimant or duly authorized representative fails to request such a reconsideration within such sixty (60) day period, it shall be conclusively determined for all purposes of this Plan that the denial of such claim by the Committee is correct. If such claimant or duly authorized representative request a reconsideration within such sixty (60) day period, the claimant or duly authorized representative shall have thirty (30) days after filing a request for reconsideration to submit additional written material in support of the claim, review pertinent documents, and submit issues and comments in writing. (b) After such reconsideration request, the Committee shall determine within sixty (60) days of receipt of the claimant's request for reconsideration whether such denial of the claim was correct and shall notify such claimant in writing of its determination. The written notice of decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions of which the decision is based. In the event of special circumstances determined by the Committee, the time for the Committee to make a decision may be extended by an additional sixty (60) days upon written notice to the claimant prior to the commencement of the extension. All findings, decisions, and determinations of any kind made by the Committee shall not be modified unless the Committee has acted in an arbitrary and capricious manner. Subject to the requirements of the law, the Committee shall be the sole judge of the standard of proof required for any claim for benefits, and any determination of eligibility or amount or form of a Plan benefit. All decisions made by the Committee shall be binding on the claimant and upon all other persons. If the Participant or Beneficiary shall not file written notice with the Committee at the times set forth above, such individual shall have waived all benefits under the Plan other than as already provided, it any. 8.5 EMPLOYER TO SUPPLY INFORMATION. To enable the Committee to perform its functions, the Employer shall supply full and timely information to the Committee of all matters relating to the retirement, death or other cause for termination of service of all Participants, and such other pertinent facts as the Committee may require. ARTICLE IX MISCELLANEOUS 9.1 HEADINGS AND SUBHEADINGS. The headings and subheadings in the Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. 9.2 GENDER AND NUMBER. Whenever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and whenever any words are used herein in the singular form they shall be construed as though they were also used in plural form in all cases where they would so apply. 9.3 CONSTRUCTION OF PLAN. This Plan shall be construed according to the laws of the State of New York and all provisions hereof shall be administered according to he laws of such State. 9.4 EMPLOYEE'S RIGHTS. Neither the establishment of this Plan, nor any modification thereof, nor any modification thereof, nor the payment of any benefits, shall be construed as giving to an Employee or other person, any legal or equitable right against the Employer, or any officer or Employee thereof, except as herein provided. Under no circumstances shall the terms of employment of an Employee be modified or in any way affected hereby. 9.5 VESTED INTEREST. No Plan Participant or other Employee shall have a vested interest with respect to this Plan except as specifically provided herein. 9.6 RECEIPT OR RELEASE. Any payment to an Employee, contingent annuitant, beneficiary, or to their legal representatives, in accordance with the provisions of the Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against the Employer, who may require such Employee, contingent annuitant, beneficiary or legal representative, as a condition precedent to such payment, to execute a receipt and release therefore in such form as shall be determined by the Employer. 9.7 SPENDTHRIFT CLAUSE. Except insofar as may be contrary to any applicable law, no payment of any benefit under the Plan shall be assignable and no such payment or contribution shall be subject to the claims of any creditor. 9.8 FACILITY OF PAYMENTS. If any Employee, contingent annuitant or beneficiary is a minor or is, in the judgment of the administrator, otherwise legally incapable of personally receiving and giving a valid receipt for any payment due him under the Plan, the administrator may, unless and until claim shall have been made by a duly appointed guardian or legal representative of such person, make such payment or any part thereof to such person's spouse, child, parent, brother or sister, or other person deemed by the administrator to have incurred expense for or assumed responsibility for the expenses of such person. Any payment so made shall be in complete discharge of any liability under the Plan for such payment. 9.9 DELEGATION OF AUTHORITY BY THE EMPLOYER. Whenever the Employer, under the terms of this Agreement, is permitted or required to do or perform any act or matter or thing, it shall be done and performed by any officer thereunto duly authorized by its Board of Directors. ARTICLE X COMPLIANCE WITH SECTION 409A CODE The Plan is intended to provide for the deferral of compensation in accordance with the provisions of Section 409A of the Code and regulations and published guidance issued pursuant thereto. Accordingly, the Plan shall be construed in a manner consistent with those provisions and may at any time be amended in the manner and to the extent determined necessary or desirable by KeyCorp to reflect or otherwise facilitate compliance with such provisions with respect to amounts deferred on and after January 1, 2005, including as contemplated by Section 855(f) of the American Jobs Creation Act of 2004. Notwithstanding any provision of the Plan to the contrary, no otherwise permissible election or distribution shall be made or given effect under the Plan that would result in early taxation or assessment of penalties or interest of any amount under Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, Benefits shall not be distributed to a Participant earlier than: (a) the Participant's separation from service as determined by the Secretary of the Treasury (except as provided below with respect to a key employee of KeyCorp); (b) upon the occurrence to the Participant, the Participant's spouse, or the Participant's dependent an unforeseeable emergency as defined in Section 409A(a)(2)(B)(ii) of the Code. If it is determined that a Participant constitutes a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) of KeyCorp, the Participant shall not commence the distribution of his or her benefits before the date which is six months after the date of the Participant's separation from service (or, if earlier, the date of death of the Participant). IN WITNESS WHEREOF, KeyCorp has caused this KeyCorp Second Supplemental Retirement Benefit Plan for Key Executives to be executed by its duly authorized officer this 28th day of December, to be effective as of January 1, 2005. KEYCORP By: /s/ Thomas E. Helfrich --------------------------- Title: Executive Vice President EX-12 15 l11135aexv12.txt EX-12 RATIO OF EARN TO FIXED CHARGES & PREFER STOCK DIV EXHIBIT 12 KEYCORP COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (dollars in millions) (unaudited)

EX-13 16 l11135aexv13.htm EX-13 ANNUAL REPORT - FINANCIALS EX-13

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

INTRODUCTION

This section generally reviews the financial condition and results of operations of KeyCorp and its subsidiaries for each of the past three years. 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 that appear on pages 51 through 88.

Terminology

This report contains some shortened names and industry-specific terms. We want to explain some of these terms at the outset so you can better understand the discussion that follows.

•   KeyCorp refers solely to the parent holding company.

•   KBNA refers to Key’s subsidiary bank, KeyBank National Association.

•   Key refers to the consolidated entity consisting of KeyCorp and its subsidiaries.

•   A KeyCenter is one of Key’s full-service retail banking facilities or branches.

•   Key engages in capital markets activities. 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 for proprietary trading purposes), and conduct transactions in foreign currencies (both to accommodate clients’ needs and to benefit from fluctuations in exchange rates).

•   All earnings per share data included in this discussion are presented on a diluted basis, which takes into account all common shares outstanding as well as potential common shares that could result from the exercise of outstanding stock options and other stock awards. Some of the financial information tables also include basic earnings per share, which takes into account only common shares outstanding.

•   For regulatory purposes, capital is divided into two classes. Federal regulations prescribe that at least one-half of a bank or bank holding company’s total risk-based capital must qualify as Tier 1. Both total and Tier 1 capital serve as bases for several measures of capital adequacy, which is an important indicator of financial stability and condition. You will find a more detailed explanation of total and Tier 1 capital and how they are calculated in the section entitled “Capital,” which begins on page 32.

Description of business

KeyCorp is one of the nation’s largest bank-based financial services companies with consolidated total assets of $90.7 billion at December 31, 2004. KeyCorp’s subsidiaries provide a wide range of retail and commercial banking, commercial leasing, investment management, consumer finance and investment banking products and services to individual, corporate and institutional clients through three major business groups: Consumer Banking, Corporate and Investment Banking, and Investment Management Services. As of December 31, 2004, these services were provided across much of the country through subsidiaries operating 935 KeyCenters, a telephone banking call center services group and 2,194 ATMs in seventeen states. Additional information pertaining to KeyCorp’s three business groups appears in the “Line of Business Results” section, which begins on page 15, and in Note 4 (“Line of Business Results”), which begins on page 62.

In addition to the customary banking services of accepting deposits and making loans, KeyCorp’s bank and trust company subsidiaries offer personal and corporate trust services, personal financial services, access to mutual funds, cash management services, investment banking and capital markets products, and international banking services. Through its subsidiary bank, trust company and registered investment adviser subsidiaries, KeyCorp provides investment management services to clients that include large corporate and public retirement plans, foundations and endowments, high net worth individuals and Taft-Hartley plans (i.e., multiemployer trust funds established for providing pension, vacation or other benefits to employees).

KeyCorp provides other financial services both inside and outside of its primary banking markets through its nonbank subsidiaries. These services include accident, health and credit-life insurance on loans made by KeyCorp’s subsidiary bank, principal investing, community development financing, securities underwriting and brokerage, merchant services and other financial services.

Long-term goals

Key’s long-term goals are to achieve an annual return on average equity in the range of 16% to 18% and to grow earnings per common share at an annual rate of 8% to 10%. Our strategy for achieving these goals is described under the heading “Corporate strategy” on page 11.

Forward-looking statements

In addition to our long-term goals, this report may contain “forward-looking statements” about other issues like anticipated earnings, anticipated levels of net loan charge-offs and nonperforming assets, forecasted interest rate exposure, and anticipated improvement in profitability. These statements usually can be identified by the use of forward-looking language such as “our goal,” “our objective,” “our plan,” “will likely result,” “will be,” “are expected to,” “as planned,” “is anticipated,” “intends to,” “is projected,” or similar words.

Forward-looking statements pertaining to our goals and other matters are subject to assumptions, risks and uncertainties. For a variety of reasons, including the following factors, Key’s actual results could differ materially from those contained in or implied by forward-looking statements.

Economic conditions. If the economy or segments of the economy do not continue to improve, the demand for new loans and the ability of borrowers to repay outstanding loans may decline.

Interest rates. The extent to which market interest rates change, the direction in which they move and the composition of Key’s interest-earning assets and interest-bearing liabilities could affect net interest income.

Market dynamics. Key’s revenue is susceptible to changes in the markets Key serves, including changes resulting from mergers, acquisitions and consolidations among major clients and competitors; regional and global economic conditions and changes in laws and regulations.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

International operations. Key meets the equipment leasing needs of companies worldwide. Economic and political uncertainties resulting from terrorist attacks, related military actions or other events that affect the countries in which we operate may have an adverse effect on Key’s results of operations.

Business mix and development. The extent to which existing clients use Key’s new products and services and our level of success in attracting new clients may have a significant effect on Key’s future revenue. In addition, Key’s results of operations could be affected by changes (including those resulting from acquisitions and divestitures) in the composition of its business and in the geographic locations in which we operate.

Pricing and competition. The prices we charge for Key’s products and services and, hence, their profitability could change depending on demand, actions taken by our competitors and the introduction of new products and services.

Financial modeling. Assumptions made in connection with our financial and risk management modeling techniques and programs may prove to be inaccurate or erroneous.

Liquidity. Key’s liquidity could be adversely affected by both direct and indirect circumstances. An example of a direct (but hypothetical) event would be a significant downgrade in Key’s public credit rating by a rating agency. Examples of indirect (but hypothetical) events unrelated to Key that could have market-wide consequences would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation about Key or the banking industry in general may adversely affect the cost and availability of normal funding sources.

Regulatory capital. KeyCorp and KBNA must meet specific capital requirements imposed by federal banking regulators. Sanctions for failure to meet applicable capital requirements may include regulatory enforcement actions that restrict dividend payments, require the adoption of remedial measures to increase capital, terminate Federal Deposit Insurance Corporation (“FDIC”) deposit insurance, and mandate the appointment of a conservator or receiver in severe cases. In addition, failure to maintain a well-capitalized status affects the evaluation of regulatory applications for certain dealings, including acquisitions, continuation and expansion of existing activities, and commencement of new activities, and could affect the confidence of our clients and potential investors.

Business continuity. Although Key has disaster recovery plans in place, events such as terrorist activities or military actions could damage our facilities or otherwise disrupt our operations. Such events could have an adverse effect on Key’s results of operations.

Technological change. Key’s financial performance depends in part on its ability to develop, market and deliver new and innovative products and services. This is often accomplished through technological change. Developing and implementing such changes may require significant financial investments and staff time, and there is no guarantee that the end result will be attractive to our clients. In addition, technological advances may quickly become obsolete.

Accounting principles. Changes in U.S. generally accepted accounting principles (“GAAP”) could have a significant adverse effect on Key’s reported financial results. Although these changes may not have an economic impact on our business, they could affect our ability to attain targeted levels for certain performance measures.

Legal obligations and regulatory compliance. We may become subject to new legal obligations, or the resolution of pending litigation may have an adverse effect on our financial results. Also, KeyCorp and its subsidiaries are subject to voluminous and complex rules, regulations, and guidelines imposed by several government authorities. Monitoring compliance with these is a significant task and failure to comply may result in penalties that could have an adverse effect on Key’s results of operations.

Corporate strategy

Our strategy for achieving Key’s long-term goals is comprised of the following five primary elements:

•   Focus on our core businesses. We concentrate on businesses that enable us to build relationships with our clients. We focus on our “footprint” operations (i.e., those businesses conducted primarily within the thirteen states in which we have KeyCenters) that serve individuals, small businesses and middle market companies. In addition, we focus nationwide on businesses such as commercial real estate lending, investment management and equipment leasing, in which we believe we possess resources of the scale necessary to compete nationally.

•   Build relationships. We work to deepen our relationships with existing clients and to build relationships with new clients, particularly those that have the potential to purchase multiple products and services or to generate repeat business. To that end, we emphasize deposit growth across all our lines of business. We also are putting considerable effort into enhancing our service quality.

•   Enhance our business. We strive for continuous improvement in our businesses. We continue to focus on increasing revenues, controlling expenses and improving the credit quality of our loan portfolios. We will continue to leverage technology to reduce costs and to achieve these objectives.

•   Cultivate a workforce that demonstrates Key’s values and works together for a common purpose. Key intends to achieve this by:

–   paying for performance if achieved in ways that are consistent with Key’s values;

–   attracting, developing and retaining a quality, high-performing and inclusive workforce;

–   developing leadership at all staff and management levels; and

–   creating a positive, stimulating and entrepreneurial work environment.

• Enhance performance measurement. We will continue to refine and to rely upon performance measurement mechanisms that help us ensure that we are maximizing returns for our shareholders, that those returns are appropriate considering the inherent levels of risk involved and that our incentive compensation plans are commensurate with the contributions employees make to profitability.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Critical accounting policies and estimates

Key’s business is dynamic and complex. Consequently, management must exercise judgment in choosing and applying accounting policies and methodologies in many areas. These choices are important: not only are they necessary to comply with GAAP, they also reflect management’s view of the most appropriate manner in which to record and report Key’s overall financial performance. All accounting policies are important, and all policies described in Note 1 (“Summary of Significant Accounting Policies”), which begins on page 55, should be reviewed for a greater understanding of how Key’s financial performance is recorded and reported.

In management’s opinion, some accounting policies are more likely than others to have a significant effect on Key’s financial results and to expose those results to potentially greater volatility. These policies apply to areas of relatively greater business importance or require management 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 change over time or prove to be inaccurate. Key relies heavily on the use of assumptions and estimates in several areas, including accounting for the allowance for loan losses, loan securitizations, contingent liabilities and guarantees, principal investments, goodwill, and pension and other postretirement obligations. A brief discussion of each of these areas appears below.

Allowance for loan losses. The loan portfolio is the largest category of assets on Key’s balance sheet. Management determines probable losses inherent in Key’s loan portfolio and establishes an allowance that is sufficient to absorb those losses by considering factors including historical loss rates, expected cash flows and estimated collateral values. In assessing these factors, management benefits from a lengthy organizational history and experience with credit decisions and related outcomes. Nonetheless, if management’s underlying assumptions later prove to be inaccurate, the allowance for loan losses would have to be adjusted.

Management estimates the appropriate level of Key’s allowance for loan losses by separately evaluating impaired and nonimpaired loans. A specific allowance is assigned to an impaired loan when expected cash flows or collateral cast doubt on the carrying amount of the loan. The methodology used to assign an allowance to a nonimpaired loan is much more subjective. Generally, the allowance assigned to nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics and by exercising judgment to assess the impact of factors such as changes in economic conditions, changes in credit policies or underwriting standards, and changes in the level of credit risk associated with specific industries and markets. Because the economic and business climate in any given industry or market, and its impact on a particular borrower, can change rapidly, the risk profile of the loan portfolio is continually assessed and adjusted when appropriate. Notwithstanding these procedures, it is still possible for management’s assessment to be significantly incorrect, requiring an immediate adjustment to the allowance for loan losses.

Adjustments to the allowance for loan losses can materially affect net income. Such adjustments may result from events that cause actual losses to vary abruptly and significantly from expected losses. For example, class action lawsuits brought against an industry segment (e.g., one that utilized asbestos in its product) can cause a precipitous deterioration in the risk profile of borrowers doing business in that segment. Conversely, the dismissal of such lawsuits can cause a significant improvement in the risk profile. In either case, historical loss rates for that industry segment would not have provided a precise basis for determining the appropriate level of allowance.

Because Key’s loan portfolio is large, even minor changes in estimated loss rates can significantly affect management’s determination of the appropriate level of allowance. For example, a one-tenth of one percent change in the loss rate assumed for Key’s December 31, 2004, consumer loan portfolio would result in a $21 million change in the level of allowance deemed appropriate. The same percentage change in the loss rate assumed for the commercial loan portfolio would result in a $43 million change in the allowance.

Management estimates the appropriate level of Key’s allowance by conducting a detailed review of a significant number of much smaller portfolio segments that make up the consumer and commercial loan portfolios. It should be noted that Key’s total loan portfolio is well diversified in many respects, and a change in the level of the allowance for any one segment of the portfolio does not necessarily mean that a change is appropriate for any other segment. Also, the risk profile of certain segments of the loan portfolio may be improving, while the risk profile of others may be deteriorating. As a result, changes in the appropriate level of the allowance for different segments may offset each other. Thus, a change in the difference between actual and expected losses in any particular segment does not necessarily require a change in the level of the total allowance.

Our accounting policy related to the allowance is disclosed in Note 1 under the heading “Allowance for Loan Losses” on page 56.

Loan securitizations. Key securitizes certain types of loans, and accounts for those transactions as sales when the criteria set forth in Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,” are met. If future events were to preclude accounting for such transactions as sales, the loans would have to be placed back on Key’s balance sheet, which could have an adverse effect on Key’s capital ratios and other unfavorable financial implications.

In addition, management must make assumptions to determine the gain or loss resulting from securitization transactions and the subsequent carrying amount of retained interests; the most significant of these are described in Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”), which begins on page 67. Note 8 also includes information concerning the sensitivity of Key’s pre-tax earnings to immediate adverse changes in important assumptions. The use of alternative assumptions would change the amount of the initial gain or loss recognized and might result in changes in the carrying amount of retained interests, with related effects on results of operations. Our accounting policy related to loan securitizations is disclosed in Note 1 under the heading “Loan Securitizations” on page 57.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Contingent liabilities, guarantees and income taxes. Contingent liabilities arising from litigation, guarantees in various agreements with third parties under which Key is a guarantor, and the potential effects of all of these items on Key’s results of operations are summarized in Note 18 (“Commitments, Contingent Liabilities and Guarantees”), which begins on page 81. In addition, the applicability of the Internal Revenue Code and various state tax laws to transactions undertaken by Key is not always clear-cut. In the normal course of business, Key may record tax benefits related to transactions that may be contested by the Internal Revenue Service and/or state tax authorities. Key has provided tax reserves that management believes are currently adequate to absorb potential adjustments that may result from such contested tax benefits. For further information on Key’s accounting for income taxes, see Note 17 (“Income Taxes”), which begins on page 80.

Key records a liability for the fair value of the obligation to stand ready to perform over the term of a guarantee, but there is a risk that Key’s actual future payments in the event of a default by a third party could exceed the liability recorded on Key’s balance sheet. See Note 18 for a comparison of the liability recorded and the maximum potential undiscounted future payments for the various types of guarantees that Key had outstanding at December 31, 2004.

Valuation methodologies. Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable liquid markets for the items being valued. The outcomes of valuations performed by management have a direct bearing on the carrying amounts of assets and liabilities, including principal investments, goodwill, and pension and other postretirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, repayment rates and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect Key’s results of operations.

Key’s principal investments include direct and indirect investments, predominantly in privately held companies. The fair values of these investments are estimated by considering a number of factors, including the investee’s financial condition and results of operations, values of public companies in comparable businesses, market liquidity, and the nature and duration of resale restrictions. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting Key’s financial condition and results of operations. The fair value of principal investments was $816 million at December 31, 2004; a 10% positive or negative variance in the fair value would increase or decrease Key’s earnings by $82 million ($51 million after tax), or $.12 per share.

The valuation and testing methodologies used in Key’s analysis of goodwill impairment are summarized in Note 1 under the heading “Goodwill and Other Intangible Assets” on page 58. The first step in testing for impairment is to determine the fair value of each reporting unit. If the carrying amount of any reporting unit exceeds its fair value, goodwill impairment may be indicated, and a second step would be required. Two primary assumptions are used in determining these fair values: Key’s revenue growth rate and the future weighted-average cost of capital (“WACC”). Key’s goodwill impairment testing for 2004 assumed a revenue growth rate of 6.00% and a WACC of 11.50%. Assuming that only one of these two factors changes at a time, the second step of the impairment testing would be necessary if the revenue growth rate or WACC were as follows for each of Key’s reporting units:

Consumer Banking — negative 15.25% rate of revenue growth or 28.00% WACC

Corporate and Investment Banking — negative 6.50% rate of revenue growth or 19.50% WACC

Investment Management Services — negative 13.25% rate of revenue growth or 25.00% WACC

These sensitivities are hypothetical and not completely realistic since a change in one of these assumptions is evaluated without changing the other. In reality, a change in one assumption could affect the other.

The primary assumptions used in determining Key’s pension and other postretirement benefit obligations and related expenses, including sensitivity analyses of these assumptions, are presented in Note 16 (“Employee Benefits”), which begins on page 76.

When a potential asset impairment is identified through testing, observable changes in liquid markets or other means, management also must exercise judgment in determining the nature of the potential impairment (i.e., whether the impairment is temporary or other-than-temporary) in order to apply the appropriate accounting treatment. For example, unrealized losses on securities available for sale that are deemed temporary are recorded in shareholders’ equity; those deemed “other-than-temporary” are recorded in earnings. Additional information regarding temporary and other-than-temporary impairment at December 31, 2004, is provided in Note 6 (“Securities”), which begins on page 66.

Revenue recognition

Improprieties committed by various publicly-traded companies related to revenue recognition have received a great deal of attention. Although all companies face the risk of intentional or unintentional misstatements, Key’s management believes that such misstatements are less likely in the financial services industry because most of the revenue (i.e., interest accruals) recorded is driven by nondiscretionary formulas based on written contracts, such as loan agreements.

HIGHLIGHTS OF KEY’S 2004 PERFORMANCE

The primary measures of Key’s financial performance for 2004, 2003 and 2002 are summarized below. Figure 1 on page 14 summarizes Key’s financial performance for each of the past six years.

•   Net income for 2004 was $954 million, or $2.30 per common share, compared with $903 million, or $2.12 per share, for 2003 and $976 million, or $2.27 per share, for 2002.

•   Key’s return on average equity was 13.75% for 2004, compared with 13.08% for 2003 and 14.96% for 2002.

•   Key’s 2004 return on average total assets was 1.10%, compared with a return of 1.07% for 2003 and 1.19% for 2002.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 1. SELECTED FINANCIAL DATA


																			Compound
																			Annual Rate
																			of Change
dollars in millions, except per share amounts	2004			2003			2002			2001			2000			1999			(1999-2004)

YEAR ENDED DECEMBER 31,
Interest income	$	3,818		$	3,970		$	4,366		$	5,627		$	6,277		$	5,695			(7.7)	%
Interest expense		1,181			1,245			1,617			2,802			3,547			2,908			(16.5	)
Net interest income		2,637			2,725			2,749			2,825			2,730			2,787			(1.1	)
Provision for loan losses		185			501			553			1,350			490			348			(11.9	)
Noninterest income		1,746			1,760			1,769			1,725			2,194			2,315			(5.5	)
Noninterest expense		2,810			2,742			2,653			2,941			2,917			3,070			(1.8	)
Income before income taxes and cumulative effect of accounting changes		1,388			1,242			1,312			259			1,517			1,684			(3.8	)
Income before cumulative effect of accounting changes		954			903			976			157			1,002			1,107			(2.9	)
Net income		954			903			976			132			1,002			1,107			(2.9	)

PER COMMON SHARE
Income before cumulative effect of accounting changes	$	2.32		$	2.13		$	2.29		$	.37		$	2.32		$	2.47			(1.2)	%
Income before cumulative effect of accounting changes — assuming dilution		2.30			2.12			2.27			.37			2.30			2.45			(1.3	)
Net income		2.32			2.13			2.29			.31			2.32			2.47			(1.2	)
Net income — assuming dilution		2.30			2.12			2.27			.31			2.30			2.45			(1.3	)
Cash dividends paid		1.24			1.22			1.20			1.18			1.12			1.04			3.6
Book value at year end		17.46			16.73			16.12			14.52			15.65			14.41			3.9
Market price at year end		33.90			29.32			25.14			24.34			28.00			22.13			8.9
Dividend payout ratio		53.45	%		57.28	%		52.40	%		380.65	%		48.28	%		42.11	%		4.9
Weighted-average common shares (000)		410,585			422,776			425,451			424,275			432,617			448,168			(1.7	)
Weighted-average common shares and potential common shares (000)		415,430			426,157			430,703			429,573			435,573			452,363			(1.7	)

AT DECEMBER 31,
Loans	$	68,464		$	62,711		$	62,457		$	63,309		$	66,905		$	64,222			1.3	%
Earning assets		78,879			73,143			73,635			71,672			77,316			73,733			1.4
Total assets		90,739			84,487			85,202			80,938			87,270			83,395			1.7
Deposits		57,842			50,858			49,346			44,795			48,649			43,233			6.0
Long-term debt		14,846			15,294			15,605			14,554			14,161			15,881			(1.3	)
Shareholders’ equity		7,117			6,969			6,835			6,155			6,623			6,389			2.2

PERFORMANCE RATIOS
Return on average total assets		1.10	%		1.07	%		1.19	%		.16	%		1.19	%		1.37	%		N/A
Return on average equity		13.75			13.08			14.96			2.01			15.39			17.68			N/A
Net interest margin (taxable equivalent)		3.64			3.80			3.97			3.81			3.69			3.93			N/A

CAPITAL RATIOS AT DECEMBER 31,
Equity to assets		7.84	%		8.25	%		8.02	%		7.60	%		7.59	%		7.66	%		N/A
Tangible equity to tangible assets		6.35			6.94			6.73			6.29			6.12			6.03			N/A
Tier 1 risk-based capital		7.22			8.35			7.74			7.17			7.72			7.68			N/A
Total risk-based capital		11.47			12.57			12.11			11.07			11.48			11.66			N/A
Leverage		7.96			8.55			8.16			7.66			7.71			7.77			N/A

OTHER DATA
Average full-time equivalent employees		19,576			20,064			20,816			21,555			22,939			25,469			(5.1)	%
KeyCenters		935			906			910			911			922			936			—

Key completed several acquisitions and divestitures during the six-year period shown in this table. One or more of these transactions may have had a significant effect on Key’s results, making it difficult to compare results from one year to the next. Note 3 (“Acquisitions and Divestiture”) on page 62 contains specific information about the acquisitions and divestiture that Key completed in the past three years to help you understand how those transactions may have impacted Key’s financial condition and results of operations.

N/A = Not Applicable

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Key’s top three priorities for 2004 were to profitably grow revenue, improve asset quality and maintain expense discipline. During 2004:

•   Key’s noninterest income rose by $32 million, excluding a $46 million net loss incurred during the fourth quarter of 2004 from the sale of the broker-originated home equity loan portfolio and the reclassification of the indirect automobile loan portfolio to held-for-sale status. This increase was due primarily to improved performance of Key’s market-sensitive businesses, including investment banking and capital markets, and trust and investment services. These businesses benefited from stronger equity markets as well as the integration of our banking, investment and trust businesses, and our focus on targeted client segments. Significant growth in letter of credit and loan fees also contributed to the increase.

Despite strong commercial loan growth that contributed to a $1.5 billion increase in the level of Key’s average earning assets, Key’s net interest income decreased by $88 million from 2003, reflecting a 16 basis point reduction in Key’s net interest margin. The growth of our commercial loan portfolio was broad-based and spread across a number of industry sectors.

•   Asset quality continued to improve as Key’s nonperforming loans have declined for nine consecutive quarters. At December 31, 2004, nonperforming loans were at their lowest level since September 30, 1995. In addition, net loan charge-offs on Key’s continuing loan portfolio for the fourth quarter were at their lowest level since the second quarter of 2000. The continuing loan portfolio excludes the broker- originated home equity and indirect automobile loan portfolios that were either sold or moved to held-for-sale status in December 2004.

•   We continued to manage expenses effectively. Excluding a $55 million write-off of goodwill recorded during the fourth quarter of 2004 in connection with our decision to sell the nonprime indirect automobile loan business, the level of Key’s total noninterest expense was essentially unchanged from 2003.

Further, we continue to effectively manage our capital through share repurchases, dividends paid to shareholders and investing in our higher-growth businesses. During 2004, Key repurchased 16.5 million of its common shares. Key’s tangible equity to tangible assets ratio was 6.35% at December 31, 2004, and is within our targeted range of 6.25% to 6.75%.

The primary reasons that Key’s revenue and expense components changed over the past three years are reviewed in greater detail throughout the remainder of the Management’s Discussion & Analysis section.

Looking ahead, we believe Key is positioned to benefit from an improving economy. We have strengthened our management team, repositioned our balance sheet in anticipation of rising interest rates, improved our risk profile and maintained a disciplined approach to managing expenses. In addition, we completed a number of specific transactions during 2004 that strengthened our market share positions and supported our strategy of focusing on businesses that enable us to build relationships with our clients.

• During the fourth quarter of 2004, we sold our broker-originated home equity loan portfolio and reclassified our indirect automobile loan portfolio to held-for-sale status because these businesses did not meet our performance standards or fit with our relationship banking strategy. These actions reduced Key’s 2004 results by $78 million ($77 million after tax), or $.19 per common share.

• Effective December 1, 2004, we acquired American Express Business Finance Corporation (“AEBF”), the equipment leasing unit of American Express’ small business division headquartered in Parsippany, New Jersey. This company provides capital for small and middle market businesses, mostly in the healthcare, information technology, office products, and commercial vehicle/construction industries, and has a leasing portfolio of approximately $1.5 billion.

• Effective October 15, 2004, we acquired EverTrust Financial Group, Inc. (“EverTrust”), the holding company for EverTrust Bank, a state- chartered bank headquartered in Everett, Washington with twelve branch offices. EverTrust had assets of approximately $780 million and deposits of approximately $570 million at the date of acquisition.

• Effective August 11, 2004, we acquired certain net assets of American Capital Resource, Inc., based in Atlanta, Georgia. This is the fourth commercial real estate acquisition we have made in the last five years as part of our ongoing strategy to expand Key’s commercial mortgage finance and servicing capabilities.

• Effective July 22, 2004, we acquired ten branch offices and approximately $380 million of deposits of Sterling Bank & Trust FSB in suburban Detroit, Michigan.

LINE OF BUSINESS RESULTS

This section summarizes the financial performance and related strategic developments of each of Key’s three major business groups: Consumer Banking, Corporate and Investment Banking, and Investment Management Services. To better understand this discussion, see Note 4 (“Line of Business Results”), which begins on page 62. Note 4 includes a brief description of the products and services offered by each of the three major business groups, more detailed financial information pertaining to the groups and their respective lines of business, and explanations of “Other Segments” and “Reconciling Items” presented in Figure 2.

Figure 2 shows the contribution made by each major business group to Key’s taxable-equivalent revenue and net income for each of the past three years.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 2. MAJOR BUSINESS GROUPS — TAXABLE-EQUIVALENT REVENUE AND NET INCOME


Year ended December 31,										Change 2004 vs 2003
dollars in millions	2004			2003			2002			Amount			Percent

REVENUE (TAXABLE EQUIVALENT)
Consumer Banking	$	2,257		$	2,331		$	2,360		$	(74	)		(3.2	)%
Corporate and Investment Banking		1,511			1,467			1,486			44			3.0
Investment Management Services		808			783			822			25			3.2
Other Segments		15			56			2			(41	)		(73.2	)

Total segments		4,591			4,637			4,670			(46	)		(1.0	)
Reconciling Items		(114	)		(81	)		(32	)		(33	)		(40.7	)

Total	$	4,477		$	4,556		$	4,638		$	(79	)		(1.7	)%


NET INCOME (LOSS)
Consumer Banking	$	375		$	412		$	445		$	(37	)		(9.0	)%
Corporate and Investment Banking		486			358			369			128			35.8
Investment Management Services		112			81			96			31			38.3
Other Segments		31			56			26			(25	)		(44.6	)

Total segments		1,004			907			936			97			10.7
Reconciling Items		(50	)		(4	)		40			(46	)		N/M

Total	$	954		$	903		$	976		$	51			5.6	%

N/M = Not Meaningful

Consumer Banking

As shown in Figure 3, net income for Consumer Banking was $375 million for 2004, down from $412 million for 2003 and $445 million for 2002. Two principal causes of the decline were the fourth quarter 2004 sale of the broker-originated home equity loan portfolio, and the reclassification of the indirect automobile loan portfolio to held-for-sale status. These actions resulted in significant decreases in noninterest income and in the provision for loan losses, and a substantial increase in noninterest expense. Excluding the effects of the above actions, net income for Consumer Banking was $452 million for 2004.

Taxable-equivalent net interest income decreased by $34 million, or 2%, from 2003, due to a less favorable interest rate spread on deposits. The adverse effect of the lower deposit spread was partially offset by a more favorable spread on average earning assets, a 9% increase in average commercial loans and growth in average core deposits. Increased deposits were primarily in the form of money market deposit accounts, negotiable order of withdrawal (“NOW”) accounts and noninterest-bearing deposits, reflecting client preferences for investments that provide high levels of liquidity in a low interest rate environment. Noninterest-bearing deposits also increased because we intensified our cross-selling efforts, and focused sales and marketing efforts on our free checking products.

Noninterest income decreased by $40 million, or 8%, due largely to a $46 million loss recorded in connection with management’s decision to sell the loan portfolios mentioned above and a $24 million reduction in service charges on deposit accounts — primarily in Retail Banking. The decrease in deposit service charges resulted from lower overdraft and maintenance fees. These adverse changes were offset in part by a $32 million decrease in net losses incurred on the residual values of leased vehicles in the Indirect Lending unit and a $6 million increase in income from electronic banking activities.

The provision for loan losses decreased by $114 million, or 41%, because of improved asset quality in each of the major lines of businesses and a $21 million credit to the provision recorded in the fourth quarter of 2004. The credit resulted from the reversal of provision recorded in prior periods and was taken in connection with management’s decision to sell the indirect automobile loan portfolio.

Noninterest expense rose by $68 million, or 5%, from 2003, due largely to a $55 million write-off of goodwill recorded in connection with management’s decision to sell Key’s nonprime indirect automobile loan business and a $17 million rise in personnel expense.

During the second half of 2004, we improved our market share position by acquiring EverTrust, headquartered in Everett, Washington with assets of approximately $780 million and deposits of approximately $570 million at the date of acquisition. We also acquired ten branch offices and approximately $380 million of deposits of Sterling Bank & Trust FSB in suburban Detroit, Michigan.

In 2003, the decrease in net income was attributable to a $19 million, or 1%, reduction in taxable-equivalent net interest income, a $10 million, or 2%, reduction in noninterest income and a $43 million, or 3%, increase in noninterest expense. The adverse effects of these changes were partially offset by a $20 million, or 7%, decrease in the provision for loan losses, due to improved asset quality in the Indirect Lending unit and the Retail Banking line of business.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 3. CONSUMER BANKING


Year ended December 31,										Change 2004 vs 2003
dollars in millions	2004			2003			2002			Amount			Percent

SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,788		$	1,822		$	1,841		$	(34	)		(1.9	)%
Noninterest income		469			509			519			(40	)		(7.9	)

Total revenue (TE)		2,257			2,331			2,360			(74	)		(3.2	)
Provision for loan losses		166			280			300			(114	)		(40.7	)
Noninterest expense		1,459			1,391			1,348			68			4.9

Income before income taxes (TE)		632			660			712			(28	)		(4.2	)
Allocated income taxes and TE adjustments		257			248			267			9			3.6

Net income	$	375		$	412		$	445		$	(37	)		(9.0	)%


Percent of consolidated net income		39	%		45	%		46	%		N/A			N/A

AVERAGE BALANCES
Loans	$	29,493		$	28,993		$	27,987		$	500			1.7	%
Total assets		32,202			31,500			30,428			702			2.2
Deposits		35,385			34,828			33,978			557			1.6

TE = Taxable Equivalent, N/A = Not Applicable

ADDITIONAL CONSUMER BANKING DATA


Year ended December 31,									Change 2004 vs 2003
dollars in millions	2004			2003			2002		Amount			Percent

AVERAGE DEPOSITS OUTSTANDING
Noninterest-bearing	$	5,702		$	5,568		$	5,169	$	134			2.4	%
Money market and other savings		16,565			15,251			13,057		1,314			8.6
Time		13,118			14,009			15,752		(891	)		(6.4	)

Total deposits	$	35,385		$	34,828		$	33,978	$	557			1.6	%



HOME EQUITY LOANS
Retail Banking and Small Business:
Average balance	$	8,709		$	8,058
Average loan-to-value ratio		72	%		72	%
Percent first lien positions		61			59
National Home Equity:
Average balance	$	4,555		$	5,113
Average loan-to-value ratio		67	%		74	%
Percent first lien positions		70			82

OTHER DATA
On-line households / household penetration		571,051 / 45	%		471,206 / 39	%
KeyCenters		935			906
Automated teller machines		2,194			2,167

Corporate and Investment Banking

As shown in Figure 4, net income for Corporate and Investment Banking was $486 million for 2004, compared with $358 million for 2003 and $369 million for 2002. The increase in 2004 was attributable to a significant reduction in the provision for loan losses and growth in noninterest income, offset in part by an increase in noninterest expense.

During 2004, the provision for loan losses decreased by $189 million, or 93%, due to improved asset quality across all lines of business.

During the same period, noninterest income rose by $51 million, or 10%, due largely to a $35 million increase in letter of credit and loan fees in the Corporate Banking and KeyBank Real Estate Capital lines of business, and a $31 million increase in income from investment banking and capital markets activities. In addition, Key Equipment Finance recorded a $15 million increase in net gains from the residual values of leased equipment. These positive results were partially offset by an $8 million decrease in income from trust and investment services, an $8 million decline in service charges on deposit accounts, and a $6 million reduction in net gains from loan sales.

Noninterest expense increased by $30 million, or 4%, reflecting a $22 million increase in personnel expense and increases in various indirect charges. The increase in personnel expense was attributable to higher incentive compensation and additional expenses incurred to expand the business.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 4. CORPORATE AND INVESTMENT BANKING


Year ended December 31,										Change 2004 vs 2003
dollars in millions	2004			2003			2002			Amount			Percent

SUMMARY OF OPERATIONS
Net interest income (TE)	$	956		$	963		$	996		$	(7	)		(.7	)%
Noninterest income		555			504			490			51			10.1

Total revenue (TE)		1,511			1,467			1,486			44			3.0
Provision for loan losses		15			204			239			(189	)		(92.6	)
Noninterest expense		719			689			656			30			4.4

Income before income taxes (TE)		777			574			591			203			35.4
Allocated income taxes and TE adjustments		291			216			222			75			34.7

Net income	$	486		$	358		$	369		$	128			35.8	%


Percent of consolidated net income		51	%		40	%		38	%		N/A			N/A

AVERAGE BALANCES
Loans	$	28,844		$	27,892		$	29,146		$	952			3.4	%
Total assets		33,571			32,289			32,652			1,282			4.0
Deposits		5,121			4,363			3,358			758			17.4

TE = Taxable Equivalent, N/A = Not Applicable

ADDITIONAL CORPORATE AND INVESTMENT BANKING DATA


Year ended December 31,							Change 2004 vs 2003
dollars in millions	2004		2003		2002		Amount		Percent

AVERAGE LEASE FINANCING RECEIVABLES MANAGED BY KEY EQUIPMENT FINANCE ^a
Receivables held in Key Equipment Finance portfolio	$	6,831	$	6,027	$	5,322	$	804		13.3	%
Receivables assigned to other lines of business		2,071		1,934		1,941		137		7.1

Total lease financing receivables managed	$	8,902	$	7,961	$	7,263	$	941		11.8	%

^a Includes lease financing receivables held in portfolio and those assigned to other lines of business (primarily Corporate Banking) if those businesses are principally responsible for maintaining the relationship with the client.

Taxable-equivalent net interest income was essentially unchanged. Average earning assets rose by $1.5 billion, or 5%, due primarily to growth in the Key Equipment Finance line of business. This growth was attributable in part to the acquisition of AEBF discussed below. In addition, net interest income benefited from a 17% increase in average deposits. The positive effects of the growth in earning assets and deposits were offset by a less favorable interest rate spread on deposits and other funding sources.

In 2004, we expanded our market share positions and strengthened our business by completing two acquisitions. In the fourth quarter, we acquired AEBF, the equipment leasing unit of American Express’ small business division headquartered in Parsippany, New Jersey. This company provides capital for small and middle market businesses, mostly in the healthcare, information technology, office products, and commercial vehicle/construction industries, and has a leasing portfolio of approximately $1.5 billion.

We also acquired certain net assets of American Capital Resource, Inc., based in Atlanta, Georgia, in the third quarter. This is the fourth commercial real estate acquisition that we have made in the last five years as part of our ongoing strategy to expand Key’s commercial mortgage finance and servicing capabilities.

In 2003, the decrease in net income reflected a $33 million, or 3%, decline in taxable-equivalent net interest income, due primarily to a less favorable interest rate spread on deposits and other funding sources, and a decrease in average loans outstanding. In addition, noninterest expense increased by $33 million, or 5%. The adverse effects of these changes were offset in part by a $35 million, or 15%, decrease in the provision for loan losses and a $14 million, or 3%, increase in noninterest income.

Investment Management Services

As shown in Figure 5, Investment Management Services’ net income was $112 million for 2004, compared with $81 million for 2003 and $96 million for 2002. The increase in 2004 was due primarily to growth in noninterest income, a reduction in the provision for loan losses and lower noninterest expense.

Noninterest income grew by $22 million, or 4%, because of a $27 million increase in trust and investment services income. Trust revenue rose by $19 million, due primarily to a rise in the market value of assets under management. However, results also benefited from the full year effect of repricing initiatives implemented in 2003. In addition, income from brokerage activities increased by $8 million. These positive results

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 5. INVESTMENT MANAGEMENT SERVICES


Year ended December 31,										Change 2004 vs 2003
dollars in millions	2004			2003			2002			Amount			Percent

SUMMARY OF OPERATIONS
Net interest income (TE)	$	242		$	239		$	223		$	3			1.3	%
Noninterest income		566			544			599			22			4.0

Total revenue (TE)		808			783			822			25			3.2
Provision for loan losses		4			17			14			(13	)		(76.5	)
Noninterest expense		625			638			655			(13	)		(2.0	)

Income before income taxes (TE)		179			128			153			51			39.8
Allocated income taxes and TE adjustments		67			47			57			20			42.6

Net income	$	112		$	81		$	96		$	31			38.3	%


Percent of consolidated net income		12	%		9	%		10	%		N/A			N/A

AVERAGE BALANCES
Loans	$	5,245		$	5,060		$	4,827		$	185			3.7	%
Total assets		6,505			6,052			5,754			453			7.5
Deposits		7,281			6,084			3,919			1,197			19.7

TE = Taxable Equivalent, N/A = Not Applicable

ADDITIONAL INVESTMENT MANAGEMENT SERVICES DATA


December 31,
in billions	2004		2003

Assets under management	$	74.2	$	68.7
Nonmanaged and brokerage assets		72.7		66.4

were partially offset by decreases in service charges on deposit accounts and in net gains from loan sales.

The provision for loan losses decreased by $13 million, or 76%, because of improved asset quality in the McDonald Financial Group.

Noninterest expense decreased by $13 million, or 2%, in 2004. Personnel expense rose by $12 million, or 4%, due largely to higher incentive compensation expense related to improved profitability in the McDonald Financial Group. However, the rise in personnel expense was more than offset by an aggregate decrease of $25 million in all other expenses, reflecting reductions in various indirect charges.

In 2003, the decrease in net income was due to a $55 million, or 9%, reduction in noninterest income, offset in part by a $16 million, or 7%, increase in taxable-equivalent net interest income and a $17 million, or 3%, decline in noninterest expense. The substantial reduction in noninterest income was caused by a $57 million decrease in income from trust and investment services. The June 2002 sale of Key’s 401(k) plan recordkeeping business accounted for $36 million, or 63%, of the decrease in that revenue component.

Other Segments

Other Segments consist primarily of Corporate Treasury and Key’s Principal Investing unit. These segments generated net income of $31 million for 2004, compared with $56 million for 2003. A $14 million decrease in net gains from sales of securities in Corporate Treasury and an aggregate $24 million reduction in a number of other components of noninterest income drove the decline.

In 2003, Other Segments generated net income of $56 million, compared with net income of $26 million for 2002. The increase was due primarily to a $55 million improvement in principal investing results and a $14 million increase in net gains from sales of securities in Corporate Treasury.

RESULTS OF OPERATIONS

Net interest income

Key’s principal source of earnings 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 use of derivative instruments to manage interest rate risk;

•   market interest rate fluctuations; and

•   asset quality.

To make it easier to compare results among several periods and the yields on various types of earning assets (some of which are taxable and others which are not), we present net interest income in this discussion on a “taxable-equivalent basis” (i.e., as if it were all taxable and at the same rate). For example, $100 of tax-exempt income would be presented as $154, an amount that — if taxed at the statutory federal income tax rate of 35% — would yield $100.

Figure 6, which spans pages 20 and 21, shows the various components of Key’s balance sheet that affect interest income and expense, and their respective yields or rates over the past six years. This figure also presents a reconciliation of taxable-equivalent net interest income for each of those years to net interest income reported in accordance with GAAP.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 6. AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES


Year ended December 31,	2004								2003								2002
	Average					Yield/			Average					Yield/			Average					Yield/
dollars in millions	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate

ASSETS
Loans ^a,b
Commercial, financial and agricultural	$	17,763		$	791		4.45	%	$	17,161		$	824		4.80	%	$	17,767		$	907		5.10	%
Real estate — commercial mortgage		6,411			326		5.09			5,909			315		5.32			6,345			373		5.87
Real estate — construction		4,922			250		5.08			5,335			274		5.14			5,851			315		5.38
Commercial lease financing		8,902			519		5.83			7,961			482		6.05			7,263			491		6.76

Total commercial loans		37,998			1,886		4.96			36,366			1,895		5.21			37,226			2,086		5.60
Real estate — residential		1,540			93		6.01			1,762			115		6.50			2,126			149		7.00
Home equity		14,784			842		5.70			14,578			863		5.92			13,028			889		6.82
Consumer — direct		2,052			154		7.52			2,141			157		7.35			2,206			183		8.29
Consumer — indirect lease financing		178			18		9.86			545			52		9.51			1,405			126		8.96
Consumer — indirect other		5,188			393		7.58			5,040			423		8.38			5,155			471		9.15

Total consumer loans		23,742			1,500		6.32			24,066			1,610		6.69			23,920			1,818		7.60
Loans held for sale		2,510			114		4.55			2,447			112		4.60			2,247			123		5.52

Total loans		64,250			3,500		5.45			62,879			3,617		5.75			63,393			4,027		6.35
Investment securities^a		85			8		8.69			112			11		9.03			181			16		8.67
Securities available for sale^a,c		7,215			331		4.60			7,865			356		4.55			6,359			389		6.14
Short-term investments		2,218			38		1.70			1,650			30		1.84			1,496			30		1.99
Other investments^c		1,257			35		2.77			1,023			27		2.62			871			24		2.57

Total earning assets		75,025			3,912		5.21			73,529			4,041		5.49			72,300			4,486		6.20
Allowance for loan losses		(1,284	)							(1,410	)							(1,553	)
Accrued income and other assets		12,668								12,229								11,034

	$	86,409							$	84,348							$	81,781


LIABILITIES AND SHAREHOLDERS’ EQUITY
NOW and money market deposit accounts	$	20,175			147		.73		$	17,913			149		.83		$	13,761			131		.95
Savings deposits		2,007			5		.23			2,072			10		.50			1,986			13		.67
Certificates of deposit ($100,000 or more) ^d		4,834			178		3.71			4,796			186		3.93			4,741			218		4.63
Other time deposits		10,564			304		2.88			11,330			336		2.96			12,859			496		3.86
Deposits in foreign office		2,978			43		1.43			1,885			22		1.13			2,336			39		1.67

Total interest-bearing deposits		40,558			677		1.67			37,996			703		1.85			35,683			897		2.52
Federal funds purchased and securities sold under repurchase agreements		4,669			60		1.29			4,739			50		1.06			5,527			90		1.63
Bank notes and other short-term borrowings		2,631			42		1.59			2,612			60		2.29			2,943			79		2.67
Long-term debt, including capital securities^d,e		14,304			402		2.93			16,049			432		2.79			16,961			551		3.29

Total interest-bearing liabilities		62,162			1,181		1.92			61,396			1,245		2.05			61,114			1,617		2.66
Noninterest-bearing deposits		11,192								10,347								9,098
Accrued expense and other liabilities		6,118								5,702								5,045
Shareholders’ equity		6,937								6,903								6,524

	$	86,409							$	84,348							$	81,781


Interest rate spread (TE)							3.29	%							3.44	%							3.54	%

Net interest income (TE) and net interest margin (TE)					2,731		3.64	%					2,796		3.80	%					2,869		3.97	%


TE adjustment^a					94								71								120

Net interest income, GAAP basis				$	2,637							$	2,725							$	2,749


Capital securities		—			—				$	629		$	36				$	1,254		$	78

^aInterest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.

^bFor purposes of these computations, nonaccrual loans are included in average loan balances.

^cYield is calculated on the basis of amortized cost.

^dRate calculation excludes basis adjustments related to fair value hedges. See Note 19 (“Derivatives and Hedging Activities”), which begins on page 84, for an explanation of fair value hedges.

^eRate calculation excludes ESOP debt for the years ended December 31, 2001, 2000 and 1999.

TE = Taxable Equivalent, N/M = Not Meaningful

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES


																						Compound Annual
																						Rate of Change
2001						2000								1999								(1999-2004)
Average			Yield/			Average					Yield/			Average					Yield/			Average
Balance	Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest




$19,459	$	1,362		7.00	%	$	19,369		$	1,669		8.63	%	$	17,695		$	1,350		7.63	%		.1	%		(10.1	)%
6,821		511		7.50			6,911			628		9.10			6,946			580		8.35			(1.6	)		(10.9	)
5,654		411		7.27			4,815			464		9.63			4,076			343		8.42			3.8			(6.1	)
7,049		490		6.95			6,821			493		7.22			6,092			445		7.30			7.9			3.1

38,983		2,774		7.12			37,916			3,254		8.59			34,809			2,718		7.81			1.8			(7.0	)
3,607		275		7.64			4,274			325		7.61			4,479			338		7.55			(19.2	)		(22.7	)
10,595		906		8.55			8,857			822		9.29			7,548			645		8.55			14.4			5.5
2,427		232		9.55			2,592			265		10.19			3,454			390		11.29			(9.9	)		(17.0	)

2,618		217		8.27			3,089			249		8.03			2,922			236		8.08			(42.9	)		(40.2	)
5,529		530		9.58			6,032			570		9.44			6,584			608		9.23			(4.7	)		(8.4	)

24,776		2,160		8.72			24,844			2,231		8.97			24,987			2,217		8.87			(1.0	)		(7.5	)
2,217		169		7.64			2,534			230		9.05			2,605			228		8.75			(.7	)		(12.9	)

65,976		5,103		7.73			65,294			5,715		8.75			62,401			5,163		8.27			.6			(7.5	)
279		25		8.76			393			34		8.75			537			46		8.57			(30.8	)		(29.5	)
6,625		455		6.89			6,470			448		6.80			6,403			425		6.68			2.4			(4.9	)
1,712		65		3.81			1,717			83		4.84			1,873			78		4.16			3.4			(13.4	)
849		24		2.86			701			25		3.74			442			15		3.46			23.2			18.5

75,441		5,672		7.52			74,575			6,305		8.45			71,656			5,727		7.99			.9			(7.3	)
(1,090)							(959	)							(911	)							7.1
10,552							10,419								10,201								4.4

$84,903						$	84,035							$	80,946								1.3




$12,942		263		2.03		$	12,823			424		3.31		$	13,741			402		2.93			8.0			(18.2	)
1,952		21		1.05			2,206			32		1.47			2,716			44		1.62			(5.9	)		(35.3	)

5,284		301		5.71			5,511			340		6.15			4,257			223		5.24			2.6			(4.4	)
14,208		786		5.53			13,974			805		5.76			11,969			595		4.97			(2.5	)		(12.6	)
2,715		107		3.94			2,593			167		6.45			823			41		4.98			29.3			1.0

37,101		1,478		3.98			37,107			1,768		4.76			33,506			1,305		3.89			3.9			(12.3	)

5,197		198		3.80			4,931			287		5.82			4,856			220		4.53			(.8	)		(22.9	)

6,829		302		4.43			7,121			428		6.01			7,912			426		5.38			(19.8	)		(37.1	)

15,911		824		5.20			15,707			1,064		6.78			16,473			957		6.09			(2.8	)		(15.9	)


65,038		2,802		4.31			64,866			3,547		5.47			62,747			2,908		4.63			(.2	)		(16.5	)
8,354							8,328								8,474								5.7
4,939							4,329								3,464								12.0
6,572							6,512								6,261								2.1

$84,903						$	84,035							$	80,946								1.3


				3.21	%							2.98	%							3.36	%


		2,870		3.81	%					2,758		3.69	%					2,819		3.93	%					(.6)	%


		45								28								32								24.0

	$	2,825							$	2,730							$	2,787								(1.1)	%


$1,309	$	89				$	1,243		$	95				$	1,162		$	85								N/M

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Taxable-equivalent net interest income for 2004 was $2.7 billion, representing a $65 million, or 2%, decrease from the prior year. This reduction reflects the adverse effect of a lower net interest margin, which decreased 16 basis points to 3.64%. A basis point is equal to one one-hundredth of a percentage point, meaning 16 basis points equals .16%. The net interest margin, which is an indicator of the profitability of the earning assets portfolio, is calculated by dividing net interest income by average earning assets.

The combination of a soft economy and growth in core deposits have affected the net interest margin, as well as the size and composition of Key’s earning assets portfolio. Over the past twelve months, average core deposits grew by $2.3 billion, or 5%, while average earning assets increased by $1.5 billion, or 2%. Due to generally weak loan demand during the first half of 2004, the excess funds from core deposits were used primarily to reduce short-term borrowings or long-term debt. The stronger demand for loans during the second half of the year has helped to stabilize the net interest margin.

Specific factors that led to the decrease in Key’s net interest margin over the past year are:

•   During the first half of 2004, we repositioned our balance sheet in anticipation of interest rate increases. We also allowed interest rate swaps to mature without replacing them.

•   During the third quarter of 2003, we experienced exceptionally high levels of prepayments on our investment and consumer loan portfolios as a result of the low interest rate environment.

•   During 2003 and the first half of 2004, we did not reduce interest rates on deposit accounts because of competitive market conditions and the low interest rate environment.

•   Although the demand for commercial loans strengthened during the last half of 2004, the demand for commercial credit was weak during the preceding eighteen-month period.

Average earning assets for 2004 totaled $75.0 billion, which was $1.5 billion, or 2%, higher than the 2003 level. Growth in commercial lending and short-term investments more than offset declines in consumer loans and securities available for sale. The decline in consumer loans was due to loan sales and management’s efforts to exit certain credit-only relationship portfolios.

In 2003, net interest income was $2.8 billion, representing a $73 million, or 3%, decrease from the prior year as the negative effect of a lower net interest margin more than offset an increase in average earning assets. Key’s net interest margin contracted 17 basis points to 3.80%, while average earning assets grew by $1.2 billion, or 2%, to $73.5 million. Steady growth in our home equity lending (driven by the low interest rate environment) and commercial lease financing, and an increase in the securities available-for-sale portfolio drove the increase. During the same period, the general economic slowdown contributed to a decline in average commercial loans outstanding. Average consumer loans, other than home equity loans, also declined during 2003. The largest reduction occurred in the indirect automobile financing portfolio, primarily because, since 2001, Key has been scaling back automobile lending and has allowed the automobile lease financing portfolio to run off.

Over the past two years, the growth and composition of Key’s loan portfolio has been affected by the following actions:

•   During the fourth quarter of 2004, Key acquired EverTrust, in Everett, Washington with a loan portfolio (primarily commercial real estate loans) of approximately $685 million at the date of acquisition. In the same quarter, Key acquired AEBF with a commercial lease financing portfolio of approximately $1.5 billion, thereby adding 75 offices to our network for small-ticket lease solutions. During the first quarter of 2003, Key acquired a $311 million commercial lease financing portfolio and a $71 million commercial loan portfolio from a Canadian financial institution. The acquisition of these portfolios further diversified our asset base and has generated additional equipment financing opportunities.

•   Key sold commercial mortgage loans of $2.1 billion during 2004 and $1.7 billion during 2003. Since some of these loans have been sold with limited recourse (i.e., there is a risk that Key will be held accountable for certain events or representations made in the sales), Key established and has maintained a loss reserve of an amount estimated by management to be appropriate. More information about the related recourse agreement is provided in Note 18 (“Commitments, Contingent Liabilities and Guarantees”) under the heading “Recourse agreement with Federal National Mortgage Association” on page 83.

•   Key sold education loans of $1.3 billion ($1.1 billion through securitizations) during 2004 and $1.2 billion ($998 million through securitizations) during 2003. Key has used the securitization market for education loans as a cost effective means of diversifying its funding sources.

•   Key sold other loans (primarily home equity, residential real estate and commercial loans) totaling $2.9 billion during 2004 and $1.8 billion during 2003. In 2004, these transactions included the fourth quarter sale of $978 million of broker-originated home equity loans. During the same quarter, Key reclassified $1.7 billion of indirect automobile loans to held-for-sale status in anticipation of their sale. The sales and plans to sell these long-term, fixed-rate loans were driven by management’s strategies for improving Key’s returns and achieving desired interest rate and credit risk profiles.

•   During the third quarter of 2003, Key consolidated an asset-backed commercial paper conduit as a result of an accounting change. This consolidation added approximately $200 million to Key’s commercial loan portfolio. More information about this change, required by Interpretation No. 46, “Consolidation of Variable Interest Entities,” is provided in Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”), which begins on page 67.

•   During the second quarter of 2001, management announced that Key would exit the automobile leasing business, de-emphasize indirect prime automobile lending outside of Key’s primary geographic markets and discontinue certain credit-only commercial relationships. As of December 31, 2004, the affected portfolios, in the aggregate, have declined by approximately $459 million since December 31, 2003, and $5.1 billion since the date of the announcement.

Figure 7 shows how the changes in yields or rates and average balances from the prior year affected net interest income. The section entitled “Financial Condition,” which begins on page 26, contains more discussion about changes in earning assets and funding sources.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 7. COMPONENTS OF NET INTEREST INCOME CHANGES


	2004 vs 2003									2003 vs 2002
	Average			Yield/			Net			Average			Yield/			Net
in millions	Volume			Rate			Change			Volume			Rate			Change

INTEREST INCOME
Loans	$	78		$	(195	)	$	(117	)	$	(32	)	$	(378	)	$	(410	)
Investment securities		(2	)		(1	)		(3	)		(7	)		2			(5	)
Securities available for sale		(30	)		5			(25	)		81			(114	)		(33	)
Short-term investments		10			(2	)		8			3			(3	)		—
Other investments		6			2			8			4			(1	)		3

Total interest income (taxable equivalent)		62			(191	)		(129	)		49			(494	)		(445	)

INTEREST EXPENSE
NOW and money market deposit accounts		18			(20	)		(2	)		36			(18	)		18
Savings deposits		—			(5	)		(5	)		1			(4	)		(3	)
Certificates of deposit ($100,000 or more)		1			(9	)		(8	)		3			(35	)		(32	)
Other time deposits		(22	)		(10	)		(32	)		(54	)		(106	)		(160	)
Deposits in foreign office		15			6			21			(7	)		(10	)		(17	)

Total interest-bearing deposits		12			(38	)		(26	)		(21	)		(173	)		(194	)
Federal funds purchased and securities sold under repurchase agreements		(1	)		11			10			(12	)		(28	)		(40	)
Bank notes and other short-term borrowings		—			(18	)		(18	)		(8	)		(11	)		(19	)
Long-term debt, including capital securities		(48	)		18			(30	)		(28	)		(91	)		(119	)

Total interest expense		(37	)		(27	)		(64	)		(69	)		(303	)		(372	)

Net interest income (taxable equivalent)	$	99		$	(164	)	$	(65	)	$	118		$	(191	)	$	(73	)

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.

Noninterest income

Noninterest income for 2004 was $1.7 billion, representing a $14 million, or less than 1%, decrease from the prior year. In 2003, noninterest income was essentially unchanged from 2002.

Excluding the $46 million loss (included in “net gains from loan securitizations and sales”) recorded during the fourth quarter of 2004 in connection with management’s decision to sell Key’s broker-originated home equity and indirect automobile loan portfolios, Key’s noninterest income grew by $32 million, or 2%, in 2004. This improvement was attributable largely to stronger financial markets. As shown in Figure 8, income from investment banking and capital markets activities grew by $39 million, while income from trust and investment services rose by $19 million. In addition, Key benefited from a $33 million increase in income from letter of credit and loan fees. These favorable results were partially offset by a $33 million reduction in service charges on deposit accounts and a $26 million decrease in net gains from loan sales and securitizations, exclusive of the loss mentioned previously.

FIGURE 8. NONINTEREST INCOME


Year ended December 31,							Change 2004 vs 2003
dollars in millions	2004		2003		2002		Amount			Percent

Trust and investment services income	$	564	$	545	$	605	$	19			3.5	%
Service charges on deposit accounts		331		364		405		(33	)		(9.1	)
Investment banking and capital markets income		233		194		176		39			20.1
Letter of credit and loan fees		175		142		120		33			23.2
Corporate-owned life insurance income		110		114		108		(4	)		(3.5	)
Electronic banking fees		85		80		79		5			6.3
Net gains from loan securitizations and sales		18		90		56		(72	)		(80.0	)
Net securities gains		4		11		6		(7	)		(63.6	)
Other income:
Insurance income		46		50		57		(4	)		(8.0	)
Credit card fees		13		11		9		2			18.2
Loan securitization servicing fees		5		7		9		(2	)		(28.6	)
Miscellaneous income		162		152		139		10			6.6

Total other income		226		220		214		6			2.7

Total noninterest income	$	1,746	$	1,760	$	1,769	$	(14	)		(.8	)%

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Noninterest income for 2003 benefited from a $34 million increase in net gains from loan securitizations and sales, and a $22 million rise in letter of credit and non-yield-related loan fees. In addition, income from investment banking and capital markets activities grew by $18 million, as Key had net principal investing gains in 2003, compared with net losses in 2002. As shown in Figure 8, smaller increases were also experienced in a number of other revenue components. These positive results were offset by a $60 million decrease in income from trust and investment services and a $41 million decline in service charges on deposit accounts.

The following discussion explains the composition of certain components of Key’s noninterest income and the factors that caused those components to change.

Trust and investment services income. Trust and investment services is Key’s largest source of noninterest income. The primary sources of trust and investment services revenue are shown in Figure 9.

FIGURE 9. TRUST AND INVESTMENT SERVICES INCOME


Year ended December 31,							Change 2004 vs 2003
dollars in millions	2004		2003		2002		Amount			Percent

Brokerage commissions and fee income	$	265	$	266	$	272	$	(1	)		(.4	)%
Personal asset management and custody fees		166		155		156		11			7.1
Institutional asset management and custody fees		37		39		77		(2	)		(5.1	)
All other fees		96		85		100		11			12.9

Total trust and investment services income	$	564	$	545	$	605	$	19			3.5	%

A significant portion of Key’s trust and investment services income depends on the value of assets under management. At December 31, 2004, Key’s bank, trust and registered investment advisory subsidiaries had assets under management of $74.6 billion, representing a 9% increase from $68.7 billion at December 31, 2003. The increase in the market value of these assets was the primary cause of the growth in this revenue component during 2004. However, results also benefited from the full year effect of repricing initiatives implemented in 2003. The composition of Key’s assets under management is shown in Figure 10.

FIGURE 10. ASSETS UNDER MANAGEMENT


December 31,
in millions	2004		2003		2002

Assets under management by investment type:
Equity	$	34,788	$	31,768	$	27,224
Fixed income		20,313		17,355		16,133
Money market		19,456		19,580		18,337

Total	$	74,557	$	68,703	$	61,694


Proprietary mutual funds included in assets under management:
Equity	$	3,651	$	3,165	$	2,878
Fixed income		827		1,015		1,215
Money market		9,103		10,188		11,457

Total	$	13,581	$	14,368	$	15,550

The 2003 reduction in income from trust and investment services reflected the effects of the June 2002 sale of Key’s 401(k) plan recordkeeping business. That sale accounted for approximately $36 million of the decrease in income from institutional asset management and custody fees — nearly all of the overall decline in this segment. In addition, trust and investment services income was adversely affected by weak activity and lower market values in the equity and fixed income markets during the first half of 2003.

Service charges on deposit accounts. In both 2004 and 2003, the decrease in service charges on deposit accounts was due primarily to a reduction in the level of overdraft and maintenance fees charged to clients. Maintenance fees were lower because a higher proportion of Key’s clients have elected to use Key’s free checking products or pay for services with compensating balances.

Investment banking and capital markets income. As shown in Figure 11, stronger financial markets contributed to increases in all components of investment banking and capital markets income during 2004, with the largest growth coming from investment banking activities. In 2003, investment banking and capital markets income increased because of improved results from principal investing.

Key’s principal investing income is susceptible to volatility since most of it is derived from mezzanine debt and equity investments in small to medium-sized businesses; these businesses generally are in relatively early stages of economic development and strategy implementation. Principal investments consist of direct and indirect investments in predominantly privately held companies and are carried on the balance sheet at fair value ($816 million at December 31, 2004, and $732 million at December 31, 2003). Thus, the net gains presented in Figure 11 stem from changes in estimated fair values as well as actual gains and losses on sales of principal investments.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 11. INVESTMENT BANKING AND CAPITAL MARKETS INCOME


Year ended December 31,								Change 2004 vs 2003
dollars in millions	2004		2003		2002			Amount		Percent

Investment banking income	$	133	$	110	$	125		$	23		20.9	%
Net gains (losses) from principal investing		44		40		(14	)		4		10.0
Foreign exchange income		41		36		33			5		13.9
Dealer trading and derivatives income		9		8		32			1		12.5
Income from other investments		6		—		—			6		N/M

Total investment banking and capital markets income	$	233	$	194	$	176		$	39		20.1	%

N/M = Not Meaningful

The decline in dealer trading and derivatives income from 2002 to 2003 was due primarily to two factors. Higher than anticipated prepayments on home equity loans resulted in a $10 million reduction in the carrying amount of retained interests in securitized loans. In addition, in 2003 we added $12 million to our reserve for potential losses on client derivatives in the event of default by the client.

Letter of credit and loan fees. The increase in non-yield-related loan fees in both 2004 and 2003 was due primarily to higher syndication, origination and commitment fees generated by the KeyBank Real Estate Capital and Corporate Banking lines of business. These improved results were due in part to a more disciplined approach to pricing in 2004, which considers overall customer relationships, and the June 2002 acquisition of Conning Asset Management. Higher fees from letter of credit activities also contributed to the increase in each year.

Net gains from loan securitizations and sales. Key sells or securitizes loans to achieve desired interest rate and credit risk profiles, to improve the profitability of the overall loan portfolio, or to diversify funding sources. During 2004, the decrease in net gains from these transactions was due primarily to the previously mentioned $46 million loss recorded in connection with management’s decision to sell loans in credit-only relationship businesses. In 2003, almost half of the $34 million increase in net gains from loan securitizations and sales derived from securitizations and sales of education loans. The remainder of the increase was attributable largely to the sales of home equity loans. The types of loans sold during 2004 and 2003 are shown in Figure 17 on page 29.

Noninterest expense

Noninterest expense for 2004 was $2.8 billion, representing a $68 million, or 2%, increase from the prior year. In 2003, noninterest expense rose by $89 million, or 3%.

Excluding the $55 million write-off of goodwill (included in “miscellaneous expense”) recorded during the fourth quarter of 2004 in connection with management’s decision to sell Key’s nonprime indirect automobile loan business, the level of noninterest expense for 2004 was essentially unchanged from the prior year. As shown in Figure 12, personnel expense rose by $56 million and computer processing expense was up $13 million from 2003. These increases were substantially offset by a $29 million reduction in franchise and business taxes, a $14 million decrease in equipment expense and smaller declines in a variety of other expense components.

FIGURE 12. NONINTEREST EXPENSE


Year ended December 31,							Change 2004 vs 2003
dollars in millions	2004		2003		2002		Amount			Percent

Personnel	$	1,549	$	1,493	$	1,436	$	56			3.8	%
Net occupancy		236		228		226		8			3.5
Computer processing		191		178		192		13			7.3
Equipment		119		133		136		(14	)		(10.5	)
Professional fees		113		119		92		(6	)		(5.0	)
Marketing		111		120		122		(9	)		(7.5	)
Other expense:
Postage and delivery		52		57		59		(5	)		(8.8	)
Telecommunications		29		32		35		(3	)		(9.4	)
Franchise and business taxes		16		45		36		(29	)		(64.4	)
OREO expense, net		17		16		7		1			6.3
Miscellaneous expense		377		321		312		56			17.4

Total other expense		491		471		449		20			4.2

Total noninterest expense	$	2,810	$	2,742	$	2,653	$	68			2.5	%

Average full-time equivalent employees		19,576		20,064		20,816		(488	)		(2.4	)%

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND
SUBSIDIARIES

In 2003, the growth in noninterest expense was attributable largely to increases of $57 million in personnel expense and $27 million in professional fees, offset in part by a $14 million reduction in computer processing expense.

The following discussion explains the composition of certain components of Key’s noninterest expense and the factors that caused those components to change.

Personnel. As shown in Figure 13, personnel expense, the largest category of Key’s noninterest expense, rose by $56 million, or 4%, in 2004 and $57 million, or 4%, in 2003. The 2004 increase resulted from higher incentive compensation accruals and an increase in stock-based compensation expense. In 2003, the increase was due primarily to growth in employee benefit (primarily pension) costs, a higher level of stock-based compensation expense and an increase in severance expense, offset in part by lower incentive compensation accruals.

FIGURE 13. PERSONNEL EXPENSE


Year ended December 31,							Change 2004 vs 2003
dollars in millions	2004		2003		2002		Amount			Percent

Salaries	$	848	$	858	$	858	$	(10	)		(1.2	)%
Incentive compensation		393		338		349		55			16.3
Employee benefits		258		255		217		3			1.2
Stock-based compensation		40		23		7		17			73.9
Severance		10		19		5		(9	)		(47.4	)

Total personnel expense	$	1,549	$	1,493	$	1,436	$	56			3.8	%

One of management’s top three priorities for 2004 was to manage Key’s expenses effectively. The level of Key’s personnel expense reflects the disciplined approach we have taken to control Key’s expenses over the past several years. We will continue to evaluate staffing levels and make cost-saving changes when they can be accomplished without damaging either client service or our ability to develop higher return businesses. For 2004, the average number of full-time equivalent employees was 19,576, compared with 20,064 for 2003 and 20,816 for 2002. The average number of Key’s full-time equivalent employees has declined for six consecutive years.

Professional fees. In 2003, the $27 million, or 29%, increase in professional fees was due largely to additional costs incurred to enhance Key’s sales management systems.

Franchise and business taxes. The $29 million, or 64%, decrease in business and franchise taxes in 2004 includes a $7 million reduction stemming from the reversal of an overaccrual of certain businesses taxes in the first quarter and a $9 million reclassification of expense to “income taxes” in the fourth quarter.

Miscellaneous expense. In 2004, the increase in “miscellaneous expense” was driven by the previously-mentioned $55 million write-off of goodwill recorded during the fourth quarter in connection with management’s decision to sell Key’s nonprime indirect automobile loan business.

Income taxes
The provision for income taxes was $434 million for 2004, compared with $339 million for 2003 and $336 million for 2002. The effective tax rate, which is the provision for income taxes as a percentage of income before income taxes, was 31.3% for 2004, compared with 27.3% for 2003 and 25.6% for 2002.

The increase in effective tax rate from 2003 to 2004 was due primarily to the $55 million nondeductible write-off of goodwill discussed above, and a $43 million reduction in deferred tax assets that resulted from a comprehensive analysis of Key’s deferred tax accounts. Excluding these charges, the effective tax rate for 2004 was 27.6%.

The effective tax rates for 2004 (excluding the charges mentioned previously) and 2003 are substantially below Key’s combined federal and state tax rate of 37.5%, due primarily to income from investments in tax-advantaged assets such as corporate-owned life insurance, and credits associated with investments in low-income housing projects. In addition, a lower tax rate is applied to portions of the equipment lease portfolio that are managed by a foreign subsidiary in a lower tax jurisdiction. Since Key intends to permanently reinvest the earnings of this foreign subsidiary overseas, no deferred income taxes are recorded on those earnings in accordance with SFAS No 109, “Accounting for Income Taxes.”

FINANCIAL CONDITION

Loans

Figure 14 shows the composition of Key’s loan portfolio at December 31 for each of the past five years.

At December 31, 2004, total loans outstanding were $68.5 billion, compared with $62.7 billion at the end of 2003 and $62.5 billion at the end of 2002. The growth in our loans during 2004 was attributable largely to the stronger demand for commercial loans in an improving economy. In addition, commercial loan growth was bolstered by the acquisitions of EverTrust and AEBF during the fourth quarter of 2004. The growth of the total loan portfolio was moderated by several factors:

• Loan sales completed to improve the profitability or risk profile of the overall portfolio, or to accommodate our asset/liability management needs. These transactions included the fourth quarter 2004 sale of Key’s broker-originated home equity loan portfolio as a result of our decision to exit this business;

• Weak commercial loan demand during 2003 and the first half of 2004; and

• The runoff of automobile lease financing receivables resulting from our May 2001 decision to exit this business.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND
SUBSIDIARIES

FIGURE 14. COMPOSITION OF LOANS


December 31,	2004					2003					2002
dollars in millions	Amount		% of Total			Amount		% of Total			Amount		% of Total

COMMERCIAL
Commercial, financial and agricultural	$	19,343		28.3	%	$	17,012		27.1	%	$	17,425		27.9	%
Commercial real estate^a:
Commercial mortgage		7,534		11.0			5,677		9.1			6,015		9.6
Construction		5,505		8.0			4,978		7.9			5,659		9.1

Total commercial real estate loans		13,039		19.0			10,655		17.0			11,674		18.7
Commercial lease financing		10,894		15.9			8,522		13.6			7,513		12.0

Total commercial loans		43,276		63.2			36,189		57.7			36,612		58.6
CONSUMER
Real estate — residential mortgage		1,456		2.1			1,613		2.5			1,968		3.1
Home equity		14,062		20.5			15,038		24.0			13,804		22.1
Consumer — direct		1,987		2.9			2,119		3.4			2,161		3.5
Consumer — indirect:
Automobile lease financing		89		.1			305		.5			873		1.4
Automobile loans		—		—			2,025		3.2			2,181		3.5
Marine		2,624		3.9			2,506		4.0			2,088		3.3
Other		617		.9			542		.9			667		1.1

Total consumer — indirect loans		3,330		4.9			5,378		8.6			5,809		9.3

Total consumer loans		20,835		30.4			24,148		38.5			23,742		38.0
LOANS HELD FOR SALE		4,353		6.4			2,374		3.8			2,103		3.4

Total	$	68,464		100.0	%	$	62,711		100.0	%	$	62,457		100.0	%


	2001					2000
	Amount		% of Total			Amount		% of Total

COMMERCIAL
Commercial, financial and agricultural	$	18,159		28.7	%	$	20,100		30.0	%
Commercial real estate^a:
Commercial mortgage		6,669		10.5			6,876		10.3
Construction		5,878		9.3			5,154		7.7

Total commercial real estate loans		12,547		19.8			12,030		18.0
Commercial lease financing		7,357		11.6			7,164		10.7

Total commercial loans		38,063		60.1			39,294		58.7
CONSUMER
Real estate — residential mortgage		2,315		3.7			4,212		6.3
Home equity		11,184		17.7			9,908		14.8
Consumer — direct		2,342		3.7			2,539		3.8
Consumer — indirect:
Automobile lease financing		2,036		3.2			3,005		4.5
Automobile loans		2,497		4.0			2,809		4.2
Marine		1,780		2.8			1,657		2.5
Other		1,036		1.6			1,252		1.9

Total consumer — indirect loans		7,349		11.6			8,723		13.1

Total consumer loans		23,190		36.7			25,382		38.0
LOANS HELD FOR SALE		2,056		3.2			2,229		3.3

Total	$	63,309		100.0	%	$	66,905		100.0	%

^a See Figure 15 for a more detailed breakdown of Key’s commercial real estate loan portfolio at December 31, 2004.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Over the past several years, we have used alternative funding sources like loan sales and securitizations to support our loan origination capabilities. In addition, several acquisitions have improved our ability to originate and sell new loans, and to securitize and service loans generated by others, especially in the area of commercial real estate.

Commercial loan portfolio. Commercial loans outstanding increased by $7.1 billion, or 20%, from one year ago. Over the past year, all major segments of the commercial loan portfolio experienced growth, reflecting improvement in the economy. In addition, acquisitions added an aggregate $2.2 billion to outstanding balances, primarily in the commercial mortgage and lease financing portfolios. The growth in the commercial loan portfolio was broad-based and spread among a number of industry sectors.

Equipment lease financing is a specialty business in which Key believes it has both the scale and array of products to compete on a world-wide basis. This business showed strong growth during the past twelve months and during the fourth quarter of 2004 we expanded it by acquiring AEBF, the equipment leasing unit of American Express’ small business division. This acquisition added approximately $1.5 billion of receivables to Key’s commercial lease financing portfolio.

Commercial real estate loans related to both owner and nonowner-occupied properties constitute one of the largest segments of Key’s commercial loan portfolio. At December 31, 2004, Key’s commercial real estate portfolio included mortgage loans of $7.5 billion and construction loans of $5.5 billion. The average size of a mortgage loan was $.6 million and the largest mortgage loan had a balance of $95 million. The average size of a construction loan commitment was $7 million. The largest construction loan commitment was $91 million, of which $15 million was outstanding.

Key conducts its commercial real estate lending business through two primary sources: a thirteen-state banking franchise and KeyBank Real Estate Capital, a national line of business that cultivates relationships both within and beyond the branch system. The KeyBank Real Estate Capital line of business deals exclusively with nonowner-occupied properties (generally properties in which the owner occupies less than 60% of the premises) and accounted for approximately 53% of Key’s total average commercial real estate loans during 2004. Our commercial real estate business as a whole focuses on larger real estate developers and, as shown in Figure 15, is diversified by both industry type and geography.

FIGURE 15. COMMERCIAL REAL ESTATE LOANS


December 31, 2004	Geographic Region
									Total		Percent of
dollars in millions	East		Midwest		Central		West		Amount		Total

Nonowner-occupied:
Multi-family properties	$	478	$	562	$	453	$	810	$	2,303		17.7	%
Retail properties		99		632		148		178		1,057		8.1
Office buildings		70		58		199		210		537		4.1
Residential properties		205		81		219		580		1,085		8.3
Warehouses		89		57		58		147		351		2.7
Health facility		—		1		34		22		57		.4
Manufacturing facilities		1		23		6		16		46		.4
Hotels/Motels		11		1		1		8		21		.2
Other		577		327		65		309		1,278		9.8

		1,530		1,742		1,183		2,280		6,735		51.7
Owner-occupied		1,495		2,167		666		1,976		6,304		48.3

Total	$	3,025	$	3,909	$	1,849	$	4,256	$	13,039		100.0	%


Nonowner-occupied:
Nonperforming loans	$	16	$	5		—		—	$	21		N/M
Accruing loans past due 90 days or more		3		6		—		—		9		N/M
Accruing loans past due 30 through 89 days		39		13	$	2	$	7		61		N/M

N/M = Not Meaningful

Consumer loan portfolio. Consumer loans outstanding decreased by $3.3 billion, or 14%, from one year ago. The decline was due primarily to two factors. During 2004, we sold $1.7 billion of broker-originated home equity loans within the Key Home Equity Services division. The majority of these loans were sold during the fourth quarter as a result of our decision to exit this business. In addition, in December we reclassified $1.7 billion of indirect automobile loans to held-for-sale status in anticipation of their sale. The actions taken with regard to these long-term, fixed-rate loans are part of our strategy for improving Key’s returns and achieving desired interest rate and credit risk profiles.

During 2004, residential real estate loans decreased because most of the new loans originated by Key over the past twelve months were originated for sale. In addition, during the second half of 2003, we experienced exceptionally high levels of prepayments as a result of the low interest rate environment. The overall decline in consumer loans was offset in part by growth in home equity loans generated by the Retail Banking line of business discussed below.

Excluding loan sales, acquisitions and the reclassification of the indirect automobile loan portfolio to held-for-sale status, consumer loans would have increased by $542 million, or 2%, during the past twelve months.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND
SUBSIDIARIES

The home equity portfolio is by far the largest segment of Key’s consumer loan portfolio. Key’s home equity portfolio is derived primarily from our Retail Banking line of business (62% of the home equity portfolio at December 31, 2004) and the National Home Equity unit within our Consumer Finance line of business.

The National Home Equity unit has two components: Champion Mortgage Company, a home equity finance company, and Key Home Equity Services, which purchases individual loans from an extensive network of correspondents and agents. As discussed above, in the fourth quarter of 2004, we sold $978 million of broker-originated loans within the Key Home Equity Services division as a result of our decision to exit this business.

Figure 16 summarizes Key’s home equity loan portfolio at December 31 for each of the last five years, as well as certain asset quality statistics and yields on the portfolio as a whole.

Sales and securitizations. During 2004, Key sold $2.1 billion of commercial real estate loans, $1.9 billion of home equity loans, $1.3 billion of education loans ($1.1 billion through securitizations), $360 million of residential real estate loans, $345 million of commercial loans and leases, and $283 million of indirect consumer loans.

Among the factors that Key considers in determining which loans to sell or securitize are:

•   whether particular lending businesses meet our performance standards or fit with our relationship banking strategy;

•   whether the characteristics of a specific loan portfolio make it conducive to securitization;

•   the relative cost of funds;

•   the level of credit risk; and

•   capital requirements.

FIGURE 16. HOME EQUITY LOANS


December 31,
dollars in millions	2004			2003			2002			2001			2000

SOURCES OF LOANS OUTSTANDING
Retail Banking (KeyCenters) and Small Business	$	9,011		$	8,370		$	7,549		$	5,570		$	5,358
McDonald Financial Group and other sources		1,543			1,483			1,318			861			778

Champion Mortgage Company		2,866			2,857			2,210			1,886			1,082
Key Home Equity Services division		642			2,328			2,727			2,867			2,690

National Home Equity unit		3,508			5,185			4,937			4,753			3,772

Total	$	14,062		$	15,038		$	13,804		$	11,184		$	9,908


Nonperforming loans at year end	$	80		$	153		$	146		$	60		$	80
Net charge-offs for the year		57			55			52			98			17
Yield for the year		5.70	%		5.92	%		6.82	%		8.55	%		9.29	%

Figure 17 summarizes Key’s loan sales (including securitizations) for 2004 and 2003.

FIGURE 17. LOANS SOLD


			Commercial		Commercial		Residential		Home		Consumer
in millions	Commercial		Real Estate		Lease Financing		Real Estate		Equity		— Indirect		Education		Total

2004
Fourth quarter	$	43	$	760		—	$	99	$	1,058		—	$	118	$	2,078
Third quarter		80		508		—		79		85		—		976		1,728
Second quarter		87		652	$	5		121		70	$	283		104		1,322
First quarter		130		198		—		61		664		—		138		1,191

Total	$	340	$	2,118	$	5	$	360	$	1,877	$	283	$	1,336	$	6,319


2003
Fourth quarter	$	73	$	599		—	$	129	$	96		—	$	96	$	993
Third quarter		120		423		—		211		473		—		895		2,122
Second quarter		67		408		—		184		134		—		85		878
First quarter		52		253		—		147		112		—		109		673

Total	$	312	$	1,683		—	$	671	$	815		—	$	1,185	$	4,666

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND
SUBSIDIARIES

Figure 18 shows loans that are either administered or serviced by Key, but not recorded on its balance sheet. Included are loans that have been both securitized and sold, or simply sold outright. In the event of default, Key is subject to recourse with respect to approximately $633 million of the $38.6 billion of loans administered or serviced at December 31, 2004. Additional information about this recourse arrangement is included in Note 18 (“Commitments, Contingent Liabilities and Guarantees”) under the heading “Recourse agreement with Federal National Mortgage Association” on page 83.

FIGURE 18. LOANS ADMINISTERED OR SERVICED


December 31,
in millions	2004		2003		2002

Education loans	$	4,916	$	4,610	$	4,605
Automobile loans		—		—		54
Home equity loans		130		215		456
Commercial real estate loans		33,252		25,376		19,508
Commercial loans		210		167		123
Commercial lease financing		45		—		—

Total	$	38,553	$	30,368	$	24,746

Key derives income from two sources when we sell or securitize loans but retain the right to administer or service them. We earn noninterest income (recorded as “other income”) from servicing or administering the loans, and we earn interest income from any securitized assets retained. In addition, escrow deposits collected in connection with the servicing of commercial real estate loans have contributed to the growth in Key’s average noninterest-bearing deposits over the past twelve months.

Figure 19 shows the maturities of certain commercial and real estate loans, and the sensitivity of those loans to changes in interest rates. At December 31, 2004, approximately 41% of these outstanding loans were scheduled to mature within one year. Loans with maturities greater than one year include $17.6 billion with floating or adjustable rates and $2.3 billion with predetermined rates.

FIGURE 19. MATURITIES AND SENSITIVITY OF CERTAIN LOANS TO CHANGES IN INTEREST RATES


December 31, 2004	Within		1-5		Over
in millions	1 Year		Years		5 Years		Total

Commercial, financial and agricultural	$	9,542	$	7,530	$	2,271	$	19,343
Real estate — construction		2,451		2,829		225		5,505
Real estate — residential and commercial mortgage		1,944		3,987		3,059		8,990

	$	13,937	$	14,346	$	5,555	$	33,838

Loans with floating or adjustable interest rates^a			$	12,834	$	4,788
Loans with predetermined interest rates^b				1,512		767

			$	14,346	$	5,555

^a“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.
^b“Predetermined” interest rates either are fixed or may change during the term of the loan according to a specific formula or schedule.

Securities
At December 31, 2004, the securities portfolio totaled $8.9 billion and included $7.5 billion of securities available for sale, $71 million of investment securities and $1.4 billion of other investments (primarily principal investments). In comparison, the total portfolio at December 31, 2003, was $8.8 billion, including $7.6 billion of securities available for sale, $98 million of investment securities and $1.1 billion of other investments. The weighted-average maturity of the portfolio was 2.3 years at December 31, 2004, compared with 3.1 years at December 31, 2003.

The size and composition of Key’s securities portfolio are dependent largely on our needs for liquidity and the extent to which we are required or elect to hold these assets as collateral to secure public and trust deposits. Although debt securities are generally used for this purpose, other assets, such as securities purchased under resale agreements, may be used temporarily when they provide more favorable yields.

Securities available for sale. The majority of Key’s securities available-for-sale portfolio consists of collateralized mortgage obligations that provide a source of interest income and serve as collateral in connection with pledging requirements. A collateralized mortgage obligation (“CMO”) is a debt security that is secured by a pool of mortgages, mortgage-backed securities, U.S. government securities, corporate debt obligations or other bonds. At December 31, 2004, Key had $6.7 billion invested in CMOs and other mortgage-backed securities in the available-for-sale portfolio, compared with $7.1 billion at December 31, 2003. Substantially all Key’s mortgage-backed securities are issued or backed by federal agencies. The CMO securities held by Key are shorter-maturity class bonds that are structured to have more predictable cash flows than other longer-term class bonds during periods of rising interest rates.

Figure 20 shows the composition, yields and remaining maturities of Key’s securities available for sale. For more information about securities, including gross unrealized gains and losses by type of security and securities pledged, see Note 6 (“Securities”), which begins on page 66.

Investment securities. Securities issued by states and political subdivisions constitute most of Key’s investment securities. Figure 21 shows the composition, yields and remaining maturities of these securities.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND
SUBSIDIARIES

FIGURE 20. SECURITIES AVAILABLE FOR SALE


										Other
	U.S. Treasury,			States and			Collateralized			Mortgage-			Retained									Weighted
	Agencies and			Political			Mortgage			Backed			Interests in			Other						Average
dollars in millions	Corporations			Subdivisions			Obligations^a			Securities^a			Securitizations^a			Securities^c			Total			Yield^b

DECEMBER 31, 2004
Remaining maturity:
One year or less	$	202		$	1		$	46		$	5		$	19		$	206		$	479			4.80	%
After one through five years		22			4			6,296			258			108			96			6,784			4.09
After five through ten years		1			7			20			56			66			3			153			9.11
After ten years		2			10			8			11			—			4			35			6.61

Fair value	$	227		$	22		$	6,370		$	330		$	193		$	309		$	7,451			—
Amortized cost		227			21			6,460			322			103			298			7,431			4.26	%
Weighted-average yield		2.41	%		7.25	%		3.73	%		5.54	%		38.39	%		3.00	%^b		4.26	%		—
Weighted-average maturity		.5 years			10.8 years			2.3 years			3.6 years			5.1 years			1.8 years			2.3 years			—

DECEMBER 31, 2003
Fair value	$	64		$	23		$	6,606		$	469		$	175		$	301		$	7,638			—
Amortized cost		63			23			6,696			453			105			288			7,628			4.54	%

DECEMBER 31, 2002
Fair value	$	23		$	35		$	7,207		$	852		$	209		$	181		$	8,507			—
Amortized cost		22			35			7,143			815			166			208			8,389			5.76	%


^a	Maturity is based upon expected average lives rather than contractual terms.
^b	Weighted-average yields are calculated based on amortized cost and exclude equity securities of $185 million at December 31, 2004, that have no stated yield. Such yields have been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.
^c	Includes primarily marketable equity securities.

FIGURE 21. INVESTMENT SECURITIES


	States and						Weighted
	Political		Other				Average
dollars in millions	Subdivisions		Securities		Total		Yield^a

DECEMBER 31, 2004
Remaining maturity:
One year or less	$	20		—	$	20		9.59	%
After one through five years		33	$	13		46		7.21
After five through ten years		5		—		5		8.84
After ten years		—		—		—		9.23

Amortized cost	$	58	$	13	$	71		8.01	%
Fair value		61		13		74		—
Weighted-average maturity	2.2 years		3.3 years		2.4 years			—

DECEMBER 31, 2003
Amortized cost	$	83	$	15	$	98		8.50	%
Fair value		89		15		104		—

DECEMBER 31, 2002
Amortized cost	$	120		—	$	120		9.43	%
Fair value		129		—		129		—


^a	Weighted-average yields are calculated based on amortized cost. Such yields have been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.

Other investments. Principal investments — investments in equity and mezzanine instruments made by Key’s Principal Investing unit — are carried at fair value, which aggregated $816 million at December 31, 2004, and $732 million at December 31, 2003. They represent approximately 57% of other investments at December 31, 2004, and include direct and indirect investments predominantly in privately held companies. Direct investments are those made in a particular company, while indirect investments are made through funds that include other investors.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND
SUBSIDIARIES

Deposits and other sources of funds
“Core deposits” — domestic deposits other than certificates of deposit of $100,000 or more — are Key’s primary source of funding. During 2004, core deposits averaged $43.9 billion, and represented 59% of the funds Key used to support earning assets, compared with $41.7 billion and 57% during 2003, and $37.7 billion and 52% during 2002. The composition of Key’s deposits is shown in Figure 6, which spans pages 20 and 21.

The increase in the level of Key’s average core deposits during both 2004 and 2003 was due primarily to higher levels of NOW accounts, money market deposit accounts and noninterest-bearing deposits. This growth was slightly offset by decreases in time deposits of 7% in 2004 and 12% in 2003. These results reflect client preferences for investments that provide high levels of liquidity in a low interest rate environment. Average noninterest-bearing deposits also increased because we intensified our cross-selling efforts, focused sales and marketing efforts on our free checking products, and collected more escrow deposits associated with the servicing of commercial real estate loans.

Purchased funds, comprising large certificates of deposit, deposits in the foreign branch and short-term borrowings, averaged $15.1 billion during 2004, compared with $14.0 billion during 2003 and $15.5 billion in 2002. The increase from 2003 to 2004 was attributable primarily to a higher level of foreign branch deposits. These purchased funds have grown due in part to increased funding needs stemming from stronger demand for commercial loans.

We continue to consider loan sales and securitizations as a funding alternative when market conditions are favorable. Key securitized and sold $1.1 billion of education loans in 2004 and $998 million in 2003.

Key has a program under which deposit balances (above a defined threshold) in certain NOW accounts and noninterest-bearing checking accounts are transferred to money market accounts, thereby reducing the level of deposit reserves required to be maintained with the Federal Reserve. Based on certain limitations, funds are periodically transferred back to the checking accounts to cover checks presented for payment or withdrawals. As a result of this program, average deposit balances for 2004 include demand deposits of $7.7 billion that are classified as money market deposit accounts. In Figure 6, demand deposits continue to be reported as noninterest-bearing checking accounts.

At December 31, 2004, Key had $12.1 billion in time deposits of $100,000 or more. Figure 22 shows the maturity distribution of these deposits.

FIGURE 22. MATURITY DISTRIBUTION OF
TIME DEPOSITS OF $100,000 OR MORE


December 31, 2004	Domestic		Foreign
in millions	Offices		Office		Total

Remaining maturity:
Three months or less	$	1,364	$	7,411	$	8,775
After three through twelve months		812		—		812
After twelve months		2,521		—		2,521

Total	$	4,697	$	7,411	$	12,108

Capital
Shareholders’ equity. Total shareholders’ equity at December 31, 2004, was $7.1 billion, up $148 million from December 31, 2003. Growth in retained earnings and the issuance of common shares out of the treasury stock account in connection with employee stock purchase, dividend reinvestment and stock option programs contributed to the increase. Other factors contributing to the change in shareholders’ equity during 2004 are shown in the Consolidated Statements of Changes in Shareholders’ Equity presented on page 53.

Changes in common shares outstanding. Share repurchases and other activities that caused the change in Key’s outstanding common shares over the past two years are shown in Figure 23 below.

FIGURE 23. CHANGES IN COMMON SHARES OUTSTANDING

2004 Quarters

in thousands

2004

Fourth

Third

Second

First

2003

SHARES OUTSTANDING AT

BEGINNING OF PERIOD

416,494

405,723

407,243

412,153

416,494

423,944

Issuance of shares under employee benefit

and dividend reinvestment plans

7,614

1,847

980

1,128

3,659

4,050

Repurchase of common shares

(16,538

)

—

(2,500

)

(6,038

)

(8,000

)

(11,500

)

SHARES OUTSTANDING AT

END OF PERIOD

407,570

405,723

407,243

412,153

416,494

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

In July 2004, the Board of Directors authorized the repurchase of 25,000,000 common shares, in addition to the shares remaining from a repurchase program authorized in September 2003. This action brought the total repurchase authorization to 31,961,248 shares. These shares may be repurchased in the open market or through negotiated transactions. The program does not have an expiration date. Key did not repurchase any shares during the three months ended December 31, 2004, leaving 29,461,248 shares remaining that may be purchased as of December 31, 2004.

At December 31, 2004, Key had 84,319,111 treasury shares. Management expects to reissue those shares from time-to-time to support the employee stock purchase, stock option and dividend reinvestment plans, and for other corporate purposes. During 2004, Key reissued 7,614,177 treasury shares.

Capital adequacy. Capital adequacy is an important indicator of financial stability and performance. Overall, Key’s capital position remains strong: the ratio of total shareholders’ equity to total assets was 7.84% at December 31, 2004, and 8.25% at December 31, 2003. Key’s ratio of tangible equity to tangible assets was 6.35% at December 31, 2004, and is within our targeted range of 6.25% to 6.75% Management believes that Key’s capital position provides the flexibility to take advantage of investment opportunities, to repurchase shares when appropriate and to pay dividends.

Banking industry regulators prescribe minimum capital ratios for bank holding companies and their banking subsidiaries. Note 14 (“Shareholders’ Equity”), which begins on page 74, explains the implications of failing to meet specific capital requirements imposed by the banking regulators. Risk-based capital guidelines require a minimum level of capital as a percent of “risk-weighted assets,” which is total assets plus certain off-balance sheet items, both adjusted for predefined credit risk factors. Currently, banks and bank holding companies must maintain, at a minimum, Tier 1 capital as a percent of risk-weighted assets of 4.00%, and total capital as a percent of risk-weighted assets of 8.00%. As of December 31, 2004, Key’s Tier 1 capital ratio was 7.22%, and its total capital ratio was 11.47%.

Another indicator of capital adequacy, the leverage ratio, is defined as Tier 1 capital as a percentage of average quarterly tangible assets. Leverage ratio requirements vary with the condition of the financial institution. Bank holding companies that either have the highest supervisory rating or have implemented the Federal Reserve’s risk-adjusted measure for market risk — as KeyCorp has — must maintain a minimum leverage ratio of 3.00%. All other bank holding companies must maintain a minimum ratio of 4.00%. As of December 31, 2004, Key had a leverage ratio of 7.96%.

Federal bank regulators group FDIC-insured depository institutions into five categories, ranging from “critically undercapitalized” to “well capitalized.” Key’s affiliate bank qualified as “well capitalized” at December 31, 2004, since it exceeded the prescribed thresholds of 10.00% for total capital, 6.00% for Tier 1 capital and 5.00% for the leverage ratio. If these provisions applied to bank holding companies, Key would also qualify as “well capitalized” at December 31, 2004. The FDIC-defined capital categories serve a limited supervisory function. Investors should not treat them as a representation of the overall financial condition or prospects of KeyCorp or its affiliate bank.

Figure 24 presents the details of Key’s regulatory capital position at December 31, 2004 and 2003.

FIGURE 24. CAPITAL COMPONENTS
AND RISK-WEIGHTED ASSETS


December 31,
dollars in millions	2004			2003

TIER 1 CAPITAL
Common shareholders’ equity^a	$	7,143		$	6,961
Qualifying capital securities		1,292			1,306
Less: Goodwill		1,359			1,150
Other assets^b		132			61

Total Tier 1 capital		6,944			7,056

TIER 2 CAPITAL
Allowance for losses on loans and lending-related commitments		1,205			1,079
Net unrealized gains on equity securities available for sale		3			5
Qualifying long-term debt		2,880			2,475

Total Tier 2 capital		4,088			3,559

Total risk-based capital	$	11,032		$	10,615

RISK-WEIGHTED ASSETS
Risk-weighted assets on balance sheet	$	73,911		$	67,675
Risk-weighted off-balance sheet exposure		23,519			18,343
Less: Goodwill		1,359			1,150
Other assets^b		649			336
Plus: Market risk-equivalent assets		733			244

Gross risk-weighted assets		96,155			84,776
Less: Excess allowance for losses on loans and lending-related commitments		—			327

Net risk-weighted assets	$	96,155		$	84,449

AVERAGE QUARTERLY TOTAL ASSETS	$	89,241		$	84,000

CAPITAL RATIOS
Tier 1 risk-based capital ratio		7.22	%		8.35	%
Total risk-based capital ratio		11.47			12.57
Leverage ratio^c		7.96			8.55

    ^aCommon shareholders’ equity does not include net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities) or net gains or losses on cash flow hedges.

    ^bOther assets deducted from Tier 1 capital and risk-weighted assets consist of intangible assets (excluding goodwill) recorded after February 19, 1992, deductible portions of purchased mortgage servicing rights and deductible portions of nonfinancial equity investments.

    ^cThis ratio is Tier 1 capital divided by average quarterly total assets less goodwill, the nonqualifying intangible assets described in footnote (b) and deductible portions of nonfinancial equity investments.

KeyCorp’s common shares are traded on the New York Stock Exchange under the symbol KEY. At December 31, 2004:

• Book value per common share was $17.46, based on 407,569,669 shares outstanding, compared with $16.73, based on 416,494,244 shares outstanding, at December 31, 2003.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND
SUBSIDIARIES

• The closing market price of a KeyCorp common share was $33.90. This price was 194% of year-end book value per share, and would produce a dividend yield of 3.66%.

• There were 42,378 holders of record of KeyCorp common shares.

In 2004, the quarterly dividend was $.31 per common share, up from $.305 per common share in 2003. On January 20, 2005, the quarterly dividend per common share was increased by 4.8% to $.325, effective with the March 2005 dividend payment.

Figure 36 on page 48 shows the market price ranges of Key’s common shares, per common share net income and dividends paid by quarter for each of the last two years.

OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

Off-balance sheet arrangements
Key is party to various types of off-balance sheet arrangements, which could expose Key to contingent liabilities or risks of loss that are not reflected on its balance sheet.

Variable Interest Entities. A variable interest entity (“VIE”) is a partnership, limited liability company, trust or other legal entity that does not have sufficient equity to permit it to finance its activities without additional subordinated financial support from other parties, or whose investors lack one of three characteristics (as described in Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”) under the heading “Variable Interest Entities” on page 69) associated with owning a controlling financial interest, or for which the voting rights of some investors are not proportional to their economic interest in the entity. Revised Interpretation No. 46, “Consolidation of Variable Interest Entities,” addresses how companies determine whether they must consolidate an entity depending on whether the entity is a voting rights entity or a VIE. This interpretation is summarized in Note 1 (“Summary of Significant Accounting Policies”) under the headings “Basis of Presentation” on page 55 and “Accounting Pronouncements Adopted in 2004” on page 60.

Key is involved with certain VIEs in which it holds a significant interest, but for which it is not the primary beneficiary. In accordance with Revised Interpretation No. 46, these entities are not consolidated. Key defines a “significant interest” in a VIE as a subordinated interest that exposes it to a significant portion, but not the majority of the VIE’s expected losses or residual returns. Key’s involvement with these VIEs is described in Note 8 under the heading “Unconsolidated VIEs” on page 70.

Loan Securitizations. Key originates, securitizes and sells primarily education loans. A securitization involves the sale of a pool of loan receivables to investors through either a public or private issuance (generally by a qualifying special purpose entity (“SPE”)) of asset-backed securities. Generally, the loans are transferred to a trust that sells interests in the form of certificates of ownership. These transactions provide an alternative source of funding for Key. In accordance with Revised Interpretation No. 46, qualifying SPEs, including securitization trusts established by Key under SFAS No. 140, are exempt from consolidation.

In some cases, Key retains a residual interest in self-originated, securitized loans that may take the form of an interest-only strip, a residual asset, a servicing asset or a security. Key accounts for these retained interests as debt securities and classifies them as either available-for-sale securities or trading account assets. The retained interests represent Key’s exposure to loss if they were to decline in value. In the event that cash flows generated by the securitized assets become inadequate to service the obligations of the trusts, the investors in the asset-backed securities would have no further recourse against Key. Additional information pertaining to Key’s retained interests in loan securitizations is summarized in Note 1 under the heading “Loan Securitizations” on page 57, Note 6 (“Securities”), which begins on page 66, and Note 8 under the heading “Retained Interests in Loan Securitizations” on page 67.

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. In many cases, a client must pay a fee to obtain a loan commitment from Key. Since a commitment may expire without resulting in a loan, the total amount of outstanding commitments may significantly exceed Key’s eventual cash outlay. Further information about Key’s loan commitments at December 31, 2004, is presented in Note 18 (“Commitments, Contingent Liabilities and Guarantees”) under the heading “Commitments to Extend Credit or Funding” on page 81. Figure 25 shows the remaining contractual amount of each class of commitments to extend credit or funding, which represents Key’s maximum possible loss at December 31, 2004.

Other off-balance sheet arrangements. Other off-balance sheet arrangements include financial instruments that do not meet the definition of a guarantee as specified in Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” and other relationships, such as liquidity support provided to an asset-backed commercial paper conduit, indemnification agreements and intercompany guarantees. Information about such arrangements is provided in Note 18 under the heading “Other Off-Balance Sheet Risk” on page 84.

Contractual obligations
Figure 25 summarizes Key’s significant contractual obligations, and lending-related and other off-balance sheet commitments at December 31, 2004, by the specific time periods in which related payments are due or commitments expire.

Guarantees
Key is a guarantor in various agreements with third parties. As guarantor, Key may be contingently liable to make payments to the guaranteed party based on changes in an underlying that is related to an asset or liability or another entity’s failure to perform under an obligating agreement. An underlying is a specified interest rate, foreign exchange rate or other variable (including the occurrence or nonoccurrence of a specified event). Additional information regarding these types of arrangements is presented in Note 18 under the heading “Guarantees” on page 83.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 25. CONTRACTUAL OBLIGATIONS AND OTHER OFF-BALANCE SHEET COMMITMENTS


			After		After
December 31, 2004	Within		1 Through		3 Through		After
in millions	1 Year		3 Years		5 Years		5 Years		Total

Contractual obligations^a:
Deposits with no stated maturity	$	35,299		—		—		—	$	35,299
Time deposits of $100,000 or more		9,587	$	1,531	$	400	$	590		12,108
Other time deposits		4,222		4,455		678		1,080		10,435
Federal funds purchased and securities sold under repurchase agreements		2,145		—		—		—		2,145
Bank notes and other short-term borrowings		2,515		—		—		—		2,515
Long-term debt		4,111		4,708		1,828		4,199		14,846
Noncancelable operating leases		127		228		169		336		860
Purchase obligations:
Banking and financial data services		86		58		28		14		186
Telecommunications		37		28		2		—		67
Professional services		49		48		10		—		107
Technology equipment and software		47		45		6		1		99
Other		12		13		8		4		37

Total purchase obligations		231		192		54		19		496

Total	$	58,237	$	11,114	$	3,129	$	6,224	$	78,704


Lending-related and other off-balance sheet commitments:
Commercial, including real estate	$	12,725	$	8,675	$	6,118	$	1,887	$	29,405
Home equity		—		43		129		6,617		6,789
Principal investing		1		17		60		169		247
Commercial letters of credit		159		39		43		—		241

Total	$	12,885	$	8,774	$	6,350	$	8,673	$	36,682

^a Deposits and borrowings exclude interest.

RISK MANAGEMENT

Overview

Certain risks are inherent in the business activities conducted by financial services companies. As such, the ability to properly and effectively identify, measure, monitor and report such risks is essential to maintaining a company’s safety and soundness and to maximizing its profitability. Management believes that the most significant risks to which Key is exposed are market risk, credit risk, liquidity risk and operational risk. Each type of risk is defined and discussed in greater detail in the remainder of this section.

Key’s Board of Directors (“Board”) has established and follows a corporate governance program that serves as the foundation for managing and mitigating risk. In accordance with this program, the Board focuses on the interests of shareholders, encourages strong internal controls, demands management accountability, mandates adherence to Key’s code of ethics and administers an annual self-assessment process. The Board has established Audit and Finance committees whose appointed members play an integral role in helping the Board meet its risk oversight responsibilities. Those committees meet jointly, as appropriate, to discuss matters that relate to each committee’s responsibilities.

Audit Committee

The Audit Committee provides review and oversight of the integrity of Key’s financial statements, compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence, and the performance of Key’s internal audit function and independent auditors.

Finance Committee

The Finance Committee assists the Board in its review and oversight of Key’s policies, strategies and activities related to risk management that fall outside the scope of responsibility of the Audit Committee. This committee also assists in the review and oversight of policies, strategies and activities related to capital management, asset and liability management, capital expenditures and various other financing and investing activities.

Key’s Board and its committees meet bi-monthly. However, it is not uncommon for more frequent contact to occur. In addition to regularly scheduled meetings, the Audit Committee convenes to discuss the content of Key’s financial disclosures and press releases related to quarterly earnings. Committee chairpersons routinely meet with management during interim months to plan agendas for upcoming meetings and to discuss events that have transpired since the preceding meeting. Also, during interim months, all members of the Board receive a formal report designed to keep them abreast of significant developments.

Market risk management

The values of some financial instruments vary not only with changes in market interest rates, but also with changes in foreign exchange rates, factors influencing valuations in the equity securities markets and other market-driven rates or prices. For example, the value of a fixed-rate bond will decline if market interest rates increase. Similarly, the value of the U.S. dollar regularly fluctuates in relation to other currencies.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

When the value of an instrument is tied to such external factors, the holder faces “market risk.” Most of Key’s market risk is derived from interest rate fluctuations.

Interest rate risk management

Key’s Asset/Liability Management Policy Committee (“ALCO”) has developed a program to measure and manage interest rate risk. This senior management committee is also responsible for approving Key’s asset/liability management policies, overseeing the formulation and implementation of strategies to improve balance sheet positioning and earnings, and reviewing Key’s sensitivity to changes in interest rates.

Factors contributing to interest rate exposure. Key uses interest rate exposure models to quantify the potential impact that a variety of possible interest rate scenarios may have on earnings and the economic value of equity. The various scenarios estimate the level of Key’s interest rate exposure arising from gap risk, option risk and basis risk.

• Key often uses interest-bearing liabilities to fund interest-earning assets. For example, Key may sell certificates of deposit and use the proceeds to make loans. That strategy presents “gap risk” if the related liabilities and assets do not mature or reprice at the same time.

• A financial instrument presents “option risk” when one party to the instrument can take advantage of changes in interest rates without penalty. For example, when interest rates decline, borrowers may choose to prepay fixed-rate loans by refinancing at a lower rate. Such a prepayment gives Key a return on its investment (the principal plus some interest), but unless there is a prepayment penalty, that return may not be as high as the return that would have been generated had payments been received over the original term of the loan. Floating-rate loans that are capped against potential interest rate increases and deposits that can be withdrawn on demand also present option risk.

• One approach that Key follows to manage interest rate risk is to use floating-rate liabilities (such as borrowings) to fund floating-rate assets (such as loans). That way, as our interest expense increases so will our interest income. We face “basis risk” when our floating-rate assets and floating-rate liabilities reprice in response to different market factors or indices. Under those circumstances, even if equal amounts of assets and liabilities are repricing at the same time, interest expense and interest income may not change by the same amount.

Measurement of short-term interest rate exposure. Key uses a simulation model to measure interest rate risk. The model estimates the impact that various changes in the overall level of market interest rates would have on net interest income over one-and two-year time periods. The results help Key develop strategies for managing exposure to interest rate risk.

Like any forecasting technique, interest rate simulation modeling is based on a large number of assumptions and judgments. Primary among these for Key are those related to loan and deposit growth, asset and liability prepayments, interest rate variations, product pricing, and on- and off-balance sheet management strategies. Management believes that the assumptions used are reasonable. Nevertheless, simulation modeling produces only a sophisticated estimate, not a precise calculation of exposure.

Key’s risk management guidelines call for preventive measures to be taken if simulation modeling demonstrates that a gradual 200 basis point increase or decrease in short-term rates over the next twelve months, defined as a stressed interest rate scenario, would adversely affect net interest income over the same period by more than 2%. Key is operating within these guidelines.

When an increase in short-term interest rates is expected to generate lower net interest income, the balance sheet is said to be “liability-sensitive,” meaning that rates paid on deposits and other liabilities respond more quickly to market forces than yields on loans and other assets. Conversely, when an increase in short-term interest rates is expected to generate greater net interest income, the balance sheet is said to be “asset-sensitive,” meaning that yields on loans and other assets respond more quickly to market forces than rates paid on deposits and other liabilities. Key has historically maintained a modest liability-sensitive position to increasing interest rates under our “standard” risk assessment. However, since mid-2004, Key has been operating with a slight asset-sensitive position. This change resulted from management’s decision in the fourth quarter of 2003 to move Key to an asset-sensitive position by gradually lowering its liability-sensitivity over a nine to twelve-month period. Management actively monitors the risk of changes in interest rates and takes preventive actions, when deemed necessary, with the objective of assuring that net interest income at risk does not exceed internal guidelines. In addition, since rising rates typically reflect an improving economy, management expects that Key’s lines of business could increase their portfolios of market-rate loans and deposits, which would mitigate the effect of rising rates on Key’s interest expense.

For purposes of simulation modeling, we estimate net interest income starting with current market interest rates, and assume that those rates will not change in future periods. Then we measure the amount of net interest income at risk by gradually increasing or decreasing the Federal Funds target rate by 200 basis points over the next twelve months. At the same time, we adjust other market interest rates, such as U.S. Treasury, LIBOR, and interest rate swap rates, but not as dramatically. These market interest rate assumptions form the basis for our “standard” risk assessment in a stressed period for interest rate changes. We also assess rate risk assuming that market interest rates move faster or slower, and that the magnitude of change results in “steeper” or “flatter” yield curves. The yield curve depicts the relationship between the yield on a particular type of security and its term to maturity.

Short-term interest rates were relatively low at December 31, 2004. To make the working model more realistic in these circumstances, management modified Key’s standard rate scenario of a gradual decrease of 200 basis points over twelve months to a gradual decrease of 150 basis points over nine months and no change over the following three months.

In addition to modeling interest rates as described above, Key models the balance sheet in three distinct ways to forecast changes over different periods and under different conditions. Our initial simulation of net interest income assumes that the composition of the balance sheet will not change over the next year. In other words, current levels of loans, deposits, investments, and other related assets and liabilities are held constant, and loans, deposits and investments that are assumed to

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

mature or prepay are replaced with like amounts. Interest rate swaps and investments used for asset/liability management purposes, and term debt used for liquidity management purposes are allowed to mature without replacement. Unlike subsequent simulations of net interest income discussed below, this initial simulation assumes that all market interest rates increase or decrease at the same rate of change as the Federal Funds target rate, thereby producing a “parallel” change in the yield curve. In this simulation, we are simplistically capturing the effect of hypothetical changes in interest rates on future net interest income volatility. Additionally, growth in floating-rate loans and fixed-rate deposits, which naturally reduce the amount of net interest income at risk when interest rates are rising, are not captured in this simulation.

Another simulation, using Key’s “most likely balance sheet,” assumes that the balance sheet will grow at levels consistent with consensus economic forecasts. Investments used for asset/liability management purposes will be allowed to mature without replacement, and term debt used for liquidity management purposes will be incorporated to ensure a prudent level of liquidity. Forecasted loan, security, and deposit growth in the simulation model produces incremental risks, such as gap risk, option risk and basis risk, that may increase interest rate risk. To mitigate these risks, management makes assumptions about future on-and off-balance sheet management strategies. In this simulation, we are testing the sensitivity of net interest income to future balance sheet volume changes while simultaneously capturing the effect of hypothetical changes in interest rates on future net interest income volatility. As of December 31, 2004, based on the results of our simulation model, and assuming that management does not take action to alter the outcome, Key would expect net interest income to increase by approximately .73% if short-term interest rates gradually increase by 200 basis points over the next twelve months. Conversely, if short-term interest rates gradually decrease by 150 basis points over the next nine months, net interest income would be expected to decrease by approximately 1.49% over the next year.

The results of the above scenarios reflect the fact that Key’s balance sheet is currently asset-sensitive to changes in short-term interest rates. Key’s asset sensitive position to a decrease in interest rates stems from the fact that short-term rates were relatively low at December 31, 2004. Consequently, the results of the simulation model reflect management’s assumption that yields on earning assets will decline faster than rates paid on deposits and borrowings. This is particularly true for collateralized mortgage obligations held in the securities available for sale portfolio. When interest rates decrease, prepayments on collateralized mortgage obligations are generally more rapid, resulting in lower reinvestment yields and a higher level of premium amortization. To mitigate the risk of a potentially adverse effect on earnings, management is using interest rate contracts while maintaining the flexibility to lower rates on deposits, if necessary.

The results of the “most likely balance sheet” simulation form the basis for our “standard” risk assessment that is performed monthly and reported to Key’s risk governance committees in accordance with ALCO policy. There are a variety of factors that can influence the results of the simulation. Assumptions we make about loan and deposit growth strongly influence funding, liquidity, and interest rate sensitivity. Figure 26 illustrates the variability of the simulation results that can arise from changing certain major assumptions. It is important to note that net interest income volatility is the result of business flow assumptions that may, or may not, influence the interest rate risk profile.

FIGURE 26. NET INTEREST INCOME VOLATILITY


Per $100 Million of New Business	Net Interest Income Volatility	Interest Rate Risk Profile

Floating-rate commercial loans at 4.25% funded short-term.	Increases annual net interest income $2.0 million.	No change.

Two-year fixed-rate CDs at 3.25% that reduce short-term funding.	Rates unchanged: Decreases annual net interest income $1.0 million.	Reduces the “standard” simulated net interest income at risk to rising rates by .03%.

	Rates up 200 basis points over 12 months:
	No change to net interest income.

Five-year fixed-rate home equity loans at 6.75% funded short-term.	Rates unchanged: Increases annual net interest income $3.9 million.	Increases the “standard” simulated net interest income at risk to rising rates by .03%.

	Rates up 200 basis points over 12 months:
	Increases annual net interest income $3.0 million.

Premium money market deposits at 2.25% that reduce short-term funding.	Rates unchanged: No change to net interest income.	No change.

	Rates up 200 basis points over 12 months:
	Increases annual net interest income $.1 million.

Information presented in the above figure assumes a short-term funding rate of 2.25%.

Finally, we simulate the effect of increasing market interest rates in the second year of a two-year time horizon. The first year of this simulation is identical to the “most likely balance sheet” simulation discussed above except that we assume market interest rates do not change. In the second year, we assume that the balance sheet will continue to grow at levels consistent with consensus economic forecasts, interest rate swaps and

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

investments used for asset/liability management purposes will be allowed to mature without replacement, and term debt will be used for liquidity management purposes. Increases in short-term borrowings remain constrained and incremental funding needs are met through term debt issuance. Forecasted loan, security and deposit growth in the second year of the simulation model produces incremental risks, such as gap risk, option risk and basis risk, that may increase interest rate risk. In the second year of the simulation, management does not make any additional assumptions about future on- and off-balance sheet management strategies. As of December 31, 2004, based on the results of our model in which we simulate the effect of increasing market interest rates in the second year of a two-year time horizon using the “most likely balance sheet,” and assuming that management does not take action to alter the outcome, Key would expect net interest income in the second year to decrease by approximately .14% if short-term interest rates gradually increase by 200 basis points during that year. Conversely, if short-term interest rates gradually decrease by 150 basis points over the first nine months of the second year, net interest income would be expected to decrease by approximately .50% during that year.

Key would be slightly liability-sensitive to an increase in short-term interest rates in the second year of the “most likely balance sheet” simulation because the simulation assumes an increase in fixed-rate assets in the first year. Without this assumption, our natural business flows are biased towards more rate sensitive loans than deposits.

It is important to note that the results of the simulation model can be different for different changes in market interest rates and over different time frames, even if the various business flow assumptions remain static. Figure 27 demonstrates Key’s net interest income exposure to various changes in the overall level of interest rates over various time frames. For purposes of demonstrating Key’s net interest income exposure, it is assumed that semi-annual base net interest income is $1.5 billion for the next two years assuming that interest rates will not change. Key’s assumed base net interest income benefits from a current asset-sensitive position, depending on the assumed slope of the yield curve and how fast and how far interest rates are assumed to move up. Accordingly, the modeled changes to net interest income in the table depict our risk to a current asset-sensitive position.

FIGURE 27. NET INTEREST INCOME EXPOSURE OVER A TWO-YEAR TIME FRAME

First Year

Second Year

in millions

First Six Months

Twelve Months

First Six Months

Twelve Months

Assumed Base Net Interest Income

1,500

3,000

1,500

3,000

POTENTIAL RATE CHANGES

SIMULATED NET INTEREST INCOME CHANGE FROM BASE

Short-term rates increasing .5% per quarter

+ $8

+ $22

+ $11

+ $37

in the first year, then no change afterwards.

(asset sensitive)

Short-term rates increasing .5% per quarter

+ $8

+ $22

+ $10

+ $29

in the first and second year.

(asset sensitive)

Short-term rates unchanged in the first year,

—

– $4

then increasing .5% per quarter afterwards.

(liability sensitive)

Short-term rates decreasing 1.5% in the first

– $9

– $45

– $33

– $75

three quarters, then no change afterwards.

(asset sensitive)

Measurement of long-term interest rate exposure. Key uses an economic value of equity model to complement short-term interest rate risk analysis. The benefit of this model is that it measures exposure to interest rate changes over time frames longer than two years. The economic value of Key’s equity is determined by aggregating the present value of projected future cash flows for asset, liability and derivative positions based on the current yield curve. However, economic value does not represent the fair values of asset, liability and derivative positions since it does not consider factors like credit risk and liquidity.

Key’s guidelines for risk management call for preventive measures to be taken if an immediate 200 basis point increase or decrease in interest rates is estimated to reduce the economic value of equity by more than 15%. Key is operating within these guidelines.

Management of interest rate exposure. Management uses the results of short-term and long-term interest rate exposure models to formulate strategies to improve balance sheet positioning, earnings, or both, within the bounds of Key’s interest rate risk, liquidity and capital guidelines.

We actively manage our interest rate sensitivity through securities, debt issuance and derivatives. Key’s three major business groups conduct activities that generally result in an asset-sensitive position. To compensate, we typically issue floating-rate debt, or fixed-rate debt swapped to floating, so that the rate paid on deposits and borrowings in the aggregate will respond more quickly to market forces. Interest rate swaps are the primary tool we use to modify our interest rate sensitivity and our asset and liability durations. During 2003, management focused on interest rate swap maturities of two years or less to preserve the flexibility of changing from “liability sensitive” to “asset sensitive” in a relatively short period of time. Since September 30, 2003, management has moved toward, then maintained, an “asset sensitive” interest rate risk profile. During 2004, the shift to asset sensitivity reflected maturities,

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

early terminations and a lower volume of new interest rate swaps related to conventional asset/liability management. During the fourth quarter of 2004, we terminated receive fixed interest rate swaps with a notional amount of $3.2 billion in advance of their maturity dates to achieve our desired interest rate sensitivity position. These terminations were completed because the growth of our fixed-rate loans and leases, which was bolstered by the acquisition of AEBF, exceeded the growth in fixed-rate liabilities.

The decision to use interest rate swaps rather than securities, debt or other on-balance sheet alternatives depends on many factors, including the mix and cost of funding sources, liquidity and capital requirements, and interest rate implications. Figure 28 shows the maturity structure for all swap positions held for asset/liability management 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 floating rate through a “receive fixed, pay variable” interest rate swap. During 2004, Key issued $2.6 billion of fixed-rate debt and debt issued in foreign denominated currencies. Conventional debt receive fixed swaps and foreign currency swaps were executed as hedges that are highly correlated to the underlying exposures. For more information about how Key uses interest rate swaps to manage its balance sheet, see Note 19 (“Derivatives and Hedging Activities”), which begins on page 84.

Key’s securities and term debt portfolios are also used to manage interest rate risk. Details regarding these portfolios can be found in the discussion of securities, beginning on page 30, in Note 6 (“Securities”), which begins on page 66, and in Note 12 (“Long-Term Debt”) on page 73. Collateralized mortgage obligations, the majority of which have relatively short average lives, have been used in conjunction with swaps to manage our interest rate risk position.

FIGURE 28. PORTFOLIO SWAPS BY INTEREST RATE RISK MANAGEMENT STRATEGY


	December 31, 2004													December 31, 2003
								Weighted-Average Rate
	Notional		Fair			Maturity								Notional		Fair
dollars in millions	Amount		Value			(Years)		Receive			Pay			Amount		Value

Receive fixed/pay variable — conventional A/LM^a	$	3,400	$	10			1.0		3.0	%		2.3	%	$	12,275	$	87
Receive fixed/pay variable — conventional debt		5,814		247			7.1		5.3			2.3			5,443		321
Pay fixed/receive variable — conventional debt		1,173		(33	)		4.3		2.6			4.8			1,496		(90	)
Pay fixed/receive variable — forward starting		—		—			—		—			—			14		—
Foreign currency — conventional debt		2,559		478			2.5		2.8			2.6			1,538		304
Basis swaps^b		9,500		(6	)		1.1		2.1			2.0			10,095		(2	)
Basis — forward starting ^b		—		—			—		—			—			2,500		—

Total portfolio swaps	$	22,446	$	696			3.0		3.2	%		2.4	%	$	33,361	$	620

^a Portfolio swaps designated as A/LM are used to manage interest rate risk tied to both assets and liabilities.

^b These portfolio swaps are not designated as hedging instruments under SFAS No. 133.

Trading portfolio risk management

Key’s trading portfolio is described in Note 19.

Management uses a value at risk (“VAR”) simulation 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 Key’s trading portfolio. Using historical information, the model estimates the maximum potential one-day loss with 95% probability by comparing the relative change in rates to the current day’s rates and prices. During 2004, Key’s aggregate daily average, minimum and maximum VAR amounts were $1.6 million, $.8 million and $4.1 million, respectively. During 2003, Key’s aggregate daily average, minimum and maximum VAR amounts were $1.2 million, $.7 million and $2.1 million, respectively.

VAR modeling is supplemented with other controls that Key uses to mitigate the market risk exposure of the trading portfolio. For example, we adhere to trading limits established by Key’s Financial Markets Committee. At December 31, 2004, the aggregate one-day trading limit set by the committee was $4.4 million. In addition, we have established loss limits and we rely on certain sensitivity measures and stress testing.

Credit risk management

Credit risk represents the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms. It is inherent in the financial services industry and results from extending credit to clients, purchasing securities and entering into financial derivative contracts.

Credit policy, approval and evaluation. Key manages its credit risk exposure through a multi-faceted program. Independent committees approve both retail and commercial credit policies. Once approved, these policies are communicated throughout Key to ensure consistency in our approach to granting credit.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Exceptions to established policies are normal when mitigating circumstances dictate. Most major lending units have been assigned specific thresholds designed to keep exception levels within reason. Key has a well-established process in place to monitor compliance with credit policies known as the Underwriting Standards Analysis (“USA”). The quarterly USA report provides data on all commercial loans over $2 million at the time of their approval. Each quarter, the data is analyzed to determine if lines of business have adhered to established exception limits. Further, the USA report identifies grading trends of new business, hurdle rate exceptions, transactions with higher risk and other pertinent lending information. This process allows Key to take timely action to modify its lending practices when necessary.

The Credit Administration department performs credit approval. Credit Administration is independent of Key’s lines of business and is comprised of senior officers who have extensive experience in structuring and approving loans. Only Credit Administration officers are authorized to grant exceptions to credit policies. Credit Administration is also responsible for ensuring the accuracy of loan grading at the time of origination and as the loans season.

Most extensions of credit at Key are subject to loan grading or scoring. This risk rating methodology is a blended process of management’s judgment and quantitative modeling. On the commercial side, loans are generally assigned two internal risk ratings. The first rating reflects the probability of the borrower defaulting on an obligation; the second reflects expected loss, given default, on a particular credit facility. Both ratings work from a twenty grade rating scale. The assessment of default probability is based, among other factors, on the financial strength of the borrower, an assessment of the borrower’s management, the borrower’s competitive position within its industry sector and an assessment of industry risk within the context of the general economic outlook. Types of exposure and transaction structure, including credit risk mitigants, are additional factors that affect the expected loss assessment.

Externally and internally developed risk models are used to evaluate consumer loans. These models (“scorecards”) forecast probability of serious delinquency and default for an applicant. The scorecards are embedded in our application processing system, which allows for real time scoring and automated decisions for many of Key’s products. Key periodically validates the loan grading and scoring processes.

Key maintains an active concentration management program to help diversify its credit portfolios. On exposures to individual obligors, Key employs a sliding scale of exposure (“hold limits”), which is dictated by the strength of the underlying borrower. The higher the quality of credit, the higher the internal hold limit established. Key’s legal lending limit is well in excess of $1 billion for any individual borrower. However, internal hold limits generally restrict the largest exposures to less than half that amount. As of December 31, 2004, Key had seventeen client relationships with loan commitments of more than $200 million. In general, Key’s philosophy is to maintain a very granular portfolio with regard to credit exposures.

Key manages industry concentrations using several methods. On smaller portfolios, we sometimes set limits according to a percentage of the overall loan portfolio. On larger, or higher risk portfolios, Key may establish a specific dollar commitment level or a level of economic capital that is not to be exceeded.

In addition, Key takes an active role in managing the overall loan portfolio in a manner consistent with its asset quality objectives. Actions taken to manage the loan portfolio could entail the use of derivatives to buy or sell credit protection, loan securitizations, portfolio swaps or bulk purchases and sales. The overarching goal is to continually manage the loan portfolio within a range of asset quality comfort.

Allowance for loan losses. The allowance for loan losses at December 31, 2004, was $1.138 billion, or 1.66% of loans. This compares with $1.406 billion, or 2.24% of loans, at December 31, 2003. The allowance includes $12 million that was specifically allocated for impaired loans of $38 million at December 31, 2004, compared with $73 million that was allocated for impaired loans of $183 million a year ago. For more information about impaired loans, see Note 9 (“Impaired Loans and Other Nonperforming Assets”), which begins on page 70. At December 31, 2004, the allowance for loan losses was 360.13% of nonperforming loans, compared with 202.59% at December 31, 2003.

During the first quarter of 2004, Key reclassified $70 million of its allowance for loan losses to a separate allowance for probable credit losses inherent in lending-related commitments. First quarter earnings and prior period balances were not affected by this reclassification. The separate allowance is included in “accrued expense and other liabilities” on the balance sheet.

Management estimates the appropriate level of the allowance for loan losses on a quarterly (and at times more frequent) basis. The methodology used is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan Losses” on page 56. Briefly, management assigns a specific allowance to an impaired loan when the carrying amount of the loan exceeds the estimated present value of related future cash flows and the fair value of any existing collateral. The allowance for loan losses arising from nonimpaired loans is determined by applying historical loss rates to existing loans with similar risk characteristics and by exercising judgment to assess the impact of factors such as changes in economic conditions, credit policies or underwriting standards, and the level of credit risk associated with specific industries and markets. The aggregate balance of the allowance for loan losses at December 31, 2004, represents management’s best estimate of the losses inherent in the loan portfolio at that date.

The level of watch credits in the commercial portfolio has been progressively decreasing since the end of 2002. Watch credits are loans with the potential for further deterioration in quality due to the debtor’s current financial condition and related inability to perform in accordance with the terms of the loan. The commercial loan portfolios with the most significant decreases in watch credits during 2004 were commercial real estate and healthcare. These changes reflect the fluctuations that occur in loan portfolios from time to time, underscoring the benefits of Key’s strategy to limit the concentration of credit risk in any single portfolio.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

As shown in Figure 29, the 2004 decrease in Key’s allowance for loan losses was attributable to developments in both the commercial and consumer loan portfolios.

• Credit quality trends in certain commercial loan portfolios have been improving.

• During the fourth quarter of 2004, we sold Key’s broker-originated home equity loan portfolio and reclassified the indirect automobile loan portfolio to held-for-sale status in anticipation of its sale.

• During the second quarter of 2004, we sold the indirect recreational vehicle loan portfolio.

• During the first quarter of 2004, we reclassified $70 million of Key’s allowance for loan losses to the separate allowance mentioned above.

During the second quarter of 2004, the portion of the allowance for loan losses allocated to Key’s commercial loan portfolio at December 31 for each of the four preceding years was reallocated among the various segments of that portfolio to more accurately reflect the inherent risk embedded in those segments. The reallocation did not change the total allowance previously allocated to either commercial loans or the loan portfolio as a whole.

FIGURE 29. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES


December 31,	2004								2003								2002
			Percent of			Percent of					Percent of			Percent of					Percent of			Percent of
			Allowance			Loan Type					Allowance			Loan Type					Allowance			Loan Type
			to Total			to Total					to Total			to Total					to Total			to Total
dollars in millions	Amount		Allowance			Loans			Amount		Allowance			Loans			Amount		Allowance			Loans

Commercial, financial and agricultural	$	589		51.8	%		28.3	%	$	799		56.8	%		27.1	%	$	961		66.2	%		27.9	%
Real estate — commercial mortgage		39		3.4			11.0			42		3.0			9.1			48		3.3			9.6
Real estate — construction		165		14.5			8.0			148		10.5			7.9			145		10.0			9.1
Commercial lease financing		217		19.1			15.9			152		10.8			13.6			105		7.2			12.0

Total commercial loans		1,010		88.8			63.2			1,141		81.1			57.7			1,259		86.7			58.6
Real estate — residential mortgage		6		.5			2.1			3		.2			2.5			2		.1			3.1
Home equity		45		4.0			20.5			77		5.5			24.0			65		4.5			22.1
Consumer — direct		41		3.6			2.9			47		3.3			3.4			16		1.1			3.5
Consumer — indirect lease financing		3		.2			.1			8		.6			.5			5		.4			1.4
Consumer — indirect other		18		1.6			4.8			118		8.4			8.1			103		7.1			7.9

Total consumer loans		113		9.9			30.4			253		18.0			38.5			191		13.2			38.0
Loans held for sale		15		1.3			6.4			12		.9			3.8			2		.1			3.4

Total	$	1,138		100.0	%		100.0	%	$	1,406		100.0	%		100.0	%	$	1,452		100.0	%		100.0	%


	2001								2000
			Percent of			Percent of					Percent of			Percent of
			Allowance			Loan Type					Allowance			Loan Type
			to Total			to Total					to Total			to Total
dollars in millions	Amount		Allowance			Loans			Amount		Allowance			Loans

Commercial, financial and agricultural	$	1,182		70.5	%		28.7	%	$	698		69.7	%		30.0	%
Real estate — commercial mortgage		45		2.7			10.5			34		3.4			10.3
Real estate — construction		145		8.6			9.3			70		7.0			7.7
Commercial lease financing		90		5.4			11.6			47		4.7			10.7

Total commercial loans		1,462		87.2			60.1			849		84.8			58.7
Real estate — residential mortgage		4		.2			3.7			2		.2			6.3
Home equity		63		3.8			17.7			29		2.9			14.8
Consumer — direct		24		1.4			3.7			14		1.4			3.8
Consumer — indirect lease financing		7		.4			3.2			10		1.0			4.5
Consumer — indirect other		114		6.8			8.4			95		9.5			8.6

Total consumer loans		212		12.6			36.7			150		15.0			38.0
Loans held for sale		3		.2			3.2			2		.2			3.3

Total	$	1,677		100.0	%		100.0	%	$	1,001		100.0	%		100.0	%

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Net loan charge-offs. Net loan charge-offs for 2004 were $431 million, or .67% of average loans, representing the lowest level of net charge-offs for Key since 2000. These results compare with net charge-offs of $548 million, or .87% of average loans, for 2003, and $780 million, or 1.23% of average loans, for 2002. The composition of Key’s loan charge-offs and recoveries by type of loan is shown in Figure 30. The decrease in net charge-offs for 2004 occurred primarily in the middle market, institutional (formerly known as “large corporate”) and financial sponsors (formerly known as “structured finance”) segments of the commercial, financial and agricultural loan portfolio. Financial sponsors refers to a type of lending characterized by a high degree of leverage in the borrower’s financial condition and a relatively low level of tangible loan collateral. These reductions were offset in part by an increase in net charge-offs in the indirect consumer loan portfolio, due largely to the reclassification of the indirect automobile loan portfolio to held-for-sale status in the fourth quarter. The effect of this reclassification and the sale of the broker-originated home equity loan portfolio on Key’s asset quality statistics and results for the fourth quarter of 2004 are discussed in the section entitled “Fourth Quarter Results,” which begins on page 47.

FIGURE 30. SUMMARY OF LOAN LOSS EXPERIENCE


Year ended December 31,
dollars in millions	2004			2003			2002			2001			2000

Average loans outstanding during the year	$	64,250		$	62,879		$	63,393		$	65,976		$	65,294

Allowance for loan losses at beginning of year	$	1,406		$	1,452		$	1,677		$	1,001		$	930
Loans charged off:
Commercial, financial and agricultural		150			284			407			313			175

Real estate — commercial mortgage		33			39			78			18			9
Real estate — construction		5			7			22			8			—

Total commercial real estate loans^a		38			46			100			26			9
Commercial lease financing		52			60			94			62			14

Total commercial loans		240			390			601			401			198
Real estate — residential mortgage		14			10			6			17			8
Home equity		63			60			56			99			19
Consumer — direct		42			47			51			48			74
Consumer — indirect lease financing		8			15			25			27			23
Consumer — indirect other		216			156			166			192			200

Total consumer loans		343			288			304			383			324

		583			678			905			784			522

Recoveries:
Commercial, financial and agricultural		42			36			44			26			25

Real estate — commercial mortgage		7			11			6			4			4
Real estate — construction		4			3			2			—			—

Total commercial real estate loans^a		11			14			8			4			4
Commercial lease financing		14			13			9			5			2

Total commercial loans		67			63			61			35			31
Real estate — residential mortgage		1			1			1			8			4
Home equity		6			5			4			1			2
Consumer — direct		9			9			8			9			13
Consumer — indirect lease financing		3			6			8			9			6
Consumer — indirect other		66			46			43			49			52

Total consumer loans		85			67			64			76			77

		152			130			125			111			108

Net loans charged off		(431	)		(548	)		(780	)		(673	)		(414	)
Provision for loan losses		185			501			553			1,350			490
Reclassification of allowance for credit losses on lending-related commitments^b		(70	)		—			—			—			—
Allowance related to loans acquired (sold), net		48			—			2			(1	)		(5	)
Foreign currency translation adjustment		—			1			—			—			—

Allowance for loan losses at end of year	$	1,138		$	1,406		$	1,452		$	1,677		$	1,001


Net loan charge-offs to average loans		.67	%		.87	%		1.23	%		1.02	%		.63	%
Allowance for loan losses to year-end loans		1.66			2.24			2.32			2.65			1.50
Allowance for loan losses to nonperforming loans		360.13			202.59			153.98			184.29			154.00

^a See Figure 15 and the accompanying discussion on page 28 for more information related to Key’s commercial real estate portfolio.

^b Included in “accrued expenses and other liabilities” on the consolidated balance sheet.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Included in net charge-offs for 2003, 2002 and 2001 are $47 million, $227 million and $215 million, respectively, of losses charged to the now depleted portion of Key’s allowance for loan losses that had been segregated in connection with management’s decision to discontinue many credit-only relationships in the leveraged financing and nationally syndicated lending businesses and to facilitate sales of distressed loans in other portfolios.

Nonperforming assets. Figure 31 shows the composition of Key’s nonperforming assets, which have declined for nine consecutive quarters. These assets totaled $379 million at December 31, 2004, and represented .55% of loans, other real estate owned (known as “OREO”) and other nonperforming assets, compared with $753 million, or 1.20%, at December 31, 2003. See Note 1 under the headings “Impaired and Other Nonaccrual Loans” and “Allowance for Loan Losses” on page 56 for a summary of Key’s nonaccrual and charge-off policies.

FIGURE 31. SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS


December 31,
dollars in millions	2004			2003			2002			2001			2000

Commercial, financial and agricultural	$	43		$	252		$	448		$	409		$	301

Real estate — commercial mortgage		31			85			157			187			90
Real estate — construction		20			25			50			83			28

Total commercial real estate loans^a		51			110			207			270			118
Commercial lease financing		84			103			69			94			48

Total commercial loans		178			465			724			773			467
Real estate — residential mortgage		39			39			36			32			52
Home equity		80			153			146			60			80
Consumer — direct		3			14			13			9			8
Consumer — indirect lease financing		1			3			5			10			7
Consumer — indirect other		15			20			19			26			36

Total consumer loans		138			229			219			137			183

Total nonperforming loans		316			694			943			910			650

OREO		53			61			48			38			23
Allowance for OREO losses		(4	)		(4	)		(3	)		(1	)		(1	)

OREO, net of allowance		49			57			45			37			22

Other nonperforming assets		14			2			5			—			—

Total nonperforming assets	$	379		$	753		$	993		$	947		$	672


Accruing loans past due 90 days or more	$	122		$	152		$	198		$	250		$	236
Accruing loans past due 30 through 89 days		491			613			790			1,096			963

Nonperforming loans to year-end loans		.46	%		1.11	%		1.51	%		1.44	%		.97	%
Nonperforming assets to year-end loans plus OREO and other nonperforming assets		.55			1.20			1.59			1.49			1.00

^a See Figure 15 and the accompanying discussion on page 28 for more information related to Key’s commercial real estate portfolio.

The substantial reduction in nonperforming loans during 2004 was attributable to improvements in all segments of the commercial loan portfolio, with the largest decrease occurring in the middle market segment. As of December 31, 2004, the level of nonperforming loans was relatively low in each of the major segments of Key’s commercial loan portfolio. As mentioned above, the middle market segment improved substantially during 2004. The small business segment, which is comprised of relatively small credits compared with those in Key’s other commercial segments, gradually improved throughout 2004 and the downward trend in this segment’s nonperforming loans is expected to continue into 2005. Conversely, management anticipates that the level of nonperforming loans within the commercial lease financing segment may rise during 2005. More than half of the nonperforming loans in this segment are centered in the commercial airline sector, which continues to experience financial stress.

At December 31, 2004, our 20 largest nonperforming loans totaled $110 million, representing 35% of total loans on nonperforming status.

The level of Key’s delinquent loans also experienced a downward trend during 2004, due largely to a strengthening economy and changes in the composition of Key’s consumer loan portfolio that resulted from the fourth quarter 2004 sale of the broker-originated home equity loan portfolio. The improvement also reflects a greater emphasis placed on lending secured by real estate. Management expects the level of Key’s asset quality in 2005 to be relatively stable, compared with that in 2004.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Credit exposure by industry classification inherent in the largest sector of Key’s loan portfolio, “commercial, financial and agricultural loans,” is presented in Figure 32. The types of activity that caused the change in Key’s nonperforming loans during 2004 are summarized in Figure 33.

FIGURE 32. COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS


					Nonperforming Loans
December 31, 2004	Total		Loans				% of Loans
dollars in millions	Commitments ^a		Outstanding		Amount		Outstanding

Industry classification:
Manufacturing	$	10,148	$	3,162	$	6		.2	%
Services		9,201		3,383		8		.2
Retail trade		5,084		2,944		4		.1
Financial services		4,706		1,452		—		—
Property management		3,964		1,319		2		.2
Public utilities		3,325		409		—		—
Wholesale trade		3,048		1,275		4		.3
Insurance		2,190		119		—		—
Building contractors		1,711		673		4		.6
Communications		1,095		327		—		—
Public administration		1,084		256		—		—
Agriculture/forestry/fishing		946		628		2		.3
Transportation		882		382		6		1.6
Mining		545		143		—		—
Individuals		106		72		—		—
Other		3,410		2,799		7		.3

Total	$	51,445	$	19,343	$	43		.2	%

^a Total commitments include unfunded loan commitments, unfunded letters of credit (net of amounts conveyed to others) and loans outstanding.

FIGURE 33. SUMMARY OF CHANGES IN NONPERFORMING LOANS


				2004 Quarters
in millions	2004			Fourth			Third			Second			First			2003

BALANCE AT BEGINNING OF PERIOD	$	694		$	390		$	454		$	587		$	694		$	943
Loans placed on nonaccrual status		402			95			94			68			145			756
Charge-offs		(382	)		(91	)		(76	)		(104	)		(111	)		(548	)
Loans sold, net		(192	)		(66	)		(35	)		(33	)		(58	)		(178	)
Payments		(161	)		(11	)		(32	)		(62	)		(56	)		(203	)
Transfers to OREO		(11	)		—			—			—			(11	)		(26	)
Loans returned to accrual status		(34	)		(1	)		(15	)		(2	)		(16	)		(50	)

BALANCE AT END OF PERIOD	$	316		$	316		$	390		$	454		$	587		$	694

Liquidity risk management

Key defines “liquidity” as the ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions 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.

Key manages liquidity for all of its affiliates on an integrated basis. This approach considers the unique funding sources available to each entity and the differences in their capabilities to manage through adverse conditions. It also recognizes that the access of all affiliates to money market funding would be similarly affected by adverse market conditions or other events that could negatively affect the level or cost of liquidity. As part of the management process, we have established guidelines or target ranges that relate to the maturities of various types of wholesale borrowings, such as money market funding and term debt. In addition, we assess our needs for future reliance on wholesale borrowings, and then develop strategies to address those needs.

Key’s liquidity could be adversely affected by both direct and indirect circumstances. An example of a direct (but hypothetical) event would be a significant downgrade in Key’s public credit rating by a rating agency due to deterioration in asset quality, a large charge to earnings, or a significant merger or acquisition. Examples of indirect (but hypothetical)

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

events unrelated to Key that could have market-wide consequences would be terrorism or war, natural disasters, political events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market speculation or rumors about Key or the banking industry in general may adversely affect the cost and availability of normal funding sources.

Corporate Treasury performs stress tests to consider the effect that a potential downgrade in our debt ratings could have on our liquidity over various time periods. These debt ratings, which are presented in Figure 34 on page 46, have a direct impact on our cost of funds and our ability to raise funds under normal and adverse conditions. The stress test scenarios also include major disruptions to our funding markets and consider the potential adverse effect of core client activity on cash flows. To compensate for the effect of these activities, alternative sources of liquidity are incorporated into the analysis over different time periods to project how we would manage fluctuations on the balance sheet. Several alternatives for enhancing Key’s liquidity are actively managed on a regular basis. These include emphasizing client deposit generation, securitization market alternatives, extending the maturity of wholesale borrowings, loan sales, purchasing deposits from other banks, and meeting periodically to develop relationships with our debt investors. Key also measures its capacity to borrow using various debt instruments and funding markets. On occasion, Key will guarantee a subsidiary’s obligations in transactions with third parties. Management closely monitors the extension of such guarantees to ensure that Key will retain ample liquidity in the event it must step in to provide financial support. The results of our stress tests indicate that Key can continue to meet its financial obligations and to fund its operations for at least one year following the occurrence of an adverse event.

Key also maintains a liquidity contingency plan that outlines the process for addressing a liquidity crisis. The plan provides for an evaluation of funding sources under various market conditions. It also addresses the assignment of specific roles and responsibilities for effectively managing liquidity through a problem period. Key has access to various sources of money market funding (such as federal funds purchased, securities sold under repurchase agreements, eurodollars and commercial paper) and also can borrow from the Federal Reserve Bank’s discount window to meet short-term liquidity requirements. Key did not have any borrowings from the Federal Reserve Bank outstanding at December 31, 2004.

Key monitors its funding sources and measures its capacity to obtain funds in a variety of wholesale funding markets. This is done with the objective of maintaining an appropriate mix of funds considering both cost and availability. We use several tools to actively manage and maintain sufficient liquidity on an ongoing basis.

• Key maintains a portfolio of securities that generates monthly cash flows and payments at maturity.

• We have the ability to access the whole loan sale and securitization markets for a variety of loan types.

• Our 935 KeyCenters in thirteen states generate a sizable volume of core deposits. We monitor deposit flows and use alternative pricing structures to attract deposits as appropriate considering our circumstances. For more information about core deposits, see the section entitled “Deposits and other sources of funds” on page 32.

• Key has access to the term debt markets through various programs described in the section entitled “Additional sources of liquidity” on page 46.

Key’s largest cash flows relate to both investing and financing activities. Over the past three years, the primary sources of cash from investing activities have been loan sales, and the sales, prepayments and maturities of securities available for sale. Investing activities that have required the greatest use of cash include lending, purchases of new securities, and acquisitions completed in 2004.

Over the past three years, the primary sources of cash from financing activities have been the growth in deposits (including eurodollar deposits) and the issuance of long-term debt. During the same period, outlays of cash have been made to repay debt issued in prior periods and to reduce the level of short-term borrowings.

The Consolidated Statements of Cash Flow on page 54 summarize Key’s sources and uses of cash by type of activity for each of the past three years.

Figure 25 on page 35 summarizes Key’s significant contractual cash obligations at December 31, 2004, by specific time periods in which related payments are due or commitments expire.

Liquidity for KeyCorp (the “parent company”)

The parent company has sufficient liquidity when it can pay dividends to shareholders, service its debt, and support customary corporate operations and activities (including acquisitions), at a reasonable cost, in a timely manner and without adverse consequences.

A primary tool used by management to assess our parent company liquidity is its net short-term cash position, which measures our ability to fund debt maturing in twelve months or less with existing liquid assets. Another key measure of parent company liquidity is the “liquidity gap,” which represents the difference between projected liquid assets and anticipated financial obligations over specified time horizons. We generally rely upon the issuance of term debt to manage the liquidity gap within targeted ranges assigned to various time periods.

The parent has met its liquidity requirements principally through regular dividends from subsidiary banks. Federal banking law limits the amount of capital distributions that banks can make to their holding companies 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 2004, subsidiary banks paid the parent a total of $786 million in dividends and nonbank subsidiaries paid a total of $75 million in dividends. As of the close of business on December 31, 2004, KBNA had an additional $604 million available to pay dividends to the parent without prior regulatory approval and without affecting its status as “well-capitalized” under the FDIC-defined capital categories. The parent generally maintains excess funds in short-term investments in an amount sufficient to meet projected debt maturities over the next twelve months. At December 31, 2004, the parent company held $1.3 billion in short-term investments, which we projected to be sufficient to meet the parent’s debt repayment obligations over a period of approximately 22 months.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

Effective October 1, 2004, the parent company merged Key Bank USA, National Association (“Key Bank USA”) into KBNA, forming a single bank subsidiary. Although this internal merger had no effect on Key’s third-party obligations or the programs discussed in the following section, it had an immediate positive effect on KBNA’s dividend paying capacity.

Additional sources of liquidity

Management has implemented several programs that enable the parent company and KBNA to raise money in the public and private markets when necessary. The proceeds from most of these programs can be used for general corporate purposes, including acquisitions. Each of the programs is replaced or renewed as needed. There are no restrictive financial covenants in any of these programs.

Bank note program. Key’s bank note program provides for the issuance of both long- and short-term debt of up to $20.0 billion by KBNA. During 2004, there were $1.2 billion of notes issued under this program. These notes have original maturities in excess of one year and are included in “long-term debt.” At December 31, 2004, $15.0 billion was available for future issuance.

Euro note program. Under Key’s euro note program, the parent company and KBNA may issue both long- and short-term debt of up to $10.0 billion in the aggregate. The notes are offered exclusively to non-U.S. investors and can be denominated in U.S. dollars and foreign currencies. There were $1.4 billion of notes issued under this program during 2004. At December 31, 2004, $6.3 billion was available for future issuance.

KeyCorp medium-term note program. In November 2001, the parent company registered $2.2 billion of securities under a shelf registration statement filed with the Securities and Exchange Commission. At December 31, 2004, the entire amount registered had been allocated for issuance of medium-term notes, and the unused capacity totaled $429 million. During 2004, there were $925 million of notes issued under this program. In January 2005, a new shelf registration statement filed by the parent company to register up to $2.9 billion of securities became effective. Of this amount, $1.9 billion has been allocated for issuance of medium-term notes.

Commercial paper and revolving credit. The parent company has a commercial paper program that provides funding availability of up to $500 million. As of December 31, 2004, there were no borrowings outstanding under the commercial paper program.

Key has a separate commercial paper program that provides funding availability of up to $1.0 billion in Canadian currency. The borrowings under this program can be denominated in Canadian or U.S. dollars. As of December 31, 2004, borrowings outstanding under this commercial paper program totaled $757 million in Canadian currency and $55 million in U.S. currency (equivalent to $66 million in Canadian currency).

Key is not currently operating under any material financial constraints related to debt covenants. Key’s debt ratings are shown in Figure 34 below. Management believes that these debt ratings, under normal conditions in the capital markets, allow for future offerings of securities by the parent company or KBNA that would be marketable to investors at a competitive cost.

FIGURE 34. DEBT RATINGS

Senior

Subordinated

Short-term

Long-Term

Capital

December 31, 2004

Borrowings

Debt

Securities

KEYCORP (THE PARENT COMPANY)

Standard & Poor’s

A-2

A–

BBB+

BBB

Moody’s

P-1

Fitch

A–

KBNA

Standard & Poor’s

A-1

A–

N/A

Moody’s

P-1

N/A

Fitch

A–

N/A

KEY NOVA SCOTIA FUNDING COMPANY (“KNSF”)

Dominion Bond Rating Service^a

R-1 (middle)

N/A

^a Reflects the guarantee by KBNA of KNSF’s issuance of Canadian commercial paper.

N/A = Not Applicable

Operational risk management

Key, like all businesses, is subject to operational risk, which represents the risk of loss resulting from human error, inadequate or failed internal processes and systems, and external events, including legal proceedings. Resulting losses could take the form of explicit charges, increased operational costs, harm to Key’s reputation or forgone opportunities. Key seeks to mitigate operational risk through a system of internal controls that are designed to keep operational risks at appropriate levels.

We continuously look for opportunities to improve our oversight of Key’s operational risk. For example, we implemented a loss-event database to track the amounts and sources of operational losses. This tracking mechanism gives us another resource to identify weaknesses in Key and the need to take corrective action.

In addition, we continuously strive to strengthen Key’s system of internal controls to ensure compliance with laws, rules and regulations. Primary responsibility for managing internal control mechanisms lies with the managers of Key’s various lines of business. Key’s risk management function monitors and assesses the overall effectiveness of our system of internal controls on an ongoing basis. Risk Management reports the results of reviews on internal controls and systems to management and the Audit Committee, and independently supports the Audit Committee’s oversight process in this regard.

We recently implemented sophisticated software programs designed to assist in monitoring our control processes. This technology has enhanced the timely reporting of the effectiveness of our controls to our management and Board.

Also, we have established a senior management committee designed to oversee Key’s level of operational risk and to respond accordingly. The Operational Risk Committee is responsible for directing and supporting Key’s operational infrastructure and related activities.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FOURTH QUARTER RESULTS

Some of the highlights of Key’s fourth quarter results are summarized below. Key’s financial performance for each of the past eight quarters is summarized in Figure 36.

Net income. Key had net income of $213 million, or $.51 per common share, for the fourth quarter of 2004. Excluding the effects of the sale of the broker-originated home equity loan portfolio and the reclassification of the indirect automobile loan portfolio to held-for-sale status, adjusted net income for the quarter was $290 million, or $.70 per share. These results compare with net income of $234 million, or $.55 per share, for the fourth quarter of 2003. The growth in adjusted earnings resulted from increases in both net interest income and noninterest income (excluding the losses incurred as a result of the above actions) and a significant reduction in the provision for loan losses. These positive changes were offset in part by a rise in noninterest expense.

On an annualized basis and unadjusted for the actions described in the above paragraph, Key’s return on average total assets for the fourth quarter of 2004 was ..95%, compared with a return of 1.11% for the fourth quarter of 2003. The annualized return on average equity was 11.99% for the fourth quarter of 2004, compared with a return of 13.37% for the year-ago quarter.

Net interest income. Net interest income rose to $682 million for the fourth quarter of 2004 from $671 million for the fourth quarter of 2003. The adverse effect of a 14 basis point reduction in Key’s net interest margin to 3.64% was more than offset by a $4.4 billion, or 6%, increase in average earning assets, due primarily to increases in all major components of the commercial loan portfolio.

Noninterest income. Excluding the $46 million loss associated with the previously-mentioned decision to sell the broker-originated home equity and indirect automobile loan portfolios, Key’s noninterest income was $479 million for the fourth quarter of 2004, compared with $466 million for the year-ago quarter. This growth was attributable primarily to increases of $16 million in income from dealer trading and derivatives, and $13 million in letter of credit and loan fees, offset in part by an $11 million decline in service charges on deposit accounts.

Noninterest expense. Excluding the $55 million write-off of goodwill recorded in connection with management’s decision to sell Key’s nonprime indirect automobile loan business, Key’s noninterest expense for the fourth quarter of 2004 totaled $727 million, compared with $698 million for the fourth quarter of 2003. Substantially all of the $29 million rise was attributable to higher personnel expense, with the largest increases occurring in incentive compensation and the cost of employee benefits. In addition, comparisons to results for the year-ago quarter were affected by a fourth quarter 2004 reclassification of $9 million of expense from “Franchise and business taxes” to “Income taxes.”

Provision for loan losses. Key’s provision for loan losses was a credit of $21 million for the fourth quarter of 2004, compared with expense of $123 million for the year-ago quarter. The significant decrease was due to two factors. The credit of $21 million resulted from the reversal of provision recorded in prior periods and was done in connection with management’s decision to sell Key’s indirect automobile loan portfolio. The amount reversed was equal to the remaining allowance allocated to this portfolio after it was marked to fair value and reclassified to held-for-sale status. In addition, as a result of continued improvement in asset quality, Key did not record any provision for loan losses during the fourth quarter of 2004.

Net loan charge-offs for the quarter totaled $140 million, or .83% of average loans, compared with $123 million, or .78%, for the same period last year. As shown in Figure 35, net loan charge-offs, excluding those recorded on the credit-only relationship consumer loan portfolios that Key is exiting, were $56 million, or .35% of adjusted average loans, for the fourth quarter of 2004.

FIGURE 35. NET LOAN CHARGE-OFFS


	Average		Net Loan Charge-offs
	Loans
dollars in millions	Outstanding		Amount		% of Loans

FOURTH QUARTER 2004 RESULTS AS REPORTED	$	66,717	$	140		.83	%
Less: Broker-originated home equity loan portfolio		649		20		N/M
Indirect automobile loan portfolio		1,821		64		N/M

CONTINUING LOAN PORTFOLIO ^a	$	64,247	$	56		.35	%

^a Excludes the above loan portfolios sold or moved to held-for-sale status during the fourth quarter in anticipation of their sale, and the net loan charge-offs recorded on those portfolios in the fourth quarter.

N/M = Not Meaningful

Income taxes. The provision for income taxes was $141 million for the fourth quarter of 2004, compared with $82 million for the fourth quarter of 2003. The effective tax rate for the fourth quarter was 39.8% compared with 25.9% for the year-ago quarter. The increase in the effective tax rate was due primarily to the $55 million nondeductible write-off of goodwill discussed above, and a fourth quarter 2004 reduction of $43 million in deferred tax assets that was offset in part by a reduction in tax reserves. The reduction in deferred tax assets resulted from a comprehensive analysis of Key’s tax accounts. Excluding the above items, the effective tax rate for the fourth quarter of 2004 was 26.9%.

MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES

FIGURE 36. SELECTED QUARTERLY FINANCIAL DATA


	2004 Quarters												2003 Quarters
dollars in millions, except per share amounts	Fourth			Third			Second			First			Fourth			Third			Second			First

FOR THE QUARTER
Interest income	$	1,015		$	952		$	912		$	939		$	956		$	971		$	1,022		$	1,021
Interest expense		333			294			276			278			285			294			326			340
Net interest income		682			658			636			661			671			677			696			681
Provision for loan losses		(21	)		51			74			81			123			123			125			130
Noninterest income		433			436			446			431			466			463			434			397
Noninterest expense		782			690			679			659			698			699			688			657
Income before income taxes		354			353			329			352			316			318			317			291
Net income		213			252			239			250			234			227			225			217

PER COMMON SHARE
Net income	$	.52		$	.62		$	.58		$	.60		$	.56		$	.54		$	.53		$	.51
Net income — assuming dilution		.51			.61			.58			.59			.55			.53			.53			.51
Cash dividends paid		.31			.31			.31			.31			.305			.305			.305			.305
Book value at period end		17.46			17.12			16.77			16.98			16.73			16.64			16.60			16.32
Market price:
High		34.50			32.02			32.27			33.23			29.41			27.88			27.42			27.11
Low		31.35			29.00			28.23			28.63			25.55			24.86			22.56			22.31
Close		33.90			31.60			29.89			30.29			29.32			25.57			25.27			22.56
Weighted-average common shares (000)		408,243			407,187			410,292			416,680			420,043			421,971			423,882			425,275
Weighted-average common shares and potential common shares (000)		413,727			411,575			414,908			421,572			423,752			425,669			427,170			428,090

AT PERIOD END
Loans	$	68,464		$	64,981		$	64,016		$	62,513		$	62,711		$	62,723		$	63,214		$	62,719
Earning assets		78,879			76,335			74,990			73,269			73,143			73,258			73,716			75,113
Total assets		90,739			88,455			86,221			84,448			84,487			84,460			85,479			86,490
Deposits		57,842			55,843			52,423			49,931			50,858			48,739			49,869			50,455
Long-term debt		14,846			13,444			14,608			15,333			15,294			15,342			14,434			16,269
Shareholders’ equity		7,117			6,946			6,829			6,999			6,969			6,977			6,989			6,898

PERFORMANCE RATIOS
Return on average total assets		.95	%		1.16	%		1.13	%		1.19	%		1.11	%		1.06	%		1.07	%		1.05	%
Return on average equity		11.99			14.62			13.97			14.47			13.37			13.06			12.98			12.91
Net interest margin (taxable equivalent)		3.64			3.61			3.57			3.74			3.78			3.73			3.85			3.86

CAPITAL RATIOS AT PERIOD END
Equity to assets		7.84	%		7.85	%		7.92	%		8.29	%		8.25	%		8.26	%		8.18	%		7.98	%
Tangible equity to tangible assets		6.35			6.57			6.64			6.98			6.94			6.94			6.90			6.71
Tier 1 risk-based capital		7.22			7.72			7.93			8.10			8.35			8.23			7.94			7.86
Total risk-based capital		11.47			11.67			12.07			12.22			12.57			12.48			12.15			12.18
Leverage		7.96			8.27			8.34			8.45			8.55			8.37			8.13			8.13

OTHER DATA
Average full-time equivalent employees		19,575			19,635			19,514			19,585			19,745			20,059			19,999			20,447
KeyCenters		935			921			902			903			906			900			903			911

Note 3 (“Acquisitions and Divestiture”) on page 62 contains specific information about the business combinations and divestiture that Key completed in the past three years to help you understand how those transactions may have impacted Key’s financial condition and results of operations.

CERTIFICATIONS

KeyCorp has filed, as exhibits to its Annual Report on Form 10-K for the year ended December 31, 2004, the certifications of its Chief Executive Officer and Chief Financial Officer required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

On June 1, 2004, KeyCorp submitted to the New York Stock Exchange the Annual CEO Certification required pursuant to Section 303A.12(a) of the New York Stock Exchange Listed Company Manual.

KEYCORP AND SUBSIDIARIES

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Key’s management is responsible for the preparation, content and integrity of the financial statements and other statistical data and analyses compiled for this annual report. The financial statements and related notes have been prepared in conformity with U.S. generally accepted accounting principles and reflect management’s best estimates and judgments. Management believes that the financial statements and notes present fairly Key’s financial position, results of operations and cash flows in all material respects.

Management is responsible for establishing and maintaining a system of internal control that is intended to protect Key’s assets and the integrity of its financial reporting. This corporate-wide system of controls includes self-monitoring mechanisms, written policies and procedures, proper delegation of authority and organizational division of responsibility, and the selection and training of qualified personnel.

An annual code of ethics certification process is conducted, and compliance with the code of ethics is required of all Key employees. Although any system of internal control can be compromised by human error or intentional circumvention of required procedures, management believes Key’s system provides reasonable assurances that financial transactions are recorded and reported properly, providing an adequate basis for reliable financial statements.

The Board of Directors discharges its responsibility for Key’s financial statements through its Audit Committee. This committee, which draws its members exclusively from the outside directors, also hires the independent auditors.

Management’s Assessment of Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for Key. Management has assessed the effectiveness of Key’s internal control and procedures over financial reporting using criteria described in “Internal Control —Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management believes that Key maintained an effective system of internal control over financial reporting as of December 31, 2004. Key’s independent auditors have issued an attestation report, dated February 25, 2005, on management’s assessment of Key’s internal control over financial reporting, which is included in this annual report.

-s- Henry L. Meyer
Henry L. Meyer III
Chairman and Chief Executive Officer

-s- Jeffrey B. Weeden
Jeffrey B. Weeden
Senior Executive Vice President and Chief Financial Officer

KEYCORP AND SUBSIDIARIES

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Shareholders and Board of Directors
KeyCorp

We have audited management’s assessment, included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting appearing under Management’s Annual Report on Internal Control Over Financial Reporting, that KeyCorp and subsidiaries (“Key”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Key’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Key maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Key maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Key as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders’ equity, and cash flow for each of the three years in the period ended December 31, 2004 and our report dated February 25, 2005, expressed an unqualified opinion thereon.

(ERNEST & YOUNG LLP)

Cleveland, Ohio
February 25, 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
KeyCorp

We have audited the accompanying consolidated balance sheets of KeyCorp and subsidiaries (“Key”) as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of Key’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Key as of December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, in 2003, Key changed its method of accounting for stock-based compensation and changed its method of accounting for certain investments.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Key’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2005, expressed an unqualified opinion thereon.

(ERNEST & YOUNG LLP)

Cleveland, Ohio
February 25, 2005

KEYCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


December 31,
dollars in millions	2004			2003

ASSETS
Cash and due from banks	$	2,454		$	2,712
Short-term investments		1,472			1,604
Securities available for sale		7,451			7,638
Investment securities (fair value: $74 and $104)		71			98
Other investments		1,421			1,092
Loans, net of unearned income of $2,235 and $1,958		68,464			62,711
Less: Allowance for loan losses		1,138			1,406

Net loans		67,326			61,305
Premises and equipment		603			606
Goodwill		1,359			1,150
Other intangible assets		87			37
Corporate-owned life insurance		2,608			2,512
Accrued income and other assets		5,887			5,733

Total assets	$	90,739		$	84,487


LIABILITIES
Deposits in domestic offices:
NOW and money market deposit accounts	$	21,748		$	18,947
Savings deposits		1,970			2,083
Certificates of deposit ($100,000 or more)		4,697			4,891
Other time deposits		10,435			11,008

Total interest-bearing		38,850			36,929
Noninterest-bearing		11,581			11,175
Deposits in foreign office — interest-bearing		7,411			2,754

Total deposits		57,842			50,858
Federal funds purchased and securities sold under repurchase agreements		2,145			2,667
Bank notes and other short-term borrowings		2,515			2,947
Accrued expense and other liabilities		6,274			5,752
Long-term debt		14,846			15,294

Total liabilities		83,622			77,518

SHAREHOLDERS’ EQUITY
Preferred stock, $1 par value; authorized 25,000,000 shares, none issued		—			—
Common shares, $1 par value; authorized 1,400,000,000 shares; issued 491,888,780 shares		492			492
Capital surplus		1,491			1,448
Retained earnings		7,284			6,838
Treasury stock, at cost (84,319,111 and 75,394,536 shares)		(2,128	)		(1,801	)
Accumulated other comprehensive loss		(22	)		(8	)

Total shareholders’ equity		7,117			6,969

Total liabilities and shareholders’ equity	$	90,739		$	84,487

See Notes to Consolidated Financial Statements.

KEYCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME


Year ended December 31,
dollars in millions, except per share amounts	2004		2003		2002

INTEREST INCOME
Loans	$	3,409	$	3,550	$	3,913
Investment securities		5		7		10
Securities available for sale		331		356		389
Short-term investments		38		30		30
Other investments		35		27		24

Total interest income		3,818		3,970		4,366

INTEREST EXPENSE
Deposits		677		703		897
Federal funds purchased and securities sold under repurchase agreements		60		50		90
Bank notes and other short-term borrowings		42		60		79
Long-term debt, including capital securities		402		432		551

Total interest expense		1,181		1,245		1,617

NET INTEREST INCOME		2,637		2,725		2,749
Provision for loan losses		185		501		553

Net interest income after provision for loan losses		2,452		2,224		2,196

NONINTEREST INCOME
Trust and investment services income		564		545		605
Service charges on deposit accounts		331		364		405
Investment banking and capital markets income		233		194		176
Letter of credit and loan fees		175		142		120
Corporate-owned life insurance income		110		114		108
Electronic banking fees		85		80		79
Net gains from loan securitizations and sales		18		90		56
Net securities gains		4		11		6
Other income		226		220		214

Total noninterest income		1,746		1,760		1,769

NONINTEREST EXPENSE
Personnel		1,549		1,493		1,436
Net occupancy		236		228		226
Computer processing		191		178		192
Equipment		119		133		136
Professional fees		113		119		92
Marketing		111		120		122
Other expense		491		471		449

Total noninterest expense		2,810		2,742		2,653

INCOME BEFORE INCOME TAXES		1,388		1,242		1,312

Income taxes		434		339		336
NET INCOME	$	954	$	903	$	976


Per common share:
Net income	$	2.32	$	2.13	$	2.29
Net income — assuming dilution		2.30		2.12		2.27
Weighted-average common shares outstanding (000)		410,585		422,776		425,451
Weighted-average common shares and potential common shares outstanding (000)		415,430		426,157		430,703

See Notes to Consolidated Financial Statements.

KEYCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


	Common														Accumulated
	Shares											Treasury			Other
	Outstanding			Common		Capital			Retained			Stock,			Comprehensive			Comprehensive
dollars in millions, except per share amounts	(000)			Shares		Surplus			Earnings			at Cost			Income (Loss)			Income

BALANCE AT DECEMBER 31, 2001		424,005		$	492	$	1,390		$	5,856		$	(1,585	)	$	2
Net income										976								$	976
Other comprehensive income (losses):
Net unrealized gains on securities available for sale, net of income taxes of $27^a																47			47
Net unrealized gains on derivative financial instruments, net of income taxes of $5																8			8
Foreign currency translation adjustments																7			7
Minimum pension liability adjustment, net of income taxes of ($14)																(25	)		(25	)


Total comprehensive income																		$	1,013


Deferred compensation							68
Cash dividends declared on common shares ($.90 per share)										(384	)
Issuance of common shares and stock options granted under employee benefit and dividend reinvestment plans		2,939					(9	)					69
Repurchase of common shares		(3,000	)										(77	)

BALANCE AT DECEMBER 31, 2002		423,944		$	492	$	1,449		$	6,448		$	(1,593	)	$	39
Net income										903								$	903
Other comprehensive income (losses):
Net unrealized losses on securities available for sale, net of income taxes of ($42)^a																(66	)		(66	)
Net unrealized losses on derivative financial instruments, net of income taxes of ($3)																(6	)		(6	)
Foreign currency translation adjustments																29			29
Minimum pension liability adjustment, net of income taxes of ($2)																(4	)		(4	)


Total comprehensive income																		$	856


Deferred compensation							11
Cash dividends declared on common shares ($1.22 per share)										(513	)
Issuance of common shares and stock options granted under employee benefit and dividend reinvestment plans		4,050					(12	)					95
Repurchase of common shares		(11,500	)										(303	)


BALANCE AT DECEMBER 31, 2003		416,494		$	492	$	1,448		$	6,838		$	(1,801	)	$	(8	)
Net income										954								$	954
Other comprehensive income (losses):
Net unrealized gains on securities available for sale, net of income taxes of $3^a																7			7
Net unrealized losses on derivative financial instruments, net of income taxes of ($23)																(40	)		(40	)
Foreign currency translation adjustments																23			23
Minimum pension liability adjustment, net of income taxes of ($2)																(4	)		(4	)


Total comprehensive income																		$	940


Deferred compensation							17
Cash dividends declared on common shares ($1.24 per share)										(508	)
Issuance of common shares and stock options granted under employee benefit and dividend reinvestment plans		7,614					26						185
Repurchase of common shares		(16,538	)										(512	)

BALANCE AT DECEMBER 31, 2004		407,570		$	492	$	1,491		$	7,284		$	(2,128	)	$	(22	)

^aNet of reclassification adjustments. Reclassification adjustments represent net unrealized losses as of December 31 of the prior year on securities available for sale that were sold during the current year. The reclassification adjustments were ($34) million (($22) million after tax) in 2004, $57 million ($37 million after tax) in 2003 and $35 million ($22 million after tax) in 2002.

See Notes to Consolidated Financial Statements.

KEYCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW


Year ended December 31,
in millions	2004			2003			2002

OPERATING ACTIVITIES
Net income	$	954		$	903		$	976
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		185			501			553
Depreciation and amortization expense		248			210			226
Net securities gains		(4	)		(11	)		(6	)
Net (gains) losses from principal investing		(44	)		(40	)		14
Net gains from loan securitizations and sales		(18	)		(90	)		(56	)
Deferred income taxes		417			72			155
Net (increase) decrease in mortgage loans held for sale		(136	)		78			118
Net (increase) decrease in trading account assets		170			(232	)		(204	)
Other operating activities, net		(145	)		(135	)		(317	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		1,627			1,256			1,459
INVESTING ACTIVITIES
Cash used in acquisitions, net of cash acquired		(1,733	)		(17	)		(63	)
Net (increase) decrease in other short-term investments		(38	)		260			485
Purchases of securities available for sale		(2,110	)		(6,186	)		(6,744	)
Proceeds from sales of securities available for sale		448			3,333			1,552
Proceeds from prepayments and maturities of securities available for sale		1,839			3,435			2,317
Purchases of investment securities		—			(19	)		(18	)
Proceeds from prepayments and maturities of investment securities		26			53			95
Purchases of other investments		(621	)		(366	)		(167	)
Proceeds from sales of other investments		301			80			45
Proceeds from prepayments and maturities of other investments		88			217			57
Net increase in loans, excluding acquisitions, sales and divestitures		(10,196	)		(5,100	)		(3,184	)
Purchases of loans		(55	)		(453	)		—
Proceeds from loan securitizations and sales		6,267			4,748			3,393
Purchases of premises and equipment		(102	)		(95	)		(90	)
Proceeds from sales of premises and equipment		7			12			9
Proceeds from sales of other real estate owned		75			74			40

NET CASH USED IN INVESTING ACTIVITIES		(5,804	)		(24	)		(2,273	)
FINANCING ACTIVITIES
Net increase in deposits		6,429			1,532			4,128
Net decrease in short-term borrowings		(1,060	)		(1,071	)		(2,611	)
Net proceeds from issuance of long-term debt, including capital securities		3,687			2,932			4,739
Payments on long-term debt, including capital securities		(4,277	)		(4,520	)		(4,418	)
Purchases of treasury shares		(512	)		(303	)		(77	)
Net proceeds from issuance of common stock		160			59			37
Cash dividends paid		(508	)		(513	)		(511	)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		3,919			(1,884	)		1,287

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS		(258	)		(652	)		473
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR		2,712			3,364			2,891

CASH AND DUE FROM BANKS AT END OF YEAR	$	2,454		$	2,712		$	3,364


Additional disclosures relative to cash flow:
Interest paid	$	1,143		$	1,258		$	1,549
Income taxes paid		102			285			173
Noncash items:
Loans transferred from portfolio to held for sale	$	1,737			—			—
Loans transferred to other real estate owned		81		$	98		$	52
Transfer of investment securities to other investments		—			—			847
Transfer of investment securities to securities available for sale		—			—			62
Assets acquired		2,413			27			475
Liabilities assumed		1,109			10			450

See Notes to Consolidated Financial Statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

KeyCorp, an Ohio corporation and bank holding company headquartered in Cleveland, Ohio, is one of the nation’s largest bank-based financial services companies. KeyCorp’s subsidiaries provide retail and commercial banking, commercial leasing, investment management, consumer finance, and investment banking products and services to individual, corporate and institutional clients through three major business groups: Consumer Banking, Corporate and Investment Banking, and Investment Management Services. As of December 31, 2004, KeyCorp’s banking subsidiaries operated 935 KeyCenters, a telephone banking call center services group and 2,194 ATMs in seventeen states.

As used in these Notes, KeyCorp refers solely to the parent company and Key refers to the consolidated entity consisting of KeyCorp and its subsidiaries.

USE OF ESTIMATES

Key’s accounting policies conform to U.S. generally accepted accounting principles and prevailing practices within the financial services industry. Management must make certain estimates and judgments when determining the amounts presented in Key’s consolidated financial statements and the related notes. If these estimates prove to be inaccurate, actual results could differ from those reported.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of KeyCorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Some previously reported results have been reclassified to conform to current reporting practices.

The Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities,” in January 2003. This accounting guidance significantly changed how companies determine whether they must consolidate an entity depending on whether the entity is a voting rights entity or a variable interest entity (“VIE”). Interpretation No. 46 was effective immediately for entities created after January 31, 2003. As permitted, Key elected to adopt Interpretation No. 46 effective July 1, 2003, for entities created before February 1, 2003. In December 2003, the FASB issued modifications to Interpretation No. 46 (Revised Interpretation No. 46) as described under the heading “Accounting Pronouncements Adopted in 2004” on page 60.

Key consolidates any voting rights entity in which it has a controlling financial interest. In accordance with Revised Interpretation No. 46, a VIE is consolidated if Key is exposed to the majority of the VIE’s expected losses and/or residual returns (i.e., Key is considered to be the primary beneficiary). Variable interests include equity interests, subordinated debt, derivative contracts, leases, service agreements, guarantees, standby letters of credit, loan commitments, and other contracts, agreements and financial instruments.

Key uses the equity method to account for unconsolidated investments in voting rights entities or VIEs in which it has significant influence over operating and financing decisions (usually defined as a voting or economic interest of 20% to 50%, but not a controlling interest). Unconsolidated investments in voting rights entities or VIEs in which Key has a voting or economic interest of less than 20% are generally carried at cost. Investments held by KeyCorp’s broker/dealer and investment company subsidiaries (primarily principal investments) are carried at estimated fair value.

Before Interpretation No. 46 was adopted, KeyCorp generally determined whether to consolidate an entity based on the nature and amount of equity contributed by third parties, the decision-making power granted to those parties and the extent of third-party control over the entity’s operating and financial policies. Entities controlled, generally through majority ownership, were consolidated and considered subsidiaries.

Qualifying special purpose entities (“SPEs”), including securitization trusts, established by Key under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” are not consolidated. Information on SFAS No. 140 is included under the heading “Loan Securitizations” on page 57.

BUSINESS COMBINATIONS

Key accounts for its business combinations using the purchase method of accounting. Under this method of accounting, the acquired company’s net assets are recorded at fair value at the date of acquisition and the results of operations of the acquired company are combined with Key’s results from that date forward. Purchase premiums and discounts, including intangible assets with finite lives, are amortized over the remaining useful lives of the related assets or liabilities. The difference between the purchase price and the fair value of the net assets acquired (including intangible assets with finite lives) is recorded as goodwill. Key’s accounting policy for intangible assets is summarized in this note under the heading “Goodwill and Other Intangible Assets” on page 58.

STATEMENTS OF CASH FLOW

Cash and due from banks are considered “cash and cash equivalents” for financial reporting purposes.

SECURITIES

Key classifies each security held into one of four categories: trading, available for sale, investment or other investments.

Trading account securities. These are debt and equity securities that are purchased and held by Key with the intent of selling them in the near term, and certain interests retained in loan securitizations. All of these assets are reported at fair value ($863 million at December 31, 2004, and $1.0 billion at December 31, 2003) and are included in “short-term investments” on the balance sheet. Realized and unrealized gains and losses on trading account securities are reported in “investment banking and capital markets income” on the income statement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

Securities available for sale. These are securities that Key intends to hold for an indefinite period of time and that may be sold in response to changes in interest rates, prepayment risk, liquidity needs or other factors. Securities available for sale are reported at fair value and include debt and marketable equity securities with readily determinable fair values. Unrealized gains and losses (net of income taxes) deemed temporary are recorded in shareholders’ equity as a component of “accumulated other comprehensive income (loss).” Unrealized losses on specific securities deemed to be “other-than-temporary” are included in “net securities gains” on the income statement. Additional information regarding unrealized gains and losses on debt and marketable equity securities with readily determinable fair values is included in Note 6 (“Securities”), which begins on page 66. Also included in “net securities gains” are actual gains and losses resulting from sales of specific securities.

Investment securities. These are debt securities that Key has the intent and ability to hold until maturity. Debt securities are carried at cost, adjusted for amortization of premiums and accretion of discounts using the interest method. This method produces a constant rate of return on the adjusted carrying amount.

Other investments. Principal investments — investments in equity and mezzanine instruments made by Key’s Principal Investing unit —represent the majority of other investments and are carried at fair value ($816 million at December 31, 2004, and $732 million at December 31, 2003). These include direct and indirect investments —predominantly in privately held companies. Direct investments are those made in a particular company, while indirect investments are made through funds that include other investors. Changes in estimated fair values and actual gains and losses on sales of principal investments are included in “investment banking and capital markets income” on the income statement.

In addition to principal investments, other investments include equity and mezzanine instruments that do not have readily determinable fair values. These securities include certain real estate-related investments that are carried at estimated fair value, as well as other types of securities that generally are carried at cost. The carrying amount of the securities carried at cost is adjusted for declines in value that are considered to be other-than-temporary. These adjustments are included in “net securities gains” on the income statement.

LOANS

Loans are carried at the principal amount outstanding, net of unearned income, including net deferred loan fees and costs. Key defers certain nonrefundable loan origination and commitment fees and the direct costs of originating or acquiring loans. The net deferred amount is amortized over the estimated lives of the related loans as an adjustment to the yield.

At December 31, 2004, loans held for sale included education, automobile, mortgage and home equity loans. These loans are carried at the lower of aggregate cost or fair value. Fair value is determined based on prevailing market prices for loans with similar characteristics. When a loan is placed in the held for sale category, amortization of the related deferred fees and costs is discontinued. The remaining unamortized fees and costs are recognized as part of the cost basis of the loan at the time it is sold.

Direct financing leases are carried at the aggregate of lease payments receivable plus estimated residual values, less unearned income. Unearned income on direct financing leases is amortized over the lease terms using methods that approximate the interest method. This method amortizes unearned income to produce a constant rate of return on the lease. Leveraged leases are carried net of nonrecourse debt. Revenue on leveraged leases is recognized on a basis which produces a constant rate of return on the outstanding investment in the lease, net of related deferred tax liabilities, in the years in which the net investment is positive. Leveraged lease revenue is impacted by assumptions related to estimated residual values, income tax rates and cash flows. Net gains or losses on sales of lease residuals are included in “other income” on the income statement.

IMPAIRED AND OTHER NONACCRUAL LOANS

Key generally will stop accruing interest on a loan (i.e., designate the loan “nonaccrual”) when the borrower’s payment is 90 days or more past due, unless the loan is well-secured and in the process of collection. Loans also are placed on nonaccrual status when payment is not past due but management has serious doubts about the borrower’s ability to comply with existing loan repayment terms. Once a loan is designated nonaccrual, the interest accrued but not collected generally is charged against the allowance for loan losses, and payments subsequently received generally are applied to principal. However, if management believes that all principal and interest on a nonaccrual loan ultimately are collectible, interest income may be recognized as received.

Nonaccrual loans, other than smaller-balance homogeneous loans (i.e., home equity loans, loans to finance automobiles, etc.), are designated “impaired.” Impaired loans and other nonaccrual loans are returned to accrual status if management determines that both principal and interest are collectible. This generally requires a sustained period of timely principal and interest payments.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses represents management’s estimate of probable credit losses inherent in the loan portfolio at the balance sheet date. Key establishes the amount of the allowance for loan losses by analyzing the quality of the loan portfolio at least quarterly, and more often if deemed necessary.

Allowance for impaired loans. When expected cash flows or collateral values cast doubt on the carrying amount of an impaired loan, the loan is assigned a specific allowance. Management calculates the extent of the impairment, which is the carrying amount of the loan less the estimated present value of future cash flows and the fair value of any existing collateral. That amount — effectively the amount that management deems uncollectible — is charged against the allowance for loan losses. Even when collateral value or other sources of repayment appear sufficient, if management remains uncertain about whether the loan will be repaid in full, an appropriate amount is specifically allocated in the allowance for loan losses.

Allowances for nonimpaired loans and legally binding commitments. Management establishes an allowance for nonimpaired loans by applying historical loss rates to existing loans with similar risk characteristics.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

The loss rates used to establish the allowance may be adjusted to reflect management’s current assessment of:

•   changes in national and local economic and business conditions;

•   changes in experience, ability and depth of Key’s lending management and staff, in lending policies, or in the mix and volume of the loan portfolio;

•   trends in past due, nonaccrual and other loans; and

•   external forces, such as competition, legal developments and regulatory guidelines.

At December 31, 2003, $70 million of Key’s allowance for loan losses was related to legally binding commitments to extend credit. During the first quarter of 2004, management reclassified a like amount of the allowance for loan losses to a separate allowance for probable credit losses inherent in such commitments. Management considers both historical trends and current market conditions in determining the appropriate level of this allowance, which is included in “accrued expense and other liabilities” on the balance sheet. At December 31, 2004, the allowance for probable credit losses inherent in legally binding commitments was $66 million.

LOAN SECURITIZATIONS

Key sells education loans in securitizations. A securitization involves the sale of a pool of loan receivables to investors through either a public or private issuance (generally by a qualifying SPE) of asset-backed securities. Securitized loans are removed from the balance sheet and a net gain or loss is recorded when the combined net sales proceeds and, if applicable, residual interests differ from the loans’ allocated carrying amount. Net gains and losses resulting from securitizations are recorded as one component of “net gains from loan securitizations and sales” on the income statement. A servicing asset also may be recorded if Key either purchases or retains the right to service securitized loans and receives related fees that exceed the going market rate. Income earned under servicing or administration arrangements is recorded in “other income.”

In some cases, Key retains a residual interest in securitized loans that may take the form of an interest-only strip, a residual asset, a servicing asset or a security. These retained interests are accounted for under SFAS No. 140, which requires the carrying amount of the assets sold to be allocated between the retained interests and the assets sold based on their relative fair values at the date of transfer. Fair value is determined by computing the present value of estimated cash flows, using a discount rate that reflects the risks associated with the cash flows and the dates that Key expects to receive such cash flows. Other assumptions used in the determination of fair value are disclosed in Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”), which begins on page 67.

In accordance with Revised Interpretation No. 46, qualifying SPEs, including securitization trusts, established by Key under SFAS No. 140, are exempt from consolidation. Information on Revised Interpretation No. 46 appears in this note under the headings “Basis of Presentation” on page 55 and “Accounting Pronouncements Adopted in 2004” on page 60.

Key conducts a quarterly review to determine whether all retained interests are valued appropriately in the financial statements. Management reviews the historical performance of each retained interest and the assumptions used to project future cash flows, and revises assumptions, and recalculates the present values of cash flows as appropriate.

The present value of these cash flows is referred to as the “retained interest fair value.” For retained interests classified as trading account assets, any increase or decrease in the asset’s fair value is recognized in “other income” on the income statement. Generally, if the carrying amount of a retained interest classified as securities available for sale exceeds its fair value, impairment is indicated and recognized in earnings. Conversely, if the fair value of the retained interest exceeds its carrying amount, the write-up to fair value is recorded in equity as a component of “accumulated other comprehensive income (loss),” and the yield on the retained interest is adjusted prospectively.

SERVICING ASSETS

Servicing assets purchased or retained by Key in a sale or securitization of loans are reported at the lower of amortized cost or fair value ($138 million at December 31, 2004, and $117 million at December 31, 2003) and included in “accrued income and other assets” on the balance sheet. Fair value is initially measured by allocating the previous carrying amount of the assets sold or securitized to the retained interests and the assets sold based on their relative fair values at the date of transfer. Fair value is determined by estimating the present value of future cash flows associated with servicing the loans. The estimate is based on a number of assumptions, including the cost of servicing, discount rate, prepayment rate and default rate. The amortization of servicing assets is determined in proportion to, and over the period of, the estimated net servicing income and is recorded in “other income” on the income statement.

Servicing assets are evaluated quarterly for possible impairment by stratifying the assets based on the types of loans serviced and their associated interest rates. If the evaluation indicates that the carrying amount of the servicing assets exceeds their fair value, a valuation allowance would be established through a charge to income in the amount of any such excess. No such valuation allowance was required at December 31, 2004.

PREMISES AND EQUIPMENT

Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Management determines depreciation of premises and equipment using the straight-line method over the estimated useful lives of the particular assets. Leasehold improvements are amortized using the straight-line method over the terms of the leases. Accumulated depreciation and amortization on premises and equipment totaled $1.1 billion at December 31, 2004 and 2003.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the amount by which the cost of net assets acquired in a business combination exceeds their fair value. Other intangible assets consist of primarily customer relationships and the net present value of future economic benefits to be derived from the purchase of core deposits. Other intangibles are amortized on either an accelerated or straight-line basis over periods ranging from three to thirty years. Goodwill and other intangible assets deemed to have indefinite lives are not amortized.

Under SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and certain intangible assets are subject to impairment testing, which must be conducted at least annually. Key has determined that its reporting units for purposes of this testing are its major business groups: Consumer Banking, Corporate and Investment Banking, and Investment Management Services.

The first step in this testing is to determine the fair value of each reporting unit. If the carrying amount of any reporting unit exceeds its fair value, goodwill impairment may be indicated. In such a case, Key would estimate a purchase price for the reporting unit, representing the unit’s fair value, and then allocate that hypothetical purchase price to the fair value of the unit’s assets (excluding goodwill) and liabilities. Any excess of the assumed purchase price over the fair value of the reporting unit’s assets and liabilities represents the implied fair value of goodwill. An impairment loss would be recognized as a charge to earnings to the extent the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of goodwill.

Key performs the goodwill impairment testing required by SFAS No. 142 in the fourth quarter of each year. Key’s annual goodwill impairment testing was performed as of October 1, 2004, and it was determined that no impairment existed at that date. Subsequent to the impairment testing date, management made the decision to exit the indirect automobile lending business. As a result, $55 million of the goodwill related to that business was written off.

INTERNALLY DEVELOPED SOFTWARE

Key relies on both company personnel and independent contractors to plan, develop, install, customize and enhance computer systems applications that support corporate and administrative operations. Software development costs, such as those related to program coding, testing, configuration and installation, are capitalized and included in “accrued income and other assets” on the balance sheet. The resulting asset ($144 million at December 31, 2004, and $106 million at December 31, 2003) is amortized using the straight-line method over its expected useful life (not to exceed five years). Costs incurred during the planning and post-development phases of an internal software project are expensed as incurred.

Software that is no longer used is written off to earnings immediately. When management decides to replace software, amortization of such software is accelerated to the expected replacement date.

DERIVATIVES USED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES

Key uses derivatives known as interest rate swaps and caps to hedge interest rate risk. These instruments modify the repricing or maturity characteristics of specified on-balance sheet assets and liabilities.

Key’s accounting policies related to derivatives reflect the accounting guidance in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as revised and further interpreted by SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” and other related accounting guidance. In accordance with this accounting guidance, all derivatives are recognized as either assets or liabilities on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of derivatives depends on whether they have been designated and qualify as part of a hedging relationship, and further, on the type of hedging relationship. For derivatives that are not designated as hedging instruments, the gain or loss is recognized immediately in earnings.

A derivative that is designated and qualifies as a hedging instrument must be designated either a fair value hedge, a cash flow hedge or a hedge of a net investment in a foreign operation. Key does not have any derivatives that hedge net investments in foreign operations.

“Effectiveness” measures the extent to which changes in the fair value of a derivative instrument offset changes in the fair value of the hedged item. If the relationship between the change in the fair value of the derivative instrument and the hedged item falls within a range considered to be the industry norm, the hedge is considered “highly effective” and qualifies for hedge accounting. “Ineffectiveness” exists to the extent that the offsetting difference between the fair values falls outside the acceptable range.

A fair value hedge is used to hedge changes in the fair value of existing assets, liabilities and firm commitments against changes in interest rates or other economic factors. Key recognizes the gain or loss on these derivatives, as well as the related gain or loss on the hedged item underlying the hedged risk, in earnings during the period in which the fair value changes. Thus, if a hedge is perfectly effective, the change in the fair value of the hedged item will be offset, resulting in no net effect on earnings.

A cash flow hedge is used to hedge the variability of future cash flows against changes in interest rates or other economic factors. The effective portion of a gain or loss on any cash flow hedge is reported as a component of “accumulated other comprehensive income (loss)” and reclassified into earnings in the same period or periods that the hedged transaction affects earnings. Any ineffective portion of the derivative gain or loss is recognized in earnings during the current period.

DERIVATIVES USED FOR TRADING PURPOSES

Key also enters into contracts for derivatives to make a market for clients and for proprietary trading purposes. Derivatives used for trading purposes typically include financial futures, foreign exchange forward and spot contracts, written and purchased options (including currency options), and interest rate swaps, caps and floors.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

All derivatives used for trading purposes are recorded at fair value. Fair value is determined by estimating the present value of future cash flows. Derivatives with a positive fair value are included in “accrued income and other assets” on the balance sheet; derivatives with a negative fair value are included in “accrued expense and other liabilities.” Changes in fair value (including payments and receipts) are recorded in “investment banking and capital markets income” on the income statement.

GUARANTEES

Key’s accounting policies related to certain guarantees reflect the guidance in FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” Accordingly, for certain guarantees issued or modified on or after January 1, 2003, Key has recognized a liability for the fair value of the obligation undertaken. That liability is included in “accrued expense and other liabilities” on the balance sheet.

If Key receives a fee for a guarantee requiring liability recognition, the initial fair value of the “stand ready” obligation is recognized at an amount equal to the fee. If a fee is not received, the fair value of the “stand ready” obligation is determined using expected present value measurement techniques, unless observable transactions for identical or similar guarantees are available. The subsequent accounting for these stand ready obligations depends on the nature of the underlying guarantees. Key accounts for its release from risk for a particular guarantee either upon expiration or settlement, or by a systematic and rational amortization method depending on the risk profile of the guarantee.

Additional information regarding guarantees is included in Note 18 (“Commitments, Contingent Liabilities, and Guarantees”) under the heading “Guarantees” on page 83. No such liability has been recognized for guarantee obligations undertaken prior to December 31, 2002.

REVENUE RECOGNITION

Key recognizes revenues as they are earned based on contractual terms, as transactions occur, or as services are provided and collectibility is reasonably assured. The principal source of revenue for Key is interest income. This revenue is recognized on an accrual basis according to nondiscretionary formulas in written contracts such as loan agreements or securities contracts.

STOCK-BASED COMPENSATION

Through December 31, 2002, Key accounted for stock options issued to employees using the intrinsic value method outlined in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” This method requires that compensation expense be recognized to the extent that the fair value of the stock exceeds the exercise price of the option at the grant date. Key’s employee stock options generally have fixed terms and exercise prices that are equal to or greater than the fair value of Key’s common shares at the grant date. As a result, Key generally did not recognize compensation expense related to stock options.

Effective January 1, 2003, Key adopted the fair value method of accounting as outlined in SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” amended SFAS No. 123 to provide three alternative methods of transition for an entity that voluntarily changes to the fair value method of accounting for stock compensation: (i) the prospective method; (ii) the modified prospective method; and (iii) the retroactive restatement method. Key opted to apply the new accounting rules prospectively to all awards in accordance with the transition provisions of SFAS No. 148. In December 2004, the FASB replaced SFAS No. 123 with SFAS No. 123R, “Share-Based Payment,” which is described under the heading “Accounting Pronouncements Pending Adoption” on page 60.

SFAS No. 123 requires companies like Key that have used the intrinsic value method to account for employee stock options to provide pro forma disclosures of the net income and earnings per share effect of accounting for stock options using the fair value method. Management estimates the fair value of options granted using the Black-Scholes option-pricing model. This model was originally developed to estimate the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions. As a result, the Black-Scholes model is not a perfect indicator of the value of an employee stock option, but it is commonly used for this purpose.

The Black-Scholes model requires several assumptions, which management developed and updates based on historical trends and current market observations. The accuracy of these assumptions is critical to management’s ability to accurately estimate the fair value of options. The assumptions pertaining to options issued during 2004, 2003 and 2002, are shown in the following table.


Year ended December 31,	2004			2003			2002

Average option life	5.1 years			5.0 years			4.1 years
Future dividend yield		4.21	%		4.76	%		4.84	%
Share price volatility		.279			.280			.264
Weighted-average risk-free interest rate		3.8	%		2.9	%		3.9	%

The model assumes that the estimated fair value of an option is amortized as compensation expense over the option’s vesting period. The pro forma effect of applying the fair value method of accounting to all forms of stock-based compensation (primarily stock options, restricted stock, performance shares, discounted stock purchase plans and certain deferred compensation-related awards) for the years ended December 31, 2004, 2003 and 2002, is shown in the following table and would, if recorded, have been included in “personnel expense” on the income statement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

As shown in the table, the pro forma effect is calculated as the after-tax difference between: (i) compensation expense included in each year’s reported net income in accordance with the prospective application transition provisions of SFAS No. 148, and (ii) compensation expense that would have been recorded had all existing forms of stock-based compensation been accounted for under the fair value method of accounting. The information presented may not be indicative of the effect in future periods.


Year ended December 31,
in millions, except per share amounts	2004		2003		2002

Net income, as reported	$	954	$	903	$	976
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects:
Stock options expense		15		6		—
All other stock-based employee compensation expense		11		9		5

		26		15		5
Deduct: Total stock-based employee compensation expense determined under
fair value-based method for all awards, net of related tax effects:
Stock options expense		21		17		23
All other stock-based employee compensation expense		11		9		5

		32		26		28

Net income — pro forma	$	948	$	892	$	953

Per common share:
Net income	$	2.32	$	2.13	$	2.29
Net income — pro forma		2.31		2.11		2.24
Net income assuming dilution		2.30		2.12		2.27
Net income assuming dilution — pro forma		2.28		2.10		2.22

MARKETING COSTS

Key expenses all marketing-related costs, including advertising costs, as incurred.

ACCOUNTING PRONOUNCEMENTS ADOPTED IN 2004

Repatriation of foreign earnings. In December 2004, the FASB issued Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004.” The Jobs Creation Act provides for a special one-time tax deduction equal to 85 percent of certain foreign earnings that are “repatriated.” The FASB issued Staff Position No. 109-2 to clarify an entity’s accounting and disclosure requirements depending on the effects of the repatriation provision. At December 31, 2004, Key had not finished evaluating the effect of the repatriation provision for purposes of applying SFAS No. 109, “Accounting for Income Taxes.” Key has provided the disclosures required by this accounting guidance in Note 17 (“Income Taxes”), which begins on page 80.

Consolidation of variable interest entities. In December 2003, the FASB issued modifications to Interpretation No. 46 (Revised Interpretation No. 46) to provide additional scope exceptions, address certain implementation issues and promote a more consistent application. Key adopted Revised Interpretation No. 46, which supersedes Interpretation No. 46, in the first quarter of 2004. See Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”), which begins on page 67, for information on Key’s adoption of Revised Interpretation No. 46 and involvement with VIEs. The adoption of Revised Interpretation No. 46 did not have any material effect on Key’s financial condition or results of operations.

Disclosures about pension and other postretirement benefit plans. In December 2003, the FASB revised SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This revised standard requires employers to disclose additional information related to plan assets, obligations, and net benefit cost of defined benefit pension and other postretirement benefit plans. Some of these disclosure requirements became effective for fiscal periods ending after June 15, 2004. The required disclosures for Key are presented in Note 16 (“Employee Benefits”), which begins on page 76.

ACCOUNTING PRONOUNCEMENTS PENDING ADOPTION

Share-based payments. In December 2004, the FASB issued SFAS No. 123R, which requires companies to recognize in the income statement the fair value of stock options and other equity-based compensation issued to employees. As discussed under the heading “Stock-Based Compensation” on page 59, Key adopted the fair value method of accounting as outlined in SFAS No. 123 effective January 1, 2003, using the prospective method. SFAS No. 123R replaces SFAS No. 123 and changes certain aspects of this accounting guidance for recognizing the fair value of stock compensation. For public companies, SFAS No. 123R is effective for interim or annual periods beginning after June 15, 2005. Management is currently evaluating its potential impact, which is not expected to be material to Key’s financial condition or results of operations.

Medicare prescription law. In May 2004, the FASB issued Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” The Medicare Modernization Act, which was enacted in December 2003 and takes effect in 2006, introduces a prescription

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

drug benefit under Medicare. It also provides a federal subsidy to sponsors of retiree healthcare benefit plans that offer prescription drug coverage to retirees that is at least actuarially equivalent to the Medicare benefit. In accordance with Staff Position No. 106-2, sponsoring companies must recognize the subsidy in the measurement of their plan’s accumulated postretirement benefit obligation (“APBO”) and net postretirement benefit cost. If actuarial equivalence cannot be determined, the sponsor must disclose the existence of the Medicare Modernization Act and the fact that the APBO and net postretirement benefit cost do not reflect any amount associated with the subsidy because the sponsor is unable to conclude whether the benefits provided by the plan are actuarially equivalent.

In July 2004, the centers for Medicare and Medicaid Services issued proposed regulations necessary to fully implement the Act, including the manner in which actuarial equivalence must be determined. Since these regulations did not become final until late January 2005, Key’s APBO and net postretirement cost presented in Note 16 (“Employee Benefits”) do not reflect any amount associated with the subsidy. Adoption of this guidance is not expected to have any material effect on Key’s financial condition or results of operations.

Other-than-temporary impairment. In March 2004, the Emerging Issues Task Force (“EITF”), a standard-setting body working under the auspices of the FASB, revised EITF No. 03-01, “The Meaning of Other than Temporary Impairment and its Application to Certain Investments.” In the revised guidance, the EITF reached a consensus regarding the model to be used in determining whether an investment is other-than-temporarily impaired. In September 2004, the FASB deferred the effective date of this guidance. Management will continue to evaluate as additional clarifying guidance is issued by the FASB. The adoption of EITF 03-01 is not expected to have any material effect on Key’s financial condition or results of operations.

Accounting for certain loans or debt securities acquired in a transfer. In December 2003, the American Institute of Certified Public Accountants (“AICPA”) issued a Statement of Position that addresses the accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (structured as loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. As required by this pronouncement, Key will adopt this guidance for qualifying loans acquired after December 31, 2004. Adoption of this guidance is not expected to have any material effect on Key’s financial condition or results of operations.

2. EARNINGS PER COMMON SHARE

Key calculates its basic and diluted earnings per common share as follows:


Year ended December 31,
dollars in millions, except per share amounts	2004		2003		2002

NET INCOME	$	954	$	903	$	976

WEIGHTED-AVERAGE COMMON SHARES
Weighted-average common shares outstanding (000)		410,585		422,776		425,451
Effect of dilutive common stock options and other stock awards (000)		4,845		3,381		5,252

Weighted-average common shares and potential common shares outstanding (000)		415,430		426,157		430,703


EARNINGS PER COMMON SHARE
Net income per common share	$	2.32	$	2.13	$	2.29
Net income per common share — assuming dilution		2.30		2.12		2.27

During the years ended December 31, 2004, 2003 and 2002, certain weighted-average options to purchase common shares were outstanding but not included in the calculation of net income per common share - assuming dilution during any quarter in which the exercise prices of the options were greater than the average market price of the common shares. Including the options in the calculations would have been antidilutive. The calculations for the full years shown in the following table were made by averaging the results of the four quarterly calculations for each year.

Year ended December 31,

2004

2003

2002

Weighted-average options excluded from the calculation of net income per common share — assuming dilution

4,451,498

17,712,630

18,434,976

Exercise prices for weighted-average options excluded

$30.33 to $50.00

$24.38 to $50.00

$24.98 to $50.00

In addition, during the year ended December 31, 2004, weighted-average contingently issuable performance-based awards for 430,647 common shares were outstanding, but not included in the calculation of net income per common share — assuming dilution. These awards vest contingently upon Key’s achievement of certain cumulative three-year (2004-2006) financial performance targets and were not included in the calculation because the performance targets had not been attained.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

3. ACQUISITIONS AND DIVESTITURE

Key completed the following acquisitions and divestiture during the past three years. In the case of each acquisition, the terms of the transaction are not material.

ACQUISITIONS

American Express Business Finance Corporation

On December 1, 2004, Key acquired American Express Business Finance Corporation (“AEBF”), the equipment leasing unit of American Express’ small business division headquartered in Parsippany, New Jersey. AEBF had lease financing receivables of approximately $1.5 billion at the date of acquisition.

EverTrust Financial Group, Inc.

On October 15, 2004, Key acquired EverTrust Financial Group, Inc. (“EverTrust”), the holding company for EverTrust Bank, a state-chartered bank headquartered in Everett, Washington. EverTrust had assets of approximately $780 million and deposits of approximately $570 million at the date of acquisition. On November 12, 2004, EverTrust Bank was merged into Key Bank National Association (“KBNA”).

Sterling Bank & Trust FSB

Effective July 22, 2004, Key purchased ten branch offices and approximately $380 million of deposits of Sterling Bank & Trust FSB, a federally-chartered savings bank headquartered in Southfield, Michigan.

NewBridge Partners LLC

On July 1, 2003, Key acquired NewBridge Partners LLC, an investment management firm headquartered in New York City with managed assets of approximately $1.8 billion at the date of acquisition.

Union Bankshares, Ltd.

On December 12, 2002, Key purchased Union Bankshares, Ltd., the holding company for Union Bank & Trust, a seven-branch bank headquartered in Denver, Colorado. Union Bankshares, Ltd. had assets of approximately $475 million at the date of acquisition. On January 17, 2003, Union Bank & Trust was merged into KBNA.

Conning Asset Management

On June 28, 2002, Key purchased substantially all of the mortgage loan and real estate business of Conning Asset Management, headquartered in Hartford, Connecticut. The acquired business originates, securitizes and services multi-family, retail, industrial and office property mortgage loans on behalf of pension fund and life insurance company investors. At the date of acquisition, this business had net assets of approximately $17 million and serviced approximately $4 billion in commercial mortgage loans.

DIVESTITURE

401(k) Recordkeeping Business

On June 12, 2002, Key sold its 401(k) plan record-keeping business. Key recognized a gain of $3 million ($2 million after tax) on the transaction, which is included in “other income” on the income statement.

4. LINE OF BUSINESS RESULTS

CONSUMER BANKING

Retail Banking provides individuals with branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans.

Small Business provides businesses that typically have annual sales revenues of $10 million or less with deposit, investment and credit products, and business advisory services.

Consumer Finance includes Indirect Lending and National Home Equity.

Indirect Lending offers loans to consumers through dealers and finances inventory for automobile and marine dealers. This business unit also provides federal and private education loans to students and their parents and processes payments on loans that private schools make to parents.

National Home Equity provides both prime and nonprime mortgage and home equity loan products to individuals. These products originate outside of Key’s retail branch system. This business unit also works with home improvement contractors to provide home equity and home improvement solutions.

CORPORATE AND INVESTMENT BANKING

Corporate Banking provides products and services to large corporations, middle-market companies, financial institutions and government organizations. These products and services include commercial lending, treasury management, investment banking, derivatives and foreign exchange, equity and debt underwriting and trading, and syndicated finance.

KeyBank Real Estate Capital provides construction and interim lending, permanent debt placements and servicing, and equity and investment banking services to developers, brokers and owner-investors. This line of business deals exclusively with nonowner-occupied properties (i.e., generally properties for which the owner occupies less than 60% of the premises).

Key Equipment Finance meets the equipment leasing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with financing options for their clients. Lease financing receivables and related revenues are assigned to other lines of business (primarily Corporate Banking) if those businesses are principally responsible for maintaining the relationship with the client.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

INVESTMENT MANAGEMENT SERVICES

Investment Management Services includes Victory Capital Management and McDonald Financial Group.

Victory Capital Management manages or gives advice regarding investment portfolios for a national client base, including corporations, labor unions, not-for-profit organizations, governments and individuals. These portfolios may be managed in separate accounts, common funds or the Victory family of mutual funds.

McDonald Financial Group offers financial, estate and retirement planning, and asset management services to assist high-net-worth clients with their banking, brokerage, trust, portfolio management, insurance, charitable giving and related needs.

OTHER SEGMENTS

Other segments consist primarily of Corporate Treasury and Key’s Principal Investing unit.

RECONCILING ITEMS

Total assets included under “Reconciling Items” represent primarily the unallocated portion of nonearning assets of corporate support functions. Charges related to the funding of these assets are part of net interest income and are allocated to the business segments through noninterest expense. Reconciling Items also includes certain items that are not allocated to the business segments because they are not reflective of their normal operations.

The table that spans pages 64 and 65 shows selected financial data for each major business group for the years ended December 31, 2004, 2003 and 2002. This table is accompanied by supplementary information for each of the lines of business that comprise these groups. The information was derived from the internal financial reporting system that management uses to monitor and manage Key’s financial performance. U.S. generally accepted accounting principles guide financial accounting, but there is no authoritative guidance for “management accounting” — the way management uses its judgment and experience to make reporting decisions. Consequently, the line of business results Key reports may not be comparable with line of business results presented by other companies.

The selected financial data are based on internal accounting policies designed to compile results on a consistent basis and in a manner that reflects the underlying economics of the businesses. According to our policies:

• Net interest income is determined by assigning a standard cost for funds used to assets or a standard credit for funds provided to liabilities based on their assumed maturity, prepayment and/or repricing characteristics. The net effect of this funds transfer pricing is charged to the lines of business based on the total loan and deposit balances of each line.

• Indirect expenses, such as computer servicing costs and corporate overhead, are allocated based on assumptions regarding the extent to which each line actually uses the services.

• Key’s consolidated provision for loan losses is allocated among the lines of business based primarily on their actual net charge-offs, adjusted periodically for loan growth and changes in risk profile. The level of the consolidated provision is based on the methodology that management uses to estimate Key’s consolidated allowance for loan losses. This methodology is described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan Losses” on page 56.

• Income taxes are allocated based on the statutory federal income tax rate of 35% (adjusted for tax-exempt interest income, income from corporate-owned life insurance and tax credits associated with investments in low-income housing projects) and a blended state income tax rate (net of the federal income tax benefit) of 2.5%.

• Capital is assigned based on management’s assessment of economic risk factors (primarily credit, operating and market risk) directly attributable to each line.

Developing and applying the methodologies that management uses to allocate items among Key’s lines of business is a dynamic process. Accordingly, financial results may be revised periodically to reflect accounting enhancements, changes in the risk profile of a particular business or changes in Key’s organizational structure. The financial data reported for all periods presented in the tables reflect a number of changes that occurred during 2004:

• Key implemented a process of revenue sharing based on the type of transaction involved that allocates revenues between the line of business servicing the client and the line that made the business referral.

• Key began to charge the net consolidated effect of funds transfer pricing to the lines of business based on the total loan and deposit balances of each line. In the past, the net consolidated effect of funds transfer pricing was included in “Other Segments.”

• Key changed the methodology used to estimate the deferred tax benefits associated with lease financing.

• The methodology used to assign capital to the lines of business was revised to reflect only the risk directly attributable to each line.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES


Year ended December 31,	Consumer Banking									Corporate and Investment Banking									Investment Management Services
dollars in millions	2004			2003			2002			2004			2003			2002			2004			2003			2002

SUMMARY OF OPERATIONS
Net interest income (TE)	$	1,788		$	1,822		$	1,841		$	956		$	963		$	996		$	242		$	239		$	223
Noninterest income		469			509			519			555			504			490			566			544			599

Total revenue (TE) ^a		2,257			2,331			2,360			1,511			1,467			1,486			808			783			822
Provision for loan losses		166			280			300			15			204			239			4			17			14
Depreciation and amortization expense		171			131			142			37			35			39			38			43			47
Other noninterest expense		1,288			1,260			1,206			682			654			617			587			595			608

Income (loss) before income taxes (TE)		632			660			712			777			574			591			179			128			153
Allocated income taxes and TE adjustments		257			248			267			291			216			222			67			47			57

Net income (loss)	$	375		$	412		$	445		$	486		$	358		$	369		$	112		$	81		$	96

Percent of consolidated net income		39	%		45	%		46	%		51	%		40	%		38	%		12	%		9	%		10	%
Percent of total segments net income		37			45			48			49			40			39			11			9			10

AVERAGE BALANCES
Loans	$	29,493		$	28,993		$	27,987		$	28,844		$	27,892		$	29,146		$	5,245		$	5,060		$	4,827
Total assets^a		32,202			31,500			30,428			33,571			32,289			32,652			6,505			6,052			5,754
Deposits		35,385			34,828			33,978			5,121			4,363			3,358			7,281			6,084			3,919

OTHER FINANCIAL DATA
Expenditures for additions to long-lived assets^a	$	189		$	56		$	74		$	150		$	11		$	14		$	6		$	17		$	11
Net loan charge-offs		300			280			300			124			250			466			7			18			14
Return on average allocated equity		18.14	%		19.99	%		22.13	%		16.17	%		11.70	%		12.00	%		18.79	%		14.06	%		16.67	%
Average full-time equivalent employees		8,150			8,178			8,127			2,500			2,412			2,387			2,619			2,824			3,135

^aSubstantially all revenue generated by Key’s major business groups is derived from clients resident in the United States. Substantially all long-lived assets, including premises and equipment, capitalized software and goodwill, held by Key’s major business groups are located in the United States.

TE = Taxable Equivalent, N/A = Not Applicable, N/M = Not Meaningful

SUPPLEMENTARY INFORMATION (CONSUMER BANKING LINES OF BUSINESS)


Year ended December 31,	Retail Banking									Small Business									Consumer Finance
dollars in millions	2004			2003			2002			2004			2003			2002			2004			2003			2002

Total revenue (taxable equivalent)	$	1,279		$	1,317		$	1,371		$	385		$	386		$	389		$	593		$	628		$	600
Provision for loan losses		54			59			69			45			67			59			67			154			172
Noninterest expense		840			829			814			215			204			196			404			358			338
Net income		241			268			306			78			72			84			56			72			55
Average loans		10,720			9,958			8,771			4,440			4,506			4,466			14,333			14,529			14,750
Average deposits		30,061			30,014			29,887			4,937			4,447			3,759			387			367			332
Net loan charge-offs		53			59			69			50			67			59			197			154			172
Return on average allocated equity		38.19	%		44.97	%		55.54	%		20.10	%		18.70	%		22.76	%		5.34	%		6.67	%		5.04	%
Average full-time equivalent employees		6,126			6,160			6,131			421			375			301			1,603			1,643			1,695

SUPPLEMENTARY INFORMATION (CORPORATE AND INVESTMENT BANKING LINES OF BUSINESS)


Year ended December 31,	Corporate Banking									KeyBank Real Estate Capital									Key Equipment Finance
dollars in millions	2004			2003			2002			2004			2003			2002			2004			2003			2002

Total revenue (taxable equivalent)	$	787		$	795		$	845		$	418		$	414		$	416		$	306		$	258		$	225
Provision for loan losses		2			171			126			(8	)		3			51			21			30			62
Noninterest expense		436			429			420			175			159			149			108			101			87
Net income		219			122			187			157			157			135			110			79			47
Average loans		12,790			12,783			14,289			8,311			8,312			8,979			7,743			6,797			5,878
Average deposits		3,805			3,411			2,627			1,304			939			722			12			13			9
Net loan charge-offs		91			217			353			7			3			51			26			30			62
Return on average allocated equity		14.05	%		7.27	%		10.48	%		16.61	%		17.10	%		15.48	%		21.91	%		17.03	%		11.22	%
Average full-time equivalent employees		1,156			1,122			1,181			680			677			588			664			613			618

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES


Other Segments										Total Segments									Reconciling Items									Key
2004				2003			2002			2004			2003			2002			2004			2003			2002			2004			2003			2002



	$	(136	)	$	(134	)	$	(115	)	$	2,850		$	2,890		$	2,945		$	(119	)	$	(94	)	$	(76	)	$	2,731		$	2,796		$	2,869
		151			190			117			1,741			1,747			1,725			5			13			44			1,746			1,760			1,769

		15			56			2			4,591			4,637			4,670			(114	)		(81	)		(32	)		4,477			4,556			4,638
		—			—			—			185			501			553			—			—			—			185			501			553

		2			1			(2	)		248			210			226			—			—			—			248			210			226
		32			36			30			2,589			2,545			2,461			(27	)		(13	)		(34	)		2,562			2,532			2,427


		(19	)		19			(26	)		1,569			1,381			1,430			(87	)		(68	)		2			1,482			1,313			1,432

		(50	)		(37	)		(52	)		565			474			494			(37	)		(64	)		(38	)		528			410			456

	$	31		$	56		$	26		$	1,004		$	907		$	936		$	(50	)	$	(4	)	$	40		$	954		$	903		$	976


		3	%		6	%		2	%		105	%		100	%		96	%		(5	)%		—			4	%		100	%		100	%		100	%

		3			6			3			100			100			100			N/A			N/A			N/A			N/A			N/A			N/A

	$	522		$	802		$	1,262		$	64,104		$	62,747		$	63,222		$	146		$	132		$	171		$	64,250		$	62,879		$	63,393
		11,782			12,618			11,220			84,060			82,459			80,054			2,349			1,889			1,727			86,409			84,348			81,781
		4,131			3,166			3,606			51,918			48,441			44,861			(168	)		(98	)		(80	)		51,750			48,343			44,781




		—			—			—		$	345		$	84		$	99		$	141		$	98		$	95		$	486		$	182		$	194
		—			—			—			431			548			780			—			—			—			431			548			780

		N/M			N/M			N/M			16.69	%		15.03	%		15.49	%		N/M			N/M			N/M			13.75	%		13.08	%		14.96

		37			35			33			13,306			13,449			13,682			6,270			6,615			7,134			19,576			20,064			20,816

5. RESTRICTIONS ON CASH, DIVIDENDS AND LENDING ACTIVITIES

Federal law requires depository institutions to maintain a prescribed amount of cash or noninterest-bearing balances with the Federal Reserve Bank. KBNA, KeyCorp’s bank subsidiary, maintained average reserve balances aggregating $163 million in 2004 to fulfill these requirements.

KeyCorp’s principal source of cash flow to pay dividends on its common shares, to service its debt and to finance its corporate operations is capital distributions from KBNA and its other subsidiaries. Federal banking law limits the amount of capital distributions that national banks can make to their holding companies 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 2004, affiliate banks paid KeyCorp a total of $786 million in dividends and nonbank subsidiaries paid a total of $75 million. As of the close of business on December 31, 2004, KBNA had an additional $604 million available to pay dividends to KeyCorp without prior regulatory approval and without affecting its status as “well-capitalized” under the FDIC-defined capital categories.

Effective October 1, 2004, KeyCorp merged Key Bank USA, National Association (“Key Bank USA”) into KBNA forming a single bank affiliate. Although this internal merger had no effect on Key’s third-party obligations or the programs discussed under the heading “Additional sources of liquidity” on page 46, it had an immediate positive effect on KBNA’s dividend paying capacity.

Federal law also restricts loans and advances from bank subsidiaries to their parent companies (and to nonbank subsidiaries of their parent companies), and requires those transactions to be secured.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

6. SECURITIES

The amortized cost, unrealized gains and losses, and approximate fair value of Key’s investment securities and securities available for sale were as follows:


December 31,	2004									2003
				Gross		Gross						Gross		Gross
		Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
in millions		Cost		Gains		Losses		Value		Cost		Gains		Losses		Value

SECURITIES AVAILABLE FOR SALE
U.S. Treasury, agencies and corporations		$	227		—		—	$	227	$	63	$	1		—	$	64
States and political subdivisions			21	$	1		—		22		23		—		—		23
Collateralized mortgage obligations			6,460		5	$	95		6,370		6,696		33	$	123		6,606
Other mortgage-backed securities			322		10		2		330		453		18		2		469
Retained interests in securitizations			103		90		—		193		105		70		—		175
Other securities			298		11		—		309		288		13		—		301

Total securities available for sale		$	7,431	$	117	$	97	$	7,451	$	7,628	$	135	$	125	$	7,638


INVESTMENT SECURITIES
States and political subdivisions		$	58	$	3		—	$	61	$	83	$	6		—	$	89
Other securities			13		—		—		13		15		—		—		15

Total investment securities		$	71	$	3		—	$	74	$	98	$	6		—	$	104

When Key retains an interest in loans it securitizes, it bears risk that the loans will be prepaid (which would reduce expected interest income) or not paid at all. Key accounts for these retained interests as debt securities, classifying them as available for sale or as trading account assets.

“Other securities” held in the available-for-sale portfolio are primarily marketable equity securities. “Other securities” held in the investment securities portfolio are foreign bonds.

Realized gains and losses related to securities available for sale were as follows:

Year ended December 31,


in millions	2004		2003		2002

Realized gains	$	43	$	48	$	34
Realized losses		39		37		28

Net securities gains	$	4	$	11	$	6

The following table summarizes Key’s securities that were in an unrealized loss position.


			Duration of Unrealized Loss Position
	Less Than 12 Months				12 Months or Longer				Total
			Gross				Gross				Gross
December 31, 2004	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
in millions	Value		Losses		Value		Losses		Value		Losses

SECURITIES AVAILABLE FOR SALE
Collateralized mortgage obligations:
Commercial mortgage-backed securities	$	4	$	5	$	16	$	19	$	20	$	24
Agency collateralized mortgage obligations		4,502		48		999		23		5,501		71
Other mortgage-backed securities		63		1		49		1		112		2

Total temporarily impaired securities	$	4,569	$	54	$	1,064	$	43	$	5,633	$	97

Of the $97 million in total gross unrealized losses, $24 million relates to commercial mortgage-backed securities (“CMBS”). These CMBS are beneficial interests in securitizations of commercial mortgages that are held in the form of bonds and managed by the KeyBank Real Estate Capital line of business. Principal on these bonds typically is payable at the end of the bond term and interest is paid monthly at a fixed coupon rate. The fair value of these investments is sensitive to changes in the market yield on CMBS. During the time Key has held the bonds, CMBS market yields have increased, which reduced the bonds’ fair value.

Of the remaining $73 million of gross unrealized losses at December 31, 2004, $71 million relates to fixed-rate agency collateralized mortgage obligations, which Key invests in as part of its overall asset/liability management strategy. Since these instruments have fixed interest rates, their fair value is sensitive to movements in market interest rates. During 2004, there was a general increase in interest rates and as a result, the fair value of these 93 instruments, which had a weighted-average maturity of 2.26 years at December 31, 2004, decreased below their carrying amount.

Other mortgage-backed securities consist of fixed-rate mortgage-backed securities issued primarily by the Government National Mortgage Association (“GNMA”), with gross unrealized losses of $2 million at December 31, 2004. Similar to the fixed-rate securities discussed above, these instruments are sensitive to movements in interest rates. During 2004, there was a general increase in interest rates, which caused the fair value of these 57 instruments, which had a weighted-average maturity of 4.18 years at December 31, 2004, to decrease below their carrying amount.

The unrealized losses discussed above are considered temporary since Key has the ability and intent to hold the securities until they mature or recover in value. Accordingly, the carrying amount of these investments has not been reduced to their fair value through the income statement.

At December 31, 2004, securities available for sale and investment securities with an aggregate amortized cost of approximately $6.4 billion were pledged to secure public and trust deposits, securities sold under repurchase agreements, and for other purposes required or permitted by law.

The following table shows securities by remaining maturity. Collateralized mortgage obligations, other mortgage-backed securities and retained interests in securitizations, all of which are included in the securities available for sale portfolio, are presented based on their expected average lives. The remaining securities, including all of those in the investment securities portfolio, are presented based on their remaining contractual maturity.


	Securities				Investment
	Available for Sale				Securities
December 31, 2004	Amortized		Fair		Amortized		Fair
in millions	Cost		Value		Cost		Value

Due in one year or less	$	467	$	479	$	20	$	20
Due after one through five years		6,767		6,784		46		48
Due after five through ten years		162		153		5		6
Due after ten years		35		35		—		—

Total	$	7,431	$	7,451	$	71	$	74

7. LOANS

Key’s loans by category are summarized as follows:


December 31,
in millions	2004		2003

Commercial, financial and agricultural	$	19,343	$	17,012
Commercial real estate:
Commercial mortgage		7,534		5,677
Construction		5,505		4,978

Total commercial real estate loans		13,039		10,655
Commercial lease financing		10,894		8,522

Total commercial loans		43,276		36,189
Real estate — residential mortgage		1,456		1,613
Home equity		14,062		15,038
Consumer — direct		1,987		2,119
Consumer — indirect:
Automobile lease financing		89		305
Automobile loans		—		2,025
Marine		2,624		2,506
Other		617		542

Total consumer — indirect loans		3,330		5,378

Total consumer loans		20,835		24,148
Loans held for sale:
Real estate — commercial mortgage		283		154
Real estate — residential mortgage		26		18
Home equity		29		—
Education		2,278		2,202
Automobile		1,737		—

Total loans held for sale		4,353		2,374

Total loans	$	68,464	$	62,711

Key uses interest rate swaps to manage interest rate risk; these swaps modify the repricing and maturity characteristics of certain loans. For more information about such swaps, see Note 19 (“Derivatives and Hedging Activities”), which begins on page 84.

Commercial and consumer lease financing receivables in the preceding table are primarily direct financing leases, but also include leveraged leases and operating leases. The composition of the net investment in direct financing leases is as follows:


December 31,
in millions	2004			2003

Direct financing lease receivable	$	7,161		$	5,370
Unearned income		(752	)		(550	)
Unguaranteed residual value		547			513
Deferred fees and costs		50			44

Net investment in direct financing leases	$	7,006		$	5,377

Minimum future lease payments to be received at December 31, 2004, are as follows:

2005 — $2.6 billion; 2006 — $1.8 billion; 2007 — $1.3 billion; 2008 — $800 million; 2009 — $371 million; and all subsequent years — $313 million.

Changes in the allowance for loan losses are summarized as follows:


Year ended December 31,
in millions	2004			2003			2002

Balance at beginning of year	$	1,406		$	1,452		$	1,677
Charge-offs		(583	)		(678	)		(905	)
Recoveries		152			130			125

Net loans charged off		(431	)		(548	)		(780	)
Provision for loan losses		185			501			553
Reclassification of allowance for credit losses on lending-related commitments^a		(70	)		—			—
Allowance related to loans acquired, net		48			—			2
Foreign currency translation adjustment		—			1			—

Balance at end of year	$	1,138		$	1,406		$	1,452

^aIncluded in “accrued expense and other liabilities” on the consolidated balance sheet.

8. LOAN SECURITIZATIONS, SERVICING AND VARIABLE INTEREST ENTITIES

RETAINED INTERESTS IN LOAN SECURITIZATIONS

Key sells certain types of loans in securitizations. A securitization involves the sale of a pool of loan receivables to investors through either a public or private issuance (generally by a qualifying SPE) of asset-backed securities. Generally, the assets are transferred to a trust that sells interests in the form of certificates of ownership. In some cases, Key retains an interest in the securitized loans. Certain assumptions and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

estimates are used to determine the fair value allocated to these retained interests at the date of transfer and at subsequent measurement dates. These assumptions and estimates include loan repayment rates, projected charge-offs and discount rates commensurate with the risks involved. Additional information pertaining to Key’s residual interests is disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Loan Securitizations” on page 57.

In accordance with Revised Interpretation No. 46, “Consolidation of Variable Interest Entities,” Key’s securitization trusts are exempt from consolidation. For more information on Revised Interpretation No. 46, see the following section entitled “Variable Interest Entities” and Note 1 under the headings “Basis of Presentation” on page 55 and “Accounting Pronouncements Adopted in 2004” on page 60.

Key securitized and sold $1.1 billion of education loans (including accrued interest) in 2004 and $1.0 billion in 2003. The securitizations resulted in an aggregate gain of $17 million in 2004 (from gross cash proceeds of $1.1 billion) and $12 million in 2003 (from gross cash proceeds of $1.0 billion). In these transactions, Key retained residual interests in the form of servicing assets and interest-only strips. During 2004, Key retained servicing assets of $8 million and interest-only strips of $19 million. During 2003, Key retained servicing assets of $6 million and interest-only strips of $17 million.

Primary economic assumptions used to measure the fair value of Key’s retained interests and the sensitivity of the current fair value of residual cash flows to immediate adverse changes in those assumptions are as follows:


December 31, 2004	Education			Home Equity
dollars in millions	Loans			Loans

Fair value of retained interests	$	216		$	33
Weighted-average life (years)		.5 - 6.4			.6 - 1.1

PREPAYMENT SPEED ASSUMPTIONS (ANNUAL RATE)		4.00% - 26.00	%		40.00	%
Impact on fair value of 1% CPR adverse change	$	(4	)		—
Impact on fair value of 2% CPR adverse change		(8	)		—

EXPECTED CREDIT LOSSES (STATIC RATE)		.10% - 20.00	%		1.27% - 1.48	%
Impact on fair value of .25% adverse change	$	(2	)	$	(2	)
Impact on fair value of .50% adverse change		(4	)		(4	)

RESIDUAL CASH FLOWS DISCOUNT RATE (ANNUAL RATE)		8.50% - 12.00	%		7.50% - 10.25	%
Impact on fair value of 1% adverse change	$	(6	)		—
Impact on fair value of 2% adverse change		(11	)		—

EXPECTED STATIC DEFAULT (STATIC RATE)		5.00% - 25.00	%		N/A
Impact on fair value of 1% adverse change	$	(13	)		N/A
Impact on fair value of 2% adverse change		(24	)		N/A

VARIABLE RETURNS TO TRANSFEREES		(a	)		(b	)

These sensitivities are hypothetical and should be relied upon with caution. Sensitivity analysis for each asset type is based on the nature of the asset, the seasoning (i.e., age and payment history) of the portfolio and the results experienced. Changes in fair value based on a 1% variation in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption; in reality, changes in one factor may cause changes in another. For example, increases in market interest rates may result in lower prepayments and increased credit losses, which might magnify or counteract the sensitivities.

^a Forward London Interbank Offered Rate (known as “LIBOR”) plus contractual spread over LIBOR ranging from .04% to .75%, or Treasury plus contractual spread over Treasury ranging from .65% to 1.00%, or fixed rate yield.

^b Forward LIBOR plus contractual spread over LIBOR ranging from .23% to .40%, or fixed rate yield.

CPR = Constant Prepayment Rate

N/A = Not Applicable

The table below shows Key’s managed loans related to those loan portfolios used by Key in consumer loan securitizations. Managed loans include those held in portfolio and those securitized and sold, but still serviced by Key. Related delinquencies and net credit losses are also presented.


	December 31,
					Loans Past Due				Net Credit Losses
	Loan Principal				60 Days or More				During the Year
in millions	2004		2003		2004		2003		2004		2003

Education loans	$	7,585	$	6,812	$	145	$	159	$	78	$	48
Home equity loans		14,215		15,242		106		257		57		55

Total loans managed		21,800		22,054		251		416		135		103
Less:
Loans securitized		5,040		4,814		148		174		60		39
Loans held for sale or securitization		2,307		2,202		14		16		10		9

Loans held in portfolio	$	14,453	$	15,038	$	89	$	226	$	65	$	55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

MORTGAGE SERVICING ASSETS

Key originates and periodically sells commercial real estate loans that it continues to service for the buyers. Changes in the carrying amount of mortgage servicing assets are summarized as follows:


Year Ended December 31,
in millions	2004			2003

Balance at beginning of year	$	99		$	83
Servicing retained from loan sales		13			14
Purchases		21			19
Amortization		(20	)		(17	)

Balance at end of year	$	113		$	99


Fair value at end of year	$	157		$	141

The fair value of mortgage servicing assets is estimated by calculating the present value of future cash flows associated with servicing the loans. This calculation uses a number of assumptions that are based on current market conditions. Primary economic assumptions used to measure the fair value of Key’s mortgage servicing assets at December 31, 2004 and 2003, are as follows:

Prepayment speed at an annual rate of 0.00% to 100.00%
Expected credit losses at a static rate of 1.00% to 2.00%
Residual cash flows discount rate of 8.50% to 15.00%

Additional information pertaining to the accounting for mortgage servicing assets is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Servicing Assets” on page 57.

VARIABLE INTEREST ENTITIES

A VIE is a partnership, limited liability company, trust or other legal entity that meets any one of the following criteria:

• The entity does not have sufficient equity to conduct its activities without additional subordinated financial support from another party.

• The entity’s investors lack the ability to make decisions about the activities of the entity through voting rights or similar rights, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns.

• The voting rights of some investors are not proportional to their economic interest in the entity, and substantially all of the entity’s activities involve or are conducted on behalf of investors with disproportionately few voting rights.

Revised Interpretation No. 46 requires VIEs to be consolidated by the party who is exposed to a majority of the VIE’s expected losses and/or residual returns (i.e., the primary beneficiary). This interpretation is summarized in Note 1 under the headings “Basis of Presentation” on page 55 and “Accounting Pronouncements Adopted in 2004” on page 60.

Those who transfer assets to qualifying special purpose entities meeting the requirements of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” are exempt from Revised Interpretation No. 46. As a result, substantially all of Key’s securitization trusts are exempt from consolidation. Interests in securitization trusts formed by Key that do not qualify for this exception are insignificant.

Key adopted Revised Interpretation No. 46 effective March 31, 2004. The adoption had no material effect on Key’s balance sheet or results of operations.

Key’s involvement with VIEs, including those consolidated and de-consolidated and those in which Key holds a significant interest, is described below. Key defines a “significant interest” in a VIE as a subordinated interest that exposes Key to a significant portion, but not the majority, of the VIE’s expected losses or residual returns.

Consolidated VIEs

Commercial paper conduit. Key, among others, refers third-party assets and borrowers and provides liquidity and credit enhancement to an asset-backed commercial paper conduit. At December 31, 2004, the conduit had assets of $571 million, of which $550 million are recorded in “loans” and $20 million are recorded in “securities available for sale” on the balance sheet. These assets serve as collateral for the conduit’s obligations to commercial paper holders. The commercial paper holders have no recourse to Key’s general credit other than through Key’s committed credit enhancement facility of $73 million.

Additional information pertaining to Key’s involvement with the conduit is included in Note 18 (“Commitments, Contingent Liabilities and Guarantees”) under the heading “Guarantees” on page 83 and under the heading “Other Off-Balance Sheet Risk” on page 84.

Low-Income Housing Tax Credit (“LIHTC”) guaranteed funds. Key Affordable Housing Corporation (“KAHC”) formed limited partnerships (funds) that invested in LIHTC operating partnerships. Interests in these funds were offered in syndication to qualified investors who paid a fee to KAHC for a guaranteed return. Key also earned syndication fees from these funds and continues to earn asset management fees. The funds’ assets are primarily investments in LIHTC operating partnerships, which totaled $419 million at December 31, 2004. These investments are recorded in “accrued income and other assets” on the balance sheet and serve as collateral for the funds’ limited obligations. In October 2003, management elected to discontinue this program. No new funds or LIHTC investments have been added since that date; however, Key continues to act as asset manager and provides occasional funding for existing funds. Additional information on return guarantee agreements with LIHTC investors is summarized in Note 18 under the heading “Guarantees.”

The partnership agreement for each guaranteed fund requires the fund to be dissolved by a certain date. Therefore, in accordance with SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” the noncontrolling interests associated with these funds are mandatorily redeemable instruments and are recorded in “accrued expense and other liabilities” on the balance sheet. In November 2003, the FASB indefinitely deferred the measurement and recognition provisions of SFAS No. 150 for mandatorily redeemable noncontrolling interests associated with finite-lived subsidiaries. Key currently accounts for these noncontrolling interests as minority interests and adjusts the financial statements each period for the investors’ share of fund profits and losses. At December 31, 2004, the settlement value of these noncontrolling interests was estimated to be between $525 million and $640 million, while the recorded value, including reserves, totaled $415 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

Unconsolidated VIEs

LIHTC nonguaranteed funds. Key has determined that it is not the primary beneficiary of certain nonguaranteed funds it has formed and in which it has invested, although it continues to hold significant interests in those funds. At December 31, 2004, assets of these unconsolidated nonguaranteed funds were estimated to be $343 million. Key’s maximum exposure to loss from its involvement with these funds is minimal. In October 2003, management elected to discontinue this program.

Business trusts issuing mandatorily redeemable preferred capital securities. Key owns the common stock of business trusts that have issued corporation-obligated mandatorily redeemable preferred capital securities to third-party investors. The trusts’ only assets, which totaled $1.3 billion at December 31, 2004, are debentures issued by Key that the trusts acquired using proceeds from the issuance of preferred securities and common stock. The debentures are recorded in “long-term debt” and Key’s equity interest in the business trusts is recorded in “accrued income and other assets” on the balance sheet. Additional information on the trusts is included in Note 13 (“Capital Securities Issued by Unconsolidated Subsidiaries”), which begins on page 73.

LIHTC investments. Through the Retail Banking line of business, Key has made investments directly in LIHTC operating partnerships formed by third parties. As a limited partner in these operating partnerships, Key is allocated tax credits and deductions associated with the underlying properties. At December 31, 2004, assets of these unconsolidated LIHTC operating partnerships totaled approximately $828 million. Key’s maximum exposure to loss from its involvement with these partnerships is the unamortized investment balance of $164 million at December 31, 2004, plus $54 million of tax credits claimed, but subject to recapture. Direct interests in LIHTC operating partnerships obtained by Key during 2004 were not significant individually or in the aggregate.

Key has additional investments in LIHTC operating partnerships as a result of consolidating the LIHTC guaranteed funds discussed above. Total assets of these operating partnerships are approximately $1.8 billion at December 31, 2004. The tax credits and deductions associated with these properties are allocated to the funds’ investors based on their ownership percentages. Key’s exposure to loss from its involvement with these funds is discussed above. In October 2003, management elected to discontinue this program.

Commercial and residential real estate investments and principal investments. Through the KeyBank Real Estate Capital line of business, Key makes mezzanine investments in construction, acquisition and rehabilitation projects that Key has determined to be VIEs. Key receives underwriting and other fees from these VIEs and, for certain projects, also may provide the senior financing.

Key’s principal investing unit makes direct investments in equity and mezzanine instruments offered by individual companies, some of which Key has determined to be VIEs. These investments are held by nonregistered investment companies subject to the provisions of the AICPA Audit and Accounting Guide, “Audits of Investment Companies.” The FASB deferred the effective date of Revised Interpretation No. 46 for such nonregistered investment companies until the AICPA clarifies the scope of the Audit Guide. As a result, Key is not currently applying the accounting or disclosure provisions of Revised Interpretation No. 46 to its real estate mezzanine and principal investments, which remain unconsolidated.

9. IMPAIRED LOANS AND OTHER NONPERFORMING ASSETS

Impaired loans totaled $91 million at December 31, 2004, compared with $340 million at December 31, 2003. Impaired loans averaged $189 million for 2004 and $492 million for 2003.

Key’s nonperforming assets were as follows:


December 31,
in millions	2004			2003

Impaired loans	$	91		$	340
Other nonaccrual loans		225			354

Total nonperforming loans		316			694
Other real estate owned (OREO)		53			61
Allowance for OREO losses		(4	)		(4	)

OREO, net of allowance		49			57
Other nonperforming assets		14			2

Total nonperforming assets	$	379		$	753

At December 31, 2004, Key did not have any significant commitments to lend additional funds to borrowers with loans on nonperforming status.

Key evaluates most impaired loans individually as described in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan Losses” on page 56. At December 31, 2004, Key had $38 million of impaired loans with a specifically allocated allowance for loan losses of $12 million, and $53 million of impaired loans that were carried at their estimated fair value without a specifically allocated allowance. At December 31, 2003, impaired loans included $183 million of loans with a specifically allocated allowance of $73 million, and $157 million that were carried at their estimated fair value without a specifically allocated allowance.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

Key does not perform a loan-specific impairment valuation for smaller-balance, homogeneous, nonaccrual loans (shown in the preceding table as “Other nonaccrual loans”). These typically are smaller-balance commercial loans and consumer loans, including residential mortgages, home equity loans and various types of installment loans. Management applies historical loss experience rates to these loans, adjusted to reflect emerging credit trends and other factors, and then allocates a portion of the allowance for loan losses to each loan type.

The following table shows the amount by which loans classified as nonperforming at December 31 reduced Key’s expected interest income.


Year ended December 31,
in millions	2004		2003		2002

Interest income receivable under original terms	$	20	$	35	$	50
Less: Interest income recorded during the year		9		13		20

Net reduction to interest income	$	11	$	22	$	30

10. GOODWILL AND OTHER INTANGIBLE ASSETS

Key’s total intangible asset amortization expense was $12 million for 2004, $13 million for 2003 and $11 million for 2002. Estimated amortization expense for intangible assets for each of the next five years is as follows: 2005 — $14 million; 2006 — $14 million; 2007 — $13 million; 2008 — $12 million; and 2009 — $12 million.

The following table shows the gross carrying amount and the accumulated amortization of intangible assets that are subject to amortization.


December 31,	2004				2003
	Gross Carrying		Accumulated		Gross Carrying		Accumulated
in millions	Amount		Amortization		Amount		Amortization

Intangible assets subject to amortization:
Core deposit intangibles	$	241	$	216	$	228	$	208
Other intangible assets		73		11		24		7

Total	$	314	$	227	$	252	$	215

During 2004, other intangible assets with a fair value of $50 million, $9 million and $4 million were acquired in conjunction with the purchase of AEBF, EverTrust and the ten branch offices of Sterling Bank & Trust FSB, respectively. These assets are being amortized using either an accelerated or straight-line method over periods ranging from five to thirteen years. Additional information pertaining to these acquisitions is included in Note 3 (“Acquisitions and Divestiture”) on page 62.

Changes in the carrying amount of goodwill by major business group are as follows:


				Corporate and		Investment
	Consumer			Investment		Management
in millions	Banking			Banking		Services			Total

BALANCE AT DECEMBER 31, 2003	$	476		$	213	$	461		$	1,150
Changes in goodwill:
Acquisition of AEBF		—			138		—			138
Acquisition of EverTrust		98			—		—			98
Acquisition of Sterling Bank & Trust FSB branch offices		29			—		—			29
Write-off of goodwill related to nonprime indirect automobile loan business		(55	)		—		—			(55	)
Adjustment to NewBridge Partners goodwill		—			—		(1	)		(1	)

BALANCE AT DECEMBER 31, 2004	$	548		$	351	$	460		$	1,359

Key’s annual goodwill impairment testing was performed as of October 1, 2004, and it was determined that no impairment existed at that date. Subsequent to the impairment testing date, management made the decision to exit the indirect automobile lending business. As a result, $55 million of the goodwill related to that business was written off.

Additional information pertaining to the accounting for intangible assets is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Goodwill and Other Intangible Assets” on page 58.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

11. SHORT-TERM BORROWINGS

Selected financial information pertaining to the components of Key’s short-term borrowings is as follows:


dollars in millions	2004			2003			2002

FEDERAL FUNDS PURCHASED
Balance at year end	$	421		$	919		$	2,147
Average during the year		2,688			2,798			3,984
Maximum month-end balance		4,222			4,299			5,983
Weighted-average rate during the year		1.41	%		1.14	%		1.71	%
Weighted-average rate at December 31		2.01			1.28			1.19

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Balance at year end	$	1,724		$	1,748		$	1,715
Average during the year		1,981			1,941			1,543
Maximum month-end balance		2,300			2,260			2,313
Weighted-average rate during the year		1.11	%		.98	%		1.49	%
Weighted-average rate at December 31		1.97			.64			1.26

SHORT-TERM BANK NOTES
Balance at year end		—		$	479		$	575
Average during the year	$	36			877			1,700
Maximum month-end balance		100			1,628			3,048
Weighted-average rate during the year		1.05	%		1.94	%		1.94	%
Weighted-average rate at December 31		—			1.14			2.05

OTHER SHORT-TERM BORROWINGS
Balance at year end	$	2,515		$	2,468		$	2,248
Average during the year		2,595			1,735			1,243
Maximum month-end balance		2,853			2,468			2,248
Weighted-average rate during the year		1.16	%		1.15	%		1.29	%
Weighted-average rate at December 31		1.63			1.03			.83

Rates presented in the above table exclude the effects of interest rate swaps and caps, which modify the repricing and maturity characteristics of certain short-term borrowings. For more information about such financial instruments, see Note 19 (“Derivatives and Hedging Activities”), which begins on page 84.

Key has several programs through KeyCorp and KBNA that support short-term financing needs.

Bank note program. This program provides for the issuance of both long-and short-term debt of up to $20.0 billion by KBNA. During 2004, there were $1.2 billion of notes issued under this program. At December 31, 2004, $15.0 billion was available for future issuance.

Euro note program. Under Key’s euro note program, KeyCorp and KBNA may issue both long- and short-term debt of up to $10.0 billion in the aggregate. The notes are offered exclusively to non-U.S. investors and can be denominated in U.S. dollars and foreign currencies. During 2004, there were $1.4 billion of notes issued under this program. At December 31, 2004, $6.3 billion was available for future issuance.

KeyCorp medium-term note program. In November 2001, KeyCorp registered $2.2 billion of securities under a shelf registration statement filed with the Securities and Exchange Commission. At December 31, 2004, the entire amount registered had been allocated for issuance of medium-term notes, and the unused capacity totaled $429 million. During 2004, there were $925 million of notes issued under this program. In January 2005, a new shelf registration statement filed by KeyCorp to register up to $2.9 billion of securities became effective. Of this amount, $1.9 billion has been allocated for issuance of medium-term notes.

Commercial paper program. KeyCorp has a commercial paper program that provides funding availability of up to $500 million. At December 31, 2004, there were no borrowings outstanding under the commercial paper program.

In 2003, Key established a separate commercial paper program that provides funding availability of up to $1.0 billion in Canadian currency. The borrowings under this program can be denominated in Canadian or U.S. dollars. As of December 31, 2004, borrowings outstanding under this commercial paper program totaled $757 million in Canadian currency and $55 million in U.S. currency (equivalent to $66 million in Canadian currency).

Federal Reserve Bank discount window. KBNA has overnight borrowing capacity at the Federal Reserve Bank. At December 31, 2004, this capacity was approximately $17.9 billion and was secured by approximately $23.2 billion of loans, primarily those in the commercial portfolio. There were no borrowings outstanding under this facility at December 31, 2004.

The components of Key’s long-term debt, presented net of unamortized discount where applicable, were as follows:


December 31,
dollars in millions	2004		2003

Senior medium-term notes due through 2009^a	$	1,726	$	1,167
Subordinated medium-term notes due through 2006^a		450		450
Senior euro medium-term notes due through 2011^b		405		—
8.00% Subordinated notes due 2004^c		—		125
6.625% Subordinated notes due 2017^c		25		25
7.826% Subordinated notes due 2026^d		361		361
8.25% Subordinated notes due 2026^d		154		154
2.746% Subordinated notes due 2028^d		205		218
6.875% Subordinated notes due 2029^d		165		165
7.75% Subordinated notes due 2029^d		197		197
5.875% Subordinated notes due 2033^d		180		180
6.125% Subordinated notes due 2033^d		77		77
All other long-term debt^j		154		150

Total parent company		4,099		3,269

Senior medium-term bank notes due through 2039^e		1,652		3,141
Senior euro medium-term bank notes due through 2009^f		3,741		3,754
6.50% Subordinated remarketable notes due 2027^g		310		311
7.25% Subordinated notes due 2005^g		200		200
7.125% Subordinated notes due 2006^g		250		250
7.55% Subordinated notes due 2006^g		75		75
7.375% Subordinated notes due 2008^g		70		70
7.50% Subordinated notes due 2008^g		165		165
7.00% Subordinated notes due 2011^g		504		504
7.30% Subordinated notes due 2011^g		106		106
5.70% Subordinated notes due 2012^g		300		300
5.70% Subordinated notes due 2017^g		200		200
5.80% Subordinated notes due 2014^g		773		—
4.625% Subordinated notes due 2018^g		100		100
6.95% Subordinated notes due 2028^g		300		300
Structured repurchase agreements due 2005^k		400		825
Lease financing debt due through 2009^h		346		380
Federal Home Loan Bank advances due through 2034ⁱ		971		888
All other long-term debt^j		284		456

Total subsidiaries		10,747		12,025

Total long-term debt	$	14,846	$	15,294

Key uses interest rate swaps and caps, which modify the repricing and maturity characteristics of certain long-term debt, to manage interest rate risk. For more information about such financial instruments, see Note 19 (“Derivatives and Hedging Activities”), which begins on page 84.

^a		At December 31, 2004 and 2003, the senior medium-term notes had weighted-average interest rates of 3.26% and 2.42%, respectively. The subordinated medium-term notes had a weighted-average interest rate of 7.17% at December 31, 2004 and 2003. These notes had a combination of fixed and floating interest rates.

^b		Senior euro medium-term notes had a weighted-average interest rate of 2.80% at December 31, 2004. These notes had a floating interest rate based on the three-month LIBOR.

^c		These notes could not be redeemed or prepaid prior to maturity.

^d		These notes had a weighted-average interest rate of 6.63% at December 31, 2004, and 6.44% at December 31, 2003. The interest rates on these notes are fixed with the exception of the 2.746% note, which has a floating interest rate equal to three-month LIBOR plus 74 basis points; it reprices quarterly. See Note 13 (“Capital Securities Issued By Unconsolidated Subsidiaries”) below for a description of these notes.

^e		Senior medium-term bank notes of subsidiaries had weighted-average interest rates of 3.38% at December 31, 2004, and 2.66% at December 31, 2003. These notes had a combination of fixed and floating interest rates.

^f		Senior euro medium-term bank notes had weighted-average interest rates of 2.31% at December 31, 2004, and 1.25% at December 31, 2003. These notes, which are obligations of KBNA, had a combination of fixed interest rates and floating interest rates based on LIBOR.

^g		These notes are all obligations of KBNA. The 7.55% notes were originated by Key Bank USA and assumed by KBNA when the two banks merged on October 1, 2004. None of the subordinated notes may be redeemed prior to their maturity dates.

^h		Lease financing debt had weighted-average interest rates of 7.03% at December 31, 2004, and 6.35% at December 31, 2003. This category of debt consists of primarily nonrecourse debt collateralized by leased equipment under operating, direct financing and sales type leases.

ⁱ		Long-term advances from the Federal Home Loan Bank had weighted-average interest rates of 2.87% at December 31, 2004, and 1.52% at December 31, 2003. These advances, which had a combination of fixed and floating interest rates, were secured by real estate loans and securities totaling $1.3 billion at December 31, 2004, and $1.2 billion at December 31, 2003.

^j		Other long-term debt, consisting of industrial revenue bonds, capital lease obligations, and various secured and unsecured obligations of corporate subsidiaries, had weighted-average interest rates of 5.82% at December 31, 2004, and 4.59% at December 31, 2003.

^k		The structured repurchase agreements had a weighted-average interest rate of 2.02% at December 31, 2004. These borrowings had a floating interest rate based on a formula that incorporates the three-month LIBOR and the five-year constant maturity swap rate. The maximum weighted-average interest rate that can be charged on these borrowings is 3.85%.

Scheduled principal payments on long-term debt over the next five years are as follows:

KeyCorp owns the outstanding common stock of business trusts that issued corporation-obligated mandatorily redeemable preferred capital securities (“capital securities”). The trusts used the proceeds from the issuance of their capital securities and common stock to buy debentures issued by KeyCorp. These debentures are the trusts’ only assets; the interest payments from the debentures finance the distributions paid on the capital securities.

Prior to July 1, 2003, KeyCorp fully consolidated these business trusts. The capital securities were carried as liabilities on Key’s balance sheet; Key’s financial statements did not reflect the debentures or the related effects on the income statement because they were eliminated in consolidation.

In accordance with Revised Interpretation No. 46, Key determined that these business trusts are VIEs for which it is not the primary beneficiary. Therefore, effective July 1, 2003, the trusts were de-consolidated and are accounted for using the equity method. Additional information regarding Revised Interpretation No. 46 and these business trusts is included in Note 1 (“Summary of Significant Accounting Policies”), which begins on page 55, and in Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”) under the heading “Business trusts issuing mandatorily redeemable preferred capital securities” on page 70.

The characteristics of the business trusts and capital securities have not changed with the de-consolidation of the trusts. The capital securities provide an attractive source of funds since they constitute Tier 1 capital for regulatory reporting purposes, but have the same tax advantages as debt for federal income tax purposes. The Federal Reserve Board has proposed a rule that would allow bank holding companies to continue to treat capital securities as Tier 1 capital, but with stricter quantitative limits. Management believes that the new rule, if adopted as proposed, would not have any material effect on Key’s financial condition.

To the extent the trusts have funds available to make payments, as guarantor, KeyCorp continues to unconditionally guarantee payment of:

•	required distributions on the capital securities;

•	the redemption price when a capital security is redeemed; and

•	amounts due if a trust is liquidated or terminated.

During 2004, the business trusts repurchased $13 million of higher cost capital securities and KeyCorp repurchased a like amount of the related debentures.

The capital securities, common stock and related debentures are summarized as follows:

^a		The capital securities must be redeemed when the related debentures mature, or earlier if provided in the governing indenture. Each issue of capital securities carries an interest rate identical to that of the related debenture. Prior to July 1, 2003, the capital securities constituted minority interests in the equity accounts of KeyCorp’s consolidated subsidiaries. Effective July 1, 2003, the business trusts that issued the capital securities were de-consolidated. Under a temporary ruling from the Federal Reserve Board, the capital securities will continue to qualify as Tier 1 capital under Federal Reserve Board guidelines subject to certain restrictions and limitations. Included in certain capital securities at December 31, 2004 and 2003, are basis adjustments of $106 million and $120 million, respectively, related to fair value hedges. See Note 19 (“Derivatives and Hedging Activities”), which begins on page 84, for an explanation of fair value hedges.

^b		KeyCorp has the right to redeem its debentures: (i) in whole or in part, on or after December 1, 2006 (for debentures owned by Capital A), December 15, 2006 (for debentures owned by Capital B), July 1, 2008 (for debentures owned by Capital I), March 18, 1999 (for debentures owned by Capital II), July 16, 1999 (for debentures owned by Capital III), July 21, 2008 (for debentures owned by Capital V), and December 15, 2008 (for debentures owned by Capital VI); and, (ii) in whole at any time within 90 days after and during the continuation of a “tax event,” “investment company event” or a “capital treatment event” (as defined in the applicable offering circular). If the debentures purchased by Capital A or Capital B are redeemed before they mature, the redemption price will be the principal amount, plus a premium, plus any accrued but unpaid interest. If the debentures purchased by Capital I, Capital V or Capital VI are redeemed before they mature, the redemption price will be the principal amount, plus any accrued but unpaid interest. If the debentures purchased by Capital II or Capital III are redeemed before they mature, the redemption price will be the greater of: (a) the principal amount, plus any accrued but unpaid interest or (b) the sum of the present values of principal and interest payments discounted at the Treasury Rate (as defined in the applicable offering circular), plus 20 basis points (25 basis points for Capital III), plus any accrued but unpaid interest. When debentures are redeemed in response to tax or capital treatment events, the redemption price generally is slightly more favorable to Key.

^c		Capital I has a floating interest rate equal to three-month LIBOR plus 74 basis points; it reprices quarterly. The interest rates for all other trusts’ securities are fixed. The rates shown as the total at December 31, 2004 and 2003, are weighted-average rates.

KeyCorp has a shareholder rights plan, which was adopted in 1989 and subsequently amended. Under the plan, each shareholder received one Right — initially representing the right to purchase a common share for $82.50 — for each KeyCorp common share owned. All of the Rights expire on May 14, 2007, but KeyCorp may redeem Rights earlier for $.005 apiece, subject to certain limitations.

Rights will become exercisable if a person or group acquires 15% or more of KeyCorp’s outstanding shares. Until that time, the Rights will trade with the common shares; any transfer of a common share will also transfer the associated Right. If the Rights become exercisable, they will begin to trade apart from the common shares. If one of a number of “flip-in events” occurs, each Right will entitle the holder to purchase a KeyCorp common share for $1.00 (the par value per share), and the Rights held by a 15% or more shareholder will become void.

KeyCorp and KBNA must meet specific capital requirements imposed by federal banking regulators. Sanctions for failure to meet applicable capital requirements may include regulatory enforcement actions that restrict dividend payments, require the adoption of remedial measures to increase capital, terminate FDIC deposit insurance, and mandate the appointment of a conservator or receiver in severe cases. In addition, failure to maintain a well-capitalized status affects the evaluation of regulatory applications for certain dealings, including acquisitions, continuation and expansion of existing activities, and commencement of new activities, and could affect the confidence of our clients and potential investors. As of December 31, 2004, KeyCorp and KBNA met all regulatory capital requirements.

Federal bank regulators apply certain capital ratios to assign FDIC- insured depository institutions to one of five categories: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” At December 31, 2004 and 2003, the most recent regulatory notification classified KBNA as “well capitalized.” Management believes there have not been any changes in condition or events since that notification that would cause KBNA’s classification to change.

Bank holding companies are not assigned to any of the five capital categories applicable to insured depository institutions. However, if these categories applied to bank holding companies, management believes Key would satisfy the criteria for a “well capitalized” institution at December 31, 2004 and 2003. The FDIC-defined capital categories serve a limited regulatory function and may not accurately represent the overall financial condition or prospects of KeyCorp or its affiliates.

The following table presents Key’s, KBNA’s and Key Bank USA’s actual capital amounts and ratios, minimum capital amounts and ratios prescribed by regulatory guidelines, and capital amounts and ratios required to qualify as “well capitalized” under the Federal Deposit Insurance Act. The October 1, 2004, merger of Key Bank USA into KBNA did not affect KBNA’s ability to remain “well-capitalized.”

Effective December 31, 2002, Key reclassified a $68 million obligation relating to the portion of deferred compensation payable in KeyCorp common shares from “other liabilities” to “capital surplus” in accordance with EITF 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested.” Key did not reclassify its obligation in years prior to 2002 because it was not material.

Key’s total stock-based compensation expense was $40 million for 2004, $23 million for 2003 and $7 million for 2002. Included in these amounts is stock option expense of $23 million for 2004 and $10 million for 2003. There was no stock option expense recorded for 2002.

Key’s compensation plans allow for the granting of primarily stock options, restricted stock, performance shares, discounted stock purchases and certain deferred compensation-related awards to eligible employees and directors. At December 31, 2004, KeyCorp had 81,588,502 common shares available for future grant under its compensation plans. In accordance with a resolution adopted by the Compensation Committee of Key’s Board of Directors, KeyCorp may not grant options to purchase common shares, restricted stock or other share grants under its long-term compensation plans in an amount that exceeds 6% of KeyCorp’s outstanding common shares in any rolling three-year period.

Under Key’s stock option plans, exercise prices cannot be less than the fair value of Key’s common stock on the grant date. Generally, options become exercisable at the rate of 33% per year beginning one year from their grant date and expire no later than ten years from their grant date. The following table summarizes activity, pricing and other information about Key’s stock options.

The following table summarizes the range of exercise prices and other related information pertaining to Key’s stock options at December 31, 2004.

Information pertaining to Key’s method of accounting for employee stock options and the pro forma effect on net income and earnings per share of applying the “fair value method” of accounting to all forms of stock-based compensation are included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Stock-Based Compensation” on page 59.

Net pension cost for all funded and unfunded plans includes the following components:

Key uses a September 30 measurement date for its pension plans. Changes in the projected benefit obligation (“PBO”) related to Key’s pension plans are summarized as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

Changes in the fair value of pension plan assets (“FVA”) are summarized as follows:


Year ended December 31,
in millions	2004			2003

FVA at beginning of year	$	966		$	717
Actual return on plan assets		124			138
Employer contributions		16			132
Benefit payments		(79	)		(67	)
Plan acquisition		—			46

FVA at end of year	$	1,027		$	966

The funded status of the pension plans at the September 30 measurement date, reconciled to the amounts recognized in the consolidated balance sheets at December 31, 2004 and 2003, is as follows:


December 31,
in millions	2004			2003

Funded status^a	$	(10	)	$	(8	)
Unrecognized net loss		325			338
Unrecognized prior service benefit		(1	)		—
Benefits paid subsequent to measurement date		3			3

Net prepaid pension cost recognized	$	317		$	333

Net prepaid pension cost recognized consists of:
Prepaid benefit cost	$	433		$	442
Accrued benefit liability		(168	)		(157	)
Deferred tax asset		17			16
Intangible asset		2			3
Accumulated other comprehensive loss		33			29

Net prepaid pension cost recognized	$	317		$	333

^a The excess of the projected benefit obligation over the fair value of plan assets.

At December 31, 2004, Key’s qualified plans were sufficiently funded under the Employee Retirement Income Security Act of 1974, which outlines pension-funding requirements. Consequently, no minimum contributions to the plans are required in 2005. Discretionary permissible contributions for 2005 are not expected to be significant; Key has not yet determined whether any discretionary contributions will be made.

The benefit payments for all funded and unfunded pension plans at December 31, 2004, are expected to be paid as follows: 2005 — $88 million; 2006 — $91 million; 2007 — $94 million; 2008 — $98 million; 2009 — $96 million; and $508 million in the aggregate for the next five years.

The accumulated benefit obligation (“ABO”) for all of Key’s pension plans was $1.0 billion at December 31, 2004, and $965 million at December 31, 2003. Related information for those pension plans that had an ABO in excess of plan assets at the September 30 measurement date is as follows:


December 31,
in millions	2004		2003

Projected benefit obligation	$	227	$	215
Accumulated benefit obligation		221		207
Fair value of plan assets		49		47

Key’s primary qualified funded Cash Balance Pension Plan is excluded from the preceding table because that plan was overfunded (i.e., the fair value of plan assets exceeded the projected benefit obligation) by $168 million and $160 million at December 31, 2004 and 2003, respectively.

SFAS No. 87, “Employers’ Accounting for Pensions,” requires the recognition of an additional minimum liability (“AML”) to the extent of any excess of the unfunded ABO over the liability already recognized as unfunded accrued pension cost. The AML, which excludes the overfunded Cash Balance Pension Plan mentioned above, increased to $52 million at December 31, 2004, from $48 million at December 31, 2003. The after-tax increase in AML included in “accumulated other comprehensive income (loss)” for 2004, 2003, and 2002 is shown in the Statements of Changes in Shareholders’ Equity on page 53.

In order to determine the actuarial present value of benefit obligations at the September 30 measurement date, management assumed the following weighted-average rates:


December 31,	2004			2003			2002

Discount rate		5.75	%		6.00	%		6.50	%
Compensation increase rate		4.00			4.00			4.00

To determine net pension cost, management assumed the following weighted-average rates:


Year ended December 31,	2004			2003			2002

Discount rate		6.00	%		6.50	%		7.25	%
Compensation increase rate		4.00			4.00			4.00
Expected return on plan assets		9.00			9.00			9.75

Management estimates that Key’s net pension cost will be $33 million for 2005, compared with $32 million for 2004 and $37 million for 2003. The reduction in cost in 2004 was due primarily to asset growth attributable to strong investment returns coupled with the effect of a $121 million voluntary contribution made in 2003.

Management estimates that a 25 basis point decrease in the expected return on plan assets would increase Key’s net pension cost for 2005 by approximately $3 million. Conversely, management estimates that a 25 basis point increase in the expected return on plan assets would decrease Key’s net pension cost for 2005 by the same amount. In addition, pension cost is affected by an assumed discount rate (based on Moody’s Aa-rated corporate bond yield) and an assumed compensation increase rate. Management estimates that a 25 basis point change in either or both of these assumed rates would change net pension cost for 2005 by less than $1 million.

Management determines Key’s expected return on plan assets by considering a number of factors, but the most significant factors are:

• Management’s expectations for returns on plan assets over the long term, weighted for the investment mix of the assets. These expectations consider, among other factors, historical capital market returns of equity and fixed income securities and forecasted returns that are modeled under various economic scenarios.

• Historical returns on Key’s plan assets. Management’s assumed rate of return on plan assets for 2005 is 9%. This assumed rate is consistent with actual rates of return since 1991.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

The investment objectives of the pension funds are developed to reflect the characteristics of the plans, which include but are not limited to the plans’ pension formulas and cash lump sum distribution features, and the liability profiles created by the plans’ participants. The plans’ investment performance, which is reviewed periodically by an executive oversight committee, is compared against market indices deemed most applicable to the plans’ assets. The pension funds’ investment allocation policies specify that fund assets are to be invested within the following ranges:


Asset Class	Investment Range

Equity securities		65	%	—	85	%
Fixed income securities		15		—	30
Convertible securities		0		—	15
Cash equivalents and other assets		0		—	5

Key’s asset allocations for its pension funds at the September 30 measurement date are summarized as follows:


December 31,	2004			2003

Equity securities		72	%		73	%
Fixed income securities		16			15
Convertible securities		10			10
Cash equivalents and other assets		2			2

Total		100	%		100	%

Although the investment policies conditionally permit the use of derivative contracts, no such contracts have been entered into, and management does not foresee employing such contracts in the future.

OTHER POSTRETIREMENT BENEFIT PLANS

Key sponsors a contributory postretirement healthcare plan that covers substantially all active and retired employees hired before 2001, who meet certain eligibility criteria. Retirees’ contributions are adjusted annually to reflect certain cost-sharing provisions and benefit limitations. Key also sponsors life insurance plans covering certain grandfathered employees. These plans are principally noncontributory. Separate Voluntary Employee Beneficiary Association (“VEBA”) trusts are used to fund the healthcare plan and one of the life insurance plans.

Net postretirement benefit cost includes the following components:


Year ended December 31,
in millions	2004			2003			2002

Service cost of benefits earned	$	4		$	3		$	3
Interest cost on accumulated postretirement benefit obligation		7			8			8
Expected return on plan assets		(3	)		(3	)		(2	)
Amortization of unrecognized transition obligation		4			4			4
Amortization of losses		1			2			—

Net postretirement benefit cost	$	13		$	14		$	13

Key uses a September 30 measurement date for its postretirement benefit plans. Changes in the accumulated postretirement benefit obligation (“APBO”) are summarized as follows:


Year ended December 31,
in millions	2004			2003

APBO at beginning of year	$	122		$	128
Service cost		4			3
Interest cost		7			8
Plan participants’ contributions		7			6
Actuarial losses (gains)		19			(4	)
Benefit payments		(18	)		(19	)

APBO at end of year	$	141		$	122

Changes in the fair value of postretirement plan assets are summarized as follows:


Year ended December 31,
in millions	2004			2003

FVA at beginning of year	$	53		$	39
Employer contributions		14			18
Plan participants’ contributions		7			6
Benefit payments		(18	)		(19	)
Actual return on plan assets		8			9

FVA at end of year	$	64		$	53

The funded status of the postretirement plans at the September 30 measurement date, reconciled to the amounts recognized in the consolidated balance sheets at December 31, 2004 and 2003, is as follows:


December 31,
in millions	2004			2003

Funded status^a	$	(77	)	$	(69	)
Unrecognized net loss		36			22
Unrecognized prior service cost		2			2
Unrecognized transition obligation		32			36
Contributions/benefits paid subsequent to measurement date		5			8

Accrued postretirement benefit cost recognized	$	(2	)	$	(1	)

^a The excess of the accumulated postretirement benefit obligation over the fair value of plan assets.

There are no regulatory provisions that require contributions to the VEBAs. Consequently, there is no minimum funding requirement. Discretionary contributions to the VEBAs are permitted, subject to certain IRS restrictions and limitations. Key anticipates making discretionary contributions into the VEBA trusts of approximately $10 million in 2005.

The benefit payments for all funded and unfunded other postretirement plans at December 31, 2004, are expected to be paid as follows: 2005 —$12 million; 2006 — $12 million; 2007 — $13 million; 2008 — $13 million; 2009 — $13 million; and $67 million in the aggregate for the next five years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

To determine the accumulated postretirement benefit obligation at the September 30 measurement date, management assumed weighted-average discount rates of 5.75% at December 31, 2004, 6.00% at December 31, 2003, and 6.50% at December 31, 2002.

To determine net postretirement benefit cost, management assumed the following weighted-average rates:


Year ended December 31,	2004			2003			2002

Discount rate		6.00	%		6.50	%		7.25	%
Expected return on plan assets		5.78			5.73			5.71

The realized net investment income for the postretirement healthcare plan VEBA is subject to federal income taxes. Consequently, the weighted-average expected return on plan assets shown above reflects the effect of income taxes. Management assumptions regarding healthcare cost trend rates are as follows:


December 31,	2004			2003

Healthcare cost trend rate assumed for next year		10.00	%		9.50	%
Rate to which the cost trend rate is assumed to decline		5.00			5.00
Year that the rate reaches the ultimate trend rate		2015			2013

Increasing or decreasing the assumed healthcare cost trend rate by one percentage point each future year would not have a material impact on net postretirement benefit cost or obligations since the postretirement plans have cost-sharing provisions and benefit limitations.

Key’s weighted-average asset allocations for its postretirement VEBAs at the September 30 measurement date are summarized as follows:


December 31,	2004			2003

Equity securities		78	%		82	%
Cash equivalents		22			18

Total		100	%		100	%

Management’s determination of expected returns on plan assets in the VEBAs is similar to the method Key employs for its pension funds. The primary investment objectives of the VEBAs also are similar. In accordance with Key’s current investment policies, weighted-average target allocation ranges for the VEBAs’ assets are as follows:


Asset Class	Investment Range

Equity securities		70% — 90	%
Fixed income securities		0 — 10
Convertible securities		0 — 10
Cash equivalents and other assets		10 — 30

Although the investment policy conditionally permits the use of derivative contracts, no such contracts have been entered into, and management does not foresee employing such contracts in the future.

On December 8, 2003, the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” was signed into law. The Medicare Modernization Act, which becomes effective in 2006, introduces a prescription drug benefit under Medicare. It also provides a federal subsidy to sponsors of retiree healthcare benefit plans that offer prescription drug coverage to retirees that is at least actuarially equivalent to the Medicare benefit. In July 2004, the centers for Medicare and Medicaid Services issued proposed regulations necessary to fully implement the Act, including the manner in which actuarial equivalence must be determined. Since these regulations did not become final until late January 2005, Key’s APBO and net postretirement cost presented in this note do not reflect any amount associated with the subsidy. Adoption of this guidance is not expected to have any material effect on Key’s financial condition or results of operations. Additional information pertaining to the Act is summarized in Note 1 under the heading “Accounting Pronouncements Pending Adoption” on page 60.

EMPLOYEE 401(K) SAVINGS PLAN

A substantial majority of Key’s employees are covered under a savings plan that is qualified under Section 401(k) of the Internal Revenue Code. Key’s plan permits employees to contribute from 1% to 16% (1% to 10% prior to January 1, 2002) of eligible compensation, with up to 6% being eligible for matching contributions in the form of Key common shares. The plan also permits Key to distribute a discretionary profit-sharing component. Key also maintains a nonqualified excess 401(k) savings plan that provides certain employees with a benefit that they otherwise would not have been eligible to receive under the qualified plan because of contribution limits imposed by the IRS. Total expense associated with both plans was $60 million in 2004 and $54 million in both 2003 and 2002.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

17. INCOME TAXES

Income taxes included in the consolidated statements of income are summarized below. Key files a consolidated federal income tax return.


Year ended December 31,
in millions	2004		2003		2002

Currently payable (receivable):
Federal	$	14	$	239	$	150
State		3		28		31

		17		267		181

Deferred:
Federal		377		71		150
State		40		1		5

		417		72		155

Total income tax expense^a	$	434	$	339	$	336

a Income tax expense on securities transactions totaled $2 million in 2004, $3 million in 2003 and $2 million in 2002. Income tax expense in the above table excludes equity- and gross receipts-based taxes, which are assessed in lieu of an income tax in certain states in which Key operates. These taxes are recorded in noninterest expense on the income statement and totaled ($9) million in 2004, $20 million in 2003 and $26 million in 2002.

The American Jobs Creation Act of 2004 provides for a special one-time tax deduction equal to 85 percent of certain foreign earnings that are “repatriated.” Management is in the process of reviewing Key’s foreign operations to determine the potential amount of the deduction and, therefore, is currently unable to provide a reasonable estimate of the amount of unremitted earnings that may be repatriated or the related effect on Key’s income taxes. Management anticipates that the special one-time deduction will not have any material effect on Key’s financial condition or results of operations.

In the normal course of business, Key enters into various types of lease financing transactions. The Internal Revenue Service (“IRS”) has completed an audit of Key’s income tax returns for the 1995 through 1997 tax years and has proposed to disallow all deductions taken in those years that relate to certain leveraged lease financing transactions commonly referred to as Lease-In, Lease-Out (“LILO”) transactions. In addition, the IRS is currently examining Key’s returns for the 1998 through 2000 tax years and has similarly proposed to disallow deductions for LILO transactions. The preliminary outcome of the IRS audit of Key’s returns for the 1995 through 1997 tax years is on appeal within the IRS, and settlement discussions are ongoing. Although the ultimate resolution of this matter is unknown, Key has provided tax reserves that management currently believes are adequate based on its assessment of Key’s tax position.

Key has also entered into other types of leveraged lease financing transactions that are being examined by the IRS and has been informed that the IRS intends to disallow all deductions related to such transactions. Management believes that the deductions taken by Key are appropriate based on the relevant statutory, regulatory and judicial authority in effect at the time the lease financing transactions were entered into and the tax returns were filed. However, if the IRS were to be successful in disallowing the deductions, Key would potentially owe additional taxes, interest and penalties that could have a material effect on its results of operations in the period in which incurred.

The FASB is currently considering the issuance of additional guidance regarding the application of SFAS No. 13, “Accounting for Leases,” that would affect the timing under which earnings would be recognized when settlements of tax matters, including those related to leveraged lease financing transactions, are reached. The guidance being considered could result in an initial one-time charge to earnings stemming from the change in the timing of cash flows that might result from such a settlement. However, future earnings would be expected to increase over the remaining term of the lease by approximately the same amount as the one-time charge. It is unclear at this time whether the FASB will issue this guidance and if it does, when it would do so.

Significant components of Key’s deferred tax assets and liabilities, included in “accrued income and other assets” and “accrued expense and other liabilities,” respectively, on the balance sheet, are as follows:


December 31,
in millions	2004		2003

Provision for loan losses	$	465	$	436
Net unrealized securities losses		17		—
Other		190		201

Total deferred tax assets		672		637

Leasing income reported using the operating method for tax purposes		2,661		2,164
Net unrealized securities gains		—		2
Depreciation		21		13
Other		100		152

Total deferred tax liabilities		2,782		2,331

Net deferred tax liabilities	$	2,110	$	1,694

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

The following table shows how Key arrived at total income tax expense and the resulting effective tax rate.


Year ended December 31,	2004						2003						2002
dollars in millions	Amount			Rate			Amount			Rate			Amount			Rate

Income before income taxes times 35% statutory federal tax rate	$	486			35.0	%	$	435			35.0	%	$	459			35.0	%
State income tax, net of federal tax benefit		28			2.0			18			1.5			23			1.8
Write-off of nondeductible goodwill		19			1.4			—			—			—			—
Tax-exempt interest income		(13	)		(.9	)		(12	)		(1.0	)		(13	)		(1.0	)
Corporate-owned life insurance income		(41	)		(2.9	)		(42	)		(3.4	)		(39	)		(3.0	)
Tax credits		(51	)		(3.7	)		(43	)		(3.4	)		(37	)		(2.8	)
Reduced tax rate on lease income		(44	)		(3.2	)		(23	)		(1.9	)		(61	)		(4.7	)
Reduction of deferred tax asset		43			3.1			—			—			—			—
Other		7			.5			6			.5			4			.3

Total income tax expense	$	434			31.3	%	$	339			27.3	%	$	336			25.6	%

18. COMMITMENTS, CONTINGENT LIABILITIES AND GUARANTEES

OBLIGATIONS UNDER NONCANCELABLE LEASES

Key is obligated under various noncancelable operating leases for land, buildings and other property consisting principally of data processing equipment. Rental expense under all operating leases totaled $138 million in 2004, $140 million in 2003 and $132 million in 2002. Minimum future rental payments under noncancelable operating leases at December 31, 2004, are as follows: 2005 — $127 million; 2006 — $121 million; 2007 — $107 million; 2008 — $93 million; 2009 — $76 million; all subsequent years — $336 million.

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 agreements generally carry variable rates of interest and have fixed expiration dates or other termination clauses. In many cases, a client must pay a fee to obtain a loan commitment from Key. Since a commitment may expire without resulting in a loan, the total amount of outstanding commitments may significantly exceed Key’s eventual cash outlay.

Loan commitments involve credit risk not reflected on Key’s balance sheet. Key mitigates its exposure to credit risk with internal controls that guide how applications for credit are reviewed and approved, credit limits are established and, when necessary, demands for collateral are made. In particular, Key evaluates the credit-worthiness of each prospective borrower on a case-by-case basis and, when appropriate, adjusts its allowance for probable credit losses inherent in legally binding loan commitments. Additional information pertaining to this allowance is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Allowance for Loan Losses” on page 56.

The following table shows the remaining contractual amount of each class of commitments related to extensions of credit or the funding of principal investments as of the date indicated. This amount represents Key’s maximum possible accounting loss. The estimated fair values of these instruments are not material; there are no observable liquid markets for the majority of these instruments.


December 31,
in millions	2004		2003

Loan commitments:
Home equity	$	6,789	$	6,165
Commercial real estate and construction		4,680		3,488
Commercial and other		24,725		22,614

Total loan commitments		36,194		32,267
Principal investing commitments		247		208
Commercial letters of credit		241		385

Total loan and other commitments	$	36,682	$	32,860

LEGAL PROCEEDINGS

Residual value insurance litigation. Key Bank USA obtained two insurance policies from Reliance Insurance Company (“Reliance”) insuring the residual value of certain automobiles leased through Key Bank USA. The two policies (the “Policies”), the “4011 Policy” and the “4019 Policy,” together covered leases entered into during the period from January 1, 1997 to January 1, 2001.

The 4019 Policy contains an endorsement (“REINS-1 Endorsement”) stating that Swiss Reinsurance America Corporation (“Swiss Re”) will assume and reinsure 100% of Reliance’s obligations under the 4019 Policy in the event Reliance Group Holdings’ (“Reliance’s parent”) so-called “claims-paying ability” were to fall below investment grade. Key Bank USA also entered into an agreement (“Letter Agreement”) with Swiss Re and Reliance whereby Swiss Re agreed to issue to Key Bank USA an insurance policy on the same terms and conditions as the 4011 Policy in the event the financial condition of Reliance Group Holdings fell below a certain level. Around May 2000, the conditions under both the 4019 Policy and the Letter Agreement were triggered.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

The 4011 Policy was canceled and replaced as of May 1, 2000, by a policy issued by North American Specialty Insurance Company (a subsidiary or affiliate of Swiss Re) (“the NAS Policy”). Tri-Arc Financial Services, Inc. (“Tri-Arc”) acted as agent for Reliance, Swiss Re and NAS. From February 2000 through September 2004, Key Bank USA filed claims, and since October 2004, KBNA (successor to Key Bank USA) has been filing claims under the Policies, but none of these claims has been paid.

In July 2000, Key Bank USA filed a claim for arbitration against Reliance, Swiss Re, NAS and Tri-Arc seeking, among other things, a declaration of the scope of coverage under the Policies and for damages. On January 8, 2001, Reliance filed an action (litigation) against Key Bank USA in Federal District Court in Ohio seeking rescission or reformation of the Policies because they allegedly do not reflect the intent of the parties with respect to the scope of coverage and how and when claims were to be paid. Key filed an answer and counterclaim against Reliance, Swiss Re, NAS and Tri-Arc seeking, among other things, declaratory relief as to the scope of coverage under the Policies, damages for breach of contract and failure to act in good faith, and punitive damages. The parties agreed to proceed with this court action and to dismiss the arbitration without prejudice.

On May 29, 2001, the Commonwealth Court of Pennsylvania entered an order placing Reliance in a court supervised “rehabilitation” and purporting to stay all litigation against Reliance. On July 23, 2001, the Federal District Court in Ohio stayed the litigation to allow the rehabilitator to complete her task. On October 3, 2001, the court in Pennsylvania entered an order placing Reliance into liquidation and canceling all Reliance insurance policies as of November 2, 2001. On November 20, 2001, the Federal District Court in Ohio entered an order that, among other things, required Reliance to report to the Court on the progress of the liquidation. On January 15, 2002, Reliance filed a status report requesting the continuance of the stay for an indefinite period. On February 20, 2002, Key Bank USA asked the Court to allow the case to proceed against the parties other than Reliance, and the Court granted that motion on May 17, 2002. As of February 19, 2003, all claims against Tri-Arc were dismissed through a combination of court action and voluntary dismissal by Key Bank USA.

On August 4, 2004, the Court ruled on Key’s and Swiss Re’s motions for summary judgment on issues related to liability. In its written decision, which is publicly available, the Court held as a matter of law that Swiss Re breached its Letter Agreement with Key by not issuing a replacement policy covering the leases insured under Key’s 4011 Policy that were booked between October 1, 1998, and April 30, 2000. With respect to Key’s claims under the 4019 Policy, the Court held that Swiss Re is not entitled to judgment as a matter of law on Key’s claim that Swiss Re authorized Tri-Arc to issue the REINS-1 Endorsement. The Court also held that Swiss Re is not entitled to judgment as a matter of law on Key’s claim that Swiss Re acted in bad faith. On January 20, 2005, the Court granted the parties’ joint motion for an extension of the damages discovery deadline, which will likely result in an extension of the previously reported May 13, 2005 deadline for submitting summary judgment motions on issues related to damages to July or August 2005.

Management believes that KBNA (successor to Key Bank USA) has valid insurance coverage or claims for damages relating to the residual value of automobiles leased through Key Bank USA during the four-year period ending January 1, 2001. With respect to each individual lease, however, it is not until the lease expires and the vehicle is sold that the existence and amount of any actual loss (i.e., the difference between the residual value provided for in the lease agreement and the vehicle’s actual market value at lease expiration) can be determined.

Accordingly, the total expected loss on the portfolio for which KBNA (and Key Bank USA) will have filed claims cannot be determined with certainty at this time. Claims filed through December 31, 2004, totaled approximately $379 million, and management currently estimates that approximately $9 million of additional claims may be filed through year-end 2006, bringing the total aggregate amount of actual and potential claims to $388 million.

Key is filing insurance claims for its losses and is recording as a receivable on its balance sheet a portion of the amount of the insurance claims as and when they are filed. Management believes the amount being recorded as a receivable due from the insurance carriers is appropriate to reflect the collectibility risk associated with the insurance litigation; however, litigation is inherently not without risk, and any actual recovery from the litigation may be more or less than the receivable. While management does not expect an adverse decision, if a court were to make an adverse final determination, such result would cause Key to record a material one-time expense during the period when such determination is made. An adverse determination would not have a material effect on Key’s financial condition, but could have a material adverse effect on Key’s results of operations in the quarter it occurs.

Investigations and inquiries involving the mutual fund, brokerage and annuity industry. As previously reported, McDonald Investments Inc. (“McDonald”), a registered broker-dealer subsidiary of KeyCorp, has received subpoenas from the Securities and Exchange Commission and inquiries from the National Association of Securities Dealers (“NASD”) and the State of New York Attorney General, seeking documents and information as part of their investigations into trading activity involving the mutual fund, brokerage and annuity businesses. McDonald has responded to the various regulatory authorities and has been cooperating fully with their inquiries and investigation. McDonald has also conducted an internal review of its procedures and processes for executing customer orders for mutual fund share transactions. That review revealed no systemic late trading arrangements, although it did reveal four isolated instances of late trading from among the mutual fund transactions made during the relevant review period. None of those late trading transactions involved Key’s Victory Funds. In October 2004, the NASD notified McDonald that it had preliminarily determined to recommend unspecified disciplinary action against McDonald for its alleged failure to establish and maintain supervisory procedures reasonably designed to achieve compliance with regulations governing late trading and market timing of mutual funds. The NASD also cited McDonald’s alleged failure to appropriately supervise the market timing activities of certain former registered representatives at McDonald’s Chicago retail office, which McDonald closed in December 2003. McDonald has responded to the NASD’s preliminary determination and presented its views to the NASD. It is not known whether, and then to what extent, McDonald could receive further requests or be required to take action related to this matter in the future.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

Other litigation. In the ordinary course of business, Key is subject to legal actions that involve claims for substantial monetary relief. Based on information presently known to management, management does not believe there is any legal action to which KeyCorp or any of its subsidiaries is a party, or involving any of their properties, that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on Key’s financial condition.

GUARANTEES

Key is a guarantor in various agreements with third parties. In accordance with Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” Key must recognize a liability on its balance sheet for the “stand ready” obligation associated with certain guarantees issued or modified on or after January 1, 2003. The accounting for guarantees existing prior to that date was not revised. Additional information pertaining to Interpretation No. 45 is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Guarantees” on page 59.

The following table shows the types of guarantees (as defined by Interpretation No. 45) that Key had outstanding at December 31, 2004.


	Maximum Potential
	Undiscounted		Liability
in millions	Future Payments		Recorded

Financial guarantees:
Standby letters of credit	$	11,481	$	38
Credit enhancement for asset-backed commercial paper conduit		73		—
Recourse agreement with FNMA		633		7
Return guaranty agreement with LIHTC investors		640		37
Default guarantees		33		1
Written interest rate caps^a		67		14

Total	$	12,927	$	97

^a As of December 31, 2004, the weighted-average interest rate of written interest rate caps was 2.5% and the weighted-average strike rate was 5.2%. Maximum potential undiscounted future payments were calculated assuming a 10% interest rate.

Standby letters of credit. These instruments obligate Key to pay a third-party beneficiary when a customer fails to repay an outstanding loan or debt instrument, or fails to perform some contractual nonfinancial obligation. Standby letters of credit are issued by many of Key’s lines of business to address clients’ financing needs. If amounts are drawn under standby letters of credit, such amounts are treated as loans; they bear interest (generally at variable rates) and pose the same credit risk to Key as a loan. At December 31, 2004, Key’s standby letters of credit had a remaining weighted-average life of approximately two years, with remaining actual lives ranging from less than one year to as many as fourteen years.

Credit enhancement for asset-backed commercial paper conduit. Key provides credit enhancement in the form of a committed facility to ensure the continuing operations of an asset-backed commercial paper conduit, which is owned by a third party and administered by an unaffiliated financial institution. The commitment to provide credit enhancement extends until September 23, 2005, and specifies that in the event of default by certain borrowers whose loans are held by the conduit, Key will provide financial relief to the conduit in an amount that is based on defined criteria.

At December 31, 2004, Key’s maximum potential funding requirement under the credit enhancement facility totaled $73 million. However, there were no drawdowns under the facility during the year ended December 31, 2004. Key has no recourse or other collateral available to offset any amounts that may be funded under this credit enhancement facility. Management periodically evaluates Key’s commitments to provide credit enhancement to the conduit.

Recourse agreement with Federal National Mortgage Association. KBNA participates as a lender in the Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) program. As a condition to FNMA’s delegation of responsibility for originating, underwriting and servicing mortgages, KBNA has agreed to assume a limited portion of the risk of loss during the remaining term on each commercial mortgage loan sold to FNMA. Accordingly, a reserve for such potential losses has been established and is maintained in an amount estimated by management to approximate the fair value of the liability undertaken by KBNA. At December 31, 2004, the outstanding commercial mortgage loans in this program had a weighted-average remaining term of nine years and the unpaid principal balance outstanding of loans sold by KBNA as a participant in this program was approximately $1.9 billion. The maximum potential amount of undiscounted future payments that may be required under this program is equal to one-third of the principal balance of loans outstanding at December 31, 2004. If payment is required under this program, Key would have an interest in the collateral underlying the commercial mortgage loan on which the loss occurred.

Return guarantee agreement with LIHTC investors. KAHC, a subsidiary of KBNA, offered limited partnership interests to qualified investors. Partnerships formed by KAHC invested in low-income residential rental properties that qualify for federal LIHTCs under Section 42 of the Internal Revenue Code. In certain partnerships, investors pay a fee to KAHC for a guaranteed return dependent on the financial performance of the property and the property’s confirmed LIHTC status throughout a fifteen-year compliance period. If these two conditions are not met, Key is obligated to make any necessary payments to investors to provide the guaranteed return. In October 2003, management elected to discontinue new projects under this program. Additional information regarding these partnerships is included in Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”), which begins on page 67.

No recourse or collateral is available to offset the guarantee obligation other than the underlying income stream from the properties. These guarantees have expiration dates that extend through 2018. Key meets its obligations pertaining to the guaranteed returns generally through the distribution of tax credits and deductions associated with the specific properties.

As shown in the preceding table, KAHC maintained a reserve in the amount of $37 million at December 31, 2004, which management believes will be sufficient to cover estimated future obligations under the guarantees. The maximum exposure to loss reflected in the preceding table represents undiscounted future payments due to investors for the return on and of their investments. In accordance with Interpretation No. 45,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

the amount of all fees received in consideration for any return guarantee agreements entered into or modified with LIHTC investors on or after January 1, 2003, has been recognized in the stand ready obligation.

Various types of default guarantees. Some lines of business provide or participate in guarantees that obligate Key to perform if the debtor fails to satisfy all of its payment obligations to third parties. These guarantees are generally undertaken when Key is supporting or protecting its underlying investment or where the risk profile of the debtor should provide an investment return. The terms of these default guarantees range from approximately one year to as many as eighteen years. Although no collateral is held, Key would have recourse against the debtor for any payments made under a default guarantee.

Written interest rate caps. In the ordinary course of business, Key writes interest rate caps for commercial loan clients that have variable rate loans with Key and wish to limit their exposure to interest rate increases. At December 31, 2004, these caps had a weighted-average life of approximately four years.

Key is obligated to pay the client if the applicable benchmark interest rate exceeds a specified level (known as the “strike rate”). These instruments are accounted for as derivatives with the fair value liability recorded in “accrued expense and other liabilities” on the balance sheet. Key’s potential amount of future payments under these obligations is mitigated by offsetting positions with third parties.

OTHER OFF-BALANCE SHEET RISK

Other off-balance sheet risk stems from financial instruments that do not meet the definition of a guarantee as specified in Interpretation No. 45 and from other relationships.

Liquidity facility that supports asset-backed commercial paper conduit. Key provides liquidity to an asset-backed commercial paper conduit that is owned by a third party and administered by an unaffiliated financial institution. See further discussion of the conduit in Note 8. This liquidity facility obligates Key through November 4, 2006, to provide funding of up to $1.8 billion if required as a result of a disruption in credit markets or other factors that preclude the issuance of commercial paper by the conduit. The amount available to be drawn, which is based on the amount of current commitments to borrowers in the conduit, was $1.0 billion at December 31, 2004, but there were no drawdowns under this committed facility at that time. Key’s commitment to provide liquidity is periodically evaluated by management.

Indemnifications provided in the ordinary course of business. Key provides certain indemnifications primarily through representations and warranties in contracts that are entered into in the ordinary course of business in connection with loan sales and other ongoing activities, as well as in connection with purchases and sales of businesses. Management’s past experience with these indemnifications has been that the amounts paid, if any, have not had a significant effect on Key’s financial condition or results of operations.

Intercompany guarantees. KeyCorp and certain other Key affiliates are parties to various guarantees that facilitate the ongoing business activities of other Key affiliates. These business activities encompass debt issuance, certain lease and insurance obligations, investments and securities, and certain leasing transactions involving clients.

Relationship with MasterCard International Inc. and Visa U.S.A. Inc. KBNA is, and until its merger into KBNA, Key Bank USA was, a member of MasterCard International Incorporated (“MasterCard”) and Visa U.S.A. Inc. (“Visa”). MasterCard’s charter documents and bylaws state that MasterCard may assess its members for certain liabilities that it incurs, including litigation liabilities. Visa’s charter documents state that Visa may fix fees payable by members in connection with Visa’s operations. We understand that descriptions of significant pending lawsuits and MasterCard’s and Visa’s positions regarding the potential impact of those lawsuits on members are set forth on MasterCard’s and Visa’s respective websites, as well as in MasterCard’s public filings with the Securities and Exchange Commission. Key is not a party to any significant litigation by third parties against MasterCard or Visa.

In June 2003, MasterCard and Visa agreed, independently, to settle a class-action lawsuit against them by Wal-Mart Stores Inc. and many other retailers. The lawsuit alleged that MasterCard and Visa violated federal antitrust laws by conspiring to monopolize the debit card services market and by requiring merchants that accept certain of their debit and credit card services to also accept their higher priced “off-line,” signature-verified debit card services. Under the terms of the settlements, MasterCard and Visa have agreed to pay a total of approximately $3.0 billion, beginning August 1, 2003, over a ten-year period, to merchants who claim to have been harmed by their actions and to reduce the fees they charge merchants for their “off-line” signature-verified debit card services. Also, as of January 1, 2004, such merchants are not required to accept MasterCard or Visa debit card services when they accept MasterCard or Visa credit card services. These settlements reduced fees earned by KBNA from off-line debit card transactions. During 2004, the impact of the settlement reduced Key’s pre-tax net income by approximately $12 million. It is management’s understanding that certain retailers have opted out of the class-action settlement and that additional suits have been filed against MasterCard and Visa seeking additional damage recovery. Management is unable at this time to estimate the possible impact on Key of any such actions.

19. DERIVATIVES AND HEDGING ACTIVITIES

Key, mainly through its subsidiary bank, KBNA, is party to various derivative instruments, which are used for asset and liability management and trading purposes. The primary derivatives that Key uses are interest rate swaps, caps and futures, and foreign exchange forward contracts. All foreign exchange forward contracts and interest rate swaps and caps held are over-the-counter instruments. Generally, these instruments help Key meet clients’ financing needs and manage exposure to “market risk” — the possibility that economic value or net interest income will be adversely affected by changes in interest rates or other economic factors. However, like other financial instruments,

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

these derivatives contain an element of “credit risk” — the possibility that Key will incur a loss because a counterparty fails to meet its contractual obligations.

At December 31, 2004, Key had $771 million of derivative assets and $73 million of derivative liabilities on its balance sheet that arose from derivatives that were being used for hedging purposes. As of the same date, derivative assets and liabilities classified as trading derivatives totaled $1.2 billion and $1.1 billion, respectively. Derivative assets and liabilities are recorded at fair value in “accrued income and other assets” and “accrued expense and other liabilities,” respectively, on the balance sheet.

COUNTERPARTY CREDIT RISK

Swaps and caps present credit risk because the counterparty, which may be a bank or a broker/dealer, may not meet the terms of the contract. This risk is measured as the expected positive replacement value of contracts. To mitigate credit risk when managing its asset, liability and trading positions, Key deals exclusively with counterparties that have high credit ratings.

Key uses two additional means to manage exposure to credit risk on swap contracts. First, Key generally enters into bilateral collateral and master netting arrangements. These agreements provide for the net settlement of all contracts with a single counterparty in the event of default. Second, Key’s Credit Administration department monitors credit risk exposure to the counterparty on each interest rate swap to determine appropriate limits on Key’s total credit exposure and decide whether to demand collateral. If Key determines that collateral is required, it is generally collected at the time this determination is made. Key generally holds collateral in the form of cash and highly rated treasury and agency-issued securities.

At December 31, 2004, Key was party to interest rate swaps and caps with 58 different counterparties. Among these were swaps and caps entered into to offset the risk of client exposure. Key had aggregate exposure of $724 million on these instruments to 39 of the counterparties. However, at December 31, Key held approximately $592 million in collateral to mitigate its credit exposure, resulting in net exposure of $132 million. The largest exposure to an individual counterparty was approximately $351 million, of which approximately $333 million was secured.

ASSET AND LIABILITY MANAGEMENT

Fair value hedging strategies. Key uses interest rate swap contracts known as “receive fixed/pay variable” swaps to modify its exposure to interest rate risk. These contracts convert specific fixed-rate deposits, short-term borrowings and long-term debt into variable-rate obligations. As a result, Key receives fixed-rate interest payments in exchange for variable-rate payments over the lives of the contracts without exchanges of the underlying notional amounts.

The effective portion of a change in the fair value of a hedging instrument designated as a fair value hedge is recorded in earnings at the same time as a change in fair value of the hedged item, resulting in no net effect on net income. The ineffective portion of a change in the fair value of such a hedging instrument is recorded in earnings with no corresponding offset. Key recognized a net loss of approximately $1 million in 2004 and net gains of $3 million in both 2003 and 2002 related to the ineffective portion of its fair value hedging instruments. The ineffective portion recognized is included in “other income” on the income statement.

Cash flow hedging strategies. Key also enters into “pay fixed/receive variable” interest rate swap contracts that effectively convert a portion of its floating-rate debt into fixed-rate debt to reduce the potential adverse impact of interest rate increases on future interest expense. These contracts allow Key to exchange variable-rate interest payments for fixed-rate payments over the lives of the contracts without exchanges of the underlying notional amounts. Similarly, Key has converted certain floating-rate commercial loans to fixed-rate loans by entering into interest rate swap contracts.

Key also uses “pay fixed/receive variable” interest rate swaps to manage the interest rate risk associated with anticipated sales or securitizations of certain commercial real estate loans. These swaps protect against a possible short-term decline in the value of the loans that could result from changes in interest rates between the time they are originated and the time they are securitized or sold. Key’s general policy is to sell or securitize these loans within one year of their origination.

During 2004, 2003 and 2002, the net amount recognized by Key in connection with the ineffective portion of its cash flow hedging instruments was not significant and is included in “other income” on the income statement. Key did not exclude any portions of hedging instruments from the assessment of hedge effectiveness in any of these years.

The change in “accumulated other comprehensive income (loss)” resulting from cash flow hedges is as follows:


						Reclassification
	December 31,		2004			of Losses to		December 31,
in millions	2003		Hedging Activity			Net Income		2004

Accumulated other comprehensive income (loss) resulting from cash flow hedges		—	$	(43	)	$	3	$	(40	)

Reclassifications of gains and losses from “accumulated other comprehensive income (loss)” to earnings coincide with the income statement impact of the hedged item through the payment of variable-rate interest on debt, the receipt of variable-rate interest on commercial loans and the sale or securitization of commercial real estate loans. Key expects to reclassify an estimated $1 million of net losses on derivative instruments from “accumulated other comprehensive income (loss)” to earnings during the next twelve months.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

TRADING PORTFOLIO

Futures contracts and interest rate swaps, caps and floors. Key uses these instruments for dealer activities, which generally are limited to Key’s commercial loan clients, and enters into positions with third parties that are intended to offset or mitigate the interest rate risk of the client positions. The transactions entered into with clients generally are limited to conventional interest rate swaps. All futures contracts and interest rate swaps, caps and floors are recorded at their estimated fair values. Adjustments to fair value are included in “investment banking and capital markets income” on the income statement.

Foreign exchange forward contracts. Foreign exchange forward contracts provide for the delayed delivery or purchase of foreign currency. Key uses these instruments to accommodate the business needs of clients and for proprietary trading purposes. Key mitigates the associated risk by entering into other foreign exchange contracts with third parties. Adjustments to the fair value of all foreign exchange forward contracts are included in “investment banking and capital markets income” on the income statement.

Options and futures. Key uses these instruments for proprietary trading purposes. Adjustments to the fair value of options and futures are included in “investment banking and capital markets income” on the income statement.

Key has established a reserve in the amount of $16 million at December 31, 2004, which management estimates will be sufficient to cover future losses on the trading portfolio in the event of default.

20. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS

The carrying amount and estimated fair value of Key’s financial instruments are shown below in accordance with the requirements of SFAS No. 107, “Disclosures About Fair Value of Financial Instruments.”


December 31,	2004				2003
	Carrying		Fair		Carrying		Fair
in millions	Amount		Value		Amount		Value

ASSETS
Cash and short-term investments^a	$	3,926	$	3,926	$	4,316	$	4,316
Securities available for sale^b		7,451		7,451		7,638		7,638
Investment securities^b		71		74		98		104
Other investments^c		1,421		1,421		1,092		1,092
Loans, net of allowance^d		67,326		68,184		61,305		62,545
Servicing assets		138		174		117		157
Derivative assets^f		1,949		1,949		2,165		2,165

LIABILITIES
Deposits with no stated maturity^a	$	35,299	$	35,299	$	32,205	$	32,205
Time deposits^e		22,543		22,777		18,653		19,028
Short-term borrowings^a		4,660		4,660		5,614		5,614
Long-term debt^e		14,846		14,689		15,294		14,934
Derivative liabilities^f		1,196		1,196		1,471		1,471

Valuation Methods and Assumptions

^a Fair value equals or approximates carrying amount.

^b Fair values of securities available for sale and investment securities generally were based on quoted market prices. Where quoted market prices were not available, fair values were based on quoted market prices of similar instruments.

^c Fair values of most other investments were estimated based on the issuer’s financial condition and results of operations, prospects, values of public companies in comparable businesses, market liquidity, and the nature and duration of resale restrictions. Where fair values were not readily determinable, they were based on fair values of similar instruments, or the investments were included at their carrying amounts.

^d Fair values of most loans were estimated using discounted cash flow models. Lease financing receivables and loans held for sale were included at their carrying amounts in the estimated fair value of loans.

^e Fair values of time deposits, long-term debt and capital securities were estimated based on discounted cash flows.

^f Fair values of interest rate swaps and caps were based on discounted cash flow models. Foreign exchange forward contracts were valued based on quoted market prices and had a fair value that approximated their carrying amount.

Residential real estate mortgage loans with carrying amounts of $1.5 billion at December 31, 2004, and $1.6 billion at December 31, 2003, are included in the amount shown for “Loans, net of allowance.” The estimated fair values of residential real estate mortgage loans and deposits do not take into account the fair values of related long-term client relationships.

For financial instruments with a remaining average life to maturity of less than six months, carrying amounts were used as an approximation of fair values.

If management used different assumptions (related to discount rates and cash flow) and estimation methods, the estimated fair values shown in the table could change significantly. Accordingly, these estimates do not necessarily reflect the amounts Key’s financial instruments would command in a current market exchange. Similarly, because SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, the fair value amounts shown in the table do not, by themselves, represent the underlying value of Key as a whole.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES

21. CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY


CONDENSED BALANCE SHEETS
December 31,
in millions	2004		2003

ASSETS
Interest-bearing deposits	$	1,293	$	999
Loans and advances to subsidiaries:
Banks		32		77
Nonbank subsidiaries		1,193		1,041

		1,225		1,118

Investment in subsidiaries:
Banks		6,499		6,155
Nonbank subsidiaries		1,906		1,732

		8,405		7,887

Accrued income and other assets		954		912

Total assets	$	11,877	$	10,916


LIABILITIES
Accrued expense and other liabilities	$	509	$	537
Short-term borrowings		152		141
Long-term debt:
Subsidiaries		1,339		1,352
Unaffiliated companies		2,760		1,917

		4,099		3,269

Total liabilities		4,760		3,947
SHAREHOLDERS’ EQUITY^a		7,117		6,969

Total liabilities and shareholders’ equity	$	11,877	$	10,916

^a See page 53 for KeyCorp’s Consolidated Statements of Changes in Shareholders’ Equity.


CONDENSED STATEMENTS OF INCOME
Year ended December 31,
in millions	2004		2003		2002

INCOME
Dividends from subsidiaries:
Banks	$	786	$	245	$	900
Nonbank subsidiaries		75		73		200
Interest income from subsidiaries		56		41		54
Other income		105		16		3

		1,022		375		1,157

EXPENSES
Interest on long-term debt with subsidiary trusts		36		38		80
Interest on other borrowed funds		64		48		33
Personnel and other expense		223		115		58

		323		201		171

Income before income tax benefit and equity in net income less dividends from subsidiaries		699		174		986
Income tax benefit		26		45		53

		725		219		1,039

Equity in net income less dividends from subsidiaries		229		684		(63	)

NET INCOME	$	954	$	903	$	976

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES


CONDENSED STATEMENTS OF CASH FLOW
Year ended December 31,
in millions	2004			2003			2002

OPERATING ACTIVITIES
Net income	$	954		$	903		$	976
Adjustments to reconcile net income to net cash provided by operating activities:
Net securities (gains) losses		(10	)		3			16
Deferred income taxes		—			38			(21	)
Equity in net income less dividends from subsidiaries		(229	)		(684	)		63
Net (increase) decrease in other assets		43			(84	)		(113	)
Net increase (decrease) in other liabilities		(4	)		52			244
Net decrease in accrued restructuring charges		(6	)		(10	)		(32	)
Other operating activities, net		(27	)		29			11

NET CASH PROVIDED BY OPERATING ACTIVITIES		721			247			1,144
INVESTING ACTIVITIES
Cash used in acquisition, net of cash acquired		(195	)		—			(66	)
Net (increase) decrease in interest-bearing deposits		(294	)		407			(352	)
Purchases of securities available for sale		(4	)		—			(8	)
Proceeds from prepayments and maturities of securities available for sale		16			56			25
Net increase in loans and advances to subsidiaries		(119	)		(331	)		(1,648	)
(Increase) decrease in investments in subsidiaries		(101	)		577			1,604

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(697	)		709			(445	)
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings		11			(46	)		66
Net proceeds from issuance of long-term debt		1,330			662			423
Payments on long-term debt		(505	)		(815	)		(637	)
Purchases of treasury shares		(512	)		(303	)		(77	)
Net proceeds from issuance of common stock		160			59			37
Cash dividends paid		(508	)		(513	)		(511	)

NET CASH USED IN FINANCING ACTIVITIES		(24	)		(956	)		(699	)

NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS		—			—			—
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR		—			—			—

CASH AND DUE FROM BANKS AT END OF YEAR		—			—			—

KeyCorp paid $100 million in interest on borrowed funds in 2004, $86 million in 2003 and $113 million in 2002.


Ohio		34-6542451

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

127 Public Square, Cleveland, Ohio		44114-1306

(Address of principal executive offices)		(Zip Code)


Securities registered pursuant to Section 12(b) of the Act: Common Shares, $1 par value Rights to Purchase Common Shares		Securities registered pursuant to Section 12(g) of the Act: None

(Title of each class)		(Title of class)

New York Stock Exchange

(Name of each exchange on which registered)


PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
	ITEM 9B. OTHER INFORMATION
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
SIGNATURES
EX-10.13 2004 EQUITY COMPENSATION PLAN
EX-10.20 AMENDMENT TO KEYCORP DIRECTOR DEFERRED COMP PLAN
EX-10.21 KEYCORP SECOND DIRECTOR DEFERRED COMPENSATION PLAN
EX-10.28 KEYCORP SECOND EXCESS CASH BALANCE PENSION PLAN
EX-10.34 KEYCORP SECOND DEFERRED COMPENSATION PLAN
EX-10.45 KEYCORP SECOND EXCESS 401(K) SAVINGS PLAN
EX-10.51 2ND AMENDMENT TO THE KEYCORP SUPP RETIREMENT PLAN
EX-10.53 KEYCORP SECOND SUPPLEMENTAL RETIREMENT PLAN
EX-10.62 5TH AMENDMENT TO KEYCORP EXEC SUPP PENSION PLAN
EX-10.63 6TH AMENDMENT TO KEYCORP EXEC SUPP PENSION PLAN
EX-10.65 KEYCORP SECOND EXECUTIVE SUPP PENSION PLAN
EX-10.70 4TH AMENDMENT TO KEYCORP SUPP RETIRE PLAN FOR KEY EXEC
EX-10.71 KEYCORP 2ND SUPP RETIREMENT BENEFIT PLAN KEY EXECS
EX-12 RATIO OF EARN TO FIXED CHARGES & PREFER STOCK DIV
EX-13 ANNUAL REPORT - FINANCIALS
EX-21 KEYCORP SUBSIDIARIES OF THE REGISTRANT
EX-23 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EX-24 POWER OF ATTORNEY
EX-31.1 CEO - 302 CERTIFICATION
EX-31.2 CFO - 302 CERTIFICATION
EX-32.1 CEO - 906 CERTIFICATION
EX-32.2 CFO - 906 CERTIFICATION


Item				Page
Number				Number

			PART I
	1		Business		1
	2		Properties		8
	3		Legal Proceedings		8
	4		Submission of Matters to a Vote of Security Holders		8
			PART II
	5		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		8
	6		Selected Financial Data		9
	7		Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
	7	A	Quantitative and Qualitative Disclosures about Market Risk		9
	8		Financial Statements and Supplementary Data		9
	9		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		9
	9	A	Controls and Procedures		9
	9	B	Other Information		9
			PART III
	10		Directors and Executive Officers of the Registrant		9
	11		Executive Compensation		10
	12		Security Ownership of Certain Beneficial Owners and Management		10
	13		Certain Relationships and Related Transactions		10
	14		Principal Accounting Fees and Services		10
			PART IV
	15		Exhibits, Financial Statement Schedules		11
			Signatures		16
			Exhibits


	Page

Discussion of common shares, shareholder information and repurchase activities presented in the “Capital” section		32
Presentation of quarterly market price and cash dividends per common share		48
Discussion of dividend restrictions presented in the “Liquidity risk management” section and in Note 5 (“Restrictions on Cash, Dividends and Lending Activities”)		45, 65

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents


Description of Financial Data	Page

Selected Financial Data		14
Average Balance Sheets, Net Interest Income and Yields/ Rates		20
Components of Net Interest Income Changes		23
Composition of Loans		27
Maturities and Sensitivity of Certain Loans to Changes in Interest Rates		30
Securities Available for Sale		31
Investment Securities		31
Maturity Distribution of Time Deposits of $100,000 or More		32
Allocation of the Allowance for Loan Losses		41
Summary of Loan Loss Experience		42
Summary of Nonperforming Assets and Past Due Loans		43
Impaired Loans and Other Nonperforming Assets		70
Short-Term Borrowings		72


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


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


		Page

Consolidated Financial Statements:
	Report of Independent Registered Public Accounting Firm		50
	Consolidated Balance Sheets at December 31, 2004 and 2003		51
	Consolidated Statements of Income for the Years Ended December 31, 2004, 2003 and 2002		52
	Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2004, 2003 and 2002		53
	Consolidated Statements of Cash Flow for the Years Ended December 31, 2004, 2003 and 2002		54
	Notes to Consolidated Financial Statements		55


	3.1			Amended and Restated Articles of Incorporation of KeyCorp, filed as Exhibit 3 to Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference.
	3.2			Amended and Restated Regulations of KeyCorp, effective May 23, 2002, filed as Exhibit 3.2 to Form 10-Q for the quarter ended June 30, 2002, and incorporated herein by reference.
	4.1			Restated Rights Agreement, dated as of May 15, 1997, between KeyCorp and KeyBank National Association, as Rights Agent, filed on June 19, 1997, as Exhibit 1 to Form 8-A, and incorporated herein by reference.
	10.1			Form of Change of Control Agreement between KeyCorp and Certain Executive Officers of KeyCorp, effective September 16, 2004, filed as Exhibit 10.1 to Form 8-K filed September 17, 2004, and incorporated herein by reference.
	10.2			Form of Premium Priced Option Grant between KeyCorp and Henry L. Meyer III, dated January 13, 1999, filed as Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference.
	10.3			Form of Option Grant between KeyCorp and Henry L. Meyer III, dated November 15, 2000, filed as Exhibit 10.6 to Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.
	10.4			Form of Award of Restricted Stock (2003-2005), filed as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference.
	10.5			Form of Award of Executive Officer Grants (2004-2006), filed as Exhibit 10.1 to Form 10-Q for quarter ended June 30, 2004, and incorporated herein by reference.
	10.6			Form of Award of Executive Officer Grants (2005-2007), filed as Exhibit 10.2 to Form 8-K filed February 16, 2005, and incorporated herein by reference.
	10.7			Form of Award of Officer Grants (2005-2007), filed as Exhibit 10.3 to Form 8-K filed February 16, 2005 and incorporated herein by reference.


	10.8			Award of Phantom Stock to Henry L. Meyer III (2003-2005), filed as Exhibit 10.2 to Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference.
	10.9			Amended Employment Agreement between KeyCorp and Henry L. Meyer III, dated February 15, 2005, filed as Exhibit 10.1 to Form 8-K filed February 16, 2005, and incorporated herein by reference.
	10.10			KeyCorp Annual Incentive Plan as amended and restated on January 17, 2001, filed as Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference.
	10.11			KeyCorp Annual Performance Plan filed as Exhibit 10.1 to Form 8-K filed January 24, 2005, and incorporated herein by reference.
	10.12			KeyCorp Amended and Restated 1991 Equity Compensation Plan (amended as of March 13, 2003), filed as Exhibit 10.3 to Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference.
	10.13			KeyCorp 2004 Equity Compensation Plan.
	10.14			McDonald & Company Investments, Inc. Stock Option Plan, filed as Exhibit 10.39 to Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
	10.15			McDonald & Company Investments, Inc. 1995 Key Employees Stock Option Plan, filed as Exhibit 10.40 to Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
	10.16			KeyCorp Directors’ Stock Option Plan (November 17, 1994 Restatement) filed as Exhibit 10.37 to Form 10-K for the year ended December 31, 1994, and incorporated herein by reference.
	10.17			KeyCorp 1997 Stock Option Plan for Directors as amended and restated on March 14, 2001, filed as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2001, and incorporated herein by reference.
	10.18			KeyCorp Umbrella Trust for Directors between KeyCorp and National Bank of Detroit, dated July 1, 1990, filed as Exhibit 10.28 to Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
	10.19			Amended and Restated Director Deferred Compensation Plan (May 18, 2000 Amendment and Restatement), filed as Exhibit 10 to Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.
	10.20			Amendment to the Director Deferred Compensation Plan, effective December 28, 2004.
	10.21			KeyCorp Second Director Deferred Compensation Plan.
	10.22			KeyCorp Directors’ Deferred Share Plan, filed as Exhibit 10.22 to Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.
	10.23			KeyCorp Directors’ Survivor Benefit Plan, effective September 1, 1990, filed as Exhibit 10.25 to Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
	10.24			KeyCorp Excess Cash Balance Pension Plan (Amended and Restated as of January 1, 1998), filed as Exhibit 10.34 to Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
	10.25			First Amendment to KeyCorp Excess Cash Balance Pension Plan, effective July 1, 1999, filed as Exhibit 10.4 to Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference.
	10.26			Second Amendment to KeyCorp Excess Cash Balance Pension Plan, effective January 1, 2003, filed as Exhibit 10.4 to Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference.
	10.27			Restated Amendment to KeyCorp Excess Cash Balance Pension Plan, effective December 31, 2004, filed as Exhibit 10.4 to Form 8-K filed January 24, 2005, and incorporated herein by reference.
	10.28			KeyCorp Second Excess Cash Balance Pension Plan.


Yes þ		No o


Yes þ		No o


ITEM 1.	BUSINESS


ITEM 9A.	CONTROLS AND PROCEDURES


	10.29			KeyCorp Deferred Compensation Plan (Amended and Restated as of January 1, 1998), filed as Exhibit 10.38 to Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
	10.30			First Amendment to KeyCorp Deferred Compensation Plan filed as Exhibit 10.28 to Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.
	10.31			Second Amendment to KeyCorp Deferred Compensation Plan filed as Exhibit 10.29 to Form 10-K for the year ended December 31, 2001, and incorporated herein by reference.
	10.32			Third Amendment to KeyCorp Deferred Compensation Plan, filed as Exhibit 10.28 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10.33			Restated Amendment to KeyCorp Deferred Compensation Plan, effective December 31, 2004, filed as Exhibit 10.2 to Form 8-K filed January 24, 2005, and incorporated herein by reference.
	10.34			KeyCorp Second Deferred Compensation Plan.
	10.35			KeyCorp Automatic Deferral Plan, filed as Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference.
	10.36			First Amendment to KeyCorp Automatic Deferral Plan, filed as Exhibit 10.31 to Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.
	10.37			Second Amendment to KeyCorp Automatic Deferral Plan, filed as Exhibit 10.33 to Form 10-K for the year ended December 31, 2003, and incorporated herein by reference.
	10.38			McDonald Financial Group Deferral Plan, filed as Exhibit 10.31 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10.39			KeyCorp Signing Bonus Plan (effective January 1, 1999), filed as Exhibit 10.32 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10.40			First Amendment to KeyCorp Signing Bonus plan (effective January 1, 2001), filed as Exhibit 10.33 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10.41			Key Asset Management Long Term Incentive Plan, filed as Exhibit 10.34 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10.42			KeyCorp Commissioned Deferred Compensation Plan as amended and restated as of January 1, 2002, filed as Exhibit 10.35 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10.43			KeyCorp Excess 401 (k) Savings Plan, filed as Exhibit 10.36 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.
	10.44			Restated Amendment to KeyCorp Excess 401 (k) Savings Plan, effective December 31, 2004, filed as Exhibit 10.5 to Form 8-K filed January 24, 2005, and incorporated herein by reference.
	10.45			KeyCorp Second Excess 401 (k) Savings Plan.
	10.46			Trust Agreement for certain amounts that may become payable to certain executives and directors of KeyCorp, dated April 1, 1997, and amended as of August 25, 2003, filed as Exhibit 10.1 to Form 10-Q for the quarter ended September 30, 2003, and incorporated herein by reference.
	10.47			Trust Agreement (Executive Benefits Rabbi Trust), dated November 3, 1988, filed as Exhibit 10.20 to Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.
	10.48			KeyCorp Umbrella Trust for Executives between KeyCorp and National Bank of Detroit, dated July 1, 1990, filed as Exhibit 10.27 to Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
	10.49			KeyCorp Supplemental Retirement Plan, amended, restated and effective January 1, 2002, filed as Exhibit 10.40 to Form 10-K for the year ended December 31, 2002, and incorporated herein by reference.


	10.50			First Amendment to KeyCorp Supplemental Retirement Plan, effective January 1, 2003, filed as Exhibit 10.5 to Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference.
	10.51			Second Amendment to the KeyCorp Supplemental Retirement Plan, effective September 16, 2004.
	10.52			Restated Amendment to KeyCorp Supplemental Retirement Plan, effective December 31, 2004, filed as Exhibit 10.3 to Form 8-K filed January 24, 2005, and incorporated herein by reference.
	10.53			KeyCorp Second Supplemental Retirement Plan.
	10.54			KeyCorp Supplemental Retirement Benefit Plan, effective January 1, 1981, restated August 16, 1990, amended January 1, 1995, and August 1, 1996, filed as Exhibit 10.26 to Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.
	10.55			First Amendment to KeyCorp Supplemental Retirement Benefit Plan, effective January 1, 1995, filed as Exhibit 10.46 to Form 10-K for the year ended December 31, 2003, and incorporated by reference.
	10.56			Second Amendment to KeyCorp Supplemental Retirement Benefit Plan, effective August 1, 1996, filed as Exhibit 10.47 to Form 10-K for the year ended December 31, 2003, and incorporated by reference.
	10.57			Third Amendment to KeyCorp Supplemental Retirement Benefit Plan, effective July 1, 1999, filed as Exhibit 10.6 to Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference.
	10.58			KeyCorp Executive Supplemental Pension Plan, amended, restated and effective August 1, 1996, filed as Exhibit 10.29 to Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
	10.59			First Amendment to KeyCorp Executive Supplemental Pension Plan, effective January 1, 1997, filed as Exhibit 10.27 to Form 10-K for the year ended December 31, 1997, and incorporated herein by reference.
	10.60			Third Amendment to KeyCorp Executive Supplemental Pension Plan, filed as Exhibit 10.42 to Form 10-K for the year ended December 31, 2000, and incorporated herein by reference.
	10.61			Fourth Amendment to KeyCorp Executive Supplemental Pension Plan, effective January 1, 2003, filed as Exhibit 10.6 to Form 10-Q for the quarter ended March 31, 2003, and incorporated herein by reference.
	10.62			Fifth Amendment to the KeyCorp Executive Supplemental Pension Plan, effective March 18, 2004.
	10.63			Sixth Amendment to the KeyCorp Executive Supplemental Pension Plan, effective September 16, 2004.
	10.64			Restated Amendment to KeyCorp Executive Supplemental Pension Plan, effective December 31, 2004, filed as Exhibit 10.6 to Form 8-K filed January 24, 2005, and incorporated herein by reference.
	10.65			KeyCorp Second Executive Supplemental Pension Plan.
	10.66			KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective July 1, 1990, restated August 16, 1990, filed as Exhibit 10.26 to Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
	10.67			Amendment to KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective January 1, 1995, filed as Exhibit 10.54 to Form 10-K for the year ended December 31, 2003, and incorporated by reference.
	10.68			Second Amendment to KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective August 1, 1996, filed as Exhibit 10.55 to Form 10-K for the year ended December 31, 2003, and incorporated by reference.
	10.69			Third Amendment to KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective July 1, 1999, filed as Exhibit 10.7 to Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference.


	10.70			Fourth Amendment to KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective December 28, 2004.
	10.71			KeyCorp Second Supplemental Retirement Benefit Plan for Key Executives.
	10.72			KeyCorp Survivor Benefit Plan, effective September 1, 1990, filed as Exhibit 10.17 to Form 10-K for the year ended December 31, 1996, and incorporated herein by reference.
	10.73			KeyCorp Deferred Equity Allocation Plan, filed as Exhibit 10.58 to Form 10-K for the year ended December 31, 2003, and incorporated by reference.
	12			Statement regarding Computation of Ratios.
	13			KeyCorp 2004 Annual Report to Shareholders.
	21			Subsidiaries of the Registrant.
	23			Consent of Independent Registered Public Accounting Firm.
	24			Power of Attorney.
	31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1			Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2			Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


*	Copies of these Exhibits have been filed with the SEC. Shareholders may obtain a copy of any exhibit, upon payment of reproduction costs, by writing KeyCorp Investor Relations, at 127 Public Square (Mail Code OH-01-27-1113), Cleveland, OH 44114-1306.


	KEYCORP

	/s/ Thomas C. Stevens

	Thomas C. Stevens
	Vice Chairman and Chief Administrative Officer
	February 28, 2005


Signature		Title

* Henry L. Meyer III		Chairman, Chief Executive Officer, and President (Principal Executive Officer), and Director
* Jeffrey B. Weeden		Chief Financial Officer (Principal Financial Officer)
* Lee G. Irving		Executive Vice President and Chief Accounting Officer (Principal Accounting Officer)
* William G. Bares		Director
* Edward P. Campbell		Director
* Dr. Carol A. Cartwright		Director
* Alexander M. Cutler		Director
* Henry S. Hemingway		Director
* Charles R. Hogan		Director
* Lauralee E. Martin		Director
* Douglas J. McGregor		Director
* Eduardo R. Menascé		Director
* Steven A. Minter		Director
* Bill R. Sanford		Director
* Thomas C. Stevens		Director
* Peter G. Ten Eyck, II		Director

•	*KeyCorp* refers solely to the parent holding company.

•	*KBNA* refers to Key’s subsidiary bank, KeyBank National Association.

•	*Key* refers to the consolidated entity consisting of KeyCorp and its subsidiaries.

•	A *KeyCenter* is one of Key’s full-service retail banking facilities or branches.

•	Key engages in *capital markets activities*. 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 for proprietary trading purposes), and conduct transactions in foreign currencies (both to accommodate clients’ needs and to benefit from fluctuations in exchange rates).

•	All earnings per share data included in this discussion are presented on a *diluted* basis, which takes into account all common shares outstanding as well as potential common shares that could result from the exercise of outstanding stock options and other stock awards. Some of the financial information tables also include *basic* earnings per share, which takes into account only common shares outstanding.

•	For regulatory purposes, capital is divided into two classes. Federal regulations prescribe that at least one-half of a bank or bank holding company’s *total risk-based capital* must qualify as *Tier 1*. Both total and Tier 1 capital serve as bases for several measures of capital adequacy, which is an important indicator of financial stability and condition. You will find a more detailed explanation of total and Tier 1 capital and how they are calculated in the section entitled “Capital,” which begins on page 32.

•	*Focus on our core businesses.* We concentrate on businesses that enable us to build relationships with our clients. We focus on our “footprint” operations (i.e., those businesses conducted primarily within the thirteen states in which we have KeyCenters) that serve individuals, small businesses and middle market companies. In addition, we focus nationwide on businesses such as commercial real estate lending, investment management and equipment leasing, in which we believe we possess resources of the scale necessary to compete nationally.

•	*Build relationships.* We work to deepen our relationships with existing clients and to build relationships with new clients, particularly those that have the potential to purchase multiple products and services or to generate repeat business. To that end, we emphasize deposit growth across all our lines of business. We also are putting considerable effort into enhancing our service quality.

•	*Enhance our business.* We strive for continuous improvement in our businesses. We continue to focus on increasing revenues, controlling expenses and improving the credit quality of our loan portfolios. We will continue to leverage technology to reduce costs and to achieve these objectives.

•	*Cultivate a workforce that demonstrates Key’s values and works together for a common purpose.* Key intends to achieve this by:

	–	paying for performance if achieved in ways that are consistent with Key’s values;

	–	attracting, developing and retaining a quality, high-performing and inclusive workforce;

	–	developing leadership at all staff and management levels; and

	–	creating a positive, stimulating and entrepreneurial work environment.

•	Net income for 2004 was $954 million, or $2.30 per common share, compared with $903 million, or $2.12 per share, for 2003 and $976 million, or $2.27 per share, for 2002.

•	Key’s return on average equity was 13.75% for 2004, compared with 13.08% for 2003 and 14.96% for 2002.

•	Key’s 2004 return on average total assets was 1.10%, compared with a return of 1.07% for 2003 and 1.19% for 2002.

•	Key’s noninterest income rose by $32 million, excluding a $46 million net loss incurred during the fourth quarter of 2004 from the sale of the broker-originated home equity loan portfolio and the reclassification of the indirect automobile loan portfolio to held-for-sale status. This increase was due primarily to improved performance of Key’s market-sensitive businesses, including investment banking and capital markets, and trust and investment services. These businesses benefited from stronger equity markets as well as the integration of our banking, investment and trust businesses, and our focus on targeted client segments. Significant growth in letter of credit and loan fees also contributed to the increase. Despite strong commercial loan growth that contributed to a $1.5 billion increase in the level of Key’s average earning assets, Key’s net interest income decreased by $88 million from 2003, reflecting a 16 basis point reduction in Key’s net interest margin. The growth of our commercial loan portfolio was broad-based and spread across a number of industry sectors.

•	Asset quality continued to improve as Key’s nonperforming loans have declined for nine consecutive quarters. At December 31, 2004, nonperforming loans were at their lowest level since September 30, 1995. In addition, net loan charge-offs on Key’s continuing loan portfolio for the fourth quarter were at their lowest level since the second quarter of 2000. The continuing loan portfolio excludes the broker- originated home equity and indirect automobile loan portfolios that were either sold or moved to held-for-sale status in December 2004.

•	We continued to manage expenses effectively. Excluding a $55 million write-off of goodwill recorded during the fourth quarter of 2004 in connection with our decision to sell the nonprime indirect automobile loan business, the level of Key’s total noninterest expense was essentially unchanged from 2003.

•	the volume, pricing, mix and maturity of earning assets and interest-bearing liabilities;

•	the use of derivative instruments to manage interest rate risk;

•	market interest rate fluctuations; and

•	asset quality.

^aInterest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.

^bFor purposes of these computations, nonaccrual loans are included in average loan balances.

^cYield is calculated on the basis of amortized cost.

^dRate calculation excludes basis adjustments related to fair value hedges. See Note 19 (“Derivatives and Hedging Activities”), which begins on page 84, for an explanation of fair value hedges.

^eRate calculation excludes ESOP debt for the years ended December 31, 2001, 2000 and 1999.

TE = Taxable Equivalent, N/M = Not Meaningful

•	During the first half of 2004, we repositioned our balance sheet in anticipation of interest rate increases. We also allowed interest rate swaps to mature without replacing them.

•	During the third quarter of 2003, we experienced exceptionally high levels of prepayments on our investment and consumer loan portfolios as a result of the low interest rate environment.

•	During 2003 and the first half of 2004, we did not reduce interest rates on deposit accounts because of competitive market conditions and the low interest rate environment.

•	Although the demand for commercial loans strengthened during the last half of 2004, the demand for commercial credit was weak during the preceding eighteen-month period.

•	During the fourth quarter of 2004, Key acquired EverTrust, in Everett, Washington with a loan portfolio (primarily commercial real estate loans) of approximately $685 million at the date of acquisition. In the same quarter, Key acquired AEBF with a commercial lease financing portfolio of approximately $1.5 billion, thereby adding 75 offices to our network for small-ticket lease solutions. During the first quarter of 2003, Key acquired a $311 million commercial lease financing portfolio and a $71 million commercial loan portfolio from a Canadian financial institution. The acquisition of these portfolios further diversified our asset base and has generated additional equipment financing opportunities.

•	Key sold commercial mortgage loans of $2.1 billion during 2004 and $1.7 billion during 2003. Since some of these loans have been sold with limited recourse (i.e., there is a risk that Key will be held accountable for certain events or representations made in the sales), Key established and has maintained a loss reserve of an amount estimated by management to be appropriate. More information about the related recourse agreement is provided in Note 18 (“Commitments, Contingent Liabilities and Guarantees”) under the heading “Recourse agreement with Federal National Mortgage Association” on page 83.

•	Key sold education loans of $1.3 billion ($1.1 billion through securitizations) during 2004 and $1.2 billion ($998 million through securitizations) during 2003. Key has used the securitization market for education loans as a cost effective means of diversifying its funding sources.

•	Key sold other loans (primarily home equity, residential real estate and commercial loans) totaling $2.9 billion during 2004 and $1.8 billion during 2003. In 2004, these transactions included the fourth quarter sale of $978 million of broker-originated home equity loans. During the same quarter, Key reclassified $1.7 billion of indirect automobile loans to held-for-sale status in anticipation of their sale. The sales and plans to sell these long-term, fixed-rate loans were driven by management’s strategies for improving Key’s returns and achieving desired interest rate and credit risk profiles.

•	During the third quarter of 2003, Key consolidated an asset-backed commercial paper conduit as a result of an accounting change. This consolidation added approximately $200 million to Key’s commercial loan portfolio. More information about this change, required by Interpretation No. 46, “Consolidation of Variable Interest Entities,” is provided in Note 8 (“Loan Securitizations, Servicing and Variable Interest Entities”), which begins on page 67.

•	During the second quarter of 2001, management announced that Key would exit the automobile leasing business, de-emphasize indirect prime automobile lending outside of Key’s primary geographic markets and discontinue certain credit-only commercial relationships. As of December 31, 2004, the affected portfolios, in the aggregate, have declined by approximately $459 million since December 31, 2003, and $5.1 billion since the date of the announcement.

•	whether particular lending businesses meet our performance standards or fit with our relationship banking strategy;

•	whether the characteristics of a specific loan portfolio make it conducive to securitization;

•	the relative cost of funds;

•	the level of credit risk; and

•	capital requirements.

	^aCommon shareholders’ equity does not include net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities) or net gains or losses on cash flow hedges.

	^bOther assets deducted from Tier 1 capital and risk-weighted assets consist of intangible assets (excluding goodwill) recorded after February 19, 1992, deductible portions of purchased mortgage servicing rights and deductible portions of nonfinancial equity investments.

	^cThis ratio is Tier 1 capital divided by average quarterly total assets less goodwill, the nonqualifying intangible assets described in footnote (b) and deductible portions of nonfinancial equity investments.

^a		Portfolio swaps designated as A/LM are used to manage interest rate risk tied to both assets and liabilities.

^b		These portfolio swaps are not designated as hedging instruments under SFAS No. 133.


^a	See Figure 15 and the accompanying discussion on page 28 for more information related to Key’s commercial real estate portfolio.


^b	Included in “accrued expenses and other liabilities” on the consolidated balance sheet.