-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, oDCWg0pjntZ+GgUkWgSApl+3XPU7ot4MF0OzMU8r89mzTYA/0HNqTsVV2l7IExCH Fu4zKU4Lkmo6u1jG77MRxg== 0000950152-95-000445.txt : 199507120000950152-95-000445.hdr.sgml : 19950711 ACCESSION NUMBER: 0000950152-95-000445 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYCORP/NEW CENTRAL INDEX KEY: 0000091576 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 346542451 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-11302 FILM NUMBER: 95523612 BUSINESS ADDRESS: STREET 1: 127 PUBLIC SQ CITY: CLEVELAND STATE: OH ZIP: 44114-1306 BUSINESS PHONE: 2166893000 FORMER COMPANY: FORMER CONFORMED NAME: SOCIETY CORP DATE OF NAME CHANGE: 19920703 10-K405 1 KEYCORP 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-850 KEYCORP (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Ohio 34-6542451 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 127 Public Square, Cleveland, Ohio 44114-1306 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (216) 689-6300 Securities registered pursuant Securities registered pursuant to Section 12(b) of the Act: to Section 12(g) of the Act: 10% Cumulative Preferred Stock, Class A Depositary Shares representing one-fifth of one share of 10% Cumulative Preferred Stock, Class A Common Shares, $1 par value Rights to Purchase Common Shares None (Title of class) (Title of class) New York Stock Exchange (Name of each exchange on which registered) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days. Yes X No ____. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X The aggregate market value of voting stock held by nonaffiliates of the Registrant was approximately $6,688,704,652 at February 28, 1995. (The aggregate market value has been computed using the closing market price of the stock as reported by the New York Stock Exchange on February 28, 1995.) 242,901,125 (Number of KeyCorp Common Shares outstanding as of February 28, 1995) 2 KEYCORP 1994 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS
Page ---- PART I Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 8 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 8. Financial Statements and Supplementary Data 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 PART III Item 10. Directors and Executive Officers of the Registrant 9 Item 11. Executive Compensation 9 Item 12. Security Ownership of Certain Beneficial Owners and Management 9 Item 13. Certain Relationships and Related Transactions 9 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 10 Signatures 15 Exhibits 16
3 PART I ITEM 1. BUSINESS OVERVIEW On March 1, 1994, KeyCorp, a financial services holding company headquartered in Albany, New York, with approximately $33 billion in assets at December 31, 1993 ("old KeyCorp"), merged into and with Society Corporation, a financial services holding company headquartered in Cleveland, Ohio, with approximately $27 billion in assets at December 31, 1993 ("Society"), pursuant to an Agreement and Plan of Merger, and a related Supplemental Agreement to Agreement and Plan of Merger, each dated as of October 1, 1993, and each as amended. In the merger, Society, an Ohio corporation, was the surviving corporation, but changed its name to KeyCorp (also referred to herein as the "Corporation"). The merger was accounted for as a pooling of interests. Accordingly, all financial data of KeyCorp set forth herein (or incorporated by reference) has been restated to give effect to the merger of old KeyCorp into and with Society. The merger of old KeyCorp into and with Society created a financial services holding company which traces its roots back to 1825, when the first predecessor of old KeyCorp was organized. At December 31, 1994, KeyCorp was one of the nation's largest bank holding companies based upon consolidated total assets of approximately $66.8 billion. KeyCorp is a legal entity separate and distinct from its banking and other subsidiaries. Accordingly, the right of KeyCorp, its security holders and its creditors to participate in any distribution of the assets or earnings of its banking and other subsidiaries is necessarily subject to the prior claims of the respective creditors of such banking and other subsidiaries, except to the extent that claims of KeyCorp in its capacity as a creditor of such banking and other subsidiaries may be recognized. The executive offices of KeyCorp are located at 127 Public Square, Cleveland, Ohio 44114-1306, and its telephone number is (216) 689-6300. SUBSIDIARIES KeyCorp provides banking and other financial services across much of the country's northern tier and in Florida through a network of subsidiaries operating 1,272 full-service banking offices in 13 states, giving KeyCorp the nation's fifth largest domestic branch network as of December 31, 1994 (before giving effect to KeyCorp's recent acquisitions of BANKVERMONT Corporation, Casco Northern Bank, National Association and OMNIBANCORP described in Note 2, Mergers, Acquisitions and Divestitures beginning on page 56 of the KeyCorp 1994 Annual Report to Shareholders which is incorporated herein by reference). KeyCorp's largest bank subsidiaries include Society National Bank, headquartered in Cleveland, Ohio, which is the largest bank in Ohio and one of the nation's major regional banks with $24.6 billion in total assets and 289 full-service banking offices at December 31, 1994; Key Bank of New York, headquartered in Albany, New York, with $14.9 billion in total assets and 327 full-service banking offices at December 31, 1994 ("Key-NY"); Key Bank of Washington, headquartered in Tacoma, Washington, with $7.6 billion in total assets and 186 full-service banking offices at December 31, 1994 ("Key- Washington"); and Society National Bank, Indiana, headquartered in South Bend, Indiana, with $3.3 billion in total assets and 92 full-service banking offices at December 31, 1994 ("SNBI"). In addition, KeyCorp operates bank subsidiaries in Alaska, Colorado, Idaho, Maine, Michigan, Oregon, Utah, Vermont (its Vermont subsidiary was acquired on January 27, 1995 as described in Note 2, Mergers, Acquisitions and Divestitures, beginning on page 56 of the KeyCorp 1994 Annual Report to Shareholders which is incorporated herein by reference) and Wyoming, a savings association subsidiary in Florida, and either a trust company subsidiary or an office of a trust company subsidiary in each of the aforementioned states. Through its bank and trust company subsidiaries KeyCorp provides a wide range of banking, fiduciary and other financial services to its corporate, individual and institutional customers located throughout the country. In addition to the customary banking services of accepting deposits and making loans, KeyCorp's bank and trust company subsidiaries provide specialized services tailored to specific markets, including personal and corporate trust services, personal financial services, customer access to mutual funds, cash management services, investment banking services and international banking services. Through its subsidiary banks, trust companies and registered investment adviser subsidiaries, KeyCorp provides investment management services to institutional and individual 4 clients, including large corporate and public retirement plans, Taft-Hartley plans, foundations and endowments, and high net worth individuals. Several of KeyCorp's investment management and trust company subsidiaries also serve as investment advisers to KeyCorp's proprietary mutual funds. KeyCorp also provides other financial services both in and outside of its primary banking markets through its nonbank subsidiaries. Services provided by nonbank financial services subsidiaries include reinsurance of credit life and accident and health insurance on loans made by subsidiary banks, venture capital and small business investment financing services, equipment lease financing, community development financing, stock transfer agent, and other financial services. KeyCorp is also an equity participant in a joint venture with a number of other unaffiliated bank holding companies in Electronic Payment Services, Inc., which provides automated teller machine access for bank customers throughout most of the United States through its subsidiary, Money Access Service Inc. (more commonly known as the MAC(R) network). The following financial data is included in the KeyCorp 1994 Annual Report to Shareholders and is incorporated herein by reference as indicated below:
Description of Financial Data Page ----------------------------- ---- Average Balance Sheets, Net Interest Income, and Yields/Rates 24 Components of Net Interest Income Changes 26 Securities Available for Sale 36 Investment Securities 37 Composition of Loans 34 Maturities and Sensitivity of Certain Loans to Changes in Interest Rates 30 Summary of Nonperforming Assets and Past Due Loans 40 Nonperforming Assets 60 Summary of Loan Loss Experience 39 Allocation of Allowance for Loan Losses 38 Maturity Distribution of Time Deposits of $100,000 or More 41 Selected Financial Data 20 Short-Term Borrowings 62
MERGERS, ACQUISITIONS AND DIVESTITURES The information presented in Note 2, Mergers, Acquisitions and Divestitures starting on Page 56 of the KeyCorp 1994 Annual Report to Shareholders is incorporated herein by reference. COMPETITION The market for banking and bank-related services is highly competitive. KeyCorp and its subsidiaries compete with other providers of financial services such as other bank holding companies, commercial banks, savings associations, credit unions, mortgage banking companies, mutual funds, insurance companies, investment management firms, investment banking firms, broker dealers and a growing list of other local, regional and national institutions which offer financial services. KeyCorp and its subsidiaries compete by offering quality products and innovative services at competitive prices. Mergers between financial institutions have added competitive pressure. Competition is expected to intensify as a consequence of interstate banking laws now in effect in the majority of states which permit banking organizations to expand geographically. Further, the recently enacted Riegle- Neal Interstate Banking and Branching Efficiency Act of 1994 will generally remove the remaining restrictions on interstate acquisitions of banks and bank holding companies one year after its enactment. The act also authorizes nationwide interstate branching effective June 1, 1997, although states may "opt-in" and permit branching sooner, or "opt-out" and prohibit branching into or out of that state. See "Supervision and Regulation -- Interstate Banking and Other Recent Legislation" herein. 2 5 SUPERVISION AND REGULATION The following discussion addresses certain of the material elements of the regulatory framework applicable to bank holding companies and their subsidiaries, and provides certain specific information relevant to KeyCorp. Regulation of financial institutions such as KeyCorp and its subsidiaries is intended primarily for the protection of depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation ("FDIC") and the banking system as a whole, and generally is not intended for the protection of shareholders or other investors. In the following discussion, references to statutes and regulations are brief summaries thereof and are qualified in their entirety by reference to such statutes and regulations. In addition, there are other statutes and regulations that apply to the operation of banking institutions. Changes in the applicable laws, and in their application by regulatory agencies, cannot necessarily be predicted, but they may have a material effect on the business and results of KeyCorp. General As a bank holding company, KeyCorp is subject to the regulation, supervision and examination of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding Company Act of 1956, as amended (the 'BHCA"). Under the BHCA, bank holding companies may not, in general, directly or indirectly acquire the ownership or control of more than 5% of the voting shares, or substantially all of the assets, of any company, including a bank, without the prior approval of the Federal Reserve Board. In addition, bank holding companies are generally prohibited under the BHCA from engaging in nonbanking (i.e. commercial or industrial) activities, subject to certain exceptions. As a result of its 1993 acquisition of the institution that is now known as Society First Federal Savings Bank ("Society First Federal"), the Corporation is also subject to the regulation and supervision of the Office of Thrift Supervision (the "OTS") as a savings and loan holding company registered under the Home Owners' Loan Act, as amended ("HOLA"). The Corporation's banking subsidiaries are also subject to extensive regulation, supervision and examination by applicable Federal and state banking agencies. Society National Bank, SNBI and Key Bank USA, N.A. are national banking associations with full banking powers, subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (the "OCC"). A number of other national banking subsidiaries of the Corporation operate under bank charters that limit their powers to trust- related fiduciary activities. These are Key Trust Company of Ohio, N.A., Key Trust Company of Indiana, N.A. and Key Trust Company of Florida, N.A. (formerly known as Society National Trust Company). These entities are also subject to the regulation, supervision and examination of the OCC, although they are not regulated as banks for purposes of the BHCA. All of the other banking subsidiaries of the Corporation, other than Society First Federal, are state-chartered banks that are subject to regulation, supervision and examination by the applicable state banking authority in the state in which each such institution is chartered. In addition the Corporation's state- chartered banks are not members of the Federal Reserve System (and are therefore so-called "nonmember banks"), and, accordingly, are subject to the regulation, supervision and examination of the FDIC. Because the deposits in all of the Corporation's banking subsidiaries are insured (up to applicable limits) by the FDIC, the FDIC also has certain regulatory and supervisory authority over all such banking subsidiaries, including Society First Federal. The OTS is charged with regulation of Federal savings associations such as Society First Federal, presently the Corporation's only such institution. Depository institutions are also affected by various state and Federal laws, including those relating to consumer protection and similar matters, as well as by the fiscal and monetary policies of the Federal government and its agencies, including the Federal Reserve Board. An important purpose of these policies is to curb inflation and control recessions through control of the supply of money and credit. The Federal Reserve Board uses its powers to establish reserve requirements of depository institutions and to conduct open market operations in United States government securities so as to influence the supply of money and credit. These policies have a direct effect on the availability of bank loans and deposits and on interest rates charged on loans and paid on deposits, with the result that Federal policies have a material effect on the earnings of the banking subsidiaries, and, hence, the Corporation. The Corporation also has other financial services subsidiaries that are subject to regulation, supervision and examination by the Federal Reserve Board, as well as other applicable state and Federal regulatory agencies. For example, the Corporation's discount brokerage and asset management subsidiaries are subject to supervision and regulation by the Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and state securities regulators; the Corporation's state-chartered trust company subsidiaries are subject to regulation by 3 6 state banking authorities; and the Corporation's insurance subsidiaries are subject to regulation by the insurance regulatory authorities of the various states. Other nonbank subsidiaries of the Corporation are subject to other laws and regulations of both the Federal government and the various states in which they are authorized to do business. Dividend Restrictions The Corporation is a legal entity separate and distinct from its banking and other subsidiaries. The principal source of cash flow of the Corporation, including cash flow to pay dividends on the Corporation's common and preferred shares and debt service on the Corporation's debt, is dividends from its banking and other subsidiaries. Various Federal and state statutory and regulatory provisions limit the amount of dividends that may be paid to the Corporation by its banking subsidiaries without regulatory approval. The approval of the OCC is required for the payment of any dividend by a national bank if the total of all dividends declared by the board of directors of such bank in any calendar year would exceed the total of (i) the bank's net profits (as defined and interpreted by regulation) for the current year plus (ii) the retained net profits (as defined and interpreted by regulation) for the preceding two years, less any required transfer to surplus or a fund for the retirement of any preferred stock. In addition, a national bank can pay dividends only to the extent that retained net profits (including the portion transferred to surplus) exceed bad debts (as defined and interpreted by regulation). Three of the Corporation's banking subsidiaries, Society National Bank, SNBI and Key Bank USA N.A., and the Corporation's trust company subsidiaries that are national banks, are subject to these restrictions. Key-NY, KeyCorp's second-largest banking subsidiary, is subject to dividend restrictions under New York law that are substantially the same as the national bank restrictions described above. In particular, without the prior approval of the Superintendent of Banks, a New York-chartered bank may not declare dividends during any calendar year in excess of (i) the total of the bank's net profits (as defined by statute) for that year combined with (ii) its retained net profits of the preceding two years, less any required transfers to surplus or a fund for the retirement of preferred stock. KeyCorp's third-largest banking subsidiary is Key-Washington, which is chartered by the State of Washington, and is subject to similar restrictions on its ability to pay dividends to KeyCorp. Under Washington law, a bank can pay dividends in an amount not in excess of its retained earnings determined in accordance with generally accepted accounting principles. The Corporation's other banking subsidiaries are subject to various comparable restrictions on the payment of dividends under the laws of the states in which they are chartered. In addition, OTS regulations limit the amount of capital distribution (dividends or otherwise) that any savings association may pay without prior OTS approval. These limitations are applicable to Society First Federal. In addition, if, in the opinion of the applicable Federal banking agency, a depository institution under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the institution, could include the payment of dividends) the agency may require, after notice and hearing, that such institution cease and desist from such practice. The OCC and the FDIC have indicated that paying dividends that would deplete a depository institution's capital base to an inadequate level would be an unsafe and unsound practice. Moreover, under the Federal Deposit Insurance Act (the "FDI Act"), an insured depository institution may not pay any dividend if payment would cause it to become undercapitalized or once it is undercapitalized. See "Regulatory Capital Standards and Related Matters -- Prompt Corrective Action." Also, the Federal Reserve Board, the OCC, the FDIC and the OTS have issued policy statements which provide that FDIC-insured depository institutions and their holding companies should generally pay dividends only out of the current operating earnings. Under the laws and regulations applicable to the Corporation's banking subsidiaries, management estimates that, as of December 31, 1994, the Corporation's banking subsidiaries could have declared dividends estimated to be $642.4 million in the aggregate, without obtaining prior regulatory approval, not including dividends that may be payable by the Corporation's trust company subsidiaries, Society First Federal and certain other subsidiaries. 4 7 Holding Company Structure Transactions Involving Banking Subsidiaries. The Corporation's banking subsidiaries are subject to Federal Reserve Act restrictions which limit the transfer of funds or other items of value from such subsidiaries to the Corporation and (with certain exceptions) to the Corporation's nonbanking subsidiaries (together, "affiliates") in so-called "covered transactions." In general, covered transactions include loans and other extensions of credit, investments and asset purchases, as well as other transactions involving the transfer of value from a banking subsidiary to an affiliate or for the benefit of an affiliate. Unless an exemption applies, each covered transaction by a banking subsidiary with one of its nonbanking affiliates is limited in amount to 10% of that banking subsidiary's capital and surplus and, with respect to all covered transactions with affiliates, in the aggregate, to 20% of that banking subsidiary's capital and surplus. Furthermore, loans and extensions of credit are required to be secured in specified amounts. Source of Strength Doctrine. Under Federal Reserve Board policy, a bank holding company is expected to serve as a source of financial and managerial strength to each of its subsidiary banks and, under appropriate circumstances, to commit resources to support each such subsidiary bank. This support may be required by the Federal Reserve Board at times when the Corporation may not have the resources to provide it or, for other reasons, would not otherwise be inclined to provide it. Certain loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits in, and certain other indebtedness of, the subsidiary bank. In addition, the Crime Control Act of 1990 provides that in the event of a bank holding company's bankruptcy, any commitment by a bank holding company to a Federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. Depositor Preference. The FDI Act provides that, in the event of the "liquidation or other resolution" of an insured depository institution, the claims of depositors of such institution (including claims by the FDIC as subrogee of insured depositors) and certain claims for administrative expenses of the FDIC as a receiver would be afforded a priority over other general unsecured claims against such an institution, including Federal funds and letters of credit. If an insured depository institution fails, insured and uninsured depositors along with the FDIC will be placed ahead of unsecured, nondeposit creditors, including a parent holding company, in order of priority of payment. Liability of Commonly Controlled Institutions. Under the FDI Act, an insured depository institution which is under common control with another insured depository institution is generally liable for any loss incurred, or reasonably anticipated to be incurred, by the FDIC in connection with the default of such commonly controlled institution, or any assistance provided by the FDIC to such commonly controlled institution which is in danger of default. The term "default" is defined generally to mean the appointment of a conservator or receiver and the term "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Regulatory Capital Standards and Related Matters Capital Guidelines. The Federal Reserve Board, the FDIC and the OCC have adopted substantially similar risk-based and leverage capital guidelines for United States banking organizations. The guidelines establish a systematic, analytical framework that makes regulatory capital requirements more sensitive to differences in risk profiles among banking organizations, takes off-balance sheet exposure into account in assessing capital adequacy and minimizes disincentives to holding liquid, low-risk assets. The risk-based capital ratio is determined by classifying assets and specified off-balance sheet financial instruments into weighted categories with higher levels of capital being required for categories perceived as representing greater risk. Under these risk-based capital standards, the minimum consolidated ratio of total capital to risk-adjusted assets (including certain off-balance sheet items, such as standby letters of credit) required by the Federal Reserve Board for bank holding companies, such as the Corporation, is currently 8%. At least one-half of the total capital must be comprised of common equity, retained earnings, qualifying non-cumulative, perpetual preferred stock, a limited amount of qualifying cumulative, perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets ("Tier I capital"). The remainder may consist of hybrid capital instruments, perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, other preferred stock and a limited amount of loan and lease loss reserves ("Tier II capital"). As of December 31, 1994, the Corporation's Tier I and total capital to risk-adjusted assets ratios were 8.48% and 11.62%, respectively. 5 8 In addition to the risk-based standard, the Corporation is subject to minimum leverage ratio guidelines. The leverage ratio is defined to be the ratio of a banking organization's Tier I capital to its total consolidated quarterly average assets less goodwill and certain other intangible assets. These guidelines provide for a minimum leverage ratio of 3% for bank holding companies that have the highest supervisory rating. All other bank holding companies must maintain a minimum leverage ratio of at least 4% to 5%. Neither the Corporation nor any of its banking subsidiaries has been advised by its primary Federal banking regulator of any specific leverage ratio applicable to it. As of December 31, 1994, the Corporation's Tier I leverage ratio was 6.63%. In addition, Federal Reserve Board policy provides that banking organizations generally, and, in particular, those that are experiencing internal growth or actively making acquisitions are expected to maintain capital positions that are substantially above the minimum supervisory levels, without significant reliance on intangible assets. Furthermore, the guidelines indicate that the Federal Reserve Board will consider a banking organization's "tangible Tier I leverage ratio" in evaluating its proposals for expansion or new activities. The tangible Tier I leverage ratio is the ratio of a banking organization's Tier I capital less all intangible assets to total consolidated quarterly average assets less all intangible assets. For purposes of this calculation, purchased mortgage servicing rights are not considered to be intangible assets. As of December 31, 1994, the Corporation's tangible Tier I leverage ratio was 6.58%. The Corporation's banking subsidiaries are also subject to capital requirements adopted by their respective primary Federal bank regulatory agency which are substantially similar to those imposed by the Federal Reserve Board on bank holding companies. The Corporation's national bank subsidiaries are subject to the capital requirements of the OCC and its state chartered nonmember banks are subject to the capital requirements of the FDIC. As of December 31, 1994, each of the Corporations' banking subsidiaries had capital in excess of all minimum regulatory requirements. The Federal bank regulatory agencies have each also proposed or issued formal regulations that would add an additional capital requirement based upon the amount of an institution's exposure to interest rate risk. The OTS adopted a final rule effective January 1, 1994 (except for limited provisions which were effective July 1 1994), adding an interest rate component to its risk-based capital standards. Under the OTS rule, a savings association with a greater than "normal" level of interest rate risk is subject to a deduction from total capital for purposes of calculating its risk-based capital ratio. In September 1993, the other Federal bank regulatory agencies issued proposed revisions to their respective risk-based capital standards which provide for consideration of interest rate risk in the overall determination of a bank's minimum capital requirements. The intended effect of the proposal would be to ensure that banking institutions effectively measure and monitor their interest rate risk and that they maintain adequate capital for that risk. Under the proposal, an institution's exposure to interest rate risk would be measured using either a supervisory model developed by the Federal bank regulatory agencies, or the bank's own internal model. The first approach would reduce a bank's risk-based capital ratios by an amount based on its measured exposure to interest rate risk in excess of a specified threshold. The second approach would assess the need for additional capital on a case-by- case basis, considering both the level of measured exposure and qualitative risk factors. The Corporation cannot assess at this point the impact the proposal would have on its capital positions. On September 1, 1994, the Federal bank regulatory agencies announced a proposal to amend their respective risk-based capital rules to refine the treatment of derivative financial instruments on which a bank has credit exposure for capital computation purposes. The Corporation anticipates that this proposal, if adopted in its current form, would not have a material effect on its minimum risk-based capital requirements. On December 8, 1994, the Federal Reserve Board adopted a final rule, effective December 31, 1994, to exclude net unrealized gains and losses on investments in debt securities classified as "available for sale" from the computation of Tier I capital for purposes of the risk-based capital and leverage standards. The rule provides that net unrealized losses on equity securities with readily determinable fair values and which are held in the "available for sale" portfolio, must be deducted from Tier I capital. As a result of the rule, the full potential impact of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on Tier I capital was mitigated. See Note 3, Securities Available for Sale beginning on page 58 of the KeyCorp 1994 Annual Report to Shareholders which is incorporated herein by reference. This revision will not have a material effect on the risk-based capital and leverage standards of the Corporation's subsidiary banks. 6 9 Prompt Corrective Action. The "prompt corrective action" provisions of the FDI Act group FDIC insured depository institutions into five broad categories based on their capital ratios. The five categories -- "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized" -- are based upon an institution's total, Tier I and leverage capital ratios. Under the regulations, an institution is (i) "well capitalized" if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or greater and is not subject to any written agreement, order or capital directive to meet and maintain a specific capital level for any capital measure; (ii) "adequately capitalized" if it has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater (3% in certain circumstances) and is not "well capitalized"; (iii) "undercapitalized" if it has a total risk-based capital ratio of less than 8%, a Tier 1 risk-based capital ratio of less than 4% or a leverage ratio of less than 4% (3% in certain circumstances); (iv) "significantly undercapitalized" if it has a total risk- based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3% or a leverage ratio of less than 3%; and (v) "critically undercapitalized" if its tangible equity is equal to or less than 2% of average quarterly tangible assets. An institution may be downgraded to, or be deemed to be in, a capital category that is lower than is indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters. Each KeyCorp banking subsidiary is considered to be "well capitalized." An institution's capital category, as determined by applying the prompt corrective action provisions of law, may not constitute an accurate representation of the overall financial condition or prospects of the Corporation or its banking subsidiaries, and should be considered in conjunction with other available information regarding the Corporation's financial condition and results of operations. The capital-based prompt corrective action provisions of the FDI Act and their implementing regulations apply to FDIC insured depository institutions such as the Corporation's banking subsidiaries (other than its trust company subsidiaries), but they are not directly applicable to holding companies, such as the Corporation, which control such institutions. However, both the Federal Reserve Board and the OTS have indicated that, in regulating holding companies, they will take appropriate action at the holding company level based on their assessment of the effectiveness of supervisory actions imposed upon subsidiary depository institutions pursuant to such provisions and regulations. Under the prompt corrective action provisions of the FDI Act, an institution that is not at least "adequately capitalized" may be subject to a number of operating and other restrictions, including restrictions on the payment of dividends to its parent holding company. In addition, under certain circumstances a less than "adequately capitalized" institution's parent holding company must guarantee to restore the institution's capital to certain specified levels. FDIC Insurance. Under the FDIC's risk-related insurance assessment system, all insured depository institutions are required to pay annual assessments to the Bank Insurance Fund (the "BIF") or the Savings Association Insurance Fund ("SAIF") of the FDIC. The assessments range from 23 to 31 cents per $100 of domestic deposits based on the institution's risk classification. An institution's risk classification is based on an assignment of the institution by the FDIC to one of three capital groups and to one of three supervisory subgroups. The capital groups are "well capitalized," "adequately capitalized" and "undercapitalized." The three supervisory subgroups are Group "A" (for financially solid institutions with only a few minor weaknesses), Group "B" (for those institutions with weaknesses which, if uncorrected, could cause substantial deterioration of the institution and increase the risk to the deposit insurance fund) and Group "C" (for those institutions with a substantial probability of loss to the fund absent effective corrective action). For the period commencing on July 1, 1994 through December 31, 1994, insurance premiums on deposits of all of the Corporation's banking subsidiaries were assessed at the rate of 23 cents per $100 of domestic deposits. On January 31, 1995, the FDIC issued a proposal to reduce deposit insurance rate assessments for banks and savings associations that pay assessments to the BIF. The proposal, which is not likely to be effective prior to the semiannual period commencing on July 1, 1995, would create a wider overall range of premiums payable to the BIF by establishing four possible premium rates below the current 23 cents minimum. The lowest possible premium would be reduced to 4 cents per $100 of domestic deposits. The maximum rate payable would continue to be 31 7 10 cents. No change in deposit insurance rates paid by savings associations to the SAIF has been proposed. The effect of any such modifications in rates payable for deposit insurance cannot be accurately predicted at this time. Interstate Banking and Other Recent Legislation. On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") was enacted into Federal law. Under the Interstate Act, commencing on September 29, 1995, bank holding companies will be permitted to acquire banks located in any state regardless of the state law in effect at the time. The Interstate Act also provides for the nationwide interstate branching of banks. Under the Interstate Act, both national and state-chartered banks will be permitted to merge across state lines (and thereby create interstate branches) commencing on June 1, 1997. States are permitted to "opt-out" of the interstate branching authority by taking action prior to the commencement date. States may also "opt-in" early (i.e., prior to June 1, 1997) to the interstate branching provisions. In addition to the matters discussed above, there have been proposed a number of legislative and regulatory proposals designed to strengthen the Federal deposit insurance system and to improve the overall financial stability of the U.S. banking system, and to provide for other changes in the bank regulatory structure, including proposals to reduce regulatory burdens on banking organizations and to expand the nature of products and services banks and bank holding companies may offer. It is impossible to predict whether or in what form these proposals may be adopted in the future, and, if adopted, what their effect will be on the Corporation. ITEM 2. PROPERTIES The headquarters of KeyCorp and of Society National Bank are located in Society Center at 127 Public Square, Cleveland, Ohio 44114-1306. KeyCorp currently leases approximately 663,000 square feet of the complex, encompassing the first twenty-one floors, the 28th floor and the 54th through 56th floors of the 57-story Society Tower. At December 31, 1994, the banking subsidiaries of KeyCorp owned 773 of their branch banking offices and leased 499 offices. The lease terms for applicable branch banking offices are not individually material, with terms ranging from month-to-month to 99-year leases from inception. Additional information pertaining to KeyCorp's properties is presented in Note 7, Premises and Equipment on page 61 of the KeyCorp 1994 Annual Report to Shareholders and is incorporated herein by reference. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of business, KeyCorp and its subsidiaries are subject to legal actions which involve claims for substantial monetary relief. Management, based upon advice of the Corporation's counsel, does not believe that any legal actions, individually or in the aggregate, will have a material adverse effect on KeyCorp's consolidated financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the fiscal year covered by this Report, no matter was submitted to a vote of security holders of KeyCorp. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Dividend restrictions discussion starting on page 4 and the following disclosures included in the KeyCorp 1994 Annual Report to Shareholders are incorporated herein by reference:
Page ----- Discussion of Common Shares and shareholder information presented in the Capital and Dividends section 43 Discussion of dividend restrictions presented in Note 15, Commitments, Contingent Liabilities, and Other Disclosures 69 Presentation of quarterly dividends per Common Share 45
8 11 ITEM 6. SELECTED FINANCIAL DATA The Selected Financial Data presented on page 20 of the KeyCorp 1994 Annual Report to Shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information included under "Management's Discussion and Analysis" presented on pages 17 through 46 of the KeyCorp 1994 Annual Report to Shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Selected Quarterly Financial Data and the financial statements and the notes thereto, presented on page 45 and on pages 50 through 75, respectively, of the KeyCorp 1994 Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is set forth in the sections captioned "ELECTION OF DIRECTORS" and "EXECUTIVE OFFICERS OF KEYCORP" contained in KeyCorp's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders to be held May 18, 1995, and is incorporated herein by reference. KeyCorp expects to file its proxy statement on or about April 5, 1995. ITEM 11. EXECUTIVE COMPENSATION The information required by this item is set forth in the sections captioned "THE BOARD OF DIRECTORS AND ITS COMMITTEES", "COMPENSATION OF EXECUTIVE OFFICERS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" contained in KeyCorp's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders to be held May 18, 1995, and is incorporated herein by reference. The information set forth in the sections captioned "COMPENSATION AND ORGANIZATION AND EXECUTIVE EQUITY COMPENSATION COMMITTEE JOINT REPORT ON EXECUTIVE COMPENSATION" and "KEYCORP STOCK PRICE PERFORMANCE" contained in KeyCorp's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders to be held May 18, 1995, is not incorporated by reference in this Report on Form 10-K. KeyCorp expects to file its proxy statement on or about April 5, 1995. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is set forth in the section captioned "SHARE OWNERSHIP" contained in KeyCorp's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders to be held May 18, 1995, and is incorporated herein by reference. KeyCorp expects to file its proxy statement on or about April 5, 1995. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is set forth in the sections captioned "ELECTION OF DIRECTORS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" contained in KeyCorp's definitive Proxy Statement for the 1995 Annual Meeting of Shareholders to be held May 18, 1995, and is incorporated herein by reference. KeyCorp expects to file its proxy statement on or about April 5, 1995. 9 12 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (A) (1) FINANCIAL STATEMENTS The following financial statements of KeyCorp and Subsidiaries, and the auditor's report thereon, are incorporated herein by reference to the pages indicated in the KeyCorp 1994 Annual Report to Shareholders:
PAGE Consolidated Financial Statements: Report of Ernst & Young LLP/ Independent Auditors 49 Consolidated Balance Sheets at December 31, 1994 and 1993 50 Consolidated Statements of Income for the Years Ended December 31, 1994, 1993 and 1992 51 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1994, 1993 and 1992 52 Consolidated Statements of Cash Flow for the Years Ended December 31, 1994, 1993 and 1992 53 Notes to Consolidated Financial Statements 54
(A) (2) FINANCIAL STATEMENT SCHEDULES All financial statement schedules for KeyCorp and Subsidiaries have been included in the consolidated financial statements or the related footnotes, or they are either inapplicable or not required. (A) (3) EXHIBITS* 3.1 Amended and Restated Articles of Incorporation of KeyCorp. Filed as Exhibit 7 to Form 8-A/A filed on February 25, 1994, and incorporated herein by reference. 3.2 Regulations of KeyCorp. Filed as Exhibit 6 to Form 8-A/A filed on February 25, 1994, and incorporated herein by reference. 4.1 Rights Agreement, dated as of August 25, 1989, between Society Corporation and First Chicago Trust Company of New York, as Rights Agent. Filed as Exhibit 1 to Form 8-A filed on August 29, 1989, and incorporated herein by reference. 4.2 First Amendment to Rights Agreement, dated as of February 21, 1991, between Society Corporation and First Chicago Trust Company of New York, as Rights Agent. Filed as Exhibit 1 to Form 8-A, filed on February 28, 1991, amending Registration Statement on Form 8-A filed August 29, 1989, and incorporated herein by reference. 4.3 Second Amendment to Rights Agreement, dated as of September 12, 1991, between Society Corporation and First Chicago Trust Company of New York, as Rights Agent. Filed as Exhibit 4 to Schedule 13D filed September 23, 1991, and incorporated herein by reference. 4.4 Resignation of first Chicago Trust Company of New York as Rights Agent and appointment of Society National Bank as Rights Agent effective July 1, 1992. Filed as Exhibit 4.4 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 4.5 Third Amendment to Rights Agreement, dated as of October 1, 1993, between Society Corporation and Society National Bank, as Rights Agent. Filed as Exhibit 4 to Schedule 13D filed on October 12, 1993, and incorporated herein by reference. 4.6 Deposit Agreement, dated July 27, 1991, by and between old KeyCorp and Chase Manhattan Bank. Filed as Exhibit 4(c) to old KeyCorp's Registration Statement on Form S-3 (Registration No. 33-40633), and incorporated herein by reference. 10 13 10.1 KeyCorp Short Term Incentive Compensation Plan. 10.2 KeyCorp Long Term Cash Incentive Compensation Plan. 10.3 Society Corporation Long-Term Incentive Compensation Plan (November 30, 1993 Restatement). Filed as Exhibit 10.2 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.4 Society Corporation Supplemental Retirement Plan (January 1, 1993 Amendment and Restatement). Filed as Exhibit 10.3 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.5 Society Corporation Excess Benefit Retirement Plan (April 26, 1990 Amendment and Restatement). Filed as Exhibit 10.4 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.6 Society Corporation Supplemental Stock Purchase and Savings Plan (December 30, 1992 Amendment and Restatement). Filed as Exhibit 10.5 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.7 Compensation Continuance Agreement executed between Society Corporation and certain executive officers of Society Corporation as of December 5, 1990. Filed as Exhibit 10.5 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.8 Compensation Continuance Agreement executed between Society Corporation and certain executive officers of Society Corporation as of March 31, 1992. Filed as Exhibit 10.5 to Form 10-K for the year ended December 31, 1992, and incorporated herein by reference. 10.9 Compensation Continuation Agreements executed between Society Corporation and certain executive officers of Society Corporation as of June 24, 1993. Filed as Exhibit 10.8 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.10 Amended and Restated Employment Agreement between KeyCorp and Victor J. Riley, Jr., dated February 15, 1995. 10.11 Amended and Restated Employment Agreement between KeyCorp and Robert W. Gillespie, dated December 20, 1993. Filed as Exhibit 10.10 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.12 Employment Agreement between KeyCorp and Roger Noall, dated February 4, 1994. Filed as Exhibit 10.11 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.13 Agreement dated August 16, 1990, between Society Corporation and George H. Cress. Filed as Exhibit 10.10 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.14 Employment Agreement between KeyCorp and Gary Allen, dated July 1, 1993. 10.15 KeyCorp Director Deferred Compensation Plan (January 1, 1995 Restatement). 10.16 Society Corporation Compensation Arrangement Relating to Financial Planning and Tax Services. Filed as Exhibit 10.12 to Form 10-K for the year ended December 31, 1990, and incorporated herein by reference. 10.17 KeyCorp Universal Life Insurance Plan. Filed as Exhibit 10.15 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 11 14 10.18 KeyCorp Supplemental Long Term Disability Plan. Filed as Exhibit 10.16 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.19 1985 St. Joseph Bancorporation, Inc. Master Stock Compensation Plan. Filed as Exhibit 10.26 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.20 Trustcorp, Inc. Excess Retirement Plan. Filed as Exhibit 10.27 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.21 Society Corporation 1984 Stock Option Plan, as amended. Filed as Exhibit 10.15 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.22 Society Corporation 1988 Stock Option Plan, as amended. Filed as Exhibit 10.23 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.23 1987 Stock Option Plan of Trustcorp, Inc. Filed as Exhibit 10.24 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.24 1981 Incentive Stock Option Plan of Toledo Trustcorp, Inc. Filed as Exhibit 10.25 to Form 10-K for the year ended December 31, 1989, and incorporated herein by reference. 10.25 KeyCorp Amended and Restated 1991 Equity Compensation Plan. Filed as part of KeyCorp's Proxy Statement for its 1994 Annual Meeting of Shareholders, File No.1-11302, and incorporated herein by reference. 10.26 Restatement of the Ameritrust Long-Term Incentive Plan as the Ameritrust Stock Option Plan. Filed as Exhibit 10.25 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.27 Trust Agreement (Executive Benefits Rabbi Trust), dated November 3, 1988. Filed as Exhibit 10.26 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.28 Ameritrust Corporation Excess Benefit Plan. Filed as Exhibit 10.29 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. 10.29 Ameritrust Corporation Deferred Compensation Plan. Filed as Exhibit 10.30 to Form 10-K for the year ended December 31, 1991, and incorporated herein by reference. **10.30 Old KeyCorp Supplemental Disability Benefit Plan (Specimen Document). 10.31 Form of Severance Agreement for old KeyCorp executives. Filed as Exhibit 10.35 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.32 Form of Employment Agreement for old KeyCorp executives. Filed as Exhibit 10.36 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.33 Form of Amendment to Employment Agreement and Severance Agreement for Old KeyCorp executives. Filed as Exhibit 10.37 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. 10.34 Form of Amendment to Change of Control Agreement for Society executives, dated December 20, 1993. Filed as Exhibit 99(i) to Registration Statement on Form S-4 filed December 28, 1993 (Registration No. 33-51717), and incorporated herein by reference. 12 15 10.35 Form of Change of Control Agreement for old KeyCorp executives and Society executives, dated December 20, 1993. Filed as Exhibit 99(j) to Registration Statement on Form S-4 filed December 28, 1993 (Registration No. 33-51717), and incorporated herein by reference. 10.36 Form of Change of Control Agreement for old KeyCorp executives, dated February 25, 1994. 10.37 KeyCorp Directors' Stock Option Plan (November 17, 1994 Restatement). 10.38 KeyCorp 1988 Stock Option Plan, as amended. Filed as Exhibit 10.42 to Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. **10.39 KeyCorp Deferred Compensation Plan for Directors, effective June 1, 1990. **10.40 KeyCorp Executive Deferred Compensation Plan, effective June 1, 1990. **10.41 KeyCorp Survivor Benefit Plan, effective September 1, 1990. **10.42 KeyCorp Directors' Survivor Benefit Plan, effective September 1, 1990. **10.43 KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective July 1, 1990 and restated August 16, 1990. **10.44 KeyCorp Umbrella Trust for Executives, between KeyCorp and National Bank of Detroit dated July 1, 1990. **10.45 KeyCorp Umbrella Trust for Directors, between KeyCorp and National Bank of Detroit dated July 1, 1990. **10.46 Employment Agreement between old KeyCorp and William H. Dougherty dated August 15, 1991. 11 Statement re: Computation of Per Share Earnings. 12 Statement re: Computation of Ratios 13 KeyCorp 1994 Annual Report to Shareholders. 21 Subsidiaries of the Registrant. 23 Consent of Ernst & Young, Independent Auditors. 24 Powers of Attorney. 27 Financial Data Schedule. The Corporation hereby agrees to furnish the Securities and Exchange Commission upon request, copies of instruments outstanding, including indentures, which define the rights of long-term debt security holders. All documents listed as Exhibits 10.1 through 10.47 constitute management contracts or compensatory plans or arrangements. * Copies of these Exhibits have been filed with the Securities and Exchange Commission. Shareholders may obtain a copy of any exhibit, upon payment of reproduction costs, by writing Mr. Jay S. Gould, Investor Relations, at 127 Public Square (Mailcode OH-01-27-0406), Cleveland, OH 44114-1306. ** These Exhibits are incorporated by reference from old KeyCorp's Current Report on Form 8-K dated March 9, 1992. 13 16 (B) REPORTS ON FORM 8-K October 17, 1994 - Item 5. Other Events and Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits. Reporting that the Registrant issued a press release on October 17, 1994, announcing its earnings results for the three- and nine-month periods ended September 30, 1994. December 15, 1994 - Item 5. Other Events. Reporting that the Registrant issued a press release announcing plans to reduce its exposure to higher interest rates through a combination of strategies that may result in pretax losses of up to $100 million, and that 1994 earnings per Common Share would be in the range of $3.45 and $3.50. 14 17 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on the date indicated. KEYCORP /s/ Carter B. Chase Carter B. Chase Executive Vice President, General Counsel and Secretary March 27, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Signature Title - --------- ----- --------- ----- *Victory J. Riley, Jr. Chairman of the Board, *John C. Dimmer Director Chief Executive Officer, and Director (Principal Lucie J. Fjeldstad Director Executive Officer) *Stephen R. Hardis Director *Robert W. Gillsepie President, Chief Operating Officer, and *Henry S. Hemingway Director Director (Principal Operating Officer) *Charles R. Hogan Director *James W. Wert Senior Executive Vice *Lawrence A. Leser Director President and Chief Financial Officer *Steven A. Minter Director (Principal Financial Officer) *M. Thomas Moore Director *Lee Irving Executive Vice *John C. Morley Director President, Treasurer and Chief Accounting *Richard W. Pogue Director Officer (Principal Accounting Officer) *Robert A. Schumacher Director *H. Douglas Barclay Director *Ronald B. Stafford Director *William G. Bares Director *Dennis W. Sullivan Director *Albert C. Bersticker Director *Peter G. Ten Eyck, II Director *Thomas A. Commes Director *Nancy B. Veeder Director *Kenneth M. Curtis Director *By Carter B. Chase, attorney-in-fact March 27, 1995
15 EX-10.1 2 KEYCORP EX-10.1 1 KEYCORP SHORT TERM INCENTIVE COMPENSATION PLAN KeyCorp (the "Corporation") hereby establishes this Short Term Incentive Compensation Plan for the purpose of providing an incentive to selected key officers of the Corporation and its subsidiaries. ARTICLE I DEFINITIONS ----------- For the purposes hereof, the following words and phrases shall have the meanings indicated: 1. A "Beneficiary" shall mean any person designated by a Participant in accordance with the Plan to receive payment of all or a portion of any Incentive Compensation Award for which the Participant is eligible at the time of the Participant's death or the remaining balance of the Deferred Compensation Account in the event of the death of the Participant prior to receipt by such Participant of the entire amount credited to the Participant's Deferred Compensation Account. 2. The "Committee" shall mean the Compensation and Organization Committee of the Board of Directors of the Corporation, or another Committee of the Board of Directors hereafter succeeding to the responsibilities currently performed by the Compensation and Organization Committee. 3. A "Deferred Compensation Account" shall mean the bookkeeping account on which the amount of the Incentive Compensation Award that is deferred, pursuant to Section 4 of Article II, shall be recorded and on which interest shall be credited in accordance with the Plan. 4. An "Incentive Compensation Award" shall mean the incentive which may be paid to a Participant pursuant to the Plan for any calendar year. ACS94139/1 2 5. "Market Point" shall mean for any Participant for any calendar year the market point (as determined under the Corporation's salary administration program) of such Participant's job grade at the end of the calendar year; provided, however, that if, from and after July 1, 1994, the Corporation changes such Participant's job grade during any such calendar year or such Participant is promoted, transferred, or otherwise moves into a different job grade during such calendar year, then such Market Point shall be calculated on a pro rata basis for each of the periods in which such job grades were in effect for such participant. 6. A "Participant" shall mean a senior officer of the Corporation or one of its subsidiaries who is selected by the Committee to participate in the Plan. 7. The "Plan" shall mean this Short Term Incentive Compensation Plan, together with all amendments hereto. 8. "Plan Year" shall mean each calendar year for which the Plan remains in existence. 9. "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 80 percent or more of the issued and outstanding stock is owned by the Corporation or by a Subsidiary of the Corporation. 10. The "Target Incentive Compensation Pool" shall mean the aggregate amount, as determined in accordance with Article II of the Plan, of the aggregate individual target bonuses of Participants. 11. "Target Pool Percentage" shall mean the percentage determined pursuant to Article II, Section 2 below that will be used to establish the aggregate amount available for incentive compensation awards. ACS94139/2 3 ARTICLE II INCENTIVE COMPENSATION AWARDS ----------------------------- 1. PARTICIPATION. Annually, the Committee shall select the Participants in the Plan for the Plan Year. In general, the selection will be made prior to the beginning of each Plan Year or as soon thereafter as is reasonably possible; in addition, such selection may be made at any time during a Plan Year in the case of a newly hired employee or an employee that receives a new position. Not in limitation of the foregoing, the Committee shall have the authority to designate at the beginning of a Plan Year, or as soon thereafter as is reasonably possible, employees in selected job grades as Participants, including any employee that may later be hired or promoted into any such job grade during the Plan Year, without further action on behalf on the Committee. Participants shall be notified of their selection in writing. In the event that employees are determined to be participants by job grade, the Chief Executive Officer, or his designee, may select additional eligible employees for Plan Participation notwithstanding their job grade. Employees otherwise eligible for participation because of their job grade shall be excluded if they are participants in business unit or similar incentive compensation plans. 2. INCENTIVE COMPENSATION POOL. As soon as practical after the end of each Plan Year, the Committee shall determine the Target Pool Percentage (not to exceed 200%) to be applied to the Target Incentive Compensation Pool to establish the maximum aggregate amount to be distributed as Incentive Compensation Awards. The guidelines for determining the percentage shall be determined by the Committee prior to the Plan Year or as soon thereafter as is reasonably possible. ACS94139/3 4 Such individual target bonuses for persons selected to be in the Plan are as follows:
Incentive Salary Target Bonus As a Group Grades Percent of Market Point --------- ------ ----------------------- I 95-96 50% II 94 45% III 92-93 40% IV 90-91 35% V 89 30% VI 88 25% VII 87 20% VIII 85-86 15% IX 84 and below 10%
Target bonuses for Participants who are eligible for part of the Plan Year or whose incentive group assignment changed during the Plan Year will be calculated on a pro rata basis for both the period of each incentive group assignment and the period during the Plan Year in which the Participant was an Eligible Employee. In the event that an individual whose job does not have an assigned salary grade is approved for participation in the Plan, the Chief Executive Officer, or his designee, is authorized to select a Target Bonus percentage for such individual and base the calculation of Target Bonus and other calculations under this Plan on such individual's base salary. 3. INCENTIVE COMPENSATION AWARDS. The Committee will determine the amount of the Incentive Compensation Award for each Participant. No Incentive Compensation Award may exceed the Participant's target bonus for the Plan Year multiplied by the greater of (a) two hundred percent (200%) or (b) one hundred fifty percent (150%) of the Target Pool Percentage. The Committee may determine that a Participant shall receive no Incentive Compensation Award for the Plan Year. Ordinarily, Incentive Compensation Awards shall be made only to Participants who are actively employed at the end of the Plan Year; however, Participants who retire or become disabled during a Plan Year, or the Beneficiary(s) or estate of a Participant ACS94139/4 5 whose death occurs during a plan year shall be entitled to, on a pro rata basis (for the period of time the Participant was in the Plan for the Plan Year) the lesser of (i) the Participant's Target Bonus or (ii) the Participant's Target Bonus times the Target Pool Percentage if the Committee determines a Target Pool Percentage of less than 100%. 4. PAYMENT OF INCENTIVE COMPENSATION AWARD. A Participant who desires to defer payment of all or a portion of the Participant's Incentive Compensation Award for any Plan Year must complete and deliver an election agreement to the Corporation no later than December 31 of the year prior to the Plan Year or as soon thereafter as is reasonably possible; provided, however, that if a person becomes a Participant during a Plan Year, such election must be filed within thirty (30) days after the Participant is selected as a Participant. Such election shall be irrevocable. Amounts deferred shall be credited to the Deferred Compensation Account, and amounts paid in cash shall be paid on or prior to March 15 of the year following the Plan Year. If a Participant elects to defer payment of all or a portion of the Incentive Compensation Award, the Corporation shall establish a Deferred Compensation Account, and payment of the amounts reflected therein shall be in accordance with Article II, Section 6. Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority to authorize payment or credit to a Deferred Compensation Account, whichever the Participants shall have selected, of all or a portion of all Incentive Compensation Awards prior to the end of the Plan Year, and if a portion, the Corporation shall pay or credit, whichever the Participants shall have selected, the remaining portion of the Award on or prior to March 15 of the year following the Plan Year. Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority to require deferral of payment of all or a portion of all Incentive Compensation Awards due to any Plan Participant if the Committee determines that, based on the Corporation's estimated financial results, the Corporation ACS94139/5 6 would be denied a deduction for federal income tax purposes for such Award or the portion thereof by reason of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder, if the Award or the portion thereof were not so deferred. Such deferred Incentive Compensation Awards, or the portion thereof, shall be treated as Incentive Compensation deferred under Section 5 below and shall be payable to the Participant at such time as the Committee, in its sole discretion, determines that such Award, or the portion thereof, would be so deductible, but not later than thirty (30) days following the fiscal year in which the Participant terminates employment with the Corporation and its subsidiaries. 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. 5. DEFERRED COMPENSATION ACCOUNT. The amount of any Incentive Compensation Award that is deferred shall be treated as if it were set aside in a Deferred Compensation Account on the date the Incentive Compensation Award would otherwise have been paid in cash to the Participant. The balance of such Deferred Compensation Account shall be credited with interest computed quarterly (based on calendar quarters) on the lowest balance of the Deferred Compensation Account during each calendar quarter. The interest credited to the Account shall be 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 most recent calendar month, as published by Moody's Investor Service, Inc. (or any successor published thereto), or, if such index is no longer published, a substantially similar index selected by the Committee. 6. PAYMENT OF DEFERRED COMPENSATION ACCOUNT. Payment of the Deferred Compensation Account shall be made in accordance with the election made by the Participant. ACS94139/6 7 Notwithstanding the foregoing, the Committee may, in its sole discretion, accelerate the making of payment of all or any portion of the amount of the Deferred Compensation Account to a Participant in the case of any of the following events: (a) An "unforeseeable emergency" of the Participant, which shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the individual if such withdrawal were not permitted. The amount of the withdrawal that is permitted under this subparagraph (a) is limited to the amount necessary to meet such emergency. (b) Upon the written request of a Participant, provided that (i) the Committee determines that such withdrawal would not be adverse to the best interests of the Corporation, (ii) the Participant forfeits an amount equal to 10% of the amount requested, and (iii) the Participant is disqualified from deferring the next Incentive Compensation Award for which the Participant would be eligible to defer under this Plan. (c) Upon the written request of a Participant, provided that (i) the Participant agrees to apply all of the net distributed amount (after reduction for applicable payroll taxes) to purchase the Corporation's Common Shares through the exercise of stock options or otherwise, (ii) the Participant agrees to hold the Corporation's Common Shares so purchased for a period of time determined by the Committee, which period shall terminate no earlier than the Participant's termination of employment with the Corporation and any Subsidiary, and (iii) the Participant agrees to such other limitations, restrictions, and potential penalties as determined by Committee to be applicable in connection with the distribution. 7. DEATH OF PARTICIPANT. In the event of the death of a Participant prior to receipt by such participant of the entire amount of the Participant's Deferred Compensation Account, such amount shall be paid to the Beneficiary or Beneficiaries designated in writing by the Participant; in the event there is more than one Beneficiary, such designation shall include the proportion to be paid to each ACS94139/7 8 Beneficiary and indicate the disposition of such share if a Beneficiary does not survive the Participant. The payment of the remaining amount of a Participant's Deferred Compensation Account shall be in a lump sum or in installments in accordance with the Participant's election agreement. A Participant's Beneficiary designation may be changed at any time prior to the Participant's death by written notice signed by the Participant and received by the Corporation unless the Participant states on the designation form that such election is irrevocable. The Beneficiary designation 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 all Beneficiaries to survive the Participant, the remaining amount of the Deferred Compensation Account shall be paid to the Participant's estate in a lump sum within ninety days after the appointment of an executor or administrator. The Committee may, in its sole discretion, accelerate the making of payment to a Beneficiary of the amount of a Deferred Compensation Account in the event of unforeseeable emergency as defined in Section 6 above. In the event of the death of a Beneficiary after payments to the Beneficiary have commenced, the remaining amount of the Deferred Compensation Account payable to such Beneficiary shall be paid to such Beneficiary's estate in a lump sum within ninety days after the appointment of an executor or administrator. ARTICLE III ADMINISTRATION -------------- The Corporation shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Committee 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 a Deferred Compensation 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, ACS94139/8 9 including any questions of construction. The Corporation and the Committee may take such further action as the Corporation and the Committee shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Corporation and the Committee hereunder shall be final and binding upon all interested parties. In accordance with the provisions of Section 503 of the Employee Retirement Income Security Act of 1974, as amended, the Committee shall provide a procedure for handling claims of Participants or their Beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable period of time with respect to the denial of any such claims as well as a reasonable opportunity for a full and fair review by the Committee of any such denial. Notwithstanding anything to the contrary contained herein, the Corporation shall be the "administrator" for the purpose of the Employee Retirement Income Security Act of 1974, as amended. Any action authorized under the Plan to be done by the Committee may be done by the Board of Directors or any other Board Committee authorized by the Board of Directors. 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 or a duly authorized Committee thereof; provided, however, that no such action shall adversely affect any Participant or Beneficiary with respect to the amount credited to a Deferred Compensation Account. ARTICLE V MISCELLANEOUS ------------- 1. NON ALIENATION OF DEFERRED COMPENSATION ACCOUNT. No Participant or Beneficiary shall encumber or dispose of the right to receive any payment of the amount of a Deferred Compensation Account hereunder without the written consent of the Corporation. If a Participant or Beneficiary without the written consent of the ACS94139/9 10 Corporation attempts to assign, transfer, alienate, or encumber the right to receive the amount of a Deferred Compensation Account hereunder or permits the same to be subject to alienation, garnishment, attachment, execution, or levy of any kind, then the Committee, in its discretion, may hold or pay such amount or any part thereof to or for the benefit of such Participant or Beneficiary, the Participant's or Beneficiary's spouse, children, blood relatives, or other dependents, or any of them, in such manner and in such proportions as the Committee may consider proper. Any such application of the amount of a Deferred Compensation Account may be made without the intervention of a guardian. The receipt by the payee(s) of such payment(s) shall constitute a complete acquittance to the Corporation with respect thereto, and neither the Corporation, nor any Subsidiary, nor the Committee, nor any officer, member, employee, or agent thereof, shall have any responsibility for the proper application thereof. 2. NOT AN EMPLOYMENT AGREEMENT. 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 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 Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 3. 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. 4. ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a Subsidiary or any officer or employee of the Corporation or a ACS94139/10 11 Subsidiary shall be liable for any act or action hereunder, whether of commission or omission. 5. SEVERABILITY. The invalidity or unenforceability of any particular provisions 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. 6. GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. EXECUTED at Cleveland, Ohio as of the 14 day of Sept., 1994. KEYCORP /s/ Roger Noall By: _________________________ Roger Noall, Senior Executive Vice President and Chief Administrative Officer ACS94139/11 EX-10.2 3 KEYCORP EX-10.2 1 KEYCORP LONG TERM CASH INCENTIVE COMPENSATION PLAN KeyCorp (the "Corporation") hereby establishes this Long Term Cash Incentive Compensation Plan for the purpose of providing an incentive to selected senior officers of the Corporation and its subsidiaries. ARTICLE I DEFINITIONS ----------- For the purposes hereof, the following words and phrases shall have the meanings indicated: 1. A "Beneficiary" shall mean any person designated by a Participant in accordance with the Plan to receive payment of all or a portion of any Incentive Compensation Award for which the Participant is eligible at the time of the Participant's death or the remaining balance of the Deferred Compensation Account in the event of the death of the Participant prior to receipt by such Participant of the entire amount credited to the Participant's Deferred Compensation Account. 2. A "Change of Control" shall be deemed to have occurred if at any time 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 one other corporation owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock of the Corporation or any successor to the Corporation by merger, consolidation, or otherwise. (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, at any time within 24 months after the effective ACS94136/1 2 date of that transaction, individuals who were directors of the Corporation on the day after the last annual meeting of shareholders of the Corporation occurring before the transaction cease for any reason to constitute at least 40% 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 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, (i) after giving effect to such transaction, less than 40% 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, and (ii) at any time within 24 months after the effective date of that transaction, individuals who were directors of the Corporation on the day after the last annual meeting of shareholders of the Corporation occurring before that effective date 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. (c) A Change of Control will have occurred under this clause (c) if any of the events described in (i), (ii), (iii), or (iv) of this clause (c) (a "Change Event") occurs, but only if the condition set out in (x) or the condition set out in (y) of this clause (c) applies. The Change Events described in (i), (ii), (iii), and (iv) of this clause (c) are as follows: ACS94136/2 3 (i) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as adopted under the 1934 Act, disclosing the acquisition of 25% or more of the voting stock of the Corporation in a transaction or series of transactions by any person (as the term "person" is used in Section 13(d) and Section 14(d)(2) of the 1934 Act (a "Person")). (ii) 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 represent or were issued in exchange for voting securities of the Corporation outstanding immediately prior to such transaction. (iii) 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. (iv) The shareholders of the Corporation approve any plan or proposal for the liquidation or dissolution of the Corporation. The conditions set out in (x) and (y) of this clause (c) are as follows: (x) A Change Event occurred in connection with a transaction that was not approved or recommended by the Corporation Board of Directors. (y) A Change Event occurred in connection with a transaction that was approved or recommended by the Corporation Board of Directors but only if, within the 24 month period ending on the date of that Change Event, the Corporation had been "put in ACS94136/3 4 play" without the prior approval, solicitation, invitation, or recommendation of the Corporation Board of Directors. For purposes of this (y), the Corporation will be deemed to have been "put in play" if any Person makes a public announcement of an intention (I) to engage in a transaction with the Corporation that, if consummated, would result in a Change Event, or (II) to "solicit" proxies in connection with a proposal that is not approved or recommended by the Corporation Board of Directors or to engage in an "election contest" relating to the election of Directors of the Corporation (as those terms are used in Regulation 14A under the 1934 Act). (d) A Change of Control will have occurred under this clause (d) if any Person announces an intention to engage in an "election contest" relating to the election of Directors of the Corporation (as that term is defined in Regulation 14 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 after the last annual meeting of shareholders of the Corporation occurring before that announcement, constituted the directors of the Corporation cease for any reason to constitute at least a majority thereof. 3. The "Committee" shall mean the Compensation and Organization Committee of the Board of Directors of the Corporation, or another Committee of the Board of Directors hereafter succeeding to the responsibilities currently performed by the Compensation and Organization Committee. 4. "Compensation Cycle" shall mean a period consisting of three consecutive calendar years. ACS94136/4 5 5. A "Deferred Compensation Account" shall mean the bookkeeping account on which the amount of the Incentive Compensation Award that is deferred, pursuant to Section 4 of Article II, shall be recorded and on which interest shall be credited in accordance with the Plan. 6. An "Incentive Compensation Award" shall mean the incentive which may be paid to a Participant pursuant to the Plan. 7. "Market Point" shall mean for any Participant the average market point (as determined under the Corporation's salary administration program) of such Participant's job grade at the end of each of the three years of the applicable Compensation Cycle; provided, however, that if, on or after July 1, 1994, the Corporation changes such Participant's job grade during any such year or such Participant is promoted, transferred, or otherwise moves into a different job grade during such year, then such Market Point shall be calculated on a pro rata basis for each of the periods in which such job grades were in effect for such participant. 8. A "Participant" shall mean a senior officer of the Corporation or one of its subsidiaries who is selected by the Committee to participate in the Plan. 9. The "Plan" shall mean this Long Term Cash Incentive 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 80 percent or more of the issued and outstanding stock is owned by the Corporation or by a Subsidiary of the Corporation. ARTICLE II INCENTIVE COMPENSATION AWARDS ----------------------------- 1. PARTICIPATION. Annually, the Committee shall select the Participants in the Plan for the Compensation Cycle and shall determine whether such Participant shall be in Incentive Group I, Incentive Group II, or Incentive Group III. The selection will ACS94136/5 6 be made prior to the beginning of each Compensation Cycle or as soon thereafter as is reasonably possible; additional selections for such Compensation Cycle may not thereafter be made. Participants shall be notified of their selection in writing. 2. INCENTIVE COMPENSATION AWARDS. The Incentive Compensation Awards are determined by applying a percentage to each Participant's target bonus. The formula for determining the percentage shall be based on return on common equity of the Corporation for the Compensation Cycle (i.e., average annual return on common equity) and such formula shall be established by the Committee prior to the beginning of a Compensation Cycle or as soon thereafter as is reasonably possible. The Committee, in its sole discretion, may discontinue the participation of an individual Participant; any such discontinued Participant shall receive a pro rata Incentive Compensation Award based on a fraction the numerator of which is the number of months of the Compensation Cycle that are completed prior to such discontinuance and the denominator of which is 36.
Individual target bonuses are as follows: TARGET BONUS AS A INCENTIVE GROUP PERCENT OF MARKET --------------- ----------------- POINT ----- I 30% II 25% III 20%
In the event that the Committee approves participation in the Plan for an individual whose job does not have an assigned salary grade, the Committee is authorized to base the calculation of Target Bonus and other calculations under this Plan on such individual's base salary. As soon as practical after the end of each Compensation Cycle, the Corporation shall compute the amount of the Incentive Compensation Awards payable under the Plan for such Compensation Cycle in accordance with the percentage determined by the formula. The Committee, after consulting with the Chief ACS94136/6 7 Executive Officer or in its sole discretion, reserves the right to increase or decrease by the same percentage the Incentive Compensation Awards of all Participants on the basis of extraordinary circumstances that affected the Corporation's financial performance; provided, however, if there occurs a Change of Control, such authority to decrease the Incentive Compensation Awards shall not apply to any Incentive Compensation Award, or any portion of Incentive Compensation Award, earned on or prior to such Change of Control. 3. PAYMENT UPON DEATH, DISABILITY, RETIREMENT, AND PLAN TERMINATION. Participants who retired or were disabled during a Compensation Cycle, or the Beneficiary(s) or the estate of a Participant whose death occurred during a Compensation Cycle, shall receive a pro rata Incentive Compensation Award after completion of the Compensation Cycle; such pro rata payment shall be based on a fraction the numerator of which is the number of months of the Compensation Cycle that are completed prior to such change in status and the denominator of which is 36. If a Participant terminates employment during the Compensation Cycle for any reason other than retirement, disability, or death, no Incentive Compensation Award shall be payable to such Employee. In the event that a Participant dies prior to receiving an Incentive Compensation Award, the Corporation shall pay any such Incentive Compensation Award to the Participant's estate, unless the Participant designates in writing that payment shall be made to a Beneficiary or Beneficiaries. Such designation 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 event of any termination of this Plan for any reason, the guidelines or formulas for determining the Incentive Compensation Awards shall be based on the performance of the Corporation from the beginning of such Compensation Cycle to the calendar month end occurring just prior to the effective date of the termination of the Plan. In the event of any such termination of the Plan, the Committee shall have no ACS94136/7 8 right to decrease the Incentive Compensation Awards computed in accordance with this Section and Article II, Section 2 above. If this Plan is terminated during a Compensation Cycle for any reason, including but not limited to a termination caused by a Change of Control, each Participant shall receive a pro rata Incentive Compensation Award based on the number of full months of the Compensation Cycle that are completed prior to such termination of the Plan. In the event of any such plan termination, the Corporation shall base such pro rata Incentive Compensation Awards on the Corporation's performance for each full year of any current Compensation Cycle and, for the year in which the termination occurs, on the number of full months of such year prior to the effective date of such Plan termination; the Corporation shall retain the services of the independent public accountants used by the Corporation (prior to the plan termination) to determine the financial performance for such partial year. The Corporation shall then calculate such pro rata Incentive Compensation Award using the Corporation's performance for each such full year and such partial year as determined above (i.e., average monthly return on equity). 4. PAYMENT OF INCENTIVE COMPENSATION AWARD. A Participant who desires to defer payment of all or a portion of the Participant's Incentive Compensation Award for a specific Compensation Cycle must complete and deliver an election agreement to the Corporation within thirty (30) days after the Participant is selected as a participant for such Compensation Cycle or as soon thereafter as is reasonably possible. Such election shall be irrevocable. Amounts deferred shall be credited to the Deferred Compensation Account, and amounts paid in cash shall be paid, on or prior to March 15 of the calendar year following the end of the Compensation Cycle. If a Participant elects to defer payment of all or a portion of the Incentive Compensation Award, the Corporation shall establish a Deferred Compensation Account, and payment of the amounts reflected therein shall be in accordance with Article II, Section 6. ACS94136/8 9 Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority based on the Corporation's estimated financial results for the Compensation Cycle to authorize payment or credit to a Deferred Compensation Account, whichever the Participants shall have selected, of all or a portion of all Incentive Compensation Awards prior to the end of the Compensation Cycle, and if a portion, the Corporation shall pay or credit, whichever the Participants shall have selected, the remaining portion of the Award on or prior to March 15 of the calendar year following the end of the Compensation Cycle. Notwithstanding any other provision of the Plan, the Committee, in its sole discretion, shall have the authority to require deferral of payment of all or a portion of all Incentive Compensation Awards due to any Plan Participant if the Committee determines that, based on the Corporation's estimated financial results, the Corporation would be denied a deduction for federal income tax purposes for such Award or the portion thereof by reason of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations issued thereunder, if the Award or the portion thereof were not so deferred. Such deferred Incentive Compensation Awards, or the portion thereof, shall be treated as Incentive Compensation deferred under Section 5 below and shall be payable to the Participant at such time as the Committee, in its sole discretion, believes that such Award, or the portion thereof, would be so deductible, but not later than thirty (30) days following the fiscal year in which the Participant terminates employment with the Corporation and its subsidiaries. All payments of Incentive Compensation Awards shall be in cash from the general assets of the Corporation or a Subsidiary, and Participants shall have the status of general unsecured creditors of the Corporation. Incentive Compensation Awards payable under the Plan constitute a mere promise by the Corporation to make such payments in the future. ACS94136/9 10 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. 5. DEFERRED COMPENSATION ACCOUNT. The amount of any Incentive Compensation Award that is deferred shall be treated as if it were set aside in a Deferred Compensation Account on the date the Incentive Compensation Award would otherwise have been paid in cash to the Participant. The balance of such Deferred Compensation Account shall be credited with interest computed quarterly (based on calendar quarters) on the lowest balance of the Deferred Compensation Account during each calendar quarter. The interest credited to the Account shall be 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 most recent calendar month, as published by Moody's Investor Service, Inc. (or any successor published thereto), or, if such index is no longer published, a substantially similar index selected by the Committee. 6. PAYMENT OF DEFERRED COMPENSATION ACCOUNT. Payment of the Deferred Compensation Account shall be made in accordance with the Participant's election agreement. Notwithstanding the foregoing, the Committee may, in its sole discretion, accelerate the making of payment of all or any portion of the amount of the Deferred Compensation Account to a Participant in the case of any of the following events: (a) An "unforeseeable emergency" of the Participant, which shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the individual if such withdrawal were not permitted. The amount of the withdrawal that is permitted under this subparagraph (a) is limited to the amount necessary to meet such emergency. ACS94136/10 11 (b) Upon the written request of a Participant, provided that (i) the Committee determines that such withdrawal would not be adverse to the best interests of the Corporation, (ii) the Participant forfeits an amount equal to 10% of the amount requested, and (iii) the Participant is disqualified from deferring the next Incentive Compensation Award for which the Participant would be eligible to defer under this Plan. (c) Upon the written request of a Participant, provided that (i) the Participant agrees to apply all of the net distributed amount (after reduction for applicable payroll taxes) to purchase the Corporation's Common Shares through the exercise of stock options or otherwise, (ii) the Participant agrees to hold the Corporation's Common Shares so purchased for a period of time determined by the Committee, which period shall terminate no earlier than the Participant's termination of employment with the Corporation and any Subsidiary, and (iii) the Participant agrees to such other limitations, restrictions, and potential penalties as determined by Committee to be applicable in connection with the distribution. Payment of any such withdrawal under this Section 6 will be paid out of one year deferrals first and then out of retirement deferrals. 7. DEATH OF PARTICIPANT. In the event of the death of a Participant prior to receipt by such participant of the entire amount of the Participant's Deferred Compensation Account, such amount shall be paid to the Beneficiary or Beneficiaries designated in writing by the Participant; in the event there is more than one Beneficiary, such designation 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. The payment of the remaining amount of a Participant's Deferred Compensation Account shall be in a lump sum or in installments in accordance with the Participant's election agreement. A Participant's Beneficiary designation may be changed at any time prior to the Participant's death by written notice signed by the ACS94136/11 12 Participant and received by the Corporation unless the Participant states on the designation form that such election is irrevocable. The Beneficiary designation 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 all Beneficiaries to survive the Participant, the remaining amount of the Deferred Compensation Account shall be paid to the Participant's estate in a lump sum within ninety days after the appointment of an executor or administrator. The Committee may, in its sole discretion, accelerate the making of payment to a Beneficiary of the amount of a Deferred Compensation Account in the event of unforeseeable emergency as defined in Section 6 above. In the event of the death of a Beneficiary after payments to the Beneficiary have commenced, the remaining amount of the Deferred Compensation Account payable to such Beneficiary shall be paid to such Beneficiary's estate in a lump sum within ninety days after the appointment of an executor or administrator. ARTICLE III ADMINISTRATION -------------- The Corporation shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Committee 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 a Deferred Compensation 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 and the Committee may take such further action as the Corporation and the Committee shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Corporation and the Committee hereunder shall be final and binding upon all interested parties. In accordance with the provisions of Section 503 of the Employee Retirement ACS94136/12 13 Income Security Act of 1974, as amended, the Committee shall provide a procedure for handling claims of Participants or their Beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable opportunity for a full and fair review by the Committee of any such denial. Notwithstanding anything to the contrary contained herein, the Corporation shall be the "administrator" for the purpose of the Employee Retirement Income Security Act 1974, as amended. Any action authorized under this Plan to be done by the Committee may be done by the Board of Directors or any other Board Committee authorized by the Board of Directors. ARTICLE IV AMENDMENT AND TERMINATION ------------------------- The Corportation reserves the right to amend or terminate the Plan at any time by action of its Board of Directors or a duly authorized Committee thereof; provided, however, that no such action shall adversely affect any Participant or Beneficiary with respect to the amount credited to a Deferred Compensation Account. Unless the Committee determines otherwise, this Plan shall be automatically terminated on the effective date of any Change in Control. ARTICLE V MISCELLANEOUS ------------- 1. Non alienation of Deferred Compensation Account. No Participant or Beneficiary shall encumber or dispose of the right to recieve any payment of the amount of a Deferred Compensation Account hereunder without the written consent of the Corporation attemps to assign, transfer, alienate, or encumber the right to recieve the amount of a Deffered Compensation Account hereunder or permits the same to be subject to alienation, garnishment, attachment, execution, or levy of any kind, then the ACS94136/13 14 Committee, in its discretion, may hold or pay such amount or any part thereof to or for the benefit of such Participant or Beneficiary, the Participant's or Beneficiary's spouse, children, blood relatives, or other dependents, or any of them, in such manner and in such proportions as the Committee may consider proper. Any such application of the amount of a Deferred Compensation Account may be made without the intervention of a guardian. The receipt by the payee(s) of such payment(s) shall constitute a complete acquittance to the Corporation with respect thereto, and neither the Corporation, nor any Subsidiary, nor the Committee, nor any officer, member, employee, or agent thereof, shall have any responsibility for the proper application thereof. 2. NOT AN EMPLOYMENT AGREEMENT. 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 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 Participants shall remain subject to discharge to the same extent as if the Plan had never been put into effect. 3. 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 as 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. 4. ABSENCE OF LIABILITY. No member of the Board of Directors of the Corporation or a Subsidiary or any officer or employee of the Corporation or a Subsidiary shall be liable for any act or action hereunder, whether of commission or omission. ACS94136/14 15 5. SEVERABILITY. The invalidity or unenforceability of any particular provisions 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. 6. GOVERNING LAW. The provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. 7. OLD PLAN. This plan supersedes the Society Corporation Long Term Incentive Compensation Plan (November 30, 1993 Restatement) which plan shall continue to govern Incentive Compensation Awards for the 1992-1994 and 1993-1995 Compensation Cycles. EXECUTED AT Cleveland, Ohio, as of the 14 day of Sept., 1994. KEYCORP /s/ Roger Noall By: ______________________________________ Roger Noall, Senior Executive Vice President and Chief Administrative Officer ACS94136/15 EX-10.10 4 KEYCORP EX-10.10 1 EMPLOYMENT AND CONSULTING AGREEMENT ----------------------------------- THIS EMPLOYMENT AND CONSULTING AGREEMENT (this "Agreement") is made at Cleveland, Ohio, as of February 15, 1995, between KeyCorp, an Ohio corporation ("KeyCorp"), and VICTOR J. RILEY, JR. ("Riley"). WHEREAS, KeyCorp and Riley are parties to an employment agreement dated as of December 20, 1993 (as amended, the "Prior Agreement"), and they now desire to modify certain of the terms pursuant to which Riley will provide services to KeyCorp as an employee, officer, and director through December 31, 1995 and as an independent contractor and director from January 1, 1996 through December 31, 1998; NOW, THEREFORE, in consideration of the mutual covenants herein contained, and other good and valuable consideration, KeyCorp and Riley agree as follows: ARTICLE 1 --------- Employment During 1995 ---------------------- 1.1 EMPLOYMENT. KeyCorp hereby agrees to continue to employ Riley, and Riley agrees to continue to serve as an employee of KeyCorp, during the period from the date hereof through December 31, 1995 (the "Employment Period"), in the capacity of Chief Executive Officer of KeyCorp with the duties and responsibilities that are specified in the Regulations of KeyCorp. During the Employment Period, Riley also shall serve as Chairman of the Board of Directors of KeyCorp (the "Board") and Chairman of the Executive Committee of the Board (the "Executive Committee"). 1.2 DUTIES DURING THE EMPLOYMENT PERIOD. Riley shall devote his full business time, attention, and best efforts to the affairs of KeyCorp and its subsidiaries during the Employment Period; PROVIDED, HOWEVER, that Riley may engage in other activities, such as activities involving professional, charitable, educational, religious, and similar types of organizations, speaking engagements, membership on the board of directors of other organizations, and similar type activities to the extent that such other activities do not inhibit or prohibit the performance of Riley's duties under this Agreement or conflict in any material way with the business of KeyCorp and its subsidiaries. -1- 2 1.3 COMPENSATION FOR SERVICES DURING EMPLOYMENT PERIOD. 1.3.1 BASE ANNUAL SALARY. During the Employment Period, KeyCorp will pay to Riley, as base compensation, salary at the rate of $825,000 per annum, to be paid in substantially equal installments in accordance with KeyCorp's payroll practice. 1.3.2 ANNUAL BONUS. Riley is a participant in the KeyCorp Short Term Incentive Compensation Plan (the "Short Term Plan") for 1994 and will be a participant in the Short Term Plan for 1995. Riley's participation in the Short Term Plan for both 1994 and 1995 shall be governed by the provisions of the Short Term Plan. 1.3.3 PARTICIPATION IN KEYCORP LONG TERM CASH INCENTIVE COMPENSATION PLAN. Riley is a participant in KeyCorp's Long Term Cash Incentive Compensation Plan (the "Long Term Plan") for the 1994-1996 Compensation Cycle and will be a participant in the Long Term Plan for the 1995-1997 Compensation Cycle. Riley's participation in the Long Term Plan for both the 1994-1996 and the 1995-1997 Compensation Cycles shall be governed by the provisions of the Long Term Plan. 1.3.4 1994-1995 PERFORMANCE UNIT PLAN FOR MR. RILEY. Riley is entitled to the benefits of the 1994-1995 Performance Unit Plan for Mr. Riley, a copy of which is attached hereto as Exhibit A. 1.3.5 SPECIAL PROVISION CONCERNING CHANGES IN LAWS. Except as covered by Article 6 hereof, if there are any changes in present or future Federal or state laws which limit or cap incentive compensation payable to Riley under Sections 1.3.2, 1.3.3, and 1.3.4, Riley will, to the extent permitted by applicable law, be compensated in an appropriate form as if said limit or cap did not exist. ARTICLE 2 --------- Services as an Independent Contractor During 1996-1998 ------------------------------------------------------ 2.1 SERVICES. Following termination of his employment with KeyCorp as scheduled on December 31, 1995 and thereafter during the period from January 1, 1996 through December 31, 1998 (the "Independent Contractor Period"), Riley shall serve as Chairman of the Board and as Chairman of the Executive Committee. During the Independent Contractor Period, Riley shall be a director of, and an independent contractor performing specified services for, KeyCorp and he shall not hold any officer or employee position at KeyCorp or at any -2- 3 subsidiary of KeyCorp. Under KeyCorp's Regulations, the positions of Chairman of the Board and Chairman of the Executive Committee are strictly director positions and are not officer positions from and after the date Riley ceases to be Chief Executive Officer. 2.2 DUTIES DURING THE INDEPENDENT CONTRACTOR PERIOD. During the Independent Contractor Period, Riley's duties as Chairman of the Board shall be to preside at meetings of the Board and at the Annual Shareholders' Meeting of KeyCorp and his duties as Chairman of the Executive Committee shall be to preside at meetings of that committee. In addition, as an independent contractor, Riley shall perform such other duties as he may be specifically requested to perform by the Board or by KeyCorp's Chief Executive Officer, but only if Riley, in his sole discretion, expressly agrees to perform such duties, Riley being under no obligation to agree to perform any such additional duties; neither the Board nor KeyCorp's Chief Executive Officer shall control either the time or times (outside of Board or Executive Committee meetings) at which, or the manner in which, Riley performs services during the Independent Contractor Period, all such matters being left to Riley's sole discretion. 2.3 COMPENSATION DURING THE INDEPENDENT CONTRACTOR PERIOD. As base compensation for services to be rendered during the Independent Contractor Period, KeyCorp will pay to Riley the sum of $600,000 per annum (inclusive of KeyCorp's regular retainer and fees payable to nonemployee directors) payable in equal monthly installments of $50,000 each. During the Independent Contractor Period Riley will not be in KeyCorp's incentive compensation plans or other compensation programs for executives. KeyCorp will pay to Riley incentive compensation for services rendered during the Independent Contractor Period in such amounts, if any, as the Compensation and Organization Committee (the "C&O Committee") may determine in its sole discretion. ARTICLE 3 --------- Benefits -------- 3.1 BENEFITS. KeyCorp shall pay and provide to Riley the amounts and benefits provided for in the various subsections of this Section 3.1 at the time or times and otherwise as provided in those various subsections. 3.1.1 REGULAR REIMBURSED BUSINESS EXPENSES. KeyCorp shall reimburse Riley for all expenses and disbursements reasonably incurred by him in the performance of his duties under this Agreement. -3- 4 3.1.2 SERP. KeyCorp shall provide to Riley a retirement benefit determined under the Supplemental Retirement Benefit Plan for Key Executives of the former KeyCorp, a New York corporation ("Old Key"), as such plan was in effect immediately before the merger (the "Merger") on March 1, 1994 of Old Key into KeyCorp (theretofore known as "Society Corporation"). 3.1.3 SUPPLEMENTAL DEATH BENEFITS. KeyCorp will provide supplemental death benefits under the circumstances and in accordance with the provisions of the Agreement attached hereto as Exhibit B between Riley and First Commercial Banks Inc. (KeyCorp being a successor by merger to Old Key which was formerly known as First Commercial Banks Inc.), with KeyCorp being deemed to be the "Corporation" for purposes of such Agreement. 3.1.4 VACATION; SICK LEAVE. During the Employment Period, Riley shall be entitled to reasonable paid annual vacation periods and to reasonable sick leaves. 3.1.5 OTHER BENEFITS. During the period Riley is an employee of KeyCorp, Riley shall be entitled to participate in all employee benefit plans and arrangements of KeyCorp applicable to its senior executive officers, subject to meeting eligibility provisions and without, in any case, duplicating any benefits otherwise provided for in this Agreement. During the Independent Contractor Period, so long as Riley is a director of KeyCorp, Riley shall be entitled to participate in all director plans and arrangements of KeyCorp applicable to its directors, except as otherwise provided in this Agreement and without, in any case, duplicating any benefits otherwise provided for in this Agreement. 3.1.6 INDEMNIFICATION. KeyCorp will indemnify Riley and his legal representatives, to the fullest extent permitted by the laws of the State of Ohio and the existing Regulations of KeyCorp or any other applicable laws or the provisions of any other corporate or governing document of KeyCorp, including without limitation, the agreement pursuant to which Old Key, was merged with and into KeyCorp on March 1, 1994, and Riley shall be entitled to the protection of any insurance policies KeyCorp may elect to maintain generally for the benefit of its directors and officers, against all losses, claims, damages, costs, charges, expenses, liabilities, judgments, or settlement amounts whatsoever incurred or sustained by him or his legal representatives in connection with any action, suit, or proceeding to which he or his legal representatives may be made a -4- 5 party by reason of his being or having been a director or officer of KeyCorp, Old Key, or any subsidiary of KeyCorp or Old Key or by reason of his being or having been a director or officer of any other corporation or entity at the request of KeyCorp or Old Key. KeyCorp shall, upon request by Riley, promptly advance or pay any amounts for costs, charges, or expenses (including, without limitation, legal fees and expenses incurred by counsel retained by Riley) in respect of his right to indemnification hereunder, subject to KeyCorp's Regulations and applicable law. 3.1.7 GROSS-UP PAYMENT. If any payment or other benefit paid or provided to Riley by KeyCorp (a "Payment") is subject to the tax (the "Excise Tax") imposed by section 4999 of the Internal Revenue Code of 1986, as amended, KeyCorp shall pay to Riley no later than 30 days before the due date (without regard to any extensions thereof) for payment of the Excise Tax, an additional amount (a "Gross-Up Payment") that, when added to the Payment and reduced by the sum of (x) the amount of the Excise Tax imposed on both the Payment and the Gross-Up Payment and (y) the amount of all federal, state, and local income and employment taxes imposed on the Gross-Up Payment at the maximum marginal rates then in effect, results in the receipt by Riley of an amount equal to the amount of the Payment. If the amount of the Excise Tax that Riley paid in connection with any Payment or Gross-Up Payment is subsequently determined by the Internal Revenue Service (the "IRS") to be greater than the amount of Riley's actual Excise Tax liability, Riley shall repay to KeyCorp at the time that the amount of the actual Excise Tax liability is finally determined the amount of the Gross-Up Payment attributable to such overpayment, plus interest on the amount of such overpayment at the applicable federal rate (as defined in section 1274(d) of the Code). If the amount of Excise Tax that Riley paid in connection with any Payment or Gross-Up Payment is subsequently determined by the IRS to be less than the amount of Riley's actual Excise Tax liability, KeyCorp shall make an additional Gross-Up Payment in respect of such underpayment (and in respect of any interest and penalties payable by Riley to the IRS with respect to such underpayment) at the time that the amount of the actual Excise Tax liability is finally determined. 3.1.8 LEGAL EXPENSES. KeyCorp shall reimburse Riley for all reasonable legal fees and expenses incurred by Riley as a result of his enforcing any right or benefit provided by this Agreement. -5- 6 3.2 BENEFICIARY PROVISION. All benefits payable by KeyCorp by reason of Riley's death shall be paid to that person or persons (the "Designated Beneficiary") who shall be so designated by Riley in a letter of instructions addressed to and delivered to KeyCorp. Such instrument may provide for one or more contingent beneficiaries who shall in order of priority become the Designated Beneficiary in the event any prior Designated Beneficiary shall predecease Riley. Riley may at any time and from time to time change the Designated Beneficiary by delivering to KeyCorp a further letter of instruction pursuant to this Section. In the absence of a surviving Designated Beneficiary, any death benefits shall be paid to Riley's estate. 3.3 ANCILLARY SERVICES. KeyCorp shall provide to Riley the ancillary services specified in Exhibit C hereto at the time or times and otherwise as provided in Exhibit C hereto. ARTICLE 4 --------- Termination ----------- 4.1 AT EXPIRATION OF TERM. If not otherwise terminated before that time, Riley's employment under Article 1 hereof will terminate at midnight on December 31, 1995 (the scheduled end of the Employment Period) and Riley's status as an independent contractor under Article 2 hereof will terminate at midnight on December 31, 1998 (the scheduled end of the Independent Contractor Period). 4.2 DEATH. Riley's status as an employee or independent contractor of KeyCorp, as the case may be, will terminate immediately upon his death. 4.3 DISABILITY. If Riley is disabled, by reason of physical or mental impairment, to such an extent that he has been unable to substantially perform his duties under this Agreement for a period of 90 consecutive days, as certified by a physician of Riley's choice, KeyCorp, during 1995, may relieve Riley of his responsibilities and duties under this Agreement, without, however, terminating his employment, and, if the disability continues or occurs after December 31, 1995, KeyCorp may terminate Riley's status as an independent contractor under Article 2 hereof, immediately upon giving notice to Riley. 4.4 BY KEYCORP FOR "JUST CAUSE". KeyCorp may terminate Riley's employment under Article 1 hereof or his status as an independent contractor under Article 2 hereof, as the case may be, for "Just Cause," -6- 7 upon notice given in accordance with the last sentence of this Section 4.4, if: (a) Riley is convicted of a felony, (b) Riley, after notice in writing from the Board, continues to engage in activities presenting material conflicts of interest, or (c) KeyCorp or any of its subsidiaries is ordered or directed by any federal or state regulatory agency with jurisdiction to terminate or suspend Riley's employment or status as an independent contractor and such order or directive has not been vacated or reversed upon appeal. Any notice of termination for Just Cause under this Section 4.4 shall be given only by delivery to Riley of a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire incumbent membership of the Board at a meeting of the Board called and held (after reasonable notice to Riley and an opportunity for Riley, together with Riley's counsel, to be heard before the Board) for the purpose of determining whether, in the good faith opinion of the Board, KeyCorp has Just Cause to terminate Riley's employment or his status as an independent contractor, as the case may be. 4.5 BY RILEY FOR "GOOD REASON". Riley may, by giving written notice to KeyCorp, terminate his employment under Article 1 hereof if, at any time during 1995, Riley is removed from, or fails to be elected or re-elected to, the positions of Chief Executive Officer, Chairman of the Board, and Chairman of the Executive Committee or KeyCorp fails to vest him with the power and authority of, or denies to him any significant duties or responsibilities attending to the status of, Chief Executive Officer. 4.6 BY RILEY WITHOUT GOOD REASON. Riley may terminate his status as an employee or independent contractor of KeyCorp, as the case may be, at any time upon 30 days written notice to KeyCorp. -7- 8 ARTICLE 5 --------- Effect of Termination --------------------- 5.1 COMPENSATION FOLLOWING TERMINATION BY RILEY WITHOUT GOOD REASON OR BY KEYCORP FOR JUST CAUSE. If Riley voluntarily terminates his employment during 1995 without Good Reason and without the approval of the Board or if Riley's status as an employee or independent contractor hereunder, as the case may be, is terminated by KeyCorp for Just Cause before December 31, 1998: (a) KeyCorp shall pay to Riley base compensation (pursuant to Section 1.3.1 or Section 2.3 hereof, as the case may be) for the period from the date of the termination through the last day of the calendar month in which the termination occurs, and (b) The provisions of Section 3.1 and the various subsections thereof shall remain in effect in accordance with their respective terms and the benefits provided for in the various subsections of Section 3.1 shall continue to be provided, if applicable, at the time or times and otherwise as provided in those various subsections. 5.2 ACCELERATION OF COMPENSATION AND CONTINUATION OF BENEFITS UPON TERMINATION IN ALL OTHER CIRCUMSTANCES. If Riley's status as an employee or independent contractor of KeyCorp, as the case may be, is terminated for any reason (including, without limitation, death, disability, and whether the termination is by KeyCorp or by Riley) before the scheduled end of the Employment Period (December 31, 1995) or of the Independent Contractor Period (December 31, 1998), respectively, and Section 5.1 does not apply to the termination, KeyCorp shall pay and provide to Riley or to his Designated Beneficiary: 5.2.1 BASE COMPENSATION. A lump sum equal to the base compensation not theretofore paid to Riley that would have been payable to him for the period from the date of termination through December 31, 1998 under Section 1.3.1 and/or Section 2.3 hereof if Riley had continued as an employee and independent contractor of KeyCorp through December 31, 1995 and December 31, 1998, respectively. 5.2.2. INCENTIVE COMPENSATION. A lump sum equal, in the aggregate, to all amounts not theretofore paid to Riley that would have become payable to him pursuant to the plans specified in Sections 1.3.2, 1.3.3, and 1.3.4 if Riley had continued as an employee of KeyCorp through December 31, 1995, and the -8- 9 performance of KeyCorp had been in all respects (a) at the actual levels for all relevant periods ended on or before the date of termination and (b) at the target levels specified in each such plan, respectively, for all relevant periods scheduled to end after the date of termination. 5.2.3 BENEFITS. The provisions of Section 3.1 and the various subsections thereof shall remain in effect in accordance with their respective terms and the benefits provided for in the various subsections of Section 3.1 shall continue to be provided, if applicable, at the time or times and otherwise as provided in those various subsections. Any amount paid or benefit provided to Riley under this Section 5.2 shall satisfy the corresponding obligation that KeyCorp would have had to Riley had Riley's status as an employee or independent contractor, as the case may be, not been terminated under circumstances entitling him to payments under this Section 5.2. Riley shall not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Agreement be reduced by any compensation earned by him as the result of employment by another employer, by retirement benefits, or by offset against any amount claimed to be owed by him to KeyCorp. 5.3 "TERMINATION OF INDEPENDENT CONTRACTOR STATUS". For purposes of determining Riley's status under this Agreement after December 31, 1995 and on or before December 31, 1998, Riley's status as an independent contractor will be deemed to be terminated at such time as Riley ceases to be Chairman of the Board and Chairman of the Executive Committee. ARTICLE 6 --------- Deferral of Payment of Certain Compensation ------------------------------------------- 6.1 PRIORITY OF THIS ARTICLE 6. To the extent that this Article 6 provides that any compensation payable to Riley shall be deferred and paid at a later time than otherwise provided in this Agreement, the provisions of this Article 6 shall apply and the compensation shall be so deferred notwithstanding any other provision of this Agreement. 6.2 SECTION 162(M). For purposes of this Article 6, the term "Section 162(m)" shall mean Section 162(m) of the Internal Revenue Code (which, as amended by the Revenue Reconciliation Act of 1993, prescribes -9- 10 rules disallowing deductions for certain "applicable employee remuneration" to any of five specified "covered employees" of a publicly held corporation in excess of $1,000,000 per year), as from time to time amended, and the corresponding provisions of any similar law subsequently enacted, and to all regulations issued under that section and any such provisions. 6.3 DEFERRAL. If KeyCorp determines that, after giving effect to all applicable elective deferrals of compensation, any amount of compensation (including any base salary and any incentive compensation payable under any incentive compensation plan in which Riley is a participant) otherwise payable to Riley under this Agreement at any particular time (the "Scheduled Time"), (a) would not be deductible by KeyCorp if paid at the Scheduled Time by reason of the disallowance rules of Section 162(m), and (b) would be deductible by KeyCorp if deferred until and paid on April 15, 1996 (three and one half months after Riley is scheduled to cease to be an employee of KeyCorp), that amount of compensation shall be deferred until, and paid on, April 15, 1996. 6.4 EARLY PAYOUT OF DEFERRED AMOUNT IF DEFERRAL IS DETERMINED TO BE INEFFECTIVE. If any amount of compensation is deferred under Section 6.3 with the expectation that it will be deductible by KeyCorp if paid on April 15, 1996, and KeyCorp later determines that the compensation will not be deductible by KeyCorp even if payment thereof is deferred until April 15, 1996, then, within three months of the date on which that determination is made, the deferral with respect to that compensation shall terminate and KeyCorp shall pay that compensation to Riley. 6.5 PAYOUT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL EVENTS. On April 15, 1996, KeyCorp shall pay to Riley, in a single lump sum, all amounts of compensation that had been deferred pursuant to this Article 6 and have not previously been paid out, whether or not KeyCorp is entitled to a deduction with respect to the compensation. 6.6 INTEREST ON DEFERRED AMOUNTS. Upon payment of any amounts of compensation deferred for any period of time pursuant to this Article 6, KeyCorp shall pay to Riley an additional amount equivalent to the interest that would have accrued on that deferred compensation if interest accrued thereon from the date on which that compensation would have -10- 11 been paid but for this Article 6 to the date of actual payment at a variable rate equal to the rate of interest paid on "Deferred Compensation Accounts" under the Short Term Plan. 6.7 MISCELLANEOUS. Riley's rights with respect to payment during his lifetime of any compensation deferred under this Article 6 shall not be subject to assignment. If Riley dies before all compensation deferred under this Article 6 has been paid to him, any such unpaid compensation shall be paid, on April 15, 1996, to his Designated Beneficiary. The obligation of KeyCorp to make payments of compensation deferred pursuant to this Article 6 constitutes the unsecured promise of KeyCorp to make payments from its general assets as and when due and neither Riley nor any person claiming through him shall have, as a result of this Article 6, any lien or claim on any assets of KeyCorp that is superior to the claims of the general creditors of KeyCorp. ARTICLE 7 --------- Miscellaneous ------------- 7.1 NON-DISCLOSURE. Riley shall not, at any time during the Employment Period or the Independent Contractor Period or within the two-year period thereafter, disclose, use, transfer or sell, except in the course of employment with or the provision of services as an independent contractor to KeyCorp, any confidential information or proprietary data of KeyCorp and its subsidiaries so long as such information or proprietary data remains confidential and has not been disclosed or is not otherwise in the public domain, except as required by law or pursuant to legal process. 7.2 GOVERNING LAW. This Agreement is governed by and is to be construed and enforced in accordance with the laws of the State of Ohio. If under such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, or ordinance, such portion shall be deemed to be modified or altered to conform thereto or, if that is not possible, to be omitted from this Agreement; the invalidity of any such portion shall not affect the force, effect and validity of the remaining portion hereof. 7.3 NOTICES. All notices under this Agreement shall be in writing and shall be deemed effective when delivered in person, or forty- -11- 12 eight (48) hours after deposit thereof in the U.S. mails, postage prepaid, for delivery as registered or certified mail, addressed, in the case of: (a) Riley, to: Mr. Victor J. Riley, Jr. 127 Public Square Cleveland, OH 44114 (b) KeyCorp, to: KeyCorp 127 Public Square Cleveland, OH 44114 Attention: General Counsel In lieu of personal notice or notice by deposit in the U.S. mail, a party may give notice by confirmed telegram, telex, or fax. 7.4 AMENDMENTS AND SUCCESSORS IN INTEREST. This Agreement may be amended but only by a subsequent written agreement of the parties. This Agreement shall be binding upon and shall inure to the benefit of Riley, Riley's heirs, executors, administrators, and beneficiaries, and shall be binding upon and inure to the benefit of KeyCorp and its successors. KeyCorp shall require any successor to or acquiror of (whether direct or indirect, by purchase, merger, consolidation or otherwise) all or substantially all of the business and/or assets of KeyCorp to expressly assume and agree to perform this Agreement in the same manner and to the same extent that KeyCorp would be required and perform it as if no such succession had taken place. 7.5 WITHHOLDING TAXES. All amounts payable to Riley under this Agreement with respect to his services as an employee of KeyCorp shall be subject to applicable withholding of income, wage, and other taxes. 7.6 CLAIMS AND DENIALS. All claims by Riley for benefits under this Agreement shall be directed to and determined by the C&O Committee and shall be in writing. Any denial by the C&O Committee of a claim for benefits under this Agreement shall be delivered to Riley in writing and shall set forth the specific reasons for the denial and the specific provisions of this Agreement relied upon. The C&O Committee shall afford a reasonable opportunity to Riley for a review of the decisions denying a claim and shall further allow Riley to appeal to the C&O Committee a -12- 13 decision of the C&O Committee within 60 days after notification by the C&O Committee that Riley's claim has been denied. 7.7 ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration, conducted before a panel of three arbitrators in the State of Ohio, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The expenses of such arbitration shall be borne by KeyCorp. 7.8 TERMINATION OF PRIOR EMPLOYMENT AGREEMENTS. This Agreement supersedes any and all prior agreements between Riley and KeyCorp on the subject matter hereof including, without limitation, the Prior Agreement, except that the provisions of Section 8 of the Prior Agreement (dealing with deferral of certain compensation) shall continue to apply according to its terms to any compensation payable to Riley that is not subject to Section 6 of this Agreement (also dealing with deferral of certain compensation). IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the year and day first above written. ___________________________________ VICTOR J. RILEY, JR. KEYCORP By:________________________________ Roger Noall Senior Executive Vice President and Chief Administrative Officer -13- 14 List of Exhibits Exhibit A 1994-1995 Performance Unit Plan for Mr. Riley Exhibit B Agreement between Riley and First Commercial Banks Inc. Exhibit C Ancillary Services 15 EXHIBIT A KEYCORP 1994-1995 PERFORMANCE UNIT PLAN FOR MR. RILEY This KeyCorp 1994-1995 Performance Unit Plan for Mr. Riley (the "Plan") has been adopted by KeyCorp to satisfy KeyCorp's obligations under the Employment Agreement between KeyCorp and Mr. Riley dated as of December 20, 1993, as amended by a new Employment and Consulting Agreement dated as of February 15, 1995. 1. DEFINITIONS. For purposes of the Plan: "Earnings" means for a period net income adjusted for the effects of unusual events (such as gains or losses from the sales of subsidiaries or deposits in excess of three percent of average assets or other similar extraordinary items), all as determined, in its sole discretion, by the Compensation and Organization Committee of the Board (the "Committee"). "Efficiency Ratio" means for a period the quotient of (a) noninterest expense (excluding merger and integration charges and other nonrecurring charges) divided by (b) the sum of taxable equivalent net interest income and other noninterest income (excluding securities gains and certain gains on asset sales), all as determined, in its sole discretion, by the Committee. The Efficiency Ratio for 1994 and for 1995, respectively, shall be added together and divided by two to determine the Efficiency Ratio for the Plan Cycle. "Performance Unit" means a unit of measurement equivalent to one thousand dollars. "Plan Cycle" means the period beginning on January 1, 1994 and ending on December 31, 1995. "Return on Average Total Assets" means for a period the quotient of (a) Earnings divided by (b) average total assets, all as determined, in its sole discretion, by the Committee. The Return on Average Total Assets for 1994 and for 1995, respectively, shall be added together and divided by two to determine the Return on Average Total Assets for the Plan Cycle. "Return on Average Common Equity" means for a period the quotient of (a) Earnings less applicable preferred stock dividends divided by (b) average common shareholders' equity for the period, all as determined, in its sole discretion, by the Committee. The Return on Average Common Equity for 1994 and for 1995, respectively, shall be added together and divided by two to determine the Return on Average Common Equity for the Plan Cycle. 16 2. PERFORMANCE OBJECTIVES. The target levels of performance by KeyCorp during the Plan Cycle (the "Performance Objectives") are as follows: Return on Average Total Assets 1.15% Return on Average Common Equity 17.00% Efficiency Ratio 60.00% 3. PERFORMANCE UNITS AWARDED. Upon adoption of the Plan, Mr. Riley has been awarded 666.6 Performance Units. Of the total number of 666.6 Performance Units, 222.2 have been awarded with respect to Return on Average Total Assets, 222.2 have been awarded with respect to Return on Average Common Equity, and 222.2 have been awarded with respect to Efficiency Ratio. 4. PERFORMANCE PAYOUT SCALES. The percentage of the value of the Performance Units relating to each of the three Performance Objectives that may be paid to Mr. Riley pursuant to Section 6 hereof, together with the related payout amounts, upon achievement of varying levels of performance by KeyCorp in meeting or exceeding the Performance Objectives over the Plan Cycle shall be as set forth below in the three separate "Performance Payout Scales" in Subsections 4.1, 4.2, and 4.3, respectively. 4.1 With respect to Return on Average Total Assets:
ROA % PAYOUT $ PAYOUT Threshold 1.00% 70% $155,600 1.05% 80% $177,800 1.10% 90% $200,000 TARGET 1.15% 100% $222,200 1.20% 125% $277,800 1.25% 150% $333,400 Maximum 1.30% 175% $388,900 4.2 With respect to Return on Average Common Equity: ROE % PAYOUT $ PAYOUT Threshold 16.00% 70% $155,600 16.40% 80% $177,800 16.70% 90% $200,000 TARGET 17.00% 100% $222,200 17.30% 125% $277,800 17.70% 150% $333,400 Maximum 18.00% 175% $388,900
-2- 17 4.3 With respect to Efficiency Ratio:
RATIO % PAYOUT $ PAYOUT Threshold 61.00% 50% $111,200 60.70% 65% $144,400 60.40% 80% $177,800 TARGET 60.00% 100% $222,200 59.00% 120% $266,600 58.00% 140% $311,200 Maximum 57.00% 160% $355,600
If performance with respect to any particular Performance Objective falls short of the threshold shown, no amount will be paid with respect to that Performance Objective. If performance with respect to any particular Performance Objective exceeds the maximum shown, the amount payable pursuant to Section 6 with respect to that Performance Objective will be equal to the maximum payout shown. In the case of performance falling between any two points on any of the Performance Payout Scales, the amount payable pursuant to Section 6 with respect to that Performance Objective shall be determined by a straight-line interpolation between those two points. 5. MINIMUM ASSET QUALITY REQUIREMENT. No payment shall be made under the Plan if at the end of the Plan Cycle KeyCorp's ratio of non-performing assets to all assets falls below the 50th percentile of (a) the "Salomon Brothers 50-Bank Index" pertaining to such ratio, or (b) such replacement index or like measure as the Committee specifies if the Salomon Brothers 50-Bank Index is no longer published or is, in the opinion of the Committee, inappropriate for the Plan. The "Salomon Brothers 50-Bank Index" refers to the credit quality statistics of the 50 bank holding companies included in the Bank Stock Weekly published by Salomon Brothers Inc. 6. PAYMENT. If Mr. Riley remains in the employ of KeyCorp through the end of the Plan Cycle, the amount to be paid to him under the Plan shall thereupon be determined by applying the Performance Payout Scales contained in Section 4 to KeyCorp's performance during the Plan Cycle and that amount shall be paid or credited to Mr. Riley as soon as practicable, and in no event later than April 15, 1996, after approval by the Committee. If Mr. Riley does not remain in the employ of KeyCorp through the end of the Plan Cycle, the amount, if any, to be paid to him under the Plan shall be as provided in the Employment and Consulting Agreement between him and KeyCorp dated as of February 15, 1995. No payment to Mr. Riley under or on account of the Plan shall be considered as compensation under any employee benefit plan of KeyCorp, including without limitation, for purposes of any retirement or supplemental retirement plan. 7. DEATH OF MR. RILEY. In the event of the death of Mr. Riley prior to receipt by Mr. Riley of the amount, if any, to be paid to him under the Plan, such amount shall be paid to the person or persons designated in writing -3- 18 by Mr. Riley (the "Beneficiary" or "Beneficiaries") to receive payment of all or a portion of such amount in the event of Mr. Riley's death; in the event there is more than one Beneficiary, such designation shall include the proportion to be paid to each Beneficiary and indicate the disposition of such share if a Beneficiary does not survive Mr. Riley. The designation of a Beneficiary by Mr. Riley may be changed at any time prior to Mr. Riley's death by written notice signed by Mr. Riley and received by KeyCorp. The Beneficiary designation on file with KeyCorp at the time of Mr. Riley's death which bears the latest date shall govern. In the absence of a Beneficiary designation or the failure of all Beneficiaries to survive Mr. Riley, any amount payable under the Plan shall be paid to Mr. Riley's estate. 8. NON-ALIENATION OF BENEFITS. Mr. Riley shall not assign, sell, encumber, transfer, or otherwise dispose of any rights or interests under the Plan and any attempted disposition shall be null and void. 9. TAXES. KeyCorp shall deduct from all amounts paid under the Plan all federal, state, local, and other taxes required by law to be withheld with respect to such payments. 10. UNFUNDED PLAN; GOVERNING LAW. The Plan is intended to constitute an unfunded deferred compensation arrangement for Mr. Riley. The Plan shall be governed by and construed in accordance with the laws of the State of Ohio (without regard to the choice of law provisions thereof). 11. ADMINISTRATION. The Committee shall administer the Plan. The Committee shall interpret the Plan and make all determinations considered necessary or advisable for the administration of the Plan. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present, or acts approved in writing by all of the members of the Committee without a meeting, shall be the acts of the Committee. All decisions, actions or interpretations of the Committee shall be final, conclusive, and binding upon all parties. The Committee shall have the authority to adjust the Performance Objectives as it deems equitable in recognition of (a) extraordinary or nonrecurring events experienced by KeyCorp during the Plan Cycle, or by any subsidiary corporation whose performance is relevant to the determination of the amount of the payment under the Plan, (b) changes in applicable accounting rules or principles or changes in KeyCorp's or in any other such corporation's methods of accounting during the Plan Cycle, or (c) the occurrence of a reorganization, recapitalization, stock split, stock dividend, extraordinary dividend, combination of shares, merger, consolidation, rights offering, or any other change in the capital structure of KeyCorp, or of any other such corporation during the Plan Cycle. -4- 19 EXHIBIT B AGREEMENT AGREEMENT made the 4 day of April, 1978, between FIRST COMMERCIAL BANKS INC., a New York corporation with its principal office in the City of Albany, New York (Corporation) and VICTOR J. RILEY, JR., who resides at 110 Mohawk Drive, Schenectady, New York (Executive). RECITALS The Executive has been a valued employee of the Corporation for a number of years and now holds the positions of President and Chief Executive Officer. In consideration of his past services and to encourage his continued employment, the Board of Directors has approved the Corporation entering into this Agreement relating to the Executive's employment. AGREEMENT The parties therefore mutually agree as follows: 1. In the event the Executive dies during active employment with the Corporation, or while retired as disabled under the Corporation's Pension Plan, the Corporation shall pay the sum of $50,000 per year, payable in monthly installments on the first day of each month beginning the first day of the first month after the month of the Executive's death, to the EXecutive's widow, MARILYN A. RILEY, if she survives him, for a period of twenty (20) years or until and including the month in which the Executive's said widow dies, whichever first occurs. 2. If the Executive's said widow does not survive him or dies before having received 240 monthly installments pursuant to the provisions of Paragraph "1" above, the Corporation shall continue to make regular monthly payments to the trust created by agreement between Victor J. Riley, Jr., as Grantor, and Marilyn A. Riley and -5- 20 National Commercial Bank and Trust Company, as trustees, until all of the Executive's children, as of the date of this Agreement, have reached the age of twenty-four (24) years or have sooner died, after which time no further payment shall be made under this Agreement. All such payments made by the Corporation to said Trust shall be held, administered and disposed of as integral parts of the principal of said Trust from the time of receipt thereof by said Trust. 3. Nothing in this Agreement shall be deemed to obligate the Corporation to employ the Executive for any period of time or to obligate Executive to remain in the employ of the Corporation for any period of time. 4. This Agreement is being executed and delivered in the State of New York and its validity, interpretation, performance and enforcement shall be governed by the laws of that State. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written. FIRST COMMERCIAL BANKS, INC. By:__________________________ Chairman of the Board _____________________________ Victor J. Riley, Jr. 21 Exhibit C KeyCorp shall provide to Riley the following ancillary services during the periods of time and other conditions, indicated below. 1. A car during the Employment Period. 2. A driver, who will also provide personal security services, during the Employment Period and the Independent Contractor Period. 3. An office and an administrative assistant during the Independent Contractor Period. The office will be in a branch located in Cody, Wyoming. 4. During the Independent Contractor Period medical insurance coverage for Riley and his spouse substantially equivalent to that provided during the Employment Period, with Riley contributing to the annual cost of that coverage the same amount as he contributes to the annual cost of medical coverage during the Employment Period. 5. An annual physical at The Greenbrier Clinic during the Employment Period and the Independent Contractor Period. 6. Furnished living quarters in Cleveland, Ohio during the Employment Period. 7. Use of a corporate jet during the Employment Period. 8. During the Employment Period and the independent Contractor Period, use of a corporate jet (or first class air travel if for any reason a corporate jet is unavailable) when traveling in providing the services called for by this contract. -7- EX-10.14 5 KEYCOR[ EX-10.14 1 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT ("Agreement"), made as of the first day of July, 1993, is by and between KeyCorp ("Key") and Gary R. Allen ("Officer"). Key and Officer agree as follows: 1. EMPLOYMENT, POSITION, DUTIES, AND TERM -------------------------------------- 1.1 EMPLOYMENT AND POSITION. Key employs and Officer accepts employment as Executive Vice President and Chief Banking Officer of Key. Officer shall also serve as a Director of such subsidiaries of Key as those senior officers designated in writing from time to time by the Chief Executive Officer of Key ("Designated Officers") shall direct. Officer's employment shall be subject solely to the supervision and direction of the Designated Officers and the Board of Directors of Key. Officer agrees to devote his full time and undivided attention to Key. 1.2 DUTIES AND RESPONSIBILITIES. As Executive Vice President and Chief Banking Officer of Key, Officer shall supervise the activities and management of Key's bank subsidiaries and shall have general authority so to act, subject only to the direction of (1) the Designated Officers and (2) the -1- 2 Board of Directors of Key. Officer shall also perform such other duties as may be requested from time to time by the Designated Officers. 1.3 TERM OF EMPLOYMENT. The term of Officer's employment (the "Term of Employment") under this Agreement shall begin on July 1, 1993 (the "Commencement Date"), and shall continue through June 30, 1998 (the "Expiration Date"). 2. COMPENSATION ------------ 2.1 COMPENSATION. For all services to be rendered by Officer in any capacity pursuant to the terms of this Agreement, Officer shall be compensated as provided in this Article 2. 2.2 BASE SALARY. During each year of the Term of Employment, Key shall pay Officer a yearly Base Salary of not less than $400,000 ("Base Salary"), payable in twenty-six bi-weekly installments. When necessary to conform to the Key payroll schedule at the commencement or termination of this Agreement, the Base Salary shall be computed on a per diem basis. Commencing in 1994 and annually thereafter, Key, in accordance with Key's salary review procedures, shall review the Base Salary paid to Officer and shall, if appropriate, increase Officer's Base Salary. -2- 3 3. TERMINATION ----------- 3.1 TERMINATION BY KEY. Officer's employment under this Agreement may be terminated by Key prior to the Expiration Date for Cause or Without Cause as described below. As an incident to the termination of employment, Key may relieve Officer of the performance of any duties and terminate his authority to act on behalf of Key at anytime upon written notice to Officer. A. TERMINATION WITHOUT CAUSE. Key may terminate this Agreement at any time after its Commencement Date, whether or not this Agreement has expired, at its sole discretion upon written notice to Officer, such termination to be effective on the date specified in the notice. If Key terminates this Agreement Without Cause, Key will perform all of its obligations under this Agreement (including providing any retirement and fringe benefits to which Officer may be entitled) through June 30, 1998, as if Officer had performed all of his obligations under the Agreement. B. TERMINATION FOR CAUSE. Key may terminate this Agreement for Cause upon at least sixty (60) days' written notice to Officer, which Cause may only be determined in good faith by the Key Board following at least 30 days' prior written notice to Officer outlining the facts constituting Cause. Officer will be given the opportunity to refute the charges prior to final Key Board action. The Key Board shall use as guidelines for -3- 4 determining Cause for termination the following: (1) Material breach of this Agreement; (2) Misconduct as Executive vice President and Chief Banking Officer of Key, involving, but not limited to, misappropriating any funds or property of Key or attempting to obtain any personal profit from any transaction in which Officer has an interest which is adverse to the interest of Key, unless Officer shall have first obtained the written consent of the Key Board; (3) Unreasonable neglect or refusal to perform the duties assigned to Officer under or pursuant to this Agreement; (4) Conviction of a crime involving moral turpitude; (5) Adjudication as a bankrupt, which adjudication has not been contested in good faith; (6) Failure to follow the reasonable instructions of the Designated Officers or the Key Board; (7) The imposition by a bank regulatory agency of a final order, with no further right of appeal, of suspension or removal of Officer for improper conduct. C. TERMINATION UPON CHANGE OF CONTROL ---------------------------------- (1) RIGHT TO PAYMENT. In the event that during the Term of Employment (a) there is a Change of Control of Key (as defined below); and (b) Officer has Good Reason for doing so, Officer may, within six months from the effective date of such Change of Control, discontinue his employment under this Agreement. Good Reason Shall mean (i) the assignment to Officer of any duties inconsistent with his status as Executive Vice President and Chief Banking Officer of Key or any material and adverse change in his responsibilities or authority hereunder; (ii) the relocation of Officer without his consent, to any place other than Albany, New York; or (iii) any -4- 5 other material breach of this Agreement by the surviving or successor entity, if, in each such case such action or breach continues uncorrected for thirty (30) days following written notice thereof by Officer to the surviving entity. If during the aforementioned six-month period Officer elects not to continue his employment, Key or the surviving or successor entity will perform all Key's obligations under this Agreement through June 30, 1998 (including providing any retirement benefits to which Officer may be entitled) as if Officer had performed all of his obligations under this Agreement. (2) DEFINITION OF CHANGE OF CONTROL. The following events shall constitute a change of control of Key: (a) The sale by Key of substantially all of its assets; (b) A bona fide decision by Key to terminate its business and liquidate its assets; (c) The merger or consolidation of Key into or with another person or entity; or (d) Purchase by a single shareholder or group of shareholders of a majority interest of Key's stock. (3) PAYMENT UPON A CHANGE OF CONTROL. It is the intent of the parties to this Agreement that the payments which are conditioned on Change in Control would be such that there will be no excess parachute payments as defined in Section 280G of the Internal Revenue Code of the United States (the "Code"). Notwithstanding anything in this Agreement to the contrary, Officer shall have the right to elect to receive any payments to (or for the benefit of) him, which are payable to him as a result of a termination of this Agreement because of a Change of Control of Key, in lump sum or over a period of time, so long as none of the payments shall be deemed to be an "excess parachute payment" under the Code. (4) RELATED SEVERANCE AGREEMENT. Key and Officer -5- 6 have entered into a Severance Agreement in the form offered to certain other similarly situated Key senior officers. Key and Officer shall also enter into any amendments or substitutions for such Severance Agreement which are offered by Key to similarly situated senior executives where the rights of and benefits to Officer under such related Severance Agreement will not be materially and adversely affected. Officer shall be entitled to select and apply those provisions either from this Employment Agreement or from the Severance Agreement which, when read together, will provide Officer with the greatest possible benefit under the circumstances at the time Officer wishes to obtain benefits. D. TERMINATION DUE TO DISABILITY OR DEATH. (i) Key may terminate this Agreement if Officer is unable (as determined in good faith by Key), as the result of physical or mental disability, to render the services as provided in this Agreement for a continuous period of six months. Under such circumstances, termination shall be effective on the 90th day following written notice of termination by Key to Officer following such six-month period, unless Key is then satisfied that Officer is no longer disabled. If Key terminates this Agreement pursuant to this Paragraph 3.1.D, Key shall pay to Officer compensation in accordance with Key's practices for compensating totally and permanently disabled senior executives, making such payments from Key's general funds if necessary. In addition, Key shall pay Officer all amounts that have accrued (including any accrued deferred compensation) or are due under this Agreement prior to the date of termination. (ii) In the event this Agreement terminates due to the death of Officer, Key shall pay to -6- 7 Officer's estate any death benefits which are generally provided to the senior executives of Key Bank and shall provide to Officer's spouse any benefits normally provided to spouses of other deceased executives of Key. In addition, Key shall pay Officer's estate all amounts that have been accrued (including any accrued deferred compensation) or are due under this Agreement to the date of death. E. RESIGNATION OR RETIREMENT. In the event that Officer resigns his employment under this Agreement, Key shall pay Officer all amounts that have accrued, including any deferred compensation to which Officer may be entitled due under this Agreement to the date of Officer's resignation. Officer shall also receive retirement benefits to which he may be entitled. 4. ADDITIONAL UNDERTAKINGS BY KEY ------------------------------ 4.1 INCENTIVE COMPENSATION. During the Term of Employment, Officer shall participate in Key's Executive Incentive Plan, as such may be modified from time to time, on the same terms and conditions as similarly situated Key Officers. For the second half of calendar year 1993, Officer's award for participation could be 50%, 60%, or 70% of his 1993 Base Salary, as of January 1, 1993. 4.2 FRINGE BENEFITS. During the Term of Employment, Key shall provide Officer with all life, medical, disability, -7- 8 vacation and other fringe benefit programs offered to similarly situated Key senior executives. Upon Officer's retirement or termination of employment except for Cause, medical coverage will continue in accordance with the generally applied Key policies, which may be changed from time to time. During the term of employment Key shall pay for normal executive perquisites, income tax preparation and physical examinations as provided to Key senior staff members. 4.3 RABBI TRUST. This Agreement shall be included in the KeyCorp Umbrella Trust for Executives. 5. ADDITIONAL UNDERTAKINGS BY OFFICER ---------------------------------- 5.1 DEVOTION TO DUTY. During the. Term of Employment, Officer shall serve Key faithfully and to the best of his ability and shall devote his full working time, attention, and effort to his duties as described earlier in this Agreement. 5.2 NON-COMPETITION. During the Term of Employment and for as long as he is receiving payments pursuant to this Agreement, (excluding deferred compensation or payments from any employee pension benefit or supplemental retirement benefit plan), Officer will not engage in any direct, substantial competition with Key or any of its subsidiaries, provided that Key is not in breach of any of the provisions of this Agreement. Without limiting the -8- 9 generality of the foregoing, Officer specifically agrees not to serve as an executive of or obtain control of a bank holding company or banking organization after termination of this Agreement for a period equal to the period during which this Agreement was in effect. Nothing in this Section shall prohibit Officer from serving on the Board of Directors or other governing body of a civic or charitable organization or, with the prior consent of the Key Board of Directors, on the Board or other governing body of a for-profit business, or from owning or controlling shares of stock or other ownership interest in another corporation or entity, including one that operates a business that is competitive with Key, if (i) such stock or other ownership interest is in a public market which is reported on the NASDAQ National Market System or in consolidated trading on the New York Stock Exchange or the American Stock Exchange (or a substantially similar foreign market or exchange); or (ii) if Officer does not own or control more than a one percent equity interest in such entity. 5.3 CONFIDENTIALITY AND DISCLOSURE. During the Term of Employment, and during any period during which Key is making payment under this Agreement (excluding deferred compensation or payments from any employee pension benefit plan or supplemental retirement benefit plan), and for two (2) years thereafter, Officer agrees to regard and preserve as confidential all information pertaining to the business of Key and its -9- 10 subsidiaries and designated as confidential by Key obtained by him from any source whatever as a result of his employment. No information shall be considered confidential or proprietary if it is information already in possession of the party to whom disclosure is made, information acquired from the party to whom disclosure is made, or information which is in the public domain or generally available to interested persons or which at a later date passes into the public domain or becomes available to the party to whom disclosure is made without any wrongdoing by Officer or the party to whom disclosure is made. Officer shall not, except on behalf of Key, make use of any of its records, documents, contracts, writings, data, or other information, whether or not the same are in written or other recorded form. Notwithstanding the foregoing, such confidential information may be disclosed with the consent or at the direction of Key or when Officer is compelled to make such disclosure by legal process or other order issued by a court or government agency of competent jurisdiction. Officer shall deliver promptly to Key on the termination of his employment, or at any time that Key may so request, all memoranda, notes, records, reports, manuals, drawings, blueprints, and other documents (and all copies thereof) relating to the business of Key and its subsidiaries and all property associated therewith, which he may then possess or have under his control. -10- 11 6. MISCELLANEOUS PROVISIONS ------------------------ 6.1 KEY POLICIES. Except as expressly otherwise provided in this Agreement, Officer shall be subject to the Key policies and procedures applicable to similarly situated senior executive officers. 6.2 ASSIGNMENT. This Agreement shall not be assignable, in whole or in part, by either party without the written consent of the other, except that Key may, without the consent of Officer, assign its rights and obligations under this Agreement to a corporation, firm, or other business entity with which or into which Key merges or consolidates, or to which Key sells or transfers all or substantially all of its assets; provided, however, that after any such assignment by Key, as the case may be, Key shall remain liable to Officer, together with any such assignee for all of the employer's obligations hereunder; and provided further that any such assignee becomes a signatory to this Agreement contemporaneously with the merger, consolidation or transfer, and provided further that any such assignment shall be subject to Officer's right of termination under Section 3.1.C hereof. Key shall require any successor to all or substantially all of the business and/or assets of Key, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to Officer, expressly to assume and agree to perform -11- 12 this Agreement in the same manner and to the same extent as Key would be required to perform if no such succession had taken place. 6.3 GOVERNING LAW. This Agreement is made under and shall be governed and construed in accordance with the laws of the State of New York applied without reference to principles of conflict of laws. Venue of any action arising under this Agreement shall be the courts of the state in which Officer resides at the commencement of the action. 6.4 AMENDMENTS. No amendment or modification of this Agreement shall be deemed effective unless in writing and signed by the parties hereto. 6.5 WAIVER. No term or condition of the Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement, in writing, signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any act other than specifically waived. -12- 13 6.6 SEVERABILITY. To the extent any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted from this Agreement; and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect. 6.7 HEADINGS. The Section headings of this Agreement are solely for the convenience of reference and shall not control the meaning or interpretation of any provisions of this Agreement. 6.8 SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon Officer, his legal representatives, heirs, and distributees, and upon Key, its successors and assigns. 6.9 COUNTERPART EXECUTIVES. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument. 6.10 EFFECT ON OTHER AGREEMENTS, PLANS AND POLICIES. The Employment Agreement made as of the first day of January, 1992, by and between Key, Key Bank of New York, N.A., and Officer is hereby cancelled and superseded in its entirety by the provisions of this Agreement. Except as expressly amended herein, any other agreements, plans or policies to which Key and Officer are parties are hereby ratified and remain in full force and effect, -13- 14 and such agreements, plans or policies shall govern during the period and to the extent that they provide greater compensation or benefits to Officer and Officer's family. 6.11 NOTICE. All notices required or permitted hereunder shall be in writing and may be personally delivered or mailed by registered or certified mail, postage pre-paid and addressed as follows: If to Officer: Gary R. Allen 1 Foxglove Court Wynantskill, New York 12198 If to Key: Keycorp One KeyCorp Plaza Albany, New York 12201 Attention: Secretary or such other address as the party entitled to receive notice shall designate in writing to the other. 6.12 VALIDITY. Key covenants to Officer that (i) this Agreement, when executed by Key, constitutes a valid and binding obligation of Key, enforceable in accordance with its terms; and (ii) the execution of this Agreement, and the performance of Key's obligations hereunder, have been duly authorized by Key's Board of Directors and no other approvals (including shareholder approvals) are required. -14- 15 6.13 TAX WITHHOLDING. Key may withhold from any amounts payable under this Agreement such federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. IN WITNESS WHEREOF, this Agreement as amended has been executed and delivered as of the date first written above. KEYCORP By: /s/ Victor J. Riley, Jr. ---------------------------- Victor J. Riley, Jr. Chairman, President and CEO Accepted: /s/ Gary R. Allen ------------------------- Gary R. Allen -15- EX-10.15 6 KEYCORP EX-10.15 1 KEYCORP DIRECTOR DEFERRED COMPENSATION PLAN (JANUARY 1, 1995 RESTATEMENT) The KeyCorp Corporation Deferred Compensation Plan, originally established as of January 1, 1984, is hereby amended and restated in its entirety, effective January 1, 1995. KeyCorp hereby establishes this Director Deferred Compensation Plan for directors of KeyCorp and its subsidiaries to provide directors with the opportunity to defer payment of their directors' fees in accordance with the provisions of this Plan. 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. "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. 4. "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. 5. "Election Agreement" shall mean a written election to defer Fees signed in writing by the Director and in the form provided by the Secretary of the Corporation. 6. "Fees" shall mean the fees earned as a Director. ACS94427/1 2 7. "Participant" shall mean any Director who has at any time elected to defer the receipt of Fees in accordance with the Plan. 8. "Plan" shall mean this Director Deferred Compensation Plan, together with all amendments hereto. 9. "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 80 percent or more 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 Chief Executive Officer of the Corporation as a Subsidiary eligible to participate in the Plan. 10. "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 Secretary of the Corporation no later than the last day of the Year prior to the Year for which the Fees would otherwise be paid; 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 is elected to the Board of Directors by delivering the Election Agreement to the Secretary of the Corporation within 30 days of such election. A Director who timely delivers the Election Agreement to the Secretary of the Corporation shall be a Participant. A Participant's Election Agreement shall continue to be effective from Year to Year until terminated or modified by written notice to the Secretary of the Corporation. A revocation or modification must be delivered prior to the beginning of the Year for which it is to be effective. 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, (b) the date to which the Participant's Fees shall be deferred, (c) whether the distribution of deferred fees is to be paid in a lump sum or in installments or both a lump sum and installments, and (d) if in installments, the number of quarterly installments. Deferral shall be until the earlier to occur of (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 hereof. A Participant may select not more than one date upon which a lump sum distribution shall be ACS94427/2 3 made and not more than one date upon which installments shall begin; these 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 hereof or receive interest in accordance with Section 6 hereof. 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. Effective April 1, 1994, if a Participant elects to have all or a portion of his or her Fees deferred into the Interest Bearing Account, as of the last business day of any calendar quarter, there shall be added to the Account 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 lowest balance in the Interest Bearing Account during each quarter 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 most recent calendar 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 cash and in a lump sum 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. The amount of the Account remaining after payment of an installment shall continue to be valued in accordance with Section 5 hereof or bear interest in accordance with Section 6 hereof. The lump sum payment or the first quarterly installment, as the case may be, shall be made as soon as reasonably possible after (i) the date specified in section 3 hereof, 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 ACS94427/3 4 Election Agreement(s) and may not thereafter be altered except as provided in Section 10 hereof. 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 payments elected by a Participant hereunder would result in a quarterly payment of less than $500, the Corporation shall have the right in its sole discretion to pay the entire amount of the Account to the Participant in a lump sum 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 Secretary of 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 a lump sum 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 a lump sum to the estate of such Beneficiary ninety days after the appointment of an executor or administrator for such estate. 10. ACCELERATION. Notwithstanding the foregoing, (i) the entire amount of a Participant's Account will be paid in a lump sum to the Participant or his or her Beneficiary in the event of the acquisition of substantially all of the assets of the Corporation or more than fifty percent (50%) of its stock by any person, firm, corporation or group of related ACS94427/4 5 corporations, in a transaction or transactions not approved by the Board of Directors of the Corporation, (ii) the Board of Directors of the Corporation (or its Executive Committee or Compensation and Organization Committee) may, in its sole discretion, 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; "unforeseeable emergency" is defined as an unanticipated emergency that is caused by an event beyond the control of the Participant that would result in severe financial hardship to the individual if such withdrawal were not permitted; provided, however, that the amount of the withdrawal under this section is limited to the amount necessary to meet such emergency, and (iii) the Board of Directors (or its Executive Committee or Compensation and Organization Committee) may, in its sole discretion, accelerate the making of payment of all or any portion of the amount of a Participant's Account to a Participant upon the written request of a Participant, provided that the Board (or Committee) determines that such withdrawal would not be adverse to the best interests of the Corporation and further provided that the request shall be made ninety (90) days before the requested date of payment, that the Participant shall forfeit an amount equal to 10% of the amount requested, and that the Participant shall be disqualified from deferring Fees during the remainder of the calendar year in which the payment is made and the next succeeding year thereafter. No Participant shall participate in any Board or Committee action under this Section 10 with regard to such Participant's own Account. The foregoing provisions of this Section 10 shall not apply to the Common Shares Account of a Director of the Corporation during his or her term as a Director and for six months thereafter. 11. STATEMENT. Each Participant shall receive a statement of his or her Account not less than annually. 12. 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 in accordance with Section 7 hereof. 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 additions to the Account under Section 5 above and distributions from the Account under Section 7 above, based on the fair market value of the Common Shares on the last business day of such calendar quarter. In the event of any change in the number of outstanding Common Shares of the Corporation by reason of any stock dividend or split, recapitalization, merger, consolidation, spin-off, reorganization, combination, exchange of shares, or a similar corporate change, the Board of Directors shall determine, in its sole discretion, the extent to which such change equitably requires an adjustment in the number of shares held in a Participant's Account and such adjustment shall be made by the Corporation and shall be conclusive and binding on all Participants in the Plan. 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 ACS94427/5 6 Fees deferred into the Account for such quarter, plus the value of any interest paid on the Account in accordance with Section 6 above, less any distributions made from the Account in accordance with Section 7 above. 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 and 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. In accordance with the provisions of Section 503 of the Employee Retirement Income Security Act of 1974, the Corporation shall provide a procedure for handling claims of Participants or their Beneficiaries under this Plan. Such procedure shall be in accordance with regulations issued by the Secretary of Labor and shall provide adequate written notice within a reasonable period of time with respect to the denial of any such claims as well as a reasonable opportunity for a full and fair review by the Corporation of any such denial. Notwithstanding anything to the contrary contained herein, the Corporation shall be the "administrator" for the purpose of the Employee Retirement Income Security Act of 1974. 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 or a duly authorized Committee thereof; provided, however, that no such action shall adversely affect any Participant or Beneficiary with respect to the amount credited to a Deferred Compensation Account. ARTICLE V --------- PRIOR PLANS ----------- The Plan incorporates the merger of the KeyCorp Deferred Compensation Plan for Directors (the "Old KeyPlan"), the Deferred Compensation Plan for Board of Directors of Trustcorp, Inc. (Revised November, 1986) (the "Trustcorp Plan"), the Centran Corporation Deferred Director Compensation Plan (the "Centran Plan"), and the Society Bank, Michigan Directors' Deferred Compensation Plan ("Michigan Plan") in their entirety and all accounts existing under such Trustcorp Plan and Centran Plan on September 30, 1990, under such Michigan Plan on June 30, 1993, and under such Old KeyCorp Plan on June 30, 1994, shall become Accounts (or, if a Participant has accounts under the Plan and any of such Plans, shall be merged into the Account under the Plan) fully subject to all terms and conditions hereof. All accounts under the Trustcorp Plan and the Centran Plan will be valued as of September 30, ACS94427/6 7 1990, all accounts under the Michigan Plan will be valued as of June 30, 1993, and all accounts under such Old Key Plan will be valued as of June 30, 1994 and this will constitute the initial balance of the Account under this Plan. Participants in the Trustcorp Plan, the Centran Plan, the Michigan Plan, or Old Key Plan will be given the opportunity to indicate the type of election and the type of account(s) into which their Trustcorp Plan, Centran Plan, Michigan Plan, or Old Key Plan account will be converted. In the absence of any such designation, such Participants in the Trustcorp Plan, the Centran Plan, the Michigan Plan or the Old Key Plan shall be deemed to have elected the Interest Bearing Account and the payout method and payment year indicated on their Trustcorp Plan, Centran Plan, Michigan Plan and Old Key Plan elections, unless they have an Account under this Plan, in which case the Trustcorp Plan, the Centran Plan, the Michigan Plan or Old Key Plan account will merge into such Account and be subject to the distribution elections made with regard to such Account. ARTICLE VI ---------- MISCELLANEOUS ------------- 1. NONALIENATION OF DEFERRED COMPENSATION ACCOUNT. No Participant or Beneficiary shall encumber or dispose of the right to receive any payment of the amount of an Account hereunder without the written consent of the Corporation. If a Participant or Beneficiary without the written consent of the Corporation attempts to assign, transfer, alienate, or encumber the right to receive the amount of a Deferred Compensation Account hereunder or permits the same to be subject to alienation, garnishment, attachment, execution, or levy of any kind, then the Corporation, in its discretion, may hold or pay such amount or any part thereof to or for the benefit of such Participant or Beneficiary, the Participant's or Beneficiary's spouse, children, blood relatives, or other dependents, or any of them, in such manner and in such proportions as the Corporation may consider proper. Any such application of the amount of an Account may be made without the intervention of a guardian. The receipt by the payee(s) of such payment(s) shall constitute a complete acquittance to the Corporation with respect thereto, and neither the Corporation, nor any Subsidiary, nor any officer, member, employee, or agent thereof, shall have any responsibility for the proper application thereof. 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, and no Participant or Beneficiary shall have any interest in, or a lien or prior claim upon, any ACS94427/7 8 property of the Corporation. Further, no Participant or Beneficiary shall have any claim whatsoever against any Subsidiary for amounts reflected on an Account. 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 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. EXECUTED at Cleveland, Ohio as of the 14th day of September, 1994. KEYCORP By:______________________________ Roger Noall, Senior Executive Vice President and Chief Administrative Officer ACS94427/8 EX-10.36 7 KEYCORP EX-10.36 1 AGREEMENT This AGREEMENT ("Agreement"), is made as of the 25th day of February, 1994, between SOCIETY CORPORATION, an Ohio corporation ("Society"), and___________________________________ (the "Executive") but is to be effective only from and after the merger of KeyCorp, a New York corporation ("KeyCorp"), with and into Society (the "Merger"), after which the name of Society will be changed to KeyCorp ("Key"). Society is entering into this Agreement in recognition of the importance of the Executive's services to the continuity of management of Key and based upon its determination that it will be in the best interests of Key and its Subsidiaries to encourage the Executive's continued attention and dedication to the Executive's duties in the potentially disruptive circumstances of a possible Change of Control of Key. (As used in this Agreement, the terms "Subsidiaries" and "Change of Control" and certain other capitalized terms have the meanings ascribed to them in Section 7, at the end of this Agreement.) Society and the Executive agree, effective as of the effective date of the Merger, as follows: 1. BASIC SEVERANCE BENEFITS. The benefits described in Sections 1.1, 1.2, and 1.3, below, are subject to the limitations set forth in Sections 4.1 (regarding election of benefits if the Executive is entitled to severance benefits under another agreement with Key), 4.2 (regarding withholding), 4.3 (regarding excess parachute payments), and 4.4 (regarding potential deferral of certain compensation above $1,000,000). 1.1 LUMP SUM SEVERANCE BENEFIT IF EMPLOYMENT IS TERMINATED IN CERTAIN CIRCUMSTANCES WITHIN TWO YEARS OF A CHANGE OF CONTROL. If, within two years following the occurrence of a Change of Control, the Executive's employment with Key and its Subsidiaries is terminated by Key or its Subsidiary for any reason other than Cause, Disability, or death or by the Executive after a Reduction of Base Salary or a Mandatory Relocation has occurred, Key shall pay to the Executive, within ten business days after the Termination Date, a lump sum severance benefit equal to 2 1/2 times the sum of (a) one year's base salary (at the highest rate in effect at any time from one year prior to the Change of Control to the Termination Date) plus (b) Average Annual Incentive Compensation. 2 1.2 LUMP SUM SEVERANCE BENEFIT IF EMPLOYMENT IS TERMINATED BY EXECUTIVE DURING A WINDOW PERIOD. Except as provided in the last sentence of this Section 1.2, if the Executive's employment with Key and its Subsidiaries is voluntarily terminated by the Executive during a Window Period, Key shall pay to the Executive, within ten business days after the Termination Date, a lump sum severance benefit equal to the sum of (a) one year's base salary (at the highest rate in effect at any time from one year prior to the Change of Control to the Termination Date) plus (b) Average Annual Incentive Compensation. This Section 1.2 shall not apply if, at the Termination Date, (x) there has been either any Reduction of Base Salary or any Mandatory Relocation (in which event Section 1.1 would apply to the termination) or (y) Key or any Subsidiary has Cause to terminate the Executive's employment (in which case no lump sum severance benefit would be payable under either of Sections 1.1 or 1.2). 1.3 PAYMENT OF COST OF COBRA HEALTH BENEFITS. If the Executive becomes entitled to payment of a lump sum severance benefit under either of Sections 1.1 or 1.2 of this Agreement and the Executive elects to continue to receive health benefits at the Executive's cost pursuant to an election that Key or any Subsidiary is required to provide to the Executive in order to comply with Section 4980B(f) of the Internal Revenue Code (commonly referred to as "COBRA continuation coverage") during the period specified in Section 4980B(f) (the "COBRA continuation period"), Key will pay to the Executive the cost of continuing those benefits from the Termination Date through the first to occur of (a) the end of the COBRA continuation period or (b) the date on which the Executive becomes employed by any other person or entity. 2. OTHER BENEFITS. 2.1 REIMBURSEMENT OF CERTAIN EXPENSES AFTER A CHANGE OF CONTROL. From and after a Change of Control, Key shall pay, as incurred, all expenses, including the reasonable fees of counsel engaged by the Executive, of defending any action brought to have this Agreement declared invalid or unenforceable. 2.2 DISABILITY. If, after a Change of Control and prior to the Termination Date, the Executive is unable to perform services for Key or any Subsidiary for any period by reason of disability of the Executive, as a result of accidental bodily injury - 2 - 3 or sickness, Key will pay and provide to the Executive all compensation and benefits to which the Executive would have been entitled had the Executive continued to be actively employed by Key or any Subsidiary through the earliest of the following dates: (a) the first date on which the Executive is no longer so disabled to such an extent that the Executive is unable to perform services for Key or any Subsidiary, (b) the date on which the Executive becomes eligible for payment of long term disability benefits under a long term disability plan generally applicable to executives of Key or a Subsidiary, (c) the date on which Key has paid and provided 24 months of compensation and benefits to the Executive during the Executive's disability, or (d) the date of the Executive's death. 3. NO SET-OFF; NO OBLIGATION TO SEEK OTHER EMPLOYMENT OR TO OTHERWISE MITIGATE DAMAGES; NO EFFECT UPON OTHER PLANS. Key's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense, or other claim whatsoever which Key or any of its Subsidiaries may have against the Executive. The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise. The amount of any payment provided for under this Agreement shall not be reduced by any compensation or benefits earned by the Executive as the result of employment by another employer or otherwise after the termination of the Executive's employment. The provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's rights, or rights which would accrue solely as a result of the passage of time, under any incentive compensation plan, stock option or stock appreciation rights plan, retirement or supplemental retirement plan, stock purchase and savings plan, disability or insurance plan, or other similar contract, plan, or arrangement of Key or any Subsidiary. 4. CERTAIN LIMITATIONS ON BENEFITS. 4.1 ELECTION OF BENEFITS REQUIRED. If, at any time before the third anniversary of the Merger, the Executive's employment with Key or any Subsidiary is terminated under circumstances giving rise to a right on the part of the Executive to receive continuing compensation or other benefits under one or more of the Executive's Employment Agreement with KeyCorp, the Executive's Severance Agreement with KeyCorp, and the amendment to those two agreements - 3 - 4 entered into with KeyCorp as of February 25, 1994 (the "Prior Amended Agreement"), the Executive shall have the right to elect to receive benefits under this Agreement or the Prior Amended Agreement, but not both. If this Section 4.1 applies, Key shall not make any payments under this Agreement or under the Prior Amended Agreement until after the Executive has delivered to Key a signed notice of election to receive payments under this Agreement or under the Prior Amended Agreement. If the Executive receives any payments under this Agreement as a result of termination of the Executive's employment following a Change of Control, those payments shall be in lieu of any and all other claims or rights that the Executive may have for severance, separation, and/or salary continuation pay upon that termination of the Executive's employment. 4.2 TAXES; WITHHOLDING OF TAXES. Without limiting the right of Key or its Subsidiary to withhold taxes pursuant to this Section 4.2, the Executive shall be responsible for all income, excise, and other taxes (federal, state, city, or other) imposed on or incurred by the Executive as a result of receiving the payments provided in this Agreement, including, without limitation, the payments provided under Section 1 of this Agreement. Key or its Subsidiary may withhold from any amounts payable under this Agreement all federal, state, city, or other taxes as Key shall determine to be required pursuant to any law or government regulation or ruling. Without limiting the generality of the foregoing, Key or its Subsidiary may withhold from any amount payable under either of Sections 1.1 or 1.2 of this Agreement amounts sufficient to satisfy any withholding requirements that may arise out of any payment made to the Executive by Key or any Subsidiary under Section 1.3 of this Agreement. 4.3 EXCESS PARACHUTE PAYMENT REDUCTION. If it is determined that any payment or distribution by Key or any of its Subsidiaries to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by Key or a Subsidiary for Federal income tax purposes because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder, then the aggregate present value of amounts payable or distributable to or for the benefit of the Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are - 4 - 5 hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value that maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by Key or a Subsidiary because of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder. For purposes of this Section 4.3, present value shall be determined in accordance with Section 280G(d)(4) of the Internal Revenue Code and applicable regulations promulgated thereunder. All determinations required to be made under this Section 4.3 shall be made by the Accounting Firm which shall provide detailed supporting calculations both to Key and the Executive within 30 days after the Termination Date or such earlier time as is requested by Key. Key and the Executive shall cooperate with each other and the Accounting Firm and shall provide necessary information so that the Accounting Firm may make all such determinations. All such determinations by the Accounting Firm shall be final and binding upon Key and the Executive. The Executive shall determine which of the Agreement Payments (or, at the election of the Executive, other payments) shall be eliminated or reduced consistent with the requirements of this Section 4.3, provided that, if the Executive does not make such determination within 20 days of the receipt of the calculations made by the Accounting Firm, Key shall elect which of the Agreement Payments shall be eliminated or reduced consistent with the requirements of this Section 4.3 and shall notify the Executive promptly of such election. As a result of the uncertainty in the application of Section 280G of the Internal Revenue Code and applicable regulations promulgated thereunder at the time of the initial determination by the Accounting Firm hereunder, it is possible that Agreement Payments will be made by Key that should not have been made ("Overpayment") or that additional Agreement Payments will not be made by Key which could have been made ("Underpayment"), in each case, consistent with the calculations required to be made hereunder. If the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to the Executive which the Executive shall repay to Key together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually; provided, however, that no amount shall be payable by - 5 - 6 the Executive to Key (or if paid by the Executive to Key, such payment shall be returned to the Executive) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Internal Revenue Code. If the Accounting Firm or a court of competent jurisdiction (in a final judgment as to which the time for appeal has lapsed or no appeal is available) determines at any time that an Underpayment has occurred, any such Underpayment shall be promptly paid by Key to or for the benefit of the Executive together with interest at the applicable short-term Federal rate provided for in Section 1274(d)(1) of the Internal Revenue Code, compounded semi-annually. 4.4 POTENTIAL DEFERRAL OF CERTAIN COMPENSATION IN EXCESS OF $1,000,000 IN ANY CALENDAR YEAR. (a) SECTION 162(m). For purposes of this Section 4.4, the term "Section 162(m)" shall mean Section 162(m) of the Internal Revenue Code (which, as amended by the Revenue Reconciliation Act of 1993, prescribes rules disallowing deductions for certain "applicable employee remuneration" to any of five specified "covered employees" of a publicly held corporation in excess of $1,000,000 per year), as from time to time amended, and the corresponding provisions of any similar law subsequently enacted, and to all regulations issued under that section and any such provisions. (b) DEFERRAL. Except as otherwise provided in either of Section 4.4(c) or Section 4.4(d), below, if Key determines that, after giving effect to all applicable elective deferrals of compensation, any amount of compensation (including any base salary and any incentive compensation payable under any incentive compensation plan in which the Executive is a participant) otherwise payable to the Executive whether under this Agreement or otherwise at any particular time (the "Scheduled Time"), (i) would not be deductible by Key or any Subsidiary if paid at the Scheduled Time by reason of the disallowance rules of Section 162(m), and - 6 - 7 (ii) would be deductible by Key or a Subsidiary if deferred until and paid during a later year, that amount of compensation shall be deferred until, and paid during, the year that is determined by Key to be the first year following the year of deferral during which the compensation can be paid without disallowance of the deduction for payment of the compensation by reason of Section 162(m). If Key determines that in any year following the year of deferral a portion of, but not all of, the amounts deferred (together with interest thereon as provided in Section 4.4(e), below) can be paid without disallowance of the deduction, that portion that can be so paid shall be paid by Key during that year and the remainder, except as otherwise provided in Section 4.4(c) or Section 4.4(d), below, shall continue to be deferred until a later year. (c) EARLY PAYOUT OF DEFERRED AMOUNT IF DEFERRAL IS DETERMINED TO BE INEFFECTIVE. If any amount of compensation is deferred under Section 4.4(b) with the expectation that it will be deductible by Key or a Subsidiary if paid in a later year and Key later determines that the compensation will not be deductible by Key or a Subsidiary even if payment thereof is deferred until a later year, then, within three months of the date on which that determination is made, the deferral with respect to that compensation shall terminate and Key shall pay that compensation to the Executive. (d) PAYOUT FOLLOWING TERMINATION OF EMPLOYMENT IN ALL EVENTS. On January 15 of the year immediately following the year in which the Executive ceases to be employed by Key or any Subsidiary, Key shall pay to the Executive, in a single lump sum, all amounts of compensation that have been deferred pursuant to this Section 4.4 and have not previously been paid so that, as of the close of business on that date, no amount of compensation will remain deferred under this Section 4.4 whether or not Key or any Subsidiary is entitled to a deduction with respect to the payment of that compensation. - 7 - 8 (e) INTEREST ON DEFERRED AMOUNTS. Upon payment of any amounts of compensation deferred for any period of time pursuant to this Section 4.4, Key shall pay to the Executive an additional amount equivalent to the interest that would have accrued on that deferred compensation if interest accrued thereon from the date on which that compensation would have been paid but for this Section 4.4 through the date on which that compensation is paid at a variable rate equal, in each calendar quarter, to the highest annual rate paid by Society National Bank on new IRA certificates of deposit issued in Cuyahoga County, Ohio on the first business day of that calendar quarter, compounded quarterly. 5. TERM OF THIS AGREEMENT. This Agreement shall be effective immediately upon consummation of the Merger and shall thereafter apply to any Change of Control occurring on or before December 31, 1994. On December 31, 1994 and on December 31 of each succeeding year thereafter (a "Renewal Date"), the term of this Agreement, if not previously terminated, shall be automatically extended for an additional year unless either party has given notice to the other, at least one year in advance of that Renewal Date, that the Agreement shall not apply to any Change of Control occurring after that Renewal Date. 5.1 TERMINATION OF AGREEMENT UPON TERMINATION OF EMPLOYMENT BEFORE A CHANGE OF CONTROL. This Agreement shall automatically terminate on the first date occurring before a Change of Control on which the Executive is no longer employed by Key or any Subsidiary, except that, for purposes of this Agreement, any termination of employment of the Executive that is effected before and primarily in contemplation of a Change of Control that occurs after the date of the termination shall be deemed to be a termination of the Executive's employment as of immediately after that Change of Control. 5.2 NO TERMINATION OF AGREEMENT DURING TWO YEAR PERIOD BEGINNING ON DATE OF A CHANGE OF CONTROL. After a Change of Control, this Agreement may not be terminated. However, if the Executive's employment with Key and its Subsidiaries continues for more than two years following the occurrence of a Change of Control, then, for all purposes of this Agreement other than Section 2.1, that particular Change of Control shall thereafter be treated as if it never occurred. - 8 - 9 6. MISCELLANEOUS. 6.1 SUCCESSOR TO KEY. Key shall not consolidate with or merge into any other corporation, or transfer all or substantially all of its assets to another corporation or bank, unless such other corporation or bank shall assume this Agreement in a signed writing and deliver a copy thereof to the Executive. Upon such assumption the successor corporation or bank shall become obligated to perform the obligations of Key under this Agreement and the term "Key" as used in this Agreement shall be deemed to refer to such successor corporation or bank. 6.2 NOTICES. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, and addressed, in the case of notices to Key or a Subsidiary, as follows: KeyCorp 127 Public Square Cleveland, Ohio 44114 Attention: Secretary and, in the case of notices to the Executive, properly addressed to the Executive at the Executive's most recent home address as shown on the records of Key or its Subsidiary, or such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 6.3 EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement shall create any right or duty on the part of Key or the Executive to have the Executive continue as an officer of Key or a Subsidiary or to remain in the employment of Key or a Subsidiary. 6.4 ADMINISTRATION. Key shall be responsible for the general administration of this Agreement and for making payments under this Agreement. All fees and expenses billed by the Accounting Firm for services contemplated under this Agreement shall be the responsibility of Key. 6.5 SOURCE OF PAYMENTS. Any payment specified in this Agreement to be made by Key may be made, at the election of Key, directly by Key or through any Subsidiary of Key. All payments under this - 9 - 10 Agreement shall be made solely from the general assets of Key or one of its Subsidiaries, and the Executive shall have the rights of an unsecured general creditor of Key with respect thereto. 6.6 CLAIMS REVIEW PROCEDURE. Whenever Key decides for whatever reason to deny, whether in whole or in part, a claim for benefits under this Agreement by the Executive, Key shall transmit a written notice of its decision to the Executive, which notice shall be written in a manner calculated to be understood by the Executive and shall contain a statement of the specific reasons for the denial of the claim and a statement advising the Executive that, within 60 days of the date on which the Executive receives such notice, the Executive may obtain review of the decision of Key in accordance with the procedures hereinafter set forth. Within such 60-day period, the Executive or the Executive's authorized representative may request that the claim denial be reviewed by filing with Key a written request therefor, which request shall contain the following information: (a) the date on which the request was filed with Key, (b) the specific portions of the denial of the Executive's claim which the Executive requests Key to review, and (c) any written material which the Executive desires Key to examine. Within 30 days of the date specified in clause (a) of this Section 6.6, Key shall conduct a full and fair review of its decision to deny the Executive's claim for benefits and deliver to the Executive its written decision on review, written in a manner calculated to be understood by the Executive, specifying the reasons and the Agreement provisions upon which its decision is based. Nothing in this Section 6.6 shall be construed as limiting or restricting the Executive's right to institute legal proceedings in a court of competent jurisdiction to enforce this Agreement after complying with the procedures set forth in this Section 6.6 or as limiting or restricting the scope of the court's review (which review shall be de novo); provided, further, that the failure of the Executive to comply with the procedures set forth in this Section 6.6 shall not bar or prohibit the subsequent compliance by the Executive with those procedures and thereafter the Executive - 10 - 11 shall have the right to institute legal proceedings to enforce this Agreement. 6.7 VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement which shall remain in full force and effect. 6.8 MODIFICATION, WAIVER, ETC. No provision of this Agreement may be modified, waived, or discharged unless such waiver, modification, or discharge is agreed to in a writing signed by the Executive and Key. No waiver by either party hereto at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. No agreement or representation, oral or otherwise, express or implied, with respect to the subject matter hereof has been made by either party which is not set forth expressly in this Agreement. This Agreement shall inure to the benefit of and be enforceable by the Executive's personal representatives, executors, administrators, successors, heirs, and designees. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 7. DEFINITIONS. 7.1 ACCOUNTING FIRM. The term "Accounting Firm" means the independent auditors of Key for the fiscal year preceding the year in which the Change of Control occurred and such firm's successor or successors; provided, however, if such firm is unable or unwilling to serve and perform in the capacity contemplated by this Agreement, Key shall select another national accounting firm of recognized standing to serve and perform in that capacity under this Agreement, except that such other accounting firm shall not be the then independent auditors for Key or any of its affiliates (as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act")). 7.2 AGGREGATE INCENTIVE COMPENSATION AWARD. The term "Aggregate Incentive Compensation Award" with respect to the Executive for any year shall mean the aggregate incentive compensation awards (whether paid in cash, deferred, or a combination of both) payable to the Executive under any dollar denominated (in contrast to stock - 11 - 12 based) annual executive incentive compensation plan or multi-year executive incentive compensation plan maintained by Key or any Subsidiary (or any predecessor of Key or a Subsidiary) for that year. For these purposes, an incentive compensation award payable to the Executive under any incentive compensation plan with respect to a period of more than one year will be deemed to be "for" the last year of that multi-year period. If no incentive compensation award is payable to the Executive for any particular year under any incentive compensation plan maintained by Key or any Subsidiary (or any predecessor of Key or a Subsidiary), whether because the Executive was not employed by Key or any Subsidiary (or any predecessor of Key or a Subsidiary) during any part of that year, because incentive compensation targets were not met, or because of any other circumstances, the Aggregate Incentive Compensation Award for that year will be $-0-. 7.3 AVERAGE ANNUAL INCENTIVE COMPENSATION. The term "Average Annual Incentive Compensation" shall mean the average of the three highest Aggregate Incentive Compensation Awards payable to the Executive for any of the years during the five-year period ended on the December 31 immediately preceding the Termination Date. 7.4 CAUSE. The employment of the Executive by Key or any of its Subsidiaries shall have been terminated for "Cause" if, after a Change of Control and prior to the termination of employment, any of the following has occurred: (a) the Executive shall have been convicted of a felony, (b) the Executive commits an act or series of acts of dishonesty in the course of the Executive's employment which are materially inimical to the best interests of Key or a Subsidiary and which constitutes the commission of a felony, all as determined by the vote of three fourths of all of the members of the Board of Directors of Key (other than the Executive, if the Executive is a Director of Key) which determination is confirmed by a panel of three arbitrators appointed and acting in accordance with the rules of the American Arbitration Association for the purpose of reviewing that determination, (c) Key or any Subsidiary has been ordered or directed by any federal or state regulatory agency with jurisdiction to terminate or suspend the Executive's employment and such order or directive has not been vacated or reversed upon appeal, or - 12 - 13 (d) after being notified in writing by the Board of Directors of Key to cease any particular Competitive Activity, the Executive shall intentionally continue to engage in such Competitive Activity while the Executive remains in the employ of Key or a Subsidiary. If (x) Key of any Subsidiary terminates the employment of the Executive at a time when it has "Cause" therefor under clause (c), above, (y) the order or directive is subsequently vacated or reversed on appeal and the vacation or reversal becomes final and no longer subject to further appeal, and (z) Key or the Subsidiary fails to offer to reinstate the Executive to employment within ten days of the date on which the vacation or reversal becomes final and no longer subject to further appeal, Key or the Subsidiary will be deemed to have terminated the Executive without Cause. 7.5 CHANGE OF CONTROL. A "Change of Control" shall be deemed to have occurred if at any time before the Termination Date there is a Change of Control under any of clauses (a), (b), (c), or (d), below. For these purposes, Key will be deemed to have become a subsidiary of another corporation if any one other corporation owns, directly or indirectly, 50 percent or more of the total combined voting power of all classes of stock of Key or any successor to Key by merger, consolidation, or otherwise. (a) A Change of Control will have occurred under this clause (a) if Key is a party to a transaction pursuant to which Key is merged with or into, or is consolidated with, or becomes the subsidiary of another corporation and, at any time within 24 months after the effective date of that transaction, individuals who were directors of Key on the day after the last annual meeting of shareholders of Key occurring before the transaction cease for any reason to constitute at least 40% of the directors of the surviving or resulting corporation or (if Key becomes a subsidiary in the transaction) of the ultimate parent of Key. (b) A Change of Control will have occurred under this clause (b) if Key is a party to a transaction pursuant to which Key is merged with or into, or is consolidated with, or becomes the subsidiary of another corporation and, (i) after giving effect to such transaction, less than 40% of the then outstanding voting securities of the surviving or resulting corporation or (if Key becomes a subsidiary in the transaction) of the ultimate parent of Key represent or were issued in exchange for voting - 13 - 14 securities of Key outstanding immediately prior to such transaction, and (ii) at any time within 24 months after the effective date of that transaction, individuals who were directors of Key on the day after the last annual meeting of shareholders of Key occurring before that effective date cease for any reason to constitute at least 51% of the directors of the surviving or resulting corporation or (if Key becomes a subsidiary in the transaction) of the ultimate parent of Key. (c) A Change of Control will have occurred under this clause (c) if any of the events described in (i), (ii), (iii), or (iv) of this clause (c) (a "Change Event") occurs, but only if the condition set out in (x) or the condition set out in (y) of this clause (c) applies. The Change Events described in (i), (ii), (iii), and (iv) of this clause (c) are as follows: (i) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as adopted under the 1934 Act, disclosing the acquisition of 25% or more of the voting stock of Key in a transaction or series of transactions by any person (as the term "person" is used in Section 13(d) and Section 14(d)(2) of the 1934 Act (a "Person")). (ii) Key is a party to a transaction pursuant to which Key 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 represent or were issued in exchange for voting securities of Key outstanding immediately prior to such transaction. (iii) 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 Key. (iv) The shareholders of Key approve any plan or proposal for the liquidation or dissolution of Key. The conditions set out in (x) and (y) of this clause (c) are as follows: (x) A Change Event occurred in connection with a transaction that was not approved or recommended by the Key Board of Directors. - 14 - 15 (y) A Change Event occurred in connection with a transaction that was approved or recommended by the Key Board of Directors but only if, within the 24 month period ending on the date of that Change Event, Key had been "put in play" without the prior approval, solicitation, invitation, or recommendation of the Key Board of Directors. For purposes of this (y), Key will be deemed to have been "put in play" if any Person makes a public announcement of an intention (I) to engage in a transaction with Key that, if consummated, would result in a Change Event, or (II) to "solicit" proxies in connection with a proposal that is not approved or recommended by the Key Board of Directors or to engage in an "election contest" relating to the election of Directors of Key (as those terms are used in Regulation 14A under the 1934 Act). (d) A Change of Control will have occurred under this clause (d) if any Person announces an intention to engage in an "election contest" relating to the election of Directors of Key (as that term is defined in Regulation 14 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 after the last annual meeting of shareholders of Key occurring before that announcement, constituted the directors of Key cease for any reason to constitute at least a majority thereof. 7.6 COMPETITIVE ACTIVITY. The Executive shall be deemed to have engaged in "Competitive Activity" if the Executive: (a) engages in any business or business activity in which Key or any of its Subsidiaries engages, including, without limitation, engaging in any business activity in the banking or financial services industry (other than as a director, officer, or employee of Key or any of its Subsidiaries), or (b) serves as a director, officer, or employee of any bank, bank holding company, savings and loan association, building and loan association, savings and loan holding company, insurance company, investment banking or securities company, mutual fund company, or other financial services company other than Key or any - 15 - 16 of its Subsidiaries (each of the foregoing being hereinafter referred to as a "Financial Services Company"), or renders services of a consultative or advisory nature or otherwise to any such Financial Services Company; provided, however, this clause (b) shall not prohibit or restrict the Executive from serving in any such capacity with the consent of Key. 7.7 DISABILITY. For purposes of this Agreement, the Executive's employment will have been terminated by Key or its Subsidiary by reason of "Disability" of the Executive only if (a) as a result of accidental bodily injury or sickness, the Executive has been unable to perform his normal duties for Key or its Subsidiary for a period of 180 consecutive days, and (b) the Executive begins to receive payments under the Key Long Term Disability Plan not later than 30 days after the Termination Date. 7.8 MANDATORY RELOCATION. A "Mandatory Relocation" shall have occurred if, at any time after a Change of Control, the Executive is required to relocate the Executive's principal place of employment for Key or its Subsidiary without the Executive's consent more than 35 miles from where the Executive was located prior to the Change of Control, (b) Key or its Subsidiary has given written notice to the Executive that such a relocation is required, and (c) the Executive, in a written response to that notice, has declined to consent to the required relocation. 7.9 REDUCTION OF BASE SALARY. A "Reduction of Base Salary" shall have occurred if the base salary of the Executive is reduced at any time after a Change of Control. 7.10 SUBSIDIARY. A "Subsidiary" means any corporation, bank, partnership, or other entity a majority of the voting control of which is directly or indirectly owned or controlled at the time in question by Key. 7.11 TERMINATION DATE. The term "Termination Date" means the date on which the Executive's employment with Key and its Subsidiaries terminates. 7.12 WINDOW PERIOD. The term "Window Period," with respect to any particular Change of Control, means the three-month period beginning on the date that falls on same day of the month as the date of the Change of Control in the fifteenth month after the month in which the Change of Control occurs. If at any time there has been more than one Change of Control, there shall be a separate Window Period with respect to each such Change of Control. - 16 - 17 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SOCIETY CORPORATION By___________________________ Robert W. Gillespie Chairman of the Board and Chief Executive Officer THE "EXECUTIVE" _____________________________ - 17 - EX-10.37 8 KEYCORP EX-10.37 1 KEYCORP DIRECTORS' STOCK OPTION PLAN ------------------------------------ 1. Purpose of the Plan ------------------- The purpose of the KeyCorp Directors' Stock Option Plan is to encourage directors to acquire a larger stock ownership in KeyCorp, thus increasing their proprietary interest in the business and increasing their incentive to continue active service as a Director in the interest of KeyCorp and all its shareholders. Accordingly, KeyCorp will from time to time during the term of the Plan grant to Directors Options to purchase KeyCorp Common Shares subject to the conditions hereinafter provided. 2. Definitions ----------- Unless the context clearly indicates otherwise, the following terms have the meanings set forth below. "Board of Directors" means the Board of Directors of KeyCorp. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the Compensation and Organization Committee of the Board of Directors. "Common Shares" means the common shares of KeyCorp, $1 par value. "Director" means a member of the Board of Directors of KeyCorp. "Grant Date" as used with respect to a particular Option, means the date as of which such Option is granted pursuant to the Plan. "Optionee" means the Director to which an Option is granted pursuant to the Plan. "Option" means the right granted pursuant to Section 5 of the Plan to purchase Common Shares. "Plan" means this KeyCorp Directors' Stock Option Plan as it may be amended from time to time. 2 3. Administration of the Plan -------------------------- The Plan shall be administered by the Committee. The Committee shall be vested with full authority to make such rules and regulations as it deems necessary or desirable to administer the Plan and to interpret the provisions of the Plan. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all Optionees and any person claiming under or through an Optionee, unless otherwise determined by the Board. Any determination, decision or action of the Committee provided for in the Plan may be made or taken by action of the Board if it so determines, with the same force and effect as if such determination, decision or action had been made or taken by the Committee. No member of the Committee or of the Board shall be liable for any determination, decision or action made in good faith with respect to the Plan or any Option granted under the Plan. The fact that a member of the Board shall at the time be, or shall theretofore have been or thereafter may be, a person who has received or is eligible to receive an Option shall not disqualify him or her from taking part in and voting at any time as a member of the Board in favor of or against any amendment or repeal of the Plan. 4. Stock Subject to the Plan ------------------------- (a) The stock to be issued upon exercise of Options granted under the Plan shall be KeyCorp's Common Shares, which shall be made available, at the discretion of the Board, either from authorized but unissued Common Shares or from Common Shares reacquried by KeyCorp, including shares purchased in the open market. The aggregate number of Common Shares which may be issued under or subject to Options granted under this Plan shall not exceed 903,750 shares. (b) In the event that any outstanding Option or portion thereof under the Plan for any reason expires or is terminated, the Common Shares allocable to the unexercised portion of such Option may again be made subject to Option under the Plan. 5. Grant of Options ---------------- (a) Each person who is then a Director of KeyCorp shall automatically receive a grant of options on 3,500 KeyCorp Common Shares annually on the first business day of April without any action by the Board or the Committee, except that if the Executive Vice President and General Counsel of KeyCorp determines in his or her sole discretion that on such date KeyCorp is in possession of material non-public information concerning its affairs, such grant shall be delayed until the third day on which trading occurs on the New York Stock Exchange following the public dissemination of such information or the date of an event which renders such information immaterial. No Option granted shall be a "Qualified Stock Option" under the Code. 2 3 6. Option Price ------------ The purchase price per share of each Common Share which is subject to an Option shall be 100 percent of the fair market value of such Common Share on the date the Option is granted. For purposes of the Plan, the fair market value of a Common Share shall be the mean between the high and low sales price per Common Share on the New York Stock 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. 7. Eligibility of Optionees ------------------------ (a) Members of the Committee are eligible to receive grants of Options. (b) Neither anything contained in the Plan or in any document under the Plan nor the grant of any Option under the Plan shall confer upon any Optionee any right to continue as a Director of KeyCorp or limit in any respect the right of KeyCorp's shareholders to terminate the Optionee's directorship at any time and for any reason. 8. Non-Transferability of Options ------------------------------ No Option granted under the Plan shall be assignable or transferable by the Optionee other than by will or the laws of descent and distribution, and during the lifetime of an Optionee the Option shall be exercisable only by such Optionee. 9. Term and Exercise of Options ---------------------------- (a) Each Option granted under the Plan shall terminate on the date which is 10 years after the date of grant. The Committee at its discretion may provide further limitations on the exercisability of Options granted under the Plan. An Option may be exercised only during the continuance of the Optionee's service as a Director, except as provided in Sections 10 and 11 of the Plan. (b) A person electing to exercise an Option shall give written notice to KeyCorp of such election and of the number of shares he or she has elected to purchase, in such forms as the Committee shall have prescribed or approved, and shall at the time of exercise tender the full purchase price of the shares he or she has elected to purchase. The purchase price shall be paid in full in cash upon the exercise of the Option; provided, however, that in lieu of cash, with the approval of the Committee at or prior to exercise, an Optionee may exercise his or her Option by tendering to KeyCorp Common Shares owned by him or her and having a fair market value equal to the cash exercise price applicable to his or her Option, with the then fair market value of such shares to be determined in the same manner as provided in Section 6 of the Plan with respect to the determination of the fair market value of Common Shares on the date an Option is granted. CMR40061 (3/10/95) 3 4 10. Termination of Directorship --------------------------- If an Optionee's status as a Director ceases for any reason, any Option granted to him or her under the Plan shall terminate twenty-four months after the termination of the Optionee's status as a Director and all rights under the Option shall cease, except that if an Optionee dies while serving as a Director or during the twenty-four month period thereafter, the Option shall terminate twenty-four months after an Optionee ceases to be a Director or six months after death, whichever is later. The foregoing notwithstanding, no Option shall be exercisable after its expiration date. 11. Death of Optionee ----------------- After an Optionee's death, the Option may be exercised by the executors or administrators of the Optionee's estate, or by any person or persons who have acquired the Option directly from the Optionee by bequest or inheritance, within the period set forth in Section 10, except that no Option shall be exercisable after its expiration date. 12. Modification, Extension and Renewal of Options ---------------------------------------------- Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify outstanding Options granted under the Plan, but no such modification shall alter or modify the amount or purchase price of the shares subject to such Option (except pursuant to Section 15 of the Plan) or the timing of the award of such Option. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted under the Plan. 4 5 13. Period in which Options may be Granted -------------------------------------- Options may be granted pursuant to the Plan at any time on or before April 30, 1997. 14. Amendment or Termination of the Plan ------------------------------------ The Board may at any time terminate, amend, modify or suspend the Plan, provided that, without the approval of the shareholders of KeyCorp, no amendment or modification shall be made by the Board which: (a) Increases the maximum number of shares as to which Options may be granted under the Plan; (b) Alters the method by which the Option price is determined; (c) Extends any Option for a period longer than 10 years after the date of grant; (d) Materially modifies the requirements as to eligibility for participation in the Plan; (e) Alters this Section 14 so as to defeat its purpose. Further, no amendment, modification, suspension or termination of the Plan shall in any manner affect any Option theretofore granted under the Plan without the consent of the Optionee or any person validly claiming under or through the Optionee. 15. Changes in Capitalization ------------------------- (a) In the event that the shares of KeyCorp, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of KeyCorp or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock dividend, stock split, combination of shares or otherwise) or if the number of such shares of stock shall be increased through the payment of a stock dividend, then, subject to the provisions of Subsection (c) below, there shall be substituted for or added to each share of stock of KeyCorp which was theretofore appropriated, or which thereafter may become subject to an Option under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of the stock of KeyCorp shall be so changed or for which each such share shall be exchanged or to which each such share shall be entitled, as the case may be. Outstanding Options shall also be appropriately amended as to price and other terms, as may be necessary to reflect the foregoing events. 5 6 (b) If there shall be any other change in the number or kind of the outstanding shares of the stock of KeyCorp, or of any stock or other securities into which such stock shall have been changed, or for which it shall have been exchanged, and if the Board or the Committee (as the case may be), shall in its sole discretion, determine that such change equitably requires an adjustment in any Option which was theretofore granted or which may thereafter be granted under the Plan, then such adjustment shall be made in accordance with such determination. (c) A dissolution or liquidation of KeyCorp or a merger or consolidation in which KeyCorp is not the surviving corporation, shall cause each outstanding Option to terminate, except to the extent that another corporation may and does in the transaction assume and continue the Option or substitute its own Options. In either event, the Board or the Committee (as the case may be) shall have the right to accelerate the time within which the Option may be exercised. (d) Fractional shares resulting from any adjustment in Options pursuant to this Section 15 may be settled as the Board or the Committee (as the case may be) shall determine. (e) The grant of an Option pursuant to the Plan shall not affect in any way the right or power of KeyCorp to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge, to consolidate, to dissolve, to liquidate or to sell or transfer all or any part of its business or assets. 16. Listing and Registration of Shares ---------------------------------- If a registration statement under the Securities Act of 1933 with respect to the shares issuable upon exercise of any Option granted under the Plan is not in effect at the time of exercise, as a condition of the issuance of the shares the person exercising such Option shall give the Committee a written statement, satisfactory in form and substance to the Committee, that he or she is acquiring the shares for his or her own account for investment and not with a view to their distribution. KeyCorp may place upon any stock certificate for shares issuable upon exercise of such Option the following legend or such other legend as the Committee may prescribe to prevent disposition of the shares in violation of the Securities Act of 1933 or other applicable law: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL FOR KEYCORP THAT REGISTRATION IS NOT REQUIRED. CMR40061 (3/10/95) 6 7 EXHIBIT 1 --------- KEYCORP DIRECTORS' STOCK OPTION PLAN AS AMENDED AND RESTATED AS OF NOVEMBER 17, 1994 1. PURPOSE OF THE PLAN. The purpose of the KeyCorp Directors' Stock Option Plan is to encourage directors to acquire a larger stock ownership in KeyCorp, thus increasing their proprietary interest in the business and increasing their incentive to continue active service as a Director in the interest of KeyCorp and all its shareholders. 2. DEFINITIONS. Unless the context clearly indicates otherwise, the following terms have the meanings set forth below. "Board of Directors" or "Board" means the Board of Directors of KeyCorp. "Code" means the Internal Revenue Code of 1986, as amended. "Committee" means the committee appointed by the Board of Directors to administer the Plan. "Common Shares" means KeyCorp Common Shares, with a par value of $1 each. "Director" means a member of the Board of Directors of KeyCorp. "Grant Date" as used with respect to a particular Option means the date as of which such Option is granted pursuant to the Plan. "Optionee" means the Director to which an Option is granted pursuant to the Plan. "Option" means the right granted pursuant to the Plan to purchase Common Shares. "Plan" means this KeyCorp Directors' Stock Option Plan as it may be amended from time to time. "Total and Permanent Disability" as applied to an Optionee, means that the Optionee (i) has established to the satisfaction of the Committee that the Optionee is unable to perform normal duties and responsibilities with KeyCorp by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a 8 continuous period of not less than 12 months (all within the meaning of Section 22(e)(3) of the Code); and (ii) has satisfied any other requirement imposed by the Committee. 3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a Committee composed of three or more Directors who are appointed by the Board of Directors of KeyCorp to administer the Plan. The Board may from time to time remove members from or add members to the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Board shall select one of the Committee's members as Chairman. The Committee shall hold meetings at such times and places as it may determine, subject to such rules as to procedures not inconsistent with the provisions of the Plan as are prescribed by the Board, as may be set out in the Regulations of KeyCorp as applicable to committees and as prescribed by the Committee itself. A majority of the authorized number of members of the Committee shall constitute a quorum for the transaction of business. The affirmative vote of a majority of the members of the Committee present at any meeting at which a quorum is present shall be the valid act of the Committee. Acts taken without a meeting and reduced to or approved in a writing or writings signed by all of the members of the Committee shall be the valid acts of the Committee. A member of the Committee shall be eligible to be granted Options under the Plan while a member of the Committee. The Committee shall be vested with full authority to make such rules and regulations as it deems necessary or desirable to administer the Plan and to interpret the provisions of the Plan. Any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all Optionees and any person claiming under or through an Optionee, unless otherwise determined by the Board. Any determination, decision or action of the Committee provided for in the Plan may be made or taken by action of the Board if it so determines, with the same force and effect as if such determination, decision or action had been made or taken by the Committee. No member of the Committee or of the Board shall be liable for any determination, decision or action made in good faith with respect to the Plan or any Option granted under the Plan. The fact that a member of the Board shall at the time be, or shall theretofore have been or thereafter may be, a person who has received or is eligible to receive an Option shall not disqualify him or her from taking part in and voting at any time as a member of the Board in favor of or against any amendment or repeal of the Plan. 9 4. STOCK SUBJECT TO THE PLAN. (a) The stock to be issued upon exercise of Options granted under the Plan shall be KeyCorp Common Shares which shall be made available, at the discretion of the Board, either from authorized but unissued Common Shares or from Common Shares reacquired by KeyCorp, including shares purchased in the open market. The aggregate number of Common Shares which may be issued under or subject to Options granted under this Plan shall not exceed 903,750 shares and the aggregate number of Common Shares which may be issued under or subject to Options granted under this Plan to any one individual shall not exceed 45,187 shares. The limitation established by the preceding sentence shall be subject to adjustment as provided in Section 15 of the Plan. (b) In the event that any outstanding Option or portion thereof under the Plan for any reason expires or is terminated, the Common Shares allocable to the unexercised portion of such Option may again be made subject to Option under the Plan. 5. GRANT OF OPTIONS. All Options granted under this Plan shall be "Nonqualified Stock Options" for purposes of the Code. 6. OPTION PRICE. The purchase price per Common Share which is subject to an Option shall be 100 percent of the fair market value of a Common Share on the date the Option is granted. For purposes of the Plan, the fair market value of a Common Share shall be equal to the fair market value of a Common Share as reported for trading on the New York Stock Exchange (or such other national securities exchange on which the Common Shares may be principally traded) on the date the Option is granted. The fair market value shall be the highest closing price of Common Shares on such stock exchange or exchanges on the day the Option is granted or, in the event that no sale of Common Shares has been made on any stock exchange on that day, the fair market value shall be determined by reference to such price for the next preceding day on which a sale occurred. During such time as Common Shares are not listed on a national securities exchange, fair market value per share shall be the mean between the closing dealer "bid" and "ask" prices for Common Shares as quoted by NASDAQ for the day of the grant, and if no "bid" and "ask" prices are quoted for the day of the grant, the fair market value shall be determined by reference to such prices on the next preceding day on which such prices were quoted. In the event that Common Shares are not traded on a national securities stock exchange, and no closing dealer "bid" and "ask" prices are available, then the fair market value of 10 one Common Share on the day the Option is granted shall be determined by the Committee in good faith. The purchase price shall be subject to adjustment only as provided in Section 15 of the Plan. 7. ELIGIBILITY OF OPTIONEES. (a) Options on 3,500 KeyCorp Common Shares shall automatically be granted annually on the third business day following the date of the earnings release of KeyCorp for the first quarter of each year, commencing in 1995, to those persons who are then Non-employee Directors of KeyCorp, except that no one individual shall be granted Options in an aggregate of more than 45,187 shares, and except that if the Executive Vice President and General Counsel of KeyCorp determines in his sole discretion that on such date KeyCorp is in possession of material non-public information concerning its affairs, such grant shall be delayed until the third day on which trading occurs on the New York Stock Exchange following the public dissemination of such information or the date of an event which renders such information immaterial. (b) Subject to the terms of the Plan, and subject to review by the Board, the Committee shall have exclusive jurisdiction (i) to determine the dates on which, or the time periods during which, the Option may be exercised, (ii) to determine the purchase price of the shares subject to each Option in accordance with Section 6 of the Plan and (iii) to prescribe the form, which shall be consistent with the Plan, of the instrument evidencing any Options granted under the Plan. (c) Neither anything contained in the Plan or in any document under the Plan nor the grant of any Option under the Plan shall confer upon any Optionee any right to continue as a Director of KeyCorp or limit in any respect the right of KeyCorp's shareholders to terminate the Optionee's directorship at any time and for any reason. 8. NON-TRANSFERABILITY OF OPTIONS. No Option granted under the Plan shall be assignable or transferable by the Optionee other than by will or the laws of descent and distribution, and during the lifetime of an Optionee the Option shall be exercisable only by such Optionee. 9. TERM AND EXERCISE OF OPTIONS. (a) Each Option granted under the Plan shall terminate on the date which is 10 years after the date of grant. The Committee at its discretion may provide further limitations on the exercisability of Options 11 granted under the Plan. An Option may be exercised only during the continuance of the Optionee's service as a Director, except as provided in Sections 10 and 11 of the Plan. (b) A person electing to exercise an Option shall give written notice to KeyCorp of such election and of the number of shares he or she has elected to purchase, in such forms as the Committee shall have prescribed or approved, and shall at the time of exercise tender the full purchase price of the shares he or she has elected to purchase. The purchase price shall be paid in full in cash upon the exercise of the Option; provided, however, that in lieu of cash, with the approval of the Committee at or prior to exercise, an Optionee may exercise his or her Option by tendering to KeyCorp Common Shares owned by him or her and having a fair market value equal to the cash exercise price applicable to his or her Option, with the then fair market value of such stock to be determined in the same manner as provided in Section 6 of the Plan with respect to the determination of the fair market value of Common Shares on the date an Option is granted. (c) An Optionee or a transferee of an Option shall have no rights as a shareholder with respect to any shares covered by his or her Option until the date the stock certificate is issued evidencing ownership of the shares. No adjustments shall be made for dividends (ordinary or extraordinary), whether in cash, securities or other property, or distributions or other rights, for which the record date is prior to the date such stock certificate is issued, except as provided in Section 15 hereof. 10. TERMINATION OF DIRECTORSHIP. If an Optionee's status as a Director ceases for any reason other than death, any Option granted to him or her under the Plan shall terminate, and all rights under the Option shall cease, except (a) In the case of an Option held by an Optionee who is not permanently and totally disabled (within the meaning of Section 22(e)3 of the Code), such Option shall terminate eighteen months after the termination of such Optionee as a director. (b) In the case of an Option held by an Optionee who is permanently and totally disabled (within the meaning of Section 22(e)(3) of the Code), such Option shall terminate 12 months after the termination of such Optionee as a director. (c) The foregoing notwithstanding, no Option shall be exercisable after its expiration date. 12 11. DEATH OF OPTIONEE. If an Optionee dies while serving as a Director, or after cessation of such service but within the period during which he or she could have exercised the Option under Section 10 of the Plan, then the Option may be exercised by the executors or administrators of the Optionee's estate or by any person or persons who have acquired the Option directly from the Optionee by bequest or inheritance, within twenty-four months (or such other period as prescribed by the Committee) after the Optionee's death, except that no Option shall be exercisable after its expiration date. 12. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Subject to the terms and conditions and within the limitations of the Plan, the Committee may modify outstanding Options granted under the Plan, but no such modification shall alter or modify the amount or purchase price of the shares subject to such Option (except pursuant to Section 15 of the Plan) or the timing of the award of such Option. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted under the Plan. 13. PERIOD IN WHICH OPTION MAY BE GRANTED. Options may be granted pursuant to the Plan at any time on or before April 30, 1997. 14. AMENDMENT OR TERMINATION OF THE PLAN. The Board may at any time terminate, amend, modify or suspend the Plan, provided that, without the approval of the shareholders of KeyCorp, no amendment or modification shall be made by the Board which: (a) Increases the maximum number of shares as to which Options may be granted under the Plan; (b) Alters the method by which the Option price is determined; (c) Extends any Option for a period longer than 10 years after the date of grant; (d) Materially modifies the requirements as to eligibility for participation in the Plan; (e) Amends Paragraphs 7(a) or 7(b) at intervals more frequent than once every six months except to the extent necessary to comport with changes in the Code, the Employee Retirement Income Security Act, or the rules thereunder; or 13 (f) Alters this Section 14 so as to defeat its purpose. Further, no amendment, modification, suspension or termination of the Plan shall in any manner affect any Option theretofore granted under the Plan without the consent of the Optionee or any person validly claiming under or through the Optionee. 15. CHANGES IN CAPITALIZATION. (a) In the event that the shares of KeyCorp, as presently constituted, shall be changed into or exchanged for a different number or kind of shares of stock or other securities of KeyCorp or of another corporation (whether by reason of merger, consolidation, recapitalization, reclassification, stock dividend, stock split, combination of shares or otherwise) or if the number of such shares of stock shall be increased through the payment of a stock dividend, then, subject to the provision of Subsection (c) below, there shall be substituted for or added to each share of stock of KeyCorp which was theretofore appropriated, or which thereafter may become subject to an Option under the Plan, the number and kind of shares of stock or other securities into which each outstanding share of the stock of KeyCorp shall be so changed or for which each such share shall be exchanged or to which each such share shall be entitled, as the case may be. Outstanding Options shall also be appropriately amended as to price and other terms, as may be necessary to reflect the foregoing events. (b) If there shall be any other change in the number or kind of the outstanding shares of the stock of KeyCorp, or of any stock or other securities into which such stock shall have been changed, or for which it shall have been exchanged, and if the Board or the Committee (as the case may be), shall in its sole discretion, determine that such change equitably requires an adjustment in any Option which was theretofore granted or which may thereafter be granted under the Plan, then such adjustment shall be made in accordance with such determination. (c) A dissolution or liquidation of KeyCorp or a merger or consolidation in which KeyCorp is not the surviving corporation shall cause each outstanding Option to terminate, except to the extent that another corporation may and does in the transaction assume and continue the Option or substitute its own Options. In either event, the Board or the Committee (as the case may be) shall have the right to accelerate the time within which the Option may be exercised. 14 (d) Fractional shares resulting from any adjustment in Options pursuant to this Section 15 may be settled as the Board or the Committee (as the case may be) shall determine. (e) To the extent that the foregoing adjustments relate to stock or securities of KeyCorp such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. Notice of any adjustment shall be given by KeyCorp to each holder of an Option which shall have been so adjusted. (f) The grant of an Option pursuant to the Plan shall not affect in any way the right or power of KeyCorp to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge, to consolidate, to dissolve, to liquidate or to sell or transfer all or any part of its business or assets. 16. LISTING AND REGISTRATION OF SHARES. (a) No Option granted pursuant to the Plan shall be exercisable in whole or in part if at any time the Board or the Committee (as the case may be) shall determine in its discretion that the listing, registration or qualification of the Common Shares subject to such Option on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue of shares thereunder, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Board. (b) If a registration statement under the Securities Act of 1933 with respect to the shares issuable upon exercise of any Option granted under the Plan is not in effect at the time of exercise, as a condition of the issuance of the shares the person exercising such Option shall give the Committee a written statement, satisfactory in form and substance to the Committee, that he or she is acquiring the shares for his or her own account for investment and not with a view to their distribution. KeyCorp may place upon any stock certificate for shares issuable upon exercise of such Option the following legend or such other legend as the Committee may prescribe to prevent disposition of the shares in violation of the Securities Act of 1933 or other applicable law: 15 THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 ("ACT") AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION OF COUNSEL FOR KEYCORP THAT REGISTRATION IS NOT REQUIRED. 17. PLAN EFFECTIVE DATE. The Plan was approved by KeyCorp's shareholders at the Annual Meeting of Shareholders held on April 30, 1987 and became effective on that date. Unless sooner terminated by the Board, the Plan will terminate ten years from its effective date and no Options may be granted under the Plan after such termination date. The Plan was restated by action of the Board of Directors on November 17, 1994, to, among other things (i) adjust the number of shares covered by the Plan and other various share limits contained in the Plan as a result of the 3-for-2 stock split by means of a stock dividend on April 15, 1992 and the 1.205 exchange ratio applicable in the merger (the "Merger") of the former KeyCorp, a New York corporation, into Society Corporation, an Ohio corporation, on March 1, 1994, (ii) conform the provisions of the Plan to Ohio law and KeyCorp's Regulations, both of which became applicable as a result of the Merger, and (iii) incorporate all amendments to the Plan. EX-11 9 KEYCORP EX-11 1 EXHIBIT 11 KEYCORP COMPUTATION OF NET INCOME PER COMMON SHARE (dollars in thousands, except per share amounts)
Year ended December 31, ---------------------------------------------------------- 1994 1993 1992 ---------------------------------------------------------- NET INCOME APPLICABLE TO COMMON SHARES Net income $853,490 $709,926 $592,098 Less: Preferred dividend requirements 16,000 18,097 24,029 ----------------- ------------------ ----------------- Net income applicable to Common Shares $837,490 $691,829 $568,069 ================= ================== ================= NET INCOME PER COMMON SHARE Weighted average Common Shares outstanding 243,067,487 239,775,188 235,004,821 ================= ================== ================= Net income applicable to Common Shares $837,490 $691,829 $568,069 ================= ================== ================= Net income per Common Share $3.45 $2.89 $2.42 ================= ================== ================= NET INCOME PER COMMON SHARE -- PRIMARY Weighted average Common Shares outstanding 243,067,487 239,775,188 235,004,821 Dilutive common stock options (1) 2,398,245 1,803,680 1,977,550 ----------------- ------------------ ----------------- Weighted average Common Shares and Common Share equivalents outstanding 245,465,732 241,578,868 236,982,371 ================= ================== ================= Net income applicable to Common Shares $837,490 $691,829 $568,069 ================= ================== ================= Net income per Common Share $3.41 $2.86 $2.40 ================= ================== ================= NET INCOME PER COMMON SHARE -- FULLY DILUTED Weighted average Common Shares outstanding 243,067,487 239,775,188 235,004,821 Dilutive common stock options (1) 2,400,089 1,944,892 2,781,189 ----------------- ------------------ ----------------- Weighted average Common Shares and Common Share equivalents outstanding 245,467,576 241,720,080 237,786,010 ================= ================== ================= Net income applicable to Common Shares $837,490 $691,829 $568,069 ================= ================== ================= Net income per Common Share $3.41 $2.86 $2.39 ================= ================== ================= (1) Dilutive common stock options are based on the treasury stock method using average market price in computing net income per Common Share -- primary, and the higher of period-end market price or average market price in computing net income per Common Share -- fully diluted.
EX-12 10 KEYCORP EX-12 1 EXHIBIT 12 KEYCORP COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (Unaudited)
Year ended December 31, 1994 1993 1992 1991 1990 Computation of Earnings: Net income $ 853,490 $ 709,926 $ 592,098 $ 313,696 $ 256,098 Add: Provision (credit) for income taxes 429,981 373,972 279,632 136,684 15,173 Less: Cumulative effect of accounting change 6,613 2,714 ---------- ---------- ---------- ---------- ---------- Income before income taxes 1,283,471 1,083,898 865,117 450,380 268,557 Fixed charges, excluding interest on deposits 513,225 344,585 324,365 422,189 472,468 ---------- ---------- ---------- ---------- ---------- Total earnings for computation, excluding interest on deposits 1,796,696 1,428,483 1,189,482 872,569 741,025 Interest on deposits 1,324,576 1,233,331 1,468,974 2,135,651 2,230,759 Total earnings for computation, ---------- ---------- ---------- ---------- ---------- including interest on deposits $3,121,272 $2,661,814 $2,658,456 $3,008,220 $2,971,784 ========== ========== ========== ========== ========== Computation of Fixed Charges: Net rental expense $ 124,168 $ 130,361 $ 130,973 $ 118,855 $ 107,615 Portion of net rental expense deemed ========== ========== ========== ========== ========== representative of interest $ 40,975 $ 43,019 $ 43,221 $ 38,450 $ 35,470 Interest on short-term borrowed funds 334,456 174,664 174,059 288,220 339,876 Interest on long-term debt 137,794 126,902 107,085 95,519 97,122 Total fixed charges, excluding interest ---------- ---------- ---------- ---------- ---------- on deposits 513,225 344,585 324,365 422,189 472,468 Interest on deposits 1,324,576 1,233,331 1,468,974 2,135,651 2,230,759 Total fixed charges, including interest ---------- ---------- ---------- ---------- ---------- on deposits $1,837,801 $1,577,916 $1,793,339 $2,557,840 $2,703,227 ========== ========== ========== ========== ========== Combined Fixed Charges and Preferred Stock Dividends: Preferred stock dividend requirement on a pre-tax basis $ 24,061 $ 27,630 $ 35,505 $ 23,292 $ 7,484 Total fixed charges, excluding interest on deposits 513,225 344,585 324,365 422,189 472,468 Combined fixed charges and preferred stock ---------- ---------- ---------- ---------- ---------- dividends, excluding interest on deposits 537,286 372,215 359,870 445,481 479,952 Interest on deposits 1,324,576 1,233,331 1,468,974 2,135,651 2,230,759 Combined fixed charges and preferred stock ---------- ---------- ---------- ---------- ---------- dividends, including interest on deposits $1,861,862 $1,605,546 $1,828,844 $2,581,132 $2,710,711 ========== ========== ========== ========== ========== Ratio of Earnings to Fixed Charges: Excluding deposit interest 3.50X 4.15X 3.67X 2.07X 1.57X Including deposit interest 1.70X 1.69X 1.48X 1.18X 1.10X Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends: Excluding deposit interest 3.34X 3.84X 3.31X 1.96X 1.54X Including deposit interest 1.68X 1.66X 1.45X 1.17X 1.10X
EX-13 11 KEYCORP EX-13 1 ------------------------ KEYCORP AND SUBSIDIARIES
CONTENTS Management's Discussion and Analysis of Financial Condition and Results of Operations Glossary of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Performance Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Group Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Asset and Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Noninterest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Noninterest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Asset Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Deposits and Other Sources of Funds . . . . . . . . . . . . . . . . . . . . . . . . 41 Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Capital and Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Fourth Quarter Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Banking Services Data by Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Six-Year Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Six-Year Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . 48 Report of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Report of Ernst & Young LLP/Independent Auditors . . . . . . . . . . . . . . . . . . . . 49 Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
17 2 ------------------------ KEYCORP AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GLOSSARY OF TERMS CAPITAL COMPONENTS AND RATIOS: LEVERAGE RATIO: Tier I capital as a percentage of average quarterly assets, less goodwill and other non-qualifying intangible assets. NET RISK-ADJUSTED ASSETS: The sum of risk-weighted assets plus the risk-weighted credit equivalent amounts of off-balance sheet items, less goodwill, other non-qualifying intangible assets, and the non-qualifying portion of the allowance for loan losses. TANGIBLE EQUITY: Total shareholders' equity less goodwill and other intangible assets. TIER I CAPITAL: The sum of common shareholders' equity (including Common Shares, capital surplus, and retained earnings; excluding net unrealized gains and losses on securities, except for net unrealized losses on marketable equity securities) plus noncumulative perpetual preferred stock, less goodwill and other non-qualifying intangible assets. TIER I RISK-ADJUSTED CAPITAL RATIO: The ratio of Tier I capital to net risk-adjusted assets. The Federal regulatory minimum standard for the Tier I risk-adjusted capital ratio is 4.00%. TOTAL CAPITAL: The sum of Tier I capital plus Tier II capital (including the qualifying portions of the allowance for loan losses, subordinated debt instruments, and certain hybrid capital instruments). TOTAL RISK-ADJUSTED CAPITAL RATIO: The ratio of total capital to net risk-adjusted assets. The Federal regulatory minimum standard for the total risk-adjusted capital ratio is 8.00%. EARNING ASSETS: The sum of loans, loans held for sale, investment securities, securities available for sale and short-term investments (interest-bearing deposits with banks, Federal funds sold, securities purchased under agreements to resell, and trading account assets). EFFICIENCY RATIO: Noninterest expense (excluding merger and integration charges and other significant nonrecurring charges) divided by taxable- equivalent net interest income plus noninterest income (excluding net securities transactions and certain gains on asset sales). INTEREST-BEARING LIABILITIES: The sum of interest-bearing deposits, Federal funds purchased, securities sold under repurchase agreements, other short-term borrowings, and long-term debt. INTEREST RATE SPREAD: The difference between the taxable-equivalent yield on earning assets and the rate paid on interest-bearing liabilities. INTEREST RATE SWAP: A contract wherein one party pays a fixed rate of interest based on a notional amount to a second party, which pays to the first party a variable rate of interest based on the same notional amount. MERGER AND INTEGRATION CHARGES: Expenses directly related to mergers and consisting of investment banking and other professional fees; severance payments and other employee costs; systems and facilities costs; and other merger-related costs. NET INTEREST MARGIN: Taxable-equivalent net interest income as a percentage of average earning assets. NONPERFORMING ASSETS: The sum of nonperforming loans plus other real estate owned and other nonperforming assets (primarily venture capital investments). NONPERFORMING LOANS: The sum of loans on a nonaccrual basis (for purposes of interest recognition) plus loans whose repayment criteria have been renegotiated to less-than-market terms due to the inability of the borrowers to repay the loans in accordance with their original terms. OTHER REAL ESTATE OWNED ("OREO"): Real estate acquired in either actual or, where the borrower's circumstances appear to make actual foreclosure likely, in-substance foreclosures. OVERHEAD RATIO: Noninterest expense (excluding merger and integration charges and other significant nonrecurring charges) less noninterest income (excluding net securities transactions and certain gains on asset sales) divided by taxable-equivalent net interest income. RETURN ON AVERAGE TOTAL ASSETS: Net income as a percentage of average total assets. RETURN ON AVERAGE COMMON EQUITY: Net income, less preferred dividends, as a percentage of average common shareholders' equity. TAXABLE-EQUIVALENT INCOME: Tax-exempt income which has been adjusted to an amount that would yield the same after-tax income had the income been subject to taxation at the statutory Federal income tax rate. 18 3 ------------------------ KEYCORP AND SUBSIDIARIES INTRODUCTION The financial information contained in this report reflects the March 1, 1994, merger of KeyCorp, a financial services holding company headquartered in Albany, New York ("old KeyCorp"), and Society Corporation, a financial services holding company headquartered in Cleveland, Ohio ("Society"). In the merger, Society was the surviving corporation, but changed its name to "KeyCorp." The merger of old KeyCorp and Society (the "Merger"), was accounted for as a pooling of interests and, accordingly, the financial information included in the remainder of this discussion and analysis of the financial condition and results of operations of KeyCorp and its subsidiaries (the "Corporation") presents the combined results of old KeyCorp and Society as if the Merger had been in effect for all periods presented. The Merger, one of the largest financial institution mergers in U.S. history, was successfully completed only five months after the definitive merger agreement had been announced. The resulting "new" KeyCorp is one of the nation's largest and most profitable bank holding companies with total assets of $66.8 billion and equity capital of $4.7 billion at December 31, 1994. It provides banking and other financial services across much of the country's northern tier and in Florida through a network of subsidiaries operating 1,272 full-service banking offices in 13 states, comprising the nation's fifth largest domestic branch network as of December 31, 1994. The banking franchise was expanded to 14 states as a result of the acquisition of BANKVERMONT Corporation on January 27, 1995. In order to best leverage the capabilities of the new company and to support future earnings growth, a strategic planning process known as "First Choice 2000" was launched in the third quarter of 1994. The purpose of this initiative is to redeploy corporate resources in order to accelerate the growth prospects of the Corporation's most promising businesses. An early decision resulting from First Choice 2000 was to sell the residential mortgage loan servicing operations of KeyCorp Mortgage Inc. ("KMI"), a mortgage banking subsidiary. As a result, the Corporation entered into a definitive agreement to sell KMI's residential mortgage loan servicing operations to NationsBanc Mortgage Corp. (a subsidiary of NationsBank Corp.) on February 22, 1995. The transaction is expected to close by the end of the first quarter of 1995, pending necessary Federal regulatory approvals. The Corporation's pending acquisition of Spears, Benzak, Salomon & Farrell, a New York-based investment management firm, is one example of how management intends to pursue alternative strategic opportunities, such as the asset management business, an area believed to have potential for significant growth. The remainder of this discussion is devoted to an analysis of the financial condition and results of operations of the Corporation for the periods presented. It should be read in conjunction with the consolidated financial statements and notes thereto, presented on pages 50 through 75 of this report. PERFORMANCE OVERVIEW Record earnings were achieved in 1994, despite the adverse impact of a dramatic rise in interest rates during the year. The Corporation recorded net income of $853.5 million, or $3.45 per Common Share, up from previous consecutive records of $709.9 million, or $2.89 per Common Share, recorded in 1993, and $592.1 million, or $2.42 per Common Share, recorded in 1992. These record earnings levels resulted in a return on average common equity for 1994 of 18.87%, up from 17.27% and 16.33% in 1993 and 1992, respectively. The return on average total assets was 1.36% in 1994, 1.24% in 1993 and 1.13% in 1992. Figure 1 presents the primary income and expense components for each of the three years in the period ended December 31, 1994, expressed on a per Common Share basis. Interest rate increases had a negative impact on both the Corporation's net interest margin, as well as the level of fee FIGURE 1 COMPONENTS OF EARNINGS PER COMMON SHARE
Year ended December 31, Change 1994 vs. 1993 ------------------- 1994 1993 1992 Amount Percent - -------------------------------------------------------------------------------------- Interest income $18.47 $17.57 $17.87 $ .90 5.1% Interest expense 7.39 6.40 7.45 .99 15.5 - -------------------------------------------------------------------------------------- Net interest income 11.08 11.17 10.42 (.09) (.8) - -------------------------------------------------------------------------------------- Provision for loan losses .51 .88 1.44 (.37) (42.0) - -------------------------------------------------------------------------------------- Net interest income after provision for loan losses 10.57 10.29 8.98 .28 2.7 Noninterest income 3.63 4.18 3.94 (.55) (13.2) Noninterest expense 8.92 9.95 9.24 (1.03) (10.4) - -------------------------------------------------------------------------------------- Income before income taxes 5.28 4.52 3.68 .76 16.8 Income taxes 1.77 1.56 1.19 .21 13.5 Cumulative effect of accounting change -- -- .03 -- -- Preferred dividends .06 .07 .10 (.01) (14.3) - -------------------------------------------------------------------------------------- Earnings per Common Share $ 3.45 $ 2.89 $ 2.42 $ .56 19.4% ====== ====== ====== ====== - --------------------------------------------------------------------------------------
19 4 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 2 SELECTED FINANCIAL DATA
Compound Annual Rate dollars in millions, of Change except per share amounts 1994 1993 1992 1991 1990 1989 (1989-1994) - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, Interest income $ 4,490.1 $ 4,213.9 $ 4,198.8 $ 4,652.4 $ 4,528.8 $ 4,410.2 .4% Interest expense 1,796.8 1,534.9 1,750.1 2,519.4 2,667.7 2,615.8 (7.2) Net interest income 2,693.3 2,679.0 2,448.7 2,133.0 1,861.1 1,794.4 8.5 Provision for loan losses 125.2 211.7 338.4 466.2 517.2 306.2 (16.4) Noninterest income 882.6 1,001.7 925.2 849.3 744.2 635.1 6.8 Noninterest expense 2,167.2 2,385.1 2,170.4 2,065.7 1,819.5 1,705.8 4.9 Income before income taxes 1,283.5 1,083.9 865.1 450.4 268.6 417.5 25.2 Net income 853.5 709.9 592.1 313.7 256.1 286.7 24.4 Net income applicable to Common Shares 837.5 691.8 568.1 297.5 249.0 281.3 24.4 - ------------------------------------------------------------------------------------------------------------------------------ PER COMMON SHARE Net income $ 3.45 $ 2.89 $ 2.42 $ 1.31 $ 1.13 $ 1.26 22.3% Cash dividends 1.28 1.12 .98 .92 .88 .80 9.9 Book value at year-end 18.88 17.53 15.64 14.10 13.48 13.29 7.3 Market price at year-end 25.00 29.75 32.13 24.75 16.13 17.07 7.9 Dividend payout ratio 37.10% 38.75% 40.50% 70.23% 77.88% 63.49% (10.2) Weighted average Common Shares (000) 243,067.5 239,775.2 235,004.8 227,116.2 220,078.6 223,901.3 1.7 - ------------------------------------------------------------------------------------------------------------------------------ AT DECEMBER 31, Loans $46,224.7 $ 40,071.3 $ 36,021.8 $ 35,534.3 $ 34,193.7 $ 31,570.4 7.9% Earning assets 60,046.5 54,352.7 49,380.8 48,207.9 44,668.2 41,871.4 7.5 Total assets 66,798.1 59,631.2 55,068.4 53,600.9 49,953.4 47,205.1 7.2 Deposits 48,564.2 46,499.1 43,433.1 42,835.0 40,935.3 37,375.4 5.4 Long-term debt 3,569.8 1,763.9 1,790.1 1,224.5 1,145.2 1,177.4 24.8 Common shareholders' equity 4,538.5 4,233.6 3,683.3 3,272.4 2,941.7 2,929.1 9.2 Total shareholders' equity 4,698.5 4,393.6 3,927.3 3,516.4 3,025.7 2,979.4 9.5 Full-time equivalent employees 29,211 29,983 29,117 29,509 28,741 28,324 .6 - ------------------------------------------------------------------------------------------------------------------------------ PERFORMANCE RATIOS Return on average total assets 1.36% 1.24% 1.13% .60% .54% .64% N/A Return on average common equity 18.87 17.27 16.33 9.29 8.39 9.56 N/A Return on average total equity 18.56 16.95 15.91 9.31 8.41 9.53 N/A Efficiency 59.39 60.50 60.96 65.27 66.92 67.09 N/A Overhead 46.14 46.85 47.21 52.63 54.58 56.50 N/A Net interest margin 4.83 5.31 5.31 4.71 4.53 4.64 N/A - ------------------------------------------------------------------------------------------------------------------------------ CAPITAL RATIOS AT DECEMBER 31, Equity to assets 7.03% 7.37% 7.13% 6.56% 6.06% 6.31% N/A Tangible equity to tangible assets 6.19 6.51 6.11 5.45 4.79 5.39 N/A Tier I risk-adjusted capital 8.48 8.73 8.56 7.67 6.75 N/A N/A Total risk-adjusted capital 11.62 12.22 11.73 9.80 9.17 N/A N/A Leverage 6.63 6.72 6.56 5.97 5.23 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------ The comparability of the information presented above is affected by certain acquisitions and divestitures completed by KeyCorp in the time periods presented. For further information concerning these transactions, refer to Note 2, Mergers, Acquisitions and Divestitures appearing on page 56. N/A = Not Applicable
income generated from its mortgage banking, trust and asset management, and insurance and brokerage activities. Steps were taken in the fourth quarter of 1994 and the first quarter of 1995 to reconfigure the balance sheet in order to reduce the Corporation's exposure to further increases in interest rates. These steps included the sale of certain securities during the fourth quarter of 1994, resulting in losses of $23.7 million ($14.3 million after tax, $.06 per Common Share). The balance sheet reconfiguration plans are described in greater detail in the Asset and Liability Management section, beginning on page 26 of this discussion. In 1993, net income was adversely impacted by merger and integration charges of $118.7 million ($80.6 million after tax, $.33 per Common Share) recorded in the fourth quarter in connection with the Merger. These merger and integration charges are described in greater detail in Note 12, Merger and Integration Charges, on page 66 of this report. Excluding the impact of the securities losses and merger and integration charges referred to above, 1994 net income grew by $77.3 million, or 10%, relative to the previous year. The 1994 improvement reflected a $10.0 million, or .4%, increase in taxable- equivalent net interest income, an $86.5 million, or 41%, decrease in the 20 5 ------------------------ KEYCORP AND SUBSIDIARIES provision for loan losses and a $99.2 million, or 4%, decrease in noninterest expense. These positive factors were offset in part by a $95.4 million, or 10%, decrease in noninterest income and a $56.0 million, or 15%, increase in tax expense. Adjusting for the securities losses and merger and integration charges referred to previously, the return on average common equity and the return on average total assets were 19.19% and 1.39%, respectively, in 1994, and 19.29% and 1.39%, respectively, in 1993. The efficiency ratio, which measures the extent to which recurring revenues are used to pay operating expenses, improved in 1994, decreasing from 60.50% in 1993 to 59.39%. Net income in 1992 was also impacted by merger and integration charges. These charges totaled $50.0 million ($34.2 million after tax, $.15 per Common Share) recorded in the first quarter in connection with the merger with Ameritrust Corporation ("Ameritrust") and $42.7 million ($32.4 million after tax, $.14 per Common Share) recorded in the fourth quarter in connection with the merger with Puget Sound Bancorp ("PSB"). Excluding the merger and integration charges in both 1993 and 1992, net income in 1993 grew by $131.8 million, or 20%, relative to the previous year. This 1993 improvement reflected a $221.2 million, or 9%, increase in taxable-equivalent net interest income, a $76.5 million, or 8%, increase in noninterest income and a $126.7 million, or 37%, decrease in the provision for loan losses. Income taxes increased $94.3 million, or 34%, while noninterest expense grew $188.7 million, or 9%, after adjusting for the merger and integration charges in both years. On an adjusted basis, the 1992 return on average common equity, return on average total assets and efficiency ratios were 18.25%, 1.26% and 60.96%, respectively. The substantially lower provision for loan losses in both 1994 and 1993 reflected continuing improvements in asset quality. Total nonperforming assets were $339.8 million at December 31, 1994, compared with $500.1 million and $900.2 million at December 31, 1993 and 1992, respectively. Each of the items referred to in this performance overview is more fully described in the following discussion or in the notes to the consolidated financial statements presented on pages 54 through 75 of this report. GROUP PERFORMANCE Presented in Figure 3 is a summary of the Corporation's 1994 financial results by primary business group. These financial results were derived from the Corporation's internal profitability reporting system. Where appropriate, funds transfer pricing was used to determine net interest income. Direct overhead costs have been allocated based on standard unit costs and actual volume measurements. A brief description of each of the groups is presented below. BANKING In 1994, net income for the Banking Group was $842.6 million. The results reflect KeyCorp's traditional banking FIGURE 3 GROUP PERFORMANCE
Trust Insurance Mortgage and Asset and Eliminations KeyCorp dollars in millions Banking Banking Management Brokerage and Other Consolidated - ------------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1994 Net interest income (TE) $ 2,754.5 $ 23.5 $ 6.1 $ 4.4 $ (36.4) $ 2,752.1 Provision for loan losses 124.8 -- -- -- .4 125.2 Noninterest income 479.2 103.9 223.3 64.0 12.2 882.6 Noninterest expense 1,775.9 126.5 174.1 44.7 46.0 2,167.2 - ------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes (TE) 1,333.0 .9 55.3 23.7 (70.6) 1,342.3 Income taxes 434.7 (2.5) 16.2 8.5 (26.9) 430.0 Taxable-equivalent adjustment 55.7 -- .2 .7 2.2 58.8 - ------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 842.6 $ 3.4 $ 38.9 $ 14.5 $ (45.9) $ 853.5 ========= ====== ====== ====== ======= ========= Efficiency ratio 54.31% 99.29% 75.90% 65.39% N/M 59.39% - ------------------------------------------------------------------------------------------------------------------------- AT DECEMBER 31, 1994 Loans1 $46,785.7 $395.6 -- -- $(601.5) $46,579.8 Total assets 66,490.2 835.7 $102.0 $ 71.5 (701.3) 66,798.1 Deposits 49,054.7 1.5 140.0 .4 (632.4) 48,564.2 - ------------------------------------------------------------------------------------------------------------------------- (1)Includes mortgage loans held for sale. TE = Taxable Equivalent N/M = Not Meaningful
21 6 ------------------------ KEYCORP AND SUBSIDIARIES franchise, delivering consumer and corporate banking services throughout the Corporation's extensive branch network (comprised of 1,272 full-service banking offices throughout 13 states), and increasingly, through alternate delivery systems (e.g., home banking, video banking terminals). In addition to the customary banking services of accepting deposits and making loans, the consumer finance operations of the Banking Group include the following units: small business lending, credit card and merchant services, residential real estate lending, education lending and sales finance functions (including automobile, marine and recreational vehicle loans and lease financing). Corporate banking units include middle market and large corporate lending functions and certain specialty finance activities (including media and health care lending, structured finance, and commercial real estate). The composition of the Corporation's loan portfolio, its other earning assets and sources of funding are discussed in greater detail in the Financial Condition section, beginning on page 33. MORTGAGE BANKING Net income for the Mortgage Banking Group totaled $3.4 million in 1994. KeyCorp engages in mortgage banking activities principally through KMI, a mortgage banking subsidiary which originates, packages, services and sells residential mortgage loans, and, to a lesser extent, services commercial and income property loans. Its business activities are conducted throughout all of the geographic areas in which KeyCorp's banking subsidiaries are located, except Florida. As of December 31, 1994, KMI serviced approximately 390,000 mortgage loans totaling approximately $28 billion. On February 22, 1995, KeyCorp entered into a definitive agreement for the sale of the residential mortgage loan servicing operations of KMI to NationsBanc Mortgage Corp., a NationsBank Corp. subsidiary. The transaction is expected to close by the end of the first quarter of 1995, pending necessary Federal regulatory approvals. After the sale, KeyCorp will continue to service commercial mortgages and to originate residential mortgage loans through its banking franchise. KeyCorp plans to package and sell the rights to service all residential mortgage loans originated after the KMI sale through a newly formed subsidiary. TRUST AND ASSET MANAGEMENT During 1994, the Trust and Asset Management Group recorded net income of $38.9 million. The financial results presented under this group reflect the trust and asset management services provided by the Corporation through its bank and trust company subsidiaries and two registered investment advisory subsidiaries. In 1994, fees from investment advisory services accounted for almost 20% of the Corporation's total trust and asset management income. The Trust and Asset Management Group provides services to institutional and individual clients, including large corporate and public retirement plans, Taft-Hartley plans, foundations and endowments, and high net worth individuals. The above subsidiaries also serve as investment advisers to the Corporation's mutual funds. As of December 31, 1994, the Trust and Asset Management Group serviced assets totaling approximately $64 billion, of which more than $31 billion (excluding corporate trust assets) was managed with investment authority. INSURANCE AND BROKERAGE In 1994, net income for the Insurance and Brokerage Group totaled $14.5 million. Through its two insurance subsidiaries and the branch network of its subsidiary banks, the Corporation reinsures credit life and accident and health insurance on loans made by its subsidiary banks. These activities contributed $6.1 million to the group's net income in 1994. Through its brokerage subsidiary, Key Investments Inc., and its four annuity subsidiaries the Corporation also provides investment services and products, including mutual funds, annuities, stocks and bonds, to customers through the branch network, as well as through the Corporation's regional private banking, trust and commercial banking offices. The brokerage subsidiary is one of the largest bank-based brokerage units in the country with more than 275 licensed professionals. The brokerage and annuity activities contributed the remaining $8.4 million of the group's net income in 1994. ELIMINATIONS AND OTHER All other activities of the Corporation aggregated a net loss of $45.9 million for 1994. This group is primarily comprised of the parent company (which accounts for a substantial portion of the group's net loss), eliminations of intercompany transactions and certain nonbanking affiliates involved in, among other things, the following activities: information technology and operations, venture capital, and asset management pursuant to contracts with the FDIC. Parent activities include certain centralized functions such as: asset and liability management, corporate audit and control, credit policy and administration, corporate development, corporate finance and treasury, human resources, investor relations, in-house legal counsel, and marketing and strategic planning. The financial condition and results of operations of the parent company are presented in greater detail in Note 18, Condensed Financial Information of the Parent Company, beginning on page 74 of this report. RESULTS OF OPERATIONS NET INTEREST INCOME Net interest income, which is comprised of interest and loan-related fee income less interest expense, is the principal 22 7 ------------------------ KEYCORP AND SUBSIDIARIES source of earnings for KeyCorp's banking affiliates. Net interest income is affected by a number of factors including the level, pricing, mix and maturity of earning assets and interest-bearing liabilities (both on and off-balance sheet), interest rate fluctuations, and asset quality. To facilitate comparisons in the following discussion, net interest income is presented on a taxable-equivalent basis, which restates tax-exempt income to an amount that would yield the same after-tax income had the income been subject to taxation at the Federal statutory income tax rate. Various components of the balance sheet and their respective yields and rates which affect interest income and expense are illustrated in Figure 6. The information presented in Figure 7 provides a summary of the effect on net interest income of changes in the Corporation's yields/rates and average balances in 1994 and 1993. A more in-depth discussion of changes in earning assets and funding sources is presented in the Financial Condition section beginning on page 33. Net interest income was $2.8 billion in 1994, up $10.0 million from the prior year. This followed an increase of $221.2 million, or 9%, in 1993 relative to the comparable 1992 period. In 1994, the slight growth in net interest income resulted from a higher level of average earning assets, which was substantially offset by a 48 basis point decline in the net interest margin to 4.83%. The $221.2 million increase in net interest income in 1993 was attributable to earning asset growth. Average earning assets in 1994 totaled $56.9 billion, which was $5.3 billion, or 10%, higher than the prior year. This followed an increase of $4.1 billion, or 9%, in 1993 in comparison with the previous year. The increase in 1994 reflected the impact of acquisitions as well as internal growth generated in the loan and securities portfolios. Average loans rose $4.4 billion, or 12%, in 1994, while securities (including both investment securities and securities available for sale) were up $1.7 billion, or 14%, relative to the prior year. These increases were partially offset by lower levels of mortgage loans held for sale and short-term investments. As illustrated in Figure 6, the strong growth in loans was attributable to increases in all loan categories. The growth in average earning assets in 1993 also reflected higher levels of loans and securities, which rose $3.0 billion and $958.7 million, respectively. The increase in loans during 1993 can be attributed to growth in real estate loans, student loans held for sale, and lease financing receivables, offset in part by decreases in the consumer and commercial loan portfolios. As shown in Figures 6 and 8, the net interest margin was 4.83% for 1994, down from 5.31% in both 1993 and 1992. The 48 basis point reduction in the net interest margin was attributable to growth in earning assets (principally new loan originations) at reduced spreads, the replacement (in a lower rate environment) of maturing higher-yielding securities and interest rate swaps, the refinancing by customers of higher-yielding fixed rate mortgage-related assets and a moderately liability-sensitive balance sheet. The replacement of securities and the refinancing of mortgage-related assets occurred primarily during the fourth quarter of 1993 and the first quarter of 1994. Also contributing to the decline in the margin was increased reliance on market-priced funding during 1994. As part of a plan announced in December 1994 to reconfigure the balance sheet, actions taken by management in the 1994 fourth quarter and early in the 1995 first quarter have substantially reduced the Corporation's exposure to further interest rate increases. These recent management actions, including the sales of certain securities, are more fully described in the following Asset and Liability Management section. The net interest margin was unchanged in 1993 in comparison with the prior year as the decrease in the value of interest-free funds offset the impact of an improved interest rate spread and the positive effect of a lower level of nonperforming assets. FIGURE 4 1994 AVERAGE EARNING ASSETS MIX Total loans 76.4% Short-term investments .2% Securities 23.4% FIGURE 5 1994 MIX OF FUNDING FOR AVERAGE EARNING ASSETS Interest-bearing deposits 68.2% Long-term debt 3.9% Short-term borrowings 13.7% Noninterest-bearing deposits 14.2% 23 8 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 6 AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES
Year ended December 31, 1994 1993 1992 ------------------------------ ----------------------------- --------------------------- Average Yield/ Average Yield/ Average Yield/ dollars in millions Balance Interest Rate Balance Interest Rate Balance Interest Rate - ---------------------------------------------------------------------------------------------------------------------------------- Assets Loans1,2 Commercial, financial and agricultural $10,594.5 $ 924.5 8.73% $ 9,049.3 $ 729.6 8.06% $10,820.8 $ 914.7 8.45% Real estate 18,701.5 1,520.3 8.13 17,611.7 1,478.3 8.39 13,315.3 1,164.7 8.75 Consumer 9,892.2 930.9 9.41 8,993.1 926.2 10.30 10,059.7 1,100.1 10.94 Student loans held for sale 1,553.4 109.1 7.02 1,195.9 77.1 6.45 -- -- -- Lease financing 1,930.2 131.5 6.81 1,386.6 109.4 7.89 1,006.3 84.3 8.38 Foreign 73.7 3.6 4.91 71.0 4.5 6.37 105.3 6.2 5.89 - ---------------------------------------------------------------------------------------------------------------------------------- Total loans 42,745.5 3,619.9 8.47 38,307.6 3,325.1 8.68 35,307.4 3,270.0 9.26 Mortgage loans held for sale 717.6 51.1 7.13 1,054.6 74.0 7.02 717.1 59.4 8.28 Taxable investment securities 7,664.0 507.0 6.61 7,769.5 556.4 7.16 7,985.3 676.9 8.48 Tax-exempt investment securities1 1,579.2 136.2 8.63 1,786.6 158.5 8.87 1,881.1 176.1 9.36 - ---------------------------------------------------------------------------------------------------------------------------------- Total investment securities 9,243.2 643.2 6.96 9,556.1 714.9 7.48 9,866.4 853.0 8.65 Securities available for sale 4,066.1 228.2 5.50 2,070.0 141.5 6.84 801.0 57.2 7.14 Interest-bearing deposits with banks 33.6 1.5 4.47 427.0 14.9 3.49 477.4 20.1 4.21 Federal funds sold and security resale agreements 70.8 2.9 4.18 166.4 6.0 3.61 268.9 10.3 3.83 Trading account assets 39.4 2.1 5.23 16.8 .6 3.37 22.4 1.0 4.46 - ---------------------------------------------------------------------------------------------------------------------------------- Total short-term investments 143.8 6.5 4.53 610.2 21.5 3.52 768.7 31.4 4.08 - ---------------------------------------------------------------------------------------------------------------------------------- Total earning assets 56,916.2 4,548.9 7.99 51,598.5 4,277.0 8.29 47,460.6 4,271.0 9.00 Allowance for loan losses (821.2) (803.9) (805.9) Other assets 6,466.2 6,256.6 $ 5,698.2 - ---------------------------------------------------------------------------------------------------------------------------------- $62,561.2 $57,051.2 $52,352.9 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Money market deposit accounts $ 7,196.6 196.8 2.74 $ 7,306.8 189.6 2.59 $ 7,648.2 248.3 3.25 Savings deposits 7,697.2 204.8 2.66 7,382.9 214.1 2.90 5,320.5 181.3 3.41 NOW accounts 5,558.6 105.9 1.91 5,314.7 109.6 2.06 4,429.1 120.8 2.73 Certificates of deposit ($100,000 or more) 2,992.6 146.2 4.88 3,088.7 138.0 4.47 3,573.3 187.7 5.25 Other time deposits 12,338.3 543.9 4.41 12,443.2 550.5 4.42 13,382.3 717.2 5.36 Deposits in foreign offices 3,014.7 127.0 4.21 1,018.9 31.5 3.09 367.9 13.7 3.72 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 38,798.0 1,324.6 3.41 36,555.2 1,233.3 3.37 34,721.3 1,469.0 4.23 Federal funds purchased and securities sold under repurchase agreements 5,850.4 243.5 4.16 4,378.2 130.2 2.97 4,061.9 142.9 3.52 Other short-term borrowings 1,929.6 90.9 4.71 1,196.2 44.5 3.72 721.8 31.1 4.31 Long-term debt3 2,233.9 137.8 6.35 1,895.4 126.9 6.96 1,462.6 107.1 7.70 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 48,811.9 1,796.8 3.69 44,025.0 1,534.9 3.49 40,967.6 1,750.1 4.28 Noninterest-bearing deposits 8,046.2 7,785.9 6,661.4 Other liabilities 1,103.9 1,051.2 1,001.4 Preferred stock 160.0 183.8 244.0 Common shareholders' equity 4,439.2 4,005.3 3,478.5 - ---------------------------------------------------------------------------------------------------------------------------------- $62,561.2 $57,051.2 $52,352.9 ========= ========= ========= Interest rate spread 4.30 4.80 4.72 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income (TE) and net interest margin (TE) $2,752.1 4.83% $2,742.1 5.31% $ 2,520.9 5.31% ======== ==== ======== ==== ========= ==== Taxable-equivalent adjustment1 $ 58.8 $ 63.1 $ 72.2 - ---------------------------------------------------------------------------------------------------------------------------------- 1Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory Federal income tax rate of 35% for 1994 and 1993 and 34% for all other years presented. 2For purposes of these computations, nonaccrual loans are included in the average loan balances outstanding. 3Rate calculation excludes ESOP debt. N/M = Not Meaningful TE = Taxable Equivalent
24 9 ------------------------ KEYCORP AND SUBSIDIARIES
Compound Annual Rate of Change 1991 1990 1989 (1989-1994) - ------------------------------- ------------------------------ ------------------------------ ------------------- Average Yield/ Average Yield/ Average Yield/ Average Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest - ------------------------------------------------------------------------------------------------------------------------------- $11,753.3 $1,150.2 9.79% $13,165.0 $1,433.8 10.89% $14,153.1 $1,667.7 11.78% (5.6)% (11.1)% 12,969.7 1,301.7 10.04 10,248.1 1,098.4 10.72 8,186.3 887.8 10.84 18.0 11.4 9,519.5 1,144.6 12.02 8,425.9 1,052.4 12.49 7,702.7 973.9 12.64 5.1 (.9) -- -- -- -- -- -- -- -- -- N/M N/M 822.9 76.6 9.31 714.1 74.2 10.39 656.7 64.7 9.85 24.1 15.2 84.9 5.9 6.88 79.7 6.9 8.66 108.0 11.6 10.78 (7.4) (20.8) - ------------------------------------------------------------------------------------------------------------------------------- 35,150.3 3,679.0 10.47 32,632.8 3,665.7 11.23 30,806.8 3,605.7 11.70 6.8 .1 498.8 47.0 9.42 312.7 27.7 8.86 79.1 9.4 11.88 55.4 40.3 7,441.3 678.2 9.11 6,433.3 582.6 9.06 6,186.9 535.5 8.66 4.4 (1.1) 1,855.5 185.0 9.97 1,928.7 196.9 10.21 2,000.2 203.8 10.19 (4.6) (7.8) - ------------------------------------------------------------------------------------------------------------------------------- 9,296.8 863.2 9.28 8,362.0 779.5 9.32 8,187.1 739.3 9.03 2.5 (2.7) 750.5 59.6 7.94 10.4 .9 8.88 28.8 3.0 10.33 169.1 137.8 592.0 41.2 6.96 1,040.0 92.1 8.86 1,181.7 111.7 9.45 (50.9) (57.8) 726.3 40.6 5.59 589.0 47.4 8.05 364.9 33.2 9.10 (28.0) (38.4) 51.5 3.5 6.91 79.9 5.6 7.06 26.2 2.3 8.89 8.5 (2.2) - ------------------------------------------------------------------------------------------------------------------------------- 1,369.8 85.3 6.23 1,708.9 145.1 8.49 1,572.8 147.2 9.36 (38.0) (46.4) - ------------------------------------------------------------------------------------------------------------------------------- 47,066.2 4,734.1 10.06 43,026.8 4,618.9 10.73 40,674.6 4,504.6 11.07 7.0 .2 (704.4) (550.3) (462.0) 12.2 5,634.2 4,965.0 4,689.6 6.6 - ------------------------------------------------------------------------------------------------------------------------------- $51,996.0 $47,441.5 $44,902.2 6.9 ========= ========= ========= $ 6,733.5 342.1 5.08 $ 5,513.1 324.0 5.88 $ 4,655.1 272.2 5.85 9.1 (6.3) 3,989.4 184.5 4.62 3,682.8 180.3 4.90 3,721.5 185.3 4.98 15.6 2.0 3,759.6 163.1 4.34 3,368.2 160.2 4.76 3,179.8 151.4 4.76 11.8 (6.9) 4,911.9 337.0 6.86 5,556.9 453.6 8.16 5,563.7 491.1 8.83 (11.7) (21.5) 15,478.5 1,085.2 7.01 13,132.8 1,050.8 8.00 11,409.4 920.1 8.06 1.6 (10.0) 367.4 23.8 6.48 756.2 61.9 8.19 653.0 58.6 8.97 35.8 16.7 - ------------------------------------------------------------------------------------------------------------------------------- 35,240.3 2,135.7 6.06 32,010.0 2,230.8 6.97 29,182.5 2,078.7 7.12 5.9 (8.6) 3,807.4 213.7 5.61 3,505.3 272.3 7.77 3,843.3 337.3 8.78 8.8 (6.3) 1,188.2 74.5 6.27 812.9 67.5 8.30 907.9 81.1 8.93 16.3 2.3 1,220.0 95.5 8.32 1,164.3 97.1 8.89 1,297.4 118.7 9.40 11.5 3.0 - ------------------------------------------------------------------------------------------------------------------------------- 41,455.9 2,519.4 6.09 37,492.5 2,667.7 7.13 35,231.1 2,615.8 7.43 6.7 (7.2) 6,228.5 6,059.0 5,907.3 6.4 942.7 845.5 754.1 7.9 166.3 74.6 68.9 18.4 3,202.6 2,969.9 2,940.8 8.6 - ------------------------------------------------------------------------------------------------------------------------------- $51,996.0 $47,441.5 $44,902.2 6.9% ========= ========= ========= 3.97 3.60 3.64 - ------------------------------------------------------------------------------------------------------------------------------- $2,214.7 4.71% $1,951.2 4.53% $1,888.8 4.64% 7.8% ======== ==== ======== ==== ======== ==== $ 81.7 $ 90.1 $ 94.4 (9.0)% - -------------------------------------------------------------------------------------------------------------------------------
25 10 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 7 COMPONENTS OF NET INTEREST INCOME CHANGES
Year ended December 31, 1994 vs. 1993 1993 vs. 1992 ------------------------------- ---------------------------------- Average Yield/ Net Average Yield/ Net in millions Volume Rate Change Volume Rate Change - --------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $377.5 $ (82.7) $294.8 $267.8 $(212.7) $ 55.1 Mortgage loans held for sale (24.0) 1.1 (22.9) 24.7 (10.1) 14.6 Taxable investment securities (7.4) (42.0) (49.4) (17.9) (102.6) (120.5) Tax-exempt investment securities (18.0) (4.3) (22.3) (8.6) (9.0) (17.6) Securities available for sale 115.8 (29.2) 86.6 86.8 (2.5) 84.3 Short-term investments (19.9) 5.0 (14.9) (5.9) (4.0) (9.9) - --------------------------------------------------------------------------------------------------------- Total interest income (TE) 424.0 (152.1) 271.9 346.9 (340.9) 6.0 INTEREST EXPENSE Money market deposit accounts (2.9) 10.1 7.2 (10.7) (48.0) (58.7) Savings deposits 8.9 (18.2) (9.3) 62.7 (29.9) 32.8 NOW accounts 4.8 (8.5) (3.7) 21.5 (32.7) (11.2) Certificates of deposit ($100,000 or more) (4.4) 12.6 8.2 (23.6) (26.1) (49.7) Other time deposits (4.6) (2.0) (6.6) (47.8) (118.9) (166.7) Deposits in foreign offices 80.6 14.9 95.5 20.5 (2.7) 17.8 - --------------------------------------------------------------------------------------------------------- Total interest-bearing deposits 82.4 8.9 91.3 22.6 (258.3) (235.7) Federal funds purchased and securities sold under repurchase agreements 51.8 61.5 113.3 10.6 (23.3) (12.7) Other short-term borrowings 32.3 14.1 46.4 18.1 (4.7) 13.4 Long-term debt 21.4 (10.5) 10.9 29.6 (9.8) 19.8 - --------------------------------------------------------------------------------------------------------- Total interest expense 187.9 74.0 261.9 80.9 (296.1) (215.2) - --------------------------------------------------------------------------------------------------------- Net interest income (TE) $236.1 $(226.1) $ 10.0 $266.0 $ (44.8) $ 221.2 ====== ======= ====== ====== ======= ======= - --------------------------------------------------------------------------------------------------------- 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. TE = Taxable Equivalent
The Corporation uses portfolio interest rate swaps in the management of its interest rate sensitivity position. The notional amount of such swaps increased to $10.5 billion at December 31, 1994, up from $8.4 billion at December 31, 1993, and $5.0 billion at December 31, 1992. Interest rate swaps contributed $98.6 million to net interest income and added 17 basis points to the net interest margin in 1994 compared with contributions of $140.3 million and 27 basis points in 1993 and $93.8 million and 20 basis points in 1992. The manner in which interest rate swaps are used in the Corporation's overall program of asset and liability management is described in the following Asset and Liability Management section. ASSET AND LIABILITY MANAGEMENT ASSET/LIABILITY MANAGEMENT COMMITTEE The Corporation manages its exposure to economic loss from fluctuations in interest rates through an active program of asset and liability management pursuant to guidelines established by the Corporation's Asset/Liability Management Committee ("ALCO"). The ALCO has the responsibility for approving the asset/liability management policies of the Corporation, initiating changes in the balance sheet that could result in deviations from the policies, formulating and implementing strategies to improve balance sheet FIGURE 8 NET INTEREST MARGIN
1990 1991 1992 1993 1994 Yield on earning assets 10.73% 10.06% 9.00% 8.29% 7.99% Cost of funds 7.13 6.09 4.28 3.49 3.69 Net interest margin 4.53 4.71 5.31 5.31 4.83
26 11 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 9 INTEREST RATE GAP ANALYSIS
December 31, 1994 1 to 90 91 to 180 181 to 365 1 to 5 Over 5 dollars in millions Days Days Days Years Years Total - ------------------------------------------------------------------------------------------------------------------------------ ASSETS Loans (including mortgage loans held for sale) $21,135.5 $ 2,897.4 $ 4,924.9 $13,614.5 $4,007.5 $46,579.8 Investment securities 532.0 2,075.0 641.9 5,830.6 1,196.1 10,275.6 Securities available for sale 53.2 154.5 63.9 918.8 1,330.6 2,521.0 Short-term investments 669.9 .1 -- -- -- 670.0 Other assets 1,556.6 418.4 -- 2,157.7 2,619.0 6,751.7 - -------------------------------------------------------------------------------------------------------------------------------- Total assets 23,947.2 5,545.4 5,630.7 22,521.6 9,153.2 66,798.1 - -------------------------------------------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits 991.1 -- -- 8,144.6 -- 9,135.7 Interest-bearing deposits 14,901.0 2,718.7 1,378.9 20,164.7 265.2 39,428.5 Borrowed funds 7,325.4 851.3 600.0 3,173.1 396.7 12,346.5 Other liabilities 460.5 169.4 -- -- 559.0 1,188.9 Shareholders' equity -- -- -- -- 4,698.5 4,698.5 - -------------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity 23,678.0 3,739.4 1,978.9 31,482.4 5,919.4 66,798.1 - -------------------------------------------------------------------------------------------------------------------------------- Interest rate swap contracts (5,677.5) (1,119.7) (851.4) 3,679.4 3,969.2 -- - -------------------------------------------------------------------------------------------------------------------------------- Rate sensitivity gap $(5,408.3) $ 686.3 $ 2,800.4 $(5,281.4) $7,203.0 -- Cumulative gap $(5,408.3) $(4,722.0) $(1,921.6) $(7,203.0) -- -- - -------------------------------------------------------------------------------------------------------------------------------- Cumulative gap as a % of earning assets (9.01)% (7.86)% (3.20)% (12.00)% -- -- - --------------------------------------------------------------------------------------------------------------------------------
positioning and/or earnings, and reviewing the interest rate sensitivity positions of the Corporation and each of its affiliate banks. The ALCO meets twice monthly to conduct this review and to approve strategies consistent with its policies. The primary tool utilized by management to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations of changes in interest rates over one-and two-year time horizons has enabled management to develop strategies for managing exposure to interest rate risk. In its simulations, management estimates the impact on net interest income of pro forma 100 and 200 basis point changes in the overall level of interest rates. These estimates are based on a large number of assumptions related to loan and deposit growth, prepayments, interest rates, and other factors. Management believes that both individually and in the aggregate these assumptions are reasonable and conservative, but the complexity of the simulation modeling process results in a sophisticated estimate, not an absolutely precise calculation of exposure. ALCO guidelines provide that a gradual 200 basis point increase or decrease in short-term rates over the next twelve-month period should not result in more than an estimated 2% impact on net interest income from what net interest income would have been if interest rates did not change. As discussed in the following Recent Management Actions section, the Corporation is within these guidelines as a result of actions taken during the fourth quarter of 1994 and early in 1995. The simulation model is supplemented with a more traditional tool used in the banking industry for measuring interest rate risk known as interest rate sensitivity gap ("gap") analysis. This tool measures the difference between assets and liabilities repricing or maturing within specified time periods. An asset-sensitive position indicates that there are more rate-sensitive assets than rate-sensitive liabilities repricing or maturing during specified time horizons, which would generally imply a favorable impact on net interest income in periods of rising interest rates. Conversely, a liability-sensitive position, where rate-sensitive liabilities exceed the amount of rate-sensitive assets repricing or maturing within applicable time frames, would generally imply a favorable impact on net interest income in periods of declining interest rates. The interest rate gap analysis table shown in Figure 9 presents the gap position (including the impact of interest rate swap contracts) of the Corporation at December 31,1994. Gap analysis has several limitations. For example, it does not take into consideration the varying degrees of interest rate sensitivity pertaining to the assets and liabilities that reprice within very short time frames or the various spreads on different assets and liabilities maturing within a given time frame, whereas such characteristics are considered in the simulation model. Thus, at December 31, 1994, the cumulative adjusted interest rate sensitivity gap within the one-year time frame indicated that the Corporation had a higher level of liability sensitivity than that demonstrated by the more sophisticated simulation model. 27 12 KEYCORP AND SUBSIDIARIES FIGURE 10 INTEREST RATE SWAP PORTFOLIO
December 31, 1994 December 31, 1993 ------------------------------------------------------------- ------------------- NOTIONAL FAIR MATURITY(1) WEIGHTED AVERAGE RATE Notional Fair dollars in millions AMOUNT VALUE (YEARS) RECEIVE PAY Amount Value ================================================================================================================================== Receive fixed/pay variable-indexed amortizing $ 5,786.6 $(341.7) 4.6 6.40% 6.14% $5,250.0 $ 6.7 Receive fixed/pay variable-conventional 3,010.2 (199.6) 6.2 6.49 6.31 2,309.0 53.5 Pay fixed/receive variable-conventional 1,456.5 11.5 1.2 6.26 7.31 150.0 (8.7) Basis swaps 200.0 .1 .3 5.56 4.64 150.0 -- Forward-starting -- -- -- -- -- 500.0 1.5 - ---------------------------------------------------------------------------------------------------------------------------------- Total portfolio swaps 10,453.3 (529.7) 4.4 6.39 6.32 8,359.0 53.0 Customer swaps 1,248.3 2.0 3.4 6.19 6.30 1,214.0 4.2 - ---------------------------------------------------------------------------------------------------------------------------------- Total interest rate swaps $11,701.6 $(527.7) 4.3 6.37% 6.32% $9,573.0 $57.2 ========= ======= ======== ===== ================================================================================================================================== (1)Maturity is based upon expected average lives rather than contractual terms.
RECENT MANAGEMENT ACTIONS Due, in large part, to the rapid increase in interest rates which occurred during the second half of 1994, the Corporation's liability sensitive position was estimated to be moderately in excess of the ALCO guidelines at the time plans were announced in December 1994 to reconfigure the balance sheet. These plans provide for the implementation of a combination of strategies which may include: (a) reconfiguring the securities available for sale portfolio to enhance its overall yield and to improve its responsiveness to rising interest rates, (b) securitizing and/or selling certain fixed-rate loans, (c) allowing certain fixed-rate loans and securities to mature without reinvestment, and (d) promoting fixed-rate market funding to support assets with similar rate structures. Implementation of the balance sheet reconfiguration plans began during the fourth quarter of 1994 with the sale of $877.7 million of securities with an aggregate weighted average yield of 5.67%. This was followed by the first quarter 1995 sale of $1.2 billion of securities with an aggregate weighted average yield of 6.24%. In addition, over these two quarters the Corporation executed $2.1 billion of portfolio interest rate swaps that receive a variable rate and pay a fixed rate, and terminated $1.6 billion of portfolio interest rate swaps that received a fixed rate and paid a variable rate. During the fourth quarter of 1994 and the first quarter of 1995, the Corporation also issued fixed-rate debt totaling $245.0 million. The actions taken during the fourth quarter reduced the Corporation's estimated liability sensitive position to within the ALCO guidelines, while the additional actions taken during the first quarter of 1995 further reduced the Corporation's liability sensitive position such that a 200 basis point increase in interest rates over the next twelve-month period would have an approximate 1% negative impact on net interest income, according to the simulation model. INTEREST RATE SWAP CONTRACTS The Corporation's core lending and deposit-gathering businesses tend to generate significantly more fixed-rate deposits than fixed-rate interest-earning assets. Left unaddressed, this tendency would place the Corporation's earnings at risk to declining interest rates as interest-earning assets would reprice faster than would interest-bearing liabilities. In addition to the Corporation's securities portfolio, management has utilized portfolio interest rate swaps to manage interest rate risk by modifying the repricing or maturity characteristics of specified on-balance sheet assets and liabilities. The decision to use portfolio interest rate swaps versus Figure 11 Portfolio Swaps by Interest Rate Management Strategy
December 31, 1994 1993 ----------------- --------------- NOTIONAL FAIR Notional Fair in millions AMOUNT VALUE Amount Value ================================================================================================== Convert variable rate loans to fixed $ 7,146.6 $(470.6) $7,005.0 $32.0 Convert fixed rate liabilities to variable 1,650.2 (70.7) 1,054.0 29.7 Convert variable rate liabilities to fixed 1,456.5 11.5 150.0 (8.7) Other 200.0 .1 150.0 -- - -------------------------------------------------------------------------------------------------- Total portfolio swaps $10,453.3 $(529.7) $8,359.0 $53.0 ========= ======= ======== ===== ==================================================================================================
28 13 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 12 PORTFOLIO SWAP ACTIVITY
Year ended December 31, 1994 Receive Fixed -------------------------- Total Indexed Pay Fixed- Basis Forward- Portfolio in millions Amortizing Conventional Conventional Swaps Starting Swaps =================================================================================================================================== Balance at beginning of year $5,250.0 $2,309.0 $ 150.0 $150.0 $500.0 $ 8,359.0 Additions 3,750.0 2,163.0 1,806.5 200.0 50.0 7,969.5 Maturities (600.0) (1,511.8) (100.0) (150.0) -- (2,361.8) Terminations (2,500.0) -- (400.0) -- (500.0) (3,400.0) Forward-starting becoming effective -- 50.0 -- -- (50.0) -- Amortization (113.4) -- -- -- -- (113.4) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at end of year $5,786.6 $3,010.2 $1,456.5 $200.0 $ -- $10,453.3 ======== ======== ======== ====== ======= ========= ===================================================================================================================================
on-balance sheet securities to manage interest rate risk has depended on various factors, including funding costs, liquidity, and capital requirements. As summarized in Figure 10, the Corporation's portfolio swaps totaled $10.5 billion at December 31, 1994, and consisted principally of contracts wherein the Corporation receives a fixed rate of interest while paying a variable rate. Conventional interest rate swap contracts involve the receipt of amounts based on fixed or variable rates in exchange for payments based on variable or fixed rates, without an exchange of the underlying notional amount. Under an indexed amortizing swap contract, the notional amount remains constant for a specified period of time after which, based upon the level of the index at each payment review date, the swap contract will mature, the notional amount will begin to amortize, or the swap will continue in effect until its contractual maturity. Otherwise, the characteristics of these swaps are similar to those of conventional swap contracts. Under basis swap contracts, interest payments based on different floating indices are exchanged. At December 31, 1994, the Corporation was not party to any forward-starting swaps, which are interest rate swaps with contractual terms that commence at a specified future date. In addition to portfolio swaps, the Corporation has entered into interest rate swap contracts to accommodate the needs of its customers, typically commercial loan customers. The Corporation offsets the interest rate risk of customer swaps by entering into offsetting swaps with third parties. These offsetting swaps are also included in the customer swap portfolio. Adjustments to fair values of customer swaps are included in noninterest income. The $1.2 billion notional amount of customer swaps presented in Figure 10 includes $569.3 million of interest rate swaps that receive a fixed rate and pay a variable rate and $674.7 million of interest rate swaps that pay a fixed rate and receive a variable rate. The total notional amount of all interest rate swap contracts outstanding was $11.7 billion and $9.6 billion at December 31, 1994 and 1993, respectively. The weighted average rates presented in Figure 10 are those in effect at December 31, 1994. As of that date, portfolio interest rate swaps were providing a slightly positive contribution to net interest income (since the weighted average rate received exceeded the weighted average rate paid by .07%) even though the portfolio had an aggregate negative fair value of $529.7 million at the same date. The aggregate fair value was estimated through the use of discounted cash flow models which contemplate interest rates using the applicable forward yield curve. The estimated fair value of the Corporation's interest rate swap portfolio decreased in 1994 from a positive fair value of $57.2 million at December 31, 1993. The decrease in fair value over the past year reflected the impact of the increase in interest rates and the financial markets' expectations, which may or may not materialize, with respect to future interest rate levels. FIGURE 13 EXPECTED AVERAGE MATURITIES OF PORTFOLIO SWAPS
December 31, 1994 Receive Fixed ------------------------- Total Indexed Pay Fixed- Basis Portfolio in millions Amortizing Conventional Conventional Swaps Swaps ============================================================================================================================ Due in one year or less $ 27.6 $ 495.0 $1,075.0 $200.0 $ 1,797.6 Due after one though five years 4,109.9 640.2 381.5 -- 5,131.6 Due after five through ten years 1,649.1 1,875.0 -- -- 3,524.1 - ---------------------------------------------------------------------------------------------------------------------------- Total portfolio swaps $5,786.6 $3,010.2 $1,456.5 $200.0 $10,453.3 ======== ======== ======== ====== ========= ============================================================================================================================
29 14 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 14 MATURITIES AND SENSITIVITY OF CERTAIN LOANS TO CHANGES ININTEREST RATES
December 31, 1994 Within 1-5 Over in millions 1 Year Years 5 Years Total ============================================================================================================== Commercial, financial and agricultural $6,334.8 $2,835.9 $ 1,019.9 $10,190.6 Real estate-construction 715.0 463.3 108.9 1,287.2 Real estate-commercial and residential 2,260.0 6,636.2 11,445.8 20,342.0 Foreign 45.4 4.7 47.3 97.4 - -------------------------------------------------------------------------------------------------------------- $9,355.2 $9,940.1 $12,621.9 $31,917.2 ======== ======== ========= ========= Loans with floating or adjustable rates $5,516.9 $ 5,460.4 Loans with predetermined interest rates 4,423.2 7,161.5 - -------------------------------------------------------------------------------------------------------------- $9,940.1 $12,621.9 ======== ========= ==============================================================================================================
In effect, the fair value at any given date represents the estimated net cost which would be recognized if the portfolio were to be liquidated at that date. Because the portfolio interest rate swaps are used to alter the repricing or maturity characteristics of specific assets and liabilities, the net unrealized gains and losses related to the swaps are not recognized in earnings. A summary of the notional and fair values of portfolio swaps by interest rate management strategy at December 31, 1994, is presented in Figure 11. During 1994, swaps with an aggregate notional amount of $3.4 billion were terminated, resulting in net deferred losses of $44.9 million. In January 1995, an additional $57.8 million in net deferred losses was recorded in connection with the termination of swaps with an aggregate notional amount of $1.3 billion. Such losses are amortized, generally, over the projected remaining life of the related swap contract at its termination. Each swap was terminated in response to a unique set of circumstances and for various reasons; however, the decision to terminate a swap contract is strategically integrated with asset and liability management and other appropriate processes. The notional amount of the interest rate swap contracts represents only an agreed upon amount on which calculations of interest payments to be exchanged are based. It does not represent the potential for gain or loss on such positions. Similarly, the notional amount is not indicative of the market risk or the credit risk of the positions held. Credit risk is the possibility that the counterparty will not meet the terms of the swap contract and is measured as the cost of replacing, at current market rates, contracts in an unrealized gain position. The credit risk exposure to the counterparty on each interest rate swap is monitored by the appropriate banking affiliate credit committee. Based upon detailed credit reviews of the counterparties, these committees establish limits on the total credit exposure the Corporation may have with each counterparty and determine whether collateral is required. FIGURE 15 NONINTEREST INCOME
Year ended December 31, Change 1994 vs 1993 ------------------- dollars in millions 1994 1993 1992 Amount Percent ======================================================================================================= Service charges on deposit accounts $263.2 $ 252.5 $236.6 $ 10.7 4.2% Trust and asset management income 219.8 244.6 250.8 (24.8) (10.1) Mortgage banking income 88.0 127.9 97.6 (39.9) (31.2) Credit card fees 76.2 73.5 80.9 2.7 3.7 Insurance and brokerage income 58.6 65.7 50.1 (7.1) (10.8) Special asset management fees 17.3 46.0 5.9 (28.7) (62.4) Net securities gains (losses) (14.7) 28.3 14.6 (43.0) (151.9) Gains on certain asset sales -- 29.4 22.9 (29.4) (100.0) Other income: Venture capital gains 16.6 (.8) .8 17.4 N/M International fees 17.3 21.4 20.5 (4.1) (19.2) Miscellaneous 140.3 113.2 144.5 27.1 23.9 - ------------------------------------------------------------------------------------------------------- Total other income 174.2 133.8 165.8 40.4 30.2 - ------------------------------------------------------------------------------------------------------- Total noninterest income $882.6 $1,001.7 $925.2 $(119.1) (11.9)% ====== ========= ====== ======= ======================================================================================================= N/M = Not Meaningful
30 15 ------------------------ KEYCORP AND SUBSIDIARIES At December 31, 1994, the Corporation had 21 different counterparties to portfolio swaps and swaps entered into to offset the risk of customer swaps. Of these counterparties, the Corporation had an aggregate credit exposure of $21.2 million to only seven, with the largest credit exposure to an individual counterparty amounting to $14.2 million. The portfolio swap activity for the year ended December 31, 1994, is summarized in Figure 12 and the expected average maturities of the portfolio swaps at December 31, 1994, are summarized in Figure 13. NONINTEREST INCOME As shown in Figure 15, noninterest income totaled $882.6 million in 1994, down $119.1 million, or 12%, from the prior year. Excluding, for comparative purposes, noncore items consisting of special asset management fees, net securities gains and losses, and a $29.4 million gain on the 1993 sale of Ameritrust Texas Corporation ("ATC"), noninterest income for 1994 was $880.0 million, down $18.0 million, or 2%, from the previous year. Adjusting for special asset management fees, net securities gains and gains on certain asset sales in 1992, core noninterest income in 1993 rose $16.2 million, or 2%, relative to the prior year. The gains on certain asset sales in 1992 were primarily from the sale of branch offices and loans. Special asset management fees are earned in connection with loan collection and asset disposition work performed by two affiliate companies, Niagara Asset Corporation and Niagara Portfolio Management Corp., under asset management contracts with the Federal Deposit Insurance Corporation ("FDIC"). As collections and asset dispositions occur, the assets remaining to be liquidated are reduced, along with the related potential fee income. In 1994, the level of these fees decreased significantly from the prior year since most of the FDIC assets under contract had been liquidated prior to 1994. These balances will continue to decline through the third quarter of 1995 when the contracts are scheduled to be terminated. The net securities losses for 1994 resulted from the balance sheet reconfiguration, previously discussed in the Asset and Liability Management section beginning on page 26. The overall decrease in core noninterest income was moderated by the impact of five acquisitions completed during 1994. Primary factors contributing to the decrease in core noninterest income were trust and asset management income and mortgage banking income which declined $24.8 million and $39.9 million, respectively, from 1993. These decreases were partially offset by a $10.7 million increase in service charges on deposit accounts and a $40.4 million increase in other income. Trust and asset management income, including fees associated with investment advisory services, continued to be a major source of noninterest revenue. After giving effect to the sale of ATC, which contributed approximately $33.6 million to trust income in 1993, trust income was up $8.8 million, or 4%, from the prior year. The sale of ATC reduced managed trust assets by approximately $4 billion. At December 31, 1994, the Corporation, through its bank and trust company subsidiaries and its registered investment advisory subsidiaries, managed assets (excluding corporate trust assets) of more than $31 billion. In 1994, fees from investment advisory services accounted for almost 20% of the Corporation's total trust and asset management income. FIGURE 16 MORTGAGE BANKING INCOME
Year ended December 31, Change 1994 vs 1993 -------------------- in millions 1994 1993 1992 Amount Percent ============================================================================================= Servicing fees(1) $34.3 $ 10.2 $47.6 $ 24.1 236.3% Origination fees 26.9 58.9 22.5 (32.0) (54.3) Late fees and other 18.8 21.8 18.9 (3.0) (13.8) Gains on sales of loans 4.9 11.0 8.6 (6.1) (55.5) Gains on sales of servicing rights 3.1 26.0 -- (22.9) (88.1) - --------------------------------------------------------------------------------------------- Total mortgage banking income $88.0 $127.9 $97.6 $(39.9) (31.2)% ===== ====== ===== ====== ============================================================================================= (1)Net of mortgage servicing rights amortization.
As indicated in Figure 16, the decline in mortgage banking income was primarily due to a significant decrease in origination fees reflecting the industry-wide decline in origination activity from the record levels experienced in 1993, and lower gains from the sales of servicing rights and loans. During 1994, certain fees generated by the mortgage banking business were reclassified from other noninterest income to mortgage banking income. This reclassification was made to prior period amounts to conform to the current year presentation. The amount of fees reclassified in 1993 and 1992 were $34.3 million and $8.9 million, respectively. Total noninterest income, as previously reported, did not change. In October 1994, the Corporation announced that it was exploring the sale of its mortgage banking subsidiary, citing the mortgage banking industry's increasingly large business volume requirements for future profitable deployment of capital. On February 22, 1995, the Corporation entered into a definitive agreement to sell the residential mortgage loan servicing operations of the mortgage banking subsidiary. This agreement is discussed in greater detail in Note 2, Mergers, Acquisitions and Divestitures, on page 56 of this report. 31 16 ------------------------ KEYCORP AND SUBSIDIARIES In 1994, service charges on deposit accounts increased $10.7 million, or 4%, following an increase of $15.9 million, or 7%, in 1993. The 1994 increase reflected the impact of acquisitions and the repricing of fees by certain bank affiliates. Factors contributing to the improvement in the prior year were a larger base of business, pricing strategies and other initiatives designed to offset higher costs associated with the servicing of these accounts. Other income increased $40.4 million, or 30%, in 1994, following a decrease of $32.0 million, or 19%, in 1993. The 1994 increase in other income included a $17.4 million increase in venture capital gains and a $27.1 million increase in miscellaneous other income. The increase in miscellaneous other income reflected a higher level of recoveries of fees, expenses and interest in excess of amounts previously charged-off, increased gains on loans held for sale, and growth in various other categories of miscellaneous income. In 1993, other income was affected by the receipt of a $7.7 million settlement with the FDIC relating to a prior acquisition and a $3.2 million gain on the sale of a credit investigation company. NONINTEREST EXPENSE Noninterest expense, as shown in Figure 17, totaled $2.2 billion in 1994, down $217.9 million, or 9%, from the 1993 level. Excluding, for comparative purposes, net OREO expense, merger and integration charges recorded in 1993 and certain other nonrecurring charges totaling $34.4 million in 1993, core noninterest expense in 1994 was down $24.2 million, or 1%, from the prior year. The 1993 merger and integration charges totaled $118.7 million and the other nonrecurring charges primarily included $21.6 million related to various systems conversion costs, $7.0 million of facilities-related charges and $4.0 million associated with the adoption of Statement of Financial Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits." The $24.2 million decrease in core noninterest expense was primarily due to decreases in personnel expense, professional fees and other expense, offset in part by an increase in net occupancy expense. Personnel expense decreased $11.5 million, or 1%, in 1994 following an increase of $93.6 million, or 10%, in 1993 over 1992. The decrease in 1994 was the result of a 3% decline in the number of full-time equivalent employees, the impact of the ATC divestiture, the integration of certain old KeyCorp and Society operations and lower costs associated with contracted or temporary personnel. The increase in 1993 reflected the impact of acquisitions completed during the year and the adoption of SFAS No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions," on January 1, 1993, which added $8.2 million to employee benefits expense in 1993. SFAS No. 106 and SFAS No. 112 are more fully described in Note 13, Employee Benefits on page 66 of this report. At December 31, 1994, the number of full-time equivalent employees was 29,211, compared with 29,983 and 29,117 at the end of 1993 and 1992, respectively. FIGURE 17 NONINTEREST EXPENSE
Year ended December 31, Change 1994 vs 1993 -------------------- dollars in millions 1994 1993 1992 Amount Percent ============================================================================================================== Personnel $1,059.9 $1,071.4 $ 977.8 $ (11.5) (1.1)% Net occupancy 216.9 204.2 189.7 12.7 6.2 Equipment 158.0 161.3 151.6 (3.3) (2.0) FDIC insurance assessments 98.7 98.7 96.2 -- -- Professional fees 50.0 53.3 76.0 (3.3) (6.2) OREO expense (net of income of $5.3, $14.4, $11.5) 2.5 43.1 43.5 (40.6) (94.2) Merger and integration charges -- 118.7 92.7 (118.7) (100.0) Other expense: Marketing 58.6 60.4 49.9 (1.8) (3.0) Amortization of intangibles 58.5 58.1 61.7 .4 .7 Miscellaneous 464.1 515.9 431.3 (51.8) (10.0) - -------------------------------------------------------------------------------------------------------------- Total other expense 581.2 634.4 542.9 (53.2) (8.4) - -------------------------------------------------------------------------------------------------------------- Total noninterest expense $2,167.2 $2,385.1 $2,170.4 $(217.9) (9.1)% ======== ======== ======== ======= Full-time equivalent employees 29,211 29,983 29,117 Efficiency ratio 59.39% 60.50% 60.96% Overhead ratio 46.14 46.85 47.21 ==============================================================================================================
32 17 ------------------------ KEYCORP AND SUBSIDIARIES The $3.3 million, or 6%, decrease in professional fees in 1994 reflected lower costs for legal and consulting services, while the $18.8 million, or 3%, decrease in other expense (excluding the 1993 nonrecurring charges) was due to declines in various categories of operating expense. The $12.7 million, or 6%, increase in net occupancy expense in 1994 reflected the impact of acquisitions as well as the opening of a new operations center late in 1993. Merger and integration charges of $118.7 million ($80.6 million after tax, $.33 per Common Share) and $92.7 million ($66.6 million after tax, $.29 per Common Share) were recorded in 1993 and 1992, respectively. The 1993 charges included accruals for expenses, primarily consisting of investment banking and other professional fees directly related to the Merger ($20.5 million); severance payments and other employee costs ($49.6 million); systems and facilities costs ($35.7 million); and other costs incident to the Merger ($12.9 million). Of the total $118.7 million in reserves, $33.5 million remained at December 31, 1994. The merger and integration charges recorded in connection with the PSB and Ameritrust mergers in 1992 were similar in nature. At the time of the Merger, it was expected that cost savings would be achieved by the Corporation at an annual rate of $100 million by the end of the first quarter of 1995. As of December 31, 1994, management anticipates that these cost savings, which result from the integration of operations and from efficiencies in certain combined lines of business, will be achieved at the expected annual rate in the first quarter of 1995, as planned. One measure used in the banking industry to assess the level of noninterest expense is the efficiency ratio, which provides a measure of the extent to which recurring revenues are used to pay operating expenses. The efficiency ratios for 1994, 1993 and 1992, as shown in Figure 17, were 59.39%, 60.50% and 60.96% respectively. The improvement in the Corporation's efficiency ratios reflected, in large part, the success achieved in reducing overhead costs through the successful integration of banking companies and systems. INCOME TAXES The provision for income taxes for 1994 was $430.0 million, compared with $374.0 million in 1993 and $279.6 million in 1992. The increases in both 1994 and the prior year resulted from an increase in the level of taxable earnings. The Omnibus Budget Reconciliation Act of 1993 (the "Act"), which was signed into law on August 10, 1993, includes a number of items which impacted the Corporation's Federal income tax provision. Primary among these items was a retroactive increase in the Federal statutory tax rate from 34% to 35% as of January 1, 1993. In addition, the Act places certain limitations on deductible expenses which took effect in 1994. The effective tax rate (provision for income taxes as a percentage of income before income taxes) was 33.5% in 1994, 34.5% in 1993 and 32.3% in 1992. The effective tax rate was less than the Federal statutory rate primarily due to tax-exempt income from certain securities and loans. The lower 1994 effective tax rate in comparison to the prior year reflected the relatively high level of non-deductible expenses included in the 1993 merger and integration charges associated with the Merger. FINANCIAL CONDITION LOANS At December 31, 1994, total loans outstanding were $46.2 billion, up from $40.0 billion at December 31, 1993, and $36.0 billion at December 31, 1992, as shown in Figure 20. The $6.2 billion, or 15%, increase from the year-end 1993 level was primarily internally generated and only to a small degree attributable to the impact of acquisitions which were completed by the Corporation during 1994. These acquisitions included The Bank of Greeley and Commercial FIGURE 18 1994 PERIOD-END LOAN GROWTH BY REGION
Change Internally Companies From dollars in millions Generated Acquired Total 1993 ==================================================================================== Northeast Region $1,366.0 -- $1,366.0 12.1% Great Lakes Region 2,563.4 $497.8 3,061.2 17.2 Rocky Mountain Region 374.3 260.0 634.3 23.6 Northwest Region 1,081.2 -- 1,081.2 13.2 Financial Services 10.7 -- 10.7 11.2 - ------------------------------------------------------------------------------------ Total $5,395.6 $757.8 $6,153.4 15.4% ======== ====== ======== ====================================================================================
FIGURE 19 LOANS OUTSTANDING BY REGION
December 31, 1994 dollars in millions Total Loans Distribution =================================================================== Northeast Region $12,621.6 27.3% Great Lakes Region 20,909.0 45.2 Rocky Mountain Region 3,317.3 7.2 Northwest Region 9,270.2 20.1 Financial Services 106.6 .2 - ------------------------------------------------------------------- Total $46,224.7 100.0% ========= ===== ===================================================================
33 18 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 20 COMPOSITION OF LOANS
December 31, 1994 1993 1992 -------------------- --------------------- --------------------- dollars in millions Amount % of Total Amount % of Total Amount % of Total ====================================================================================================================== Commercial, financial and agricultural $10,190.6 22.0% $ 8,965.5 22.4% $ 8,869.0 24.6% Real estate-construction 1,287.2 2.8 1,160.5 2.9 1,448.0 4.0 Real estate-commercial mortgage 6,774.9 14.7 6,228.2 15.5 5,937.0 16.5 - ---------------------------------------------------------------------------------------------------------------------- Total commercial real estate 8,062.1 17.5 7,388.7 18.4 7,385.0 20.5 Real estate-residential mortgage 13,567.1 29.3 11,026.3 27.5 8,289.4 23.0 - ---------------------------------------------------------------------------------------------------------------------- Total real estate 21,629.2 46.8 18,415.0 45.9 15,674.4 43.5 Credit card 1,652.0 3.6 1,657.5 4.1 1,684.0 4.7 Other consumer 8,531.8 18.5 7,618.9 19.0 7,397.7 20.5 - ---------------------------------------------------------------------------------------------------------------------- Total consumer 10,183.8 22.1 9,276.4 23.1 9,081.7 25.2 Student loans held for sale 1,816.5 3.9 1,648.6 4.1 1,070.1 3.0 Lease financing 2,307.2 5.0 1,702.5 4.3 1,225.2 3.4 Foreign 97.4 .2 63.3 .2 101.4 .3 - ---------------------------------------------------------------------------------------------------------------------- Total $46,224.7 100.0% $40,071.3 100.0% $36,021.8 100.0% ========= ===== ========= ===== ========= ===== ======================================================================================================================
1991 1990 -------------------- -------------------- Amount % of Total Amount % of Total ==================================================================================================== Commercial, financial and agricultural $ 9,183.9 25.9% $10,031.7 29.4% Real estate-construction 1,577.3 4.4 2,187.6 6.4 Real estate-commercial mortgage 6,258.5 17.6 5,611.6 16.4 - ---------------------------------------------------------------------------------------------------- Total commercial real estate 7,835.8 22.0 7,799.2 22.8 Real estate-residential mortgage 7,240.7 20.4 6,373.5 18.6 - ---------------------------------------------------------------------------------------------------- Total real estate 15,076.5 42.4 14,172.7 41.4 Credit card 1,697.4 4.8 1,582.0 4.6 Other consumer 8,553.1 24.0 7,559.6 22.1 - ---------------------------------------------------------------------------------------------------- Total consumer 10,250.5 28.8 9,141.6 26.7 Student loans held for sale -- -- -- -- Lease financing 946.5 2.7 775.2 2.3 Foreign 76.9 .2 72.5 .2 - ---------------------------------------------------------------------------------------------------- Total $35,534.3 100.0% $34,193.7 100.0% ========= ===== ========= ===== ====================================================================================================
Bancorporation of Colorado in the Rocky Mountain Region and First Citizens Bancorp of Indiana and State Home Savings Bank, FSB in the Great Lakes Region. Excluding the $757.8 million impact of the acquisitions, loans increased by $5.4 billion, or 13%, since the prior year end. The internally generated loan growth reflected increases of $2.7 billion in real estate loans (of which $2.2 billion pertained to residential mortgages), $1.1 billion in commercial loans, $797.9 million in consumer loans, $582.2 million in lease financing receivables, $167.9 million in student loans held for sale and $34.1 million in foreign loans. As shown in Figure 18, this loan growth was achieved throughout all of KeyCorp's geographic regions. The distribution of loans by geographic region as of December 31, 1994, as depicted by Figure 19, is evidence of the significant credit risk diversification possible because of the Corporation's unique 13- state, four-region profile. FIGURE 21 CONSTRUCTION AND COMMERCIAL MORTGAGE LOANS
December 31, 1994 Commercial in millions Construction Mortgage Total =================================================================================== Nonowner-occupied: Retail $ 143.6 $ 912.9 $1,056.5 Multi-family properties 112.2 801.4 913.6 Office buildings 84.9 887.6 972.5 Hotels/Motels 25.6 238.2 263.8 Health facilities 7.3 88.4 95.7 Manufacturing facilities 7.4 82.1 89.5 Warehouses 10.5 302.7 313.2 Other 296.3 487.8 784.1 Owner-occupied 599.4 2,973.8 3,573.2 - ----------------------------------------------------------------------------------- Total $1,287.2 $6,774.9 $8,062.1 ======== ======== ======== ===================================================================================
34 19 ------------------------ KEYCORP AND SUBSIDIARIES Commercial loans outstanding at December 31, 1994, were $10.2 billion, up 14% from the December 31, 1993, level of $9.0 billion, following a slight increase of $96.5 million, or 1%, in 1993. The growth in 1994 was due in part to the success of a program launched in mid-April which was originally expected to generate approximately $200 million in small business loans. During the second and third quarters, $387 million in new loans were recorded under this program. Acquisitions accounted for $149.6 million of the increase in commercial loans. Loans secured by real estate totaled $21.6 billion at December 31, 1994, compared with $18.4 billion at December 31, 1993, and $15.7 billion at December 31, 1992. These loans consist of construction loans, commercial mortgage loans and one-to-four family residential loans (including home equity loans). The $3.2 billion, or 17%, increase from 1993 was mainly attributable to internally generated growth. Acquisitions accounted for $476.0 million of the increase in total real estate loans, including $297.3 million of the increase in the residential mortgage portfolio. Construction loans increased to $1.3 billion at December 31, 1994, up from $1.2 billion at December 31, 1993, and down from $1.4 billion at December 31, 1992. At December 31, 1994, 13% of the construction loan portfolio was secured by properties in the Northeast Region, 49% in the Great Lakes Region, 15% in the Rocky Mountain Region and 23% in the Northwest Region. The commercial mortgage loan portfolio totaled $6.8 billion at December 31, 1994, compared with $6.2 billion at December 31, 1993, and $5.9 billion at December 31, 1992. The Corporation manages risk exposure in the construction and commercial mortgage portfolios through prudent underwriting criteria and by monitoring loan concentrations by geographic region and property type. Figure 21 shows the portions of the December 31, 1994, portfolios which are nonowner-occupied versus owner-occupied and further details the industry concentrations within the nonowner-occupied portion. At December 31, 1994, 47% of the construction portfolio and 44% of the commercial mortgage loan portfolio were comprised of loans secured by owner-occupied properties. These borrowers are engaged in business activities other than real estate, and the primary source of repayment is not solely dependent on the real estate market. One-to-four family residential mortgages (including home equity loans) were $13.6 billion at December 31, 1994, compared with $11.0 billion at December 31, 1993, and $8.3 billion at December 31, 1992. Excluding the impact of acquisitions, residential mortgages increased $2.2 billion, or 20%, in 1994. Home equity loans increased to $2.2 billion at December 31, 1994, up from $2.1 billion and $2.0 billion at December 31, 1993 and 1992, respectively. A portion of the loan originations during 1994, and a larger portion in 1993, was attributable to homeowner refinancings, reflecting an historically low level of interest rates. During 1994, the Corporation continued its strategy of originating and selling most fixed rate loans with 30-year maturities in the secondary market (such loans are classified outside of the loan portfolio as mortgage loans held for sale), whereas other fixed and adjustable rate loans are originated to secondary market standards to enhance liquidity, but maintained in the portfolio. Consumer loans (including credit card loans) totaled $10.2 billion at December 31, 1994, compared with $9.3 billion at December 31, 1993, and $9.1 billion at December 31, 1992. Excluding the impact of acquisitions in 1994, the portfolio increased $797.9 million, or 9%, from the 1993 year-end level. Credit card loans totaled $1.7 billion at December 31, 1994, unchanged from year-end 1993 and 1992. During the latter part of 1992, the Corporation designated its student loan portfolio, totaling approximately $1.1 billion, as held for sale. This portfolio has grown to $1.8 billion at December 31, 1994, representing an increase of $167.9 million, or 10%, from the year-end 1993 level. The higher level of outstandings in 1994 reflected the Corporation's role as a primary provider of education loans to law school students. The Corporation securitized and sold portions of this portfolio totaling $547.7 million and $200.0 million, in 1994 and 1993, respectively. An additional $319.2 million was securitized and sold in early 1995. Lease financing totaled $2.3 billion at December 31, 1994, compared with $1.7 billion at December 31, 1993, and $1.2 billion at December 31, 1992. Excluding the impact of acquisitions in 1994, the portfolio increased $582.2 million, or 34%, from the 1993 year-end level. This growth reflected expanded services and market coverage as well as the general strength of the economy. SECURITIES At December 31, 1994, the securities portfolio totaled $12.8 billion, consisting of $2.5 billion of securities available for sale and $10.3 billion of investment securities. Certain information pertaining to the composition, yields and maturities of the securities available for sale and investment securities portfolios is presented in Figure 22 and Figure 23, respectively. Effective January 1, 1994, the Corporation adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This new accounting standard requires, among other things, that equity securities having readily determinable fair values and all investments in debt securities be classified and accounted for in one of three 35 20 ----------------------- KeyCorp and Subsidiaries FIGURE 22 SECURITIES AVAILABLE FOR SALE
U.S. Treasury, States and Mortgage- Weighted Agencies and Political Backed Other Average dollars in millions Corporations Subdivisions Securities(1) Securities Total Yield(2) =================================================================================================================================== DECEMBER 31, 1994: Maturity: One year or less $ 273.4 $ 2.9 $ 5.7 $ 87.0(3) $ 369.0 6.14% After one through five years 720.0 10.5 35.9 119.3 885.7 6.55 After five through ten years 56.5 7.9 1,185.4 6.3 1,256.1 6.36 After ten years 2.6 4.6 1.3 1.7 10.2 7.89 - ----------------------------------------------------------------------------------------------------------------------------------- Fair value $1,052.5 $25.9 $1,228.3 $214.3 $2,521.0 6.40% Amortized cost 1,067.7 28.9 1,334.1 223.3 2,654.0 Weighted average yield 6.46% 8.07% 6.31% 6.77% 6.40% Weighted average maturity 2.3 years 6.7 years 8.2 years 2.4 years 5.5 years - ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1993: Fair value $ 1,497.9 -- $ 273.0 $ 23.9 $ 1,794.8 6.80% Amortized cost 1,434.0 -- 269.7 23.1 1,726.8 - ----------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1992: Fair value $ 2,089.3 -- $ 408.2 $ 20.8 $ 2,518.3 6.65% Amortized cost 2,032.6 -- 405.8 20.3 2,458.7 =================================================================================================================================== (1)Maturity is based upon expected average lives rather than contractual terms. (2)Weighted average yields are calculated on the basis of amortized cost. Such yields have been adjusted to a taxable-equivalent basis using a 35% tax rate for 1994 and 1993 and a 34% tax rate for 1992. (3)Includes equity securities with no stated maturity.
categories: securities held to maturity, trading account assets and securities available for sale. Debt securities that management has the positive intent and ability to hold to maturity are included in the securities held to maturity category and are carried at amortized cost. Securities held to maturity and equity securities that do not have readily determinable fair values are presented in the balance sheet as investment securities. Securities bought and principally held for the purpose of selling them in the near term are included in trading account assets and reported at fair value, with unrealized gains and losses included in noninterest income. The designation of securities as available for sale applies to all other securities that may be held for indefinite periods, including securities that may be sold in response to changes in interest rates, changes in prepayment risk, increases in loan demand, general liquidity needs and other similar factors. These securities are carried at their fair values with unrealized gains and losses excluded from operating results and reported as a component of shareholders' equity. At December 31, 1994, shareholders' equity was reduced by $115.3 million, representing the net unrealized loss on securities, net of deferred income taxes. The change in the classification of securities under the new accounting standard had no impact on net income. SFAS No. 115 is more fully described in Note 3, Securities Available for Sale, on page 58 of this report. During the third quarter of 1994, the Corporation transferred approximately $1.3 billion in mortgage-backed securities from the securities available for sale portfolio to the investment securities portfolio. This transfer was made in response to guidance issued by the Financial Accounting Standards Board with regard to the classification of "nonhigh-risk" mortgage securities in accordance with SFAS No. 115. The securities were transferred at their fair value and the unrealized loss component (approximately $57.8 million before taxes) of the carrying value of the transferred securities is being amortized as a yield adjustment over their remaining lives, as is the corresponding unrealized loss component of shareholders' equity. The securities portfolio serves as a primary tool in the management of interest rate risk in addition to generating interest income and providing a significant source of liquidity. As previously discussed, in December 1994 the Corporation announced its intentions to substantially reduce its liability interest rate sensitivity through the implementation of a combination of strategies, including reconfiguring its securities available for sale portfolio to improve the portfolio's overall yield and responsiveness to rising interest rates. Accordingly, during the fourth quarter of 1994, the Corporation sold $877.7 million of primarily U.S. Treasury and mortgage-backed securities with an aggregate weighted-average yield of 5.67%. Similarly, during January 1995, the Corporation sold $1.2 billion of securities with an aggregate weighted average yield of 6.24%. The above transactions resulted in pre-tax net losses of $23.7 million and $48.6 million during the fourth and first quarters, respectively. These and other strategies planned by the Corporation to monitor and manage interest rate sensitivity are more fully discussed in the Asset and Liability Management section beginning on page 26 of this report. 36 21 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 23 INVESTMENT SECURITIES
U.S. Treasury, States and Mortgage- Weighted Agencies and Political Backed Other Average dollars in millions Corporations Subdivisions Securities(1) Securities Total Yield(2) ==================================================================================================================================== DECEMBER 31, 1994: Maturity: One year or less $ 74.0 $ 573.8 $ 648.4 $ 69.7 $ 1,365.9 6.45% After one through five years 194.5 559.7 4,497.9 240.0 5,492.1 6.90 After five through ten years 12.8 293.2 990.7 88.6 1,385.3 8.00 After ten years 251.3 81.8 1,697.2 2.0 2,032.3 7.13 - ------------------------------------------------------------------------------------------------------------------------------------ Amortized cost $532.6 $1,508.5 $7,834.2 $400.3 $10,275.6 7.03% Fair value 499.3 1,534.9 7,362.7 360.1 9,757.0 Weighted average yield 6.78% 8.55% 6.72% 7.45% 7.03% Weighted average maturity 13.7 years 3.3 years 5.1 years 2.5 years 5.2 years - ------------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 1993: Amortized cost $ 796.0 $ 1,677.8 $ 7,877.2 $771.1 $ 11,122.1 6.51% Fair value 807.4 1,779.8 7,967.3 785.7 11,340.2 - ------------------------------------------------------------------------------------------------------------------------------------ DECEMBER 31, 1992: Amortized cost $ 494.2 $ 1,806.8 $ 6,062.4 $612.9 $ 8,976.3 7.72% Fair value 506.0 1,886.6 6,171.8 628.7 9,193.1 ==================================================================================================================================== (1)Maturity is based upon expected average lives rather than contractual terms. (2)Weighted average yields are calculated on the basis of amortized cost. Such yields have been adjusted to a taxable-equivalent basis using a 35% tax rate for 1994 and 1993 and a 34% tax rate for 1992.
At December 31, 1994, the Corporation had $9.1 billion invested in mortgage-backed pass-through securities and collateralized mortgage obligations ("CMO") within the investment securities and securities available for sale portfolios, compared with $8.1 billion at December 31, 1993. A mortgage-backed pass-through security depends on the underlying pool of mortgage loans to provide a cash flow "pass- through" of principal and interest. The Corporation had $5.3 billion invested in mortgage-backed pass-through securities at December 31, 1994. A CMO is a mortgage-backed security that is comprised of classes of bonds created by prioritizing the cash flows from the underlying mortgage pool in order to meet different objectives of investors. The Corporation had $3.8 billion invested in CMO securities at December 31, 1994. The CMO securities held by the Corporation are primarily shorter-maturity class bonds that were structured to have more predictable cash flows by being less sensitive to prepayments during periods of changing interest rates. At December 31, 1994, substantially all of the CMOs and mortgage-backed pass-through securities held by the Corporation were issued or backed by Federal agencies. ASSET QUALITY The Corporation's Credit Risk Review Group evaluates and monitors the level of risk in the Corporation's loan-related assets, and formulates underwriting standards and guidelines for active line management. Geographic diversification throughout the Corporation is a significant factor in managing credit risk. In addition, the Credit Risk Review Group is responsible for reviewing the adequacy of the allowance for loan losses ("Allowance"). The Corporation's Credit Policy/Risk Management Group reviews corporate assets other than loans, leases and OREO to evaluate the credit quality and risk inherent in such assets. This Group is also responsible for commercial and consumer credit policy development, concentration management and credit systems development. Methodologies are designed to provide adequate coverage for possible loan losses. The methodology applied at KeyCorp focuses on a combination of allocations directly attributable to specific potential problem credits and general allocations based on historical losses on a portfolio basis, as shown in Figure 24. In addition, indirect risk in the form of general economic conditions, portfolio diversification and off- balance sheet risk is taken into consideration. Management continues to target and maintain an allowance equal to the allocated requirement plus an unallocated portion, as appropriate. Management believes this is an appropriate posture in light of current and expected economic conditions and trends, the geographic and industry mix of the portfolio, and similar risk-related matters. As shown in Figure 27, net loan charge-offs of $109.2 million in 1994 dropped significantly from $212.8 million in 1993 with asset quality improvement reflected in all categories of the loan portfolio. As a result of this improvement in asset quality, as demonstrated by a large reduction in nonperforming loans, the 1994 provision for loan losses was $125.2 million compared with $211.7 million in 1993 and $338.4 million in 1992. 37 22 KEYCORP AND SUBSIDIARIES The Allowance at December 31, 1994, was $830.3 million, or 1.80% of loans, compared with $802.7 million, or 2.00% of loans, at December 31, 1993. As a percentage of nonperforming loans, the Allowance was 324.27% at December 31, 1994, compared with 238.69% at December 31, 1993. Although this percentage is not a primary factor used by management in determining the adequacy of the Allowance, it has general short to medium-term relevance. As indicated in Figure 24, the unallocated portion of the Allowance increased in 1994, reflecting continued improvement in overall loan quality. As shown in Figure 28, nonperforming assets totaled $339.8 million at December 31, 1994, down $160.3 million, or 32%, from the December 31, 1993, level. This followed a decrease of $400.1 million, or 44%, in 1993. The continued improvement in 1994 resulted largely from an $80.3 million, or 24%, decrease in nonperforming loans and a $71.4 million, or 47%, decrease in OREO, net of allowance for losses. Other nonperforming assets, which are comprised primarily of nonperforming venture capital investments, decreased $8.6 million, or 64%, in 1994. The reduction in nonperforming loans was principally attributable to decreases in nonaccrual commercial, construction and commercial real estate loans. At the end of 1994, nonaccrual loans in these categories comprised 36%, 9% and 32%, respectively, of total nonperforming loans and totaled $196.5 million, down $71.4 million, or 27%, from the previous year-end. This reduction reflected continued progress made in working through the credit problems associated with the Ameritrust acquisition as well as the overall strength of the economy. As indicated in Figure 29, the reduction in OREO was primarily due to the selective sale of assets. On a regional basis, the banks in the Northeast Region, Great Lakes Region and Northwest Region showed improvement in the ratio of nonperforming assets to total loans plus OREO and other nonperforming assets. As indicated by Figure 25, the largest basis point improvement was experienced in the Great Lakes Region. The increase in the ratio in the Rocky Mountain Region was attributable to the FIGURE 24 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31, 1994 1993 1992 --------------------- ----------------------- ----------------------- Percent of Percent of Percent of Loan Type to Loan Type to Loan Type to dollars in millions Amount Total Loans Amount Total Loans Amount Total Loans - ---------------------------------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $119.3 23.0% $177.6 23.4% $205.1 25.4% Real estate-construction 17.5 2.9 22.1 3.0 27.3 4.1 Real estate-mortgage 95.7 45.8 90.6 44.9 113.3 40.7 Consumer 95.3 22.9 113.4 24.1 147.2 26.0 Lease financing 24.3 5.2 14.1 4.4 4.8 3.5 Foreign -- .2 -- .2 1.6 .3 Unallocated 478.2 -- 384.9 -- 283.3 -- - ---------------------------------------------------------------------------------------------------------------------------------- Total $830.3 100.0% $802.7 100.0% $782.6 100.0% ====== ===== ====== ===== ===== ===== - ----------------------------------------------------------------------------------------------------------------------------------
1991 1990 --------------------- ----------------------- Percent of Percent of Loan Type to Loan Type to Amount Total Loans Amount Total Loans - --------------------------------------------------------------------------------------------------- Commercial, financial and agricultural $224.4 25.9% $238.7 29.3% Real estate-construction 30.1 4.4 23.2 6.4 Real estate-mortgage 126.1 38.0 127.9 35.1 Consumer 149.7 28.8 123.1 26.7 Lease financing 3.4 2.7 5.7 2.3 Foreign 20.2 .2 19.5 .2 Unallocated 239.6 -- 139.2 -- - --------------------------------------------------------------------------------------------------- Total $793.5 100.0% $677.3 100.0% ====== ===== ====== ===== - --------------------------------------------------------------------------------------------------- Amounts in the "Percent of Loan Type to Total Loans" column were computed excluding loans held for sale from the portfolio as no allowances were deemed necessary for such loans.
38 23 KEYCORP AND SUBSIDIARIES FIGURE 25 NONPERFORMING LOAN AND ASSET RATIOS BY REGION
December 31, Nonperforming Nonperforming Assets to Period-End Loans to Period- Loans Plus OREO End Loans and Other NPA ---------------- ----------------- 1994 1993 1994 1993 - ------------------------------------------------------------------------- Northeast Region .74% 1.01% 1.09% 1.73% Great Lakes Region .47 .91 .57 1.25 Rocky Mountain Region .58 .26 .66 .44 Northwest Region .47 .63 .63 .91 Financial Services 1.40 1.03 10.19 7.76 - ------------------------------------------------------------------------- Total .55% .84% .73% 1.24% - -------------------------------------------------------------------------
FIGURE 26 NONPERFORMING ASSETS 1994 1993 1992 1991 1990 - -------------------------------------------------------------------------- Other nonperforming assets $ 4.8 $13.4 $14.9 $11.7 $ 2.8 Restructured loans 1.5 6.5 2.4 9.9 25.2 Other real estate owned 79.0 150.4 332.4 330.7 211.5 Nonaccrual loans 254.5 329.8 550.5 719.6 773.7 - --------------------------------------------------------------------------
FIGURE 27 SUMMARY OF LOAN LOSS EXPERIENCE
Year ended December 31, dollars in millions 1994 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------------- Average loans outstanding during the year $42,745.5 $38,307.6 $35,307.4 $35,150.3 $32,632.8 - --------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses at beginning of year $ 802.7 $ 782.6 $ 793.5 $ 677.3 $ 452.7 Loans charged off: Commercial, financial and agricultural 60.7 102.6 144.8 173.9 155.4 Real estate-construction 6.6 25.5 25.1 40.9 33.7 Real estate-mortgage 35.0 56.8 100.2 70.4 66.7 Consumer 103.3 115.2 160.3 174.1 136.7 Lease financing 3.2 3.1 10.0 5.7 6.7 Foreign -- -- -- .8 2.3 - --------------------------------------------------------------------------------------------------------------------------------- 208.8 303.2 440.4 465.8 401.5 Recoveries: Commercial, financial and agricultural 48.0 33.4 25.7 28.7 28.6 Real estate-construction 1.4 6.0 1.3 1.9 2.5 Real estate-mortgage 11.3 9.8 9.0 3.1 2.1 Consumer 36.8 39.5 39.0 38.9 34.3 Lease financing 2.1 1.6 4.9 1.2 1.3 Foreign -- .1 -- .2 .8 - --------------------------------------------------------------------------------------------------------------------------------- 99.6 90.4 79.9 74.0 69.6 - --------------------------------------------------------------------------------------------------------------------------------- Net loans charged off (109.2) (212.8) (360.5) (391.8) (331.9) Provision for loan losses 125.2 211.7 338.4 466.2 517.2 Allowance of acquired companies 11.6 21.2 11.2 41.8 39.3 - --------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses at end of year $ 830.3 $ 802.7 $ 782.6 $ 793.5 $ 677.3 ========= ========= ========= ========= ========= - --------------------------------------------------------------------------------------------------------------------------------- Net loan charge-offs to average loans .26% .56% 1.02% 1.11% 1.02% Allowance for loan losses to year-end loans 1.80 2.00 2.17 2.23 1.98 Allowance for loan losses to nonperforming loans 324.27 238.69 141.54 108.79 84.78 - ---------------------------------------------------------------------------------------------------------------------------------
39 24 KEYCORP AND SUBSIDIARIES FIGURE 28 SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
December 31, dollars in millions 1994 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------ Nonaccrual loans $254.5 $329.8 $550.5 $719.6 $773.7 Restructured loans 1.5 6.5 2.4 9.9 25.2 - ------------------------------------------------------------------------------------------------------------------------------ Total nonperforming loans 256.0 336.3 552.9 729.5 798.9 Other real estate owned 100.3 186.1 350.3 349.9 225.3 Allowance for OREO losses (21.3) (35.7) (17.9) (19.2) (13.8) - ------------------------------------------------------------------------------------------------------------------------------ Other real estate owned, net of allowance 79.0 150.4 332.4 330.7 211.5 Other nonperforming assets 4.8 13.4 14.9 11.7 2.8 - ------------------------------------------------------------------------------------------------------------------------------ Total nonperforming assets $339.8 $500.1 $900.2 $1,071.9 $1,013.2 ====== ====== ====== ======== ======== - ------------------------------------------------------------------------------------------------------------------------------ Accruing loans past due 90 days or more $ 50.2 $ 51.8 $ 70.3 $ 94.1 $ 90.5 - ------------------------------------------------------------------------------------------------------------------------------ Nonperforming loans to year-end loans .55% .84% 1.53% 2.05% 2.34% Nonperforming assets to year-end loans plus other real estate owned and other nonperforming assets .73 1.24 2.47 2.99 2.94 - ------------------------------------------------------------------------------------------------------------------------------
FIGURE 29 SUMMARY OF CHANGES IN NONACCRUAL LOANS AND OREO SUMMARY OF CHANGES IN NONACCRUAL LOANS
1994 Quarters ----------------------------------------- in millions Full Year Fourth Third Second First - ------------------------------------------------------------------------------------------------- Balance at beginning of period $329.8 $284.7 $307.4 $315.4 $329.8 Loans placed on nonaccrual 218.6 43.4 50.0 63.6 61.6 Charge-offs1 (101.9) (20.3) (21.7) (27.3) (32.6) Payments (113.9) (40.2) (29.0) (21.8) (22.9) Transfers to OREO (34.2) (5.0) (12.5) (4.8) (11.9) Loans returned to accrual (47.6) (8.8) (10.7) (17.7) (10.4) Acquisitions 3.7 .7 1.2 -- 1.8 Transfers from OREO -- -- -- -- -- - ------------------------------------------------------------------------------------------------- Balance at end of period $254.5 $254.5 $284.7 $307.4 $315.4 ====== ====== ====== ====== ====== - -------------------------------------------------------------------------------------------------
Summary of Changes in OREO 2 1994 Quarters ----------------------------------------- in millions Full Year Fourth Third Second First - ------------------------------------------------------------------------------------------------- Balance at beginning of period $150.4 $107.6 $118.0 $134.3 $150.4 Additions 52.7 8.3 21.5 6.1 16.8 Sales (71.7) (21.3) (19.0) (14.3) (17.1) Charge-offs and writedowns (33.4) (14.2) (7.6) (3.2) (8.4) Transfers to loans (9.8) (3.5) (.8) -- (5.5) Acquisitions 3.1 .7 .2 -- 2.2 Other (12.3) 1.4 (4.7) (4.9) (4.1) - ------------------------------------------------------------------------------------------------- Balance at end of period $ 79.0 $ 79.0 $107.6 $118.0 $134.3 ====== ====== ====== ====== ====== - ------------------------------------------------------------------------------------------------- 1 Represents the gross charge-offs taken against nonaccrual loans; excluded are charge-offs taken against accruing loans and credit card receivables, and interest reversals. 2 Net of allowance for OREO losses.
40 25 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 30 PERCENTAGE OF NONPERFORMING LOANS TO PERIOD-END LOANS BY LOAN TYPE
December 31, 1994 Commercial, Real Estate- Real Estate- Financial and Real Estate- Commercial Residential Agricultural Construction Mortgage Mortgage Consumer Total - ----------------------------------------------------------------------------------------------------------------------------- Northeast Region 1.23% 3.51% 1.68% .27% .17% .74% Great Lakes Region .56 2.41 1.06 .31 .07 .47 Rocky Mountain Region .94 .05 1.06 .20 .14 .58 Northwest Region .59 .11 .95 .45 .05 .47 Financial Services -- -- -- 9.28 -- 1.40 - ------------------------------------------------------------------------------------------------------------------------------ Total .75% 1.68% 1.23% .33% .10% .55% - ------------------------------------------------------------------------------------------------------------------------------
acquisitions of Commercial Bancorporation of Colorado and The Bank of Greeley during 1994. The increase in the ratio in Financial Services was caused by a run-off of loan balances from a relatively low base amount without a commensurate reduction in nonperforming assets. This group included only $106.6 million, or less than 1%, of the Corporation's total loans as of December 31, 1994. In May 1993, the Financial Accounting Standards Board issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." This standard affects the definition and basis for measuring impaired loans and is more fully discussed in Note 6, Nonperforming Assets, on page 60 of this report. The Corporation expects to adopt SFAS No. 114 prospectively in the first quarter of 1995. Adoption of this standard will not have a material effect on the Corporation's financial condition or results of operations. DEPOSITS AND OTHER SOURCES OF FUNDS Core deposits, defined as domestic deposits other than certificates of deposit of $100,000 or more, are the Corporation's primary source of funding. During 1994, these deposits averaged $40.8 billion and represented 72% of the Corporation's earning asset funding compared with $40.2 billion and 78%, respectively, in 1993 and $37.4 billion and 79%, respectively, in 1992. The slight growth in average core deposits during 1994 reflected the impact of acquisitions, offset in part by the pursuit of other investment alternatives by consumers in response to the interest rate environment. The 1993 increase in average core deposits was also primarily a result of acquisitions. The impact of these acquisitions was substantially offset, however, by the sale of approximately $1.0 billion in deposits late in the second quarter of 1992 (as part of an agreement reached with the United States Department of Justice and in accordance with the Federal Reserve Board order to divest certain branches in connection with the Ameritrust merger) and the pursuit of other investment alternatives by consumers in response to declining interest rates. As shown in Figure 6, there was a moderate shift in 1994 in core deposit balances from money market deposit accounts and from the "Other time deposits" category (consisting primarily of fixed-rate certificates of deposit of less than $100,000) to noninterest-bearing and savings deposits (including NOW accounts), also in response to the interest rate environment. Purchased funds, which are comprised of large certificates of deposit, deposits in foreign offices and short-term borrowings, averaged $13.8 billion for 1994, up $4.1 billion, or 42%, from the prior year. These instruments were more heavily relied upon in 1994 as the growth in earning assets exceeded the increase in core deposits discussed previously. As illustrated in Figure 6, all types of purchased funds grew with the exception of large certificates of deposit, which experienced a slight decline. FIGURE 31 MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE
December 31, 1994 Domestic Foreign in millions Offices Offices Total - ----------------------------------------------------------------------------- Time remaining to maturity: Three months or less $1,502.3 $3,424.4 $4,926.7 Over three through six months 387.7 .7 388.4 Over six through twelve months 492.5 -- 492.5 Over twelve months 705.8 -- 705.8 - ----------------------------------------------------------------------------- Total $3,088.3 $3,425.1 $6,513.4 ======== ======== ======== - -----------------------------------------------------------------------------
LIQUIDITY Liquidity represents the availability of funding to meet the needs of depositors, borrowers and creditors at a reasonable cost, on a timely basis and without adverse consequences. The Corporation's ALCO actively analyzes and manages the Corporation's liquidity in coordination with similar committees at each affiliate bank. The affiliate banks individually maintain liquidity in the form of short-term money market investments, securities available for sale, anticipated prepayments and maturities on securities and through the maturity structure of their loan portfolios. Liquidity is also enhanced by a sizable concentration of core deposits, previously discussed, which are generated by the Corporation's 41 26 ------------------------ KEYCORP AND SUBSIDIARIES nearly 1,300 banking offices in 13 states. The affiliate banks individually monitor deposit flows and evaluate alternate pricing structures to retain or grow deposits. This process is supported by a Central Funding Unit within the Corporation's Funds Management Group which monitors deposit outflows and assists the banks in converting the pricing of deposits from fixed to floating rates, or vice versa, as specific needs are determined. In addition, the affiliate banks have access to various sources of non-core market funding for short-term liquidity requirements should the need arise. During 1994, Society National Bank ("SNB"), the Corporation's Ohio bank, raised $1.5 billion in funding under a Medium-Term Bank Note program. Of the notes issued, $1.1 billion have original maturities of one year or less and are included in other short-term borrowings and $400.0 million have original maturities in excess of one year and are included in long-term debt. Under a separate $5 billion Bank Note program, which replaced the SNB program in the third quarter, four affiliate banks (including SNB) issued an aggregate total of $2.2 billion in debt securities in 1994. Of these issued notes, $1.2 billion are included in other short-term borrowings and $1.0 billion are included in long-term debt. During February 1995 this program was expanded to allow issuances of up to $6.6 billion, covering eleven affiliate banks. The proceeds from these programs are to be used for general corporate purposes in the ordinary course of business. In 1993, SNB issued $685.0 million in debt securities with original maturities of less than one year under the aforementioned Medium-Term Bank Note program. During the second quarter of 1994, KeyCorp filed a universal shelf registration with the SEC providing for the possible issuance of a broad range of debt and equity securities by the parent company in an amount not to exceed $750.0 million. Under the shelf registration, KeyCorp issued $570.0 million in Medium-Term Notes during 1994 with $395.0 million having original maturities in excess of one year and $175.0 million having original maturities of one year or less. During 1993, $305.1 million in long-term debt securities were issued under a separate Medium-Term Note program. The proceeds from these programs were used in both years to fund acquisitions and for general corporate purposes. The liquidity requirements of the parent company, primarily for dividends to shareholders, servicing of debt and other corporate purposes, are principally met through regular dividends from affiliate banks. As of December 31, 1994, $642.4 million was available in the affiliate banks for the payment of dividends to the parent company without prior regulatory approval. The parent company has no lines of credit with other financial institutions but has ready access to the capital markets as a result of its favorable debt ratings. CAPITAL AND DIVIDENDS Total shareholders' equity at December 31, 1994, was $4.7 billion, up $304.9 million, or 7%, from the balance at the end of 1993. This followed an increase of $466.3 million, or 12%, from the prior year end. In both years the increase was principally due to the retention of net income after dividends. Other factors contributing to the change in shareholders' equity in 1994 are shown in the Statement of Changes in Shareholders' Equity presented on page 52 of this report. Included in these changes are net unrealized losses of FIGURE 32 CAPITAL COMPONENTS AND RISK-ADJUSTED ASSETS
December 31, dollars in millions 1994 1993 - ------------------------------------------------------------------------------- Tier I capital Common shareholders' equity1 $ 4,648.1 $ 4,233.6 Qualifying preferred stock 160.0 160.0 Less: Goodwill (418.5) (385.4) Other intangible assets2 (140.0) (122.9) - ------------------------------------------------------------------------------- Total Tier I capital 4,249.6 3,885.3 - ------------------------------------------------------------------------------- Tier II capital Allowance for loan losses3 628.7 559.7 Qualifying long-term debt 943.2 993.4 - ------------------------------------------------------------------------------- Total Tier II capital 1,571.9 1,553.1 - ------------------------------------------------------------------------------- Total capital $ 5,821.5 $ 5,438.4 ========= ========= Risk-adjusted assets Risk-adjusted assets on balance sheet $46,370.0 $40,979.9 Risk-adjusted off-balance sheet exposure 4,483.3 4,283.3 Less: Goodwill (418.5) (385.4) Other intangible assets2 (140.0) (122.9) - ------------------------------------------------------------------------------- Gross risk-adjusted assets 50,294.8 44,754.9 Less: Excess allowance for loan losses3 (201.6) (243.0) - ------------------------------------------------------------------------------- Net risk-adjusted assets $50,093.2 $44,511.9 ========= ========= Average quarterly total assets $64,613.3 $58,289.3 ========= ========= Capital ratios Tier I capital to net risk-adjusted assets 8.48% 8.73% Total capital to net risk-adjusted assets 11.62 12.22 Leverage 6.63 6.72 - ------------------------------------------------------------------------------- 1 Common shareholders' equity excludes the impact of net unrealized gains or losses on securities, except for net unrealized losses on marketable equity securities. 2 Intangible assets (excluding goodwill and portions of purchased credit card relationships) recorded after February 19, 1992, and deductible portions of purchased mortgage servicing rights. 3 The allowance for loan losses included in Tier II capital is limited to 1.25% of gross risk-adjusted assets.
42 27 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 33 CAPITAL RATIOS
1993 1994 ---- ---- Leverage ratio 6.72% 6.63% TierI risk-based capital ratio 8.73 8.48 Total risk-based capital ratio 12.22 11.62
$161.4 million on securities, bringing the net unrealized losses on securities to $115.3 million as of December 31, 1994. These net unrealized losses were recorded in accordance with SFAS No. 115, "Accounting for Certain Debt and Equity Securities," which was adopted by the Corporation as of January 1, 1994. This new accounting standard establishes, among other things, net unrealized holding gains and losses on securities as a new component of shareholders' equity and is more fully described in Note 3, Securities Available for Sale, on page 58 of this report. Also having a significant impact on shareholders' equity in 1994 was a $131.1 million increase in Treasury Stock resulting from the share repurchase program discussed further in Note 11, Shareholders' Equity, on page 64 of this report. Capital adequacy is an important indicator of financial stability and performance. Overall, KeyCorp's capital position remains strong with a ratio of total shareholders' equity to total assets of 7.03% at December 31, 1994, down slightly from 7.37% and 7.13% at December 31, 1993 and 1992, respectively. Banking industry regulators define minimum capital ratios for bank holding companies and their banking and savings association subsidiaries. Based on the risk-based capital rules and definitions prescribed by the banking regulators, KeyCorp's Tier I and total capital to net risk-adjusted assets ratios at December 31, 1994, were 8.48% and 11.62%, respectively. As illustrated in Figure 33, these compare favorably with the requirements of 4.0% for Tier I and 8.0% for total capital. The regulatory Tier I leverage ratio standard prescribes a minimum ratio of 3.0%, although most banking organizations are expected to maintain ratios of at least 100 to 200 basis points above the minimum. At December 31, 1994, KeyCorp's leverage ratio was 6.63%, substantially higher than the minimum requirement. Figure 31 presents the details of KeyCorp's regulatory capital position at December 31, 1994 and 1993. Under the Federal Deposit Insurance Act, the Federal bank regulators group FDIC-insured depository institutions into five broad categories based on certain capital ratios. The five categories are "well-capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." Although these provisions are not directly applicable to the Corporation under existing law and regulations, based upon its ratios the Corporation would qualify as "well-capitalized" at December 31, 1994. All of KeyCorp's affiliate banks do qualify as "well-capitalized" at December 31, 1994, except for the recently acquired First Citizens Bancorp of Indiana which is "adequately capitalized". First Citizens will be merged with Society National Bank, Indiana ("SNBI") during the first quarter of 1995, and SNBI is expected to be well-capitalized upon completion of the merger. The FDIC-defined capital categories may not constitute an accurate representation of the overall financial condition or prospects of KeyCorp or its affiliate banks. On December 8, 1994, the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), the agency with regulatory jurisdiction over bank holding companies such as KeyCorp, adopted a final rule, effective December 31, 1994, to exclude net unrealized gains and losses on "debt" securities classified as "available for sale" from the computation of Tier I capital for purposes of the risk-based capital and leverage standards. The rule provides that net unrealized losses on "equity" securities with readily determinable fair values and which are held in the "available for sale" portfolio, must be deducted from Tier I capital. The full potential impact of SFAS No. 115 on Tier I capital was mitigated by the Federal Reserve Board Action. This revision will not have a material effect on the risk-based capital and leverage standards of the Corporation's subsidiary banks. At December 31, 1994, book value per Common Share was $18.88 based on 240,362,117 shares outstanding, compared with $17.53 based on 241,547,151 shares outstanding at December 31, 1993. KeyCorp's Common Shares are traded on the New York Stock Exchange under the symbol KEY. The sales price ranges of the Common Shares and per Common Share net income and dividends by quarter for each of the last two years are presented in Figure 34. At year-end 1994, the closing sales price on the New York Stock Exchange was $25.00 per share. This price was 132% of year-end book value per share, resulting in a dividend yield of 5.12%. On January 19, 1995, the quarterly dividend on Common Shares was increased by 12.5% to $.36 per Common Share, up from $.32 43 28 ------------------------ KEYCORP AND SUBSIDIARIES per Common Share in 1994. There were 52,974 holders of record of KeyCorp Common Shares at December 31, 1994. FOURTH QUARTER RESULTS As shown in Figure 34, net income for the fourth quarter of 1994 was $193.8 million, or $.79 per Common Share, compared with $122.3 million, or $.49 per Common Share, for the same period last year. The 1994 period was impacted by securities losses of $23.7 million ($14.3 million after-tax, $.06 per Common Share) related to the balance sheet reconfiguration and the 1993 period was impacted by merger and integration charges of $118.7 million ($80.6 million after-tax, $.33 per Common Share) recorded in connection with the Merger. Excluding the impact of these significant nonrecurring items, net income in the 1994 fourth quarter was $208.1 million, up $5.2 million, or 3%, from the prior year. This slight increase reflected decreases of $15.2 million, or 3%, in noninterest expense and $20.2 million, or 44%, in the provision for loan losses, which were partially offset by decreases of $12.8 million, or 2%, in taxable-equivalent net interest income and $8.1 million, or 3%, in noninterest income. On an annualized basis, the return on average total assets for the fourth quarter of 1994 was 1.19% compared with .83% for the fourth quarter of 1993. The annualized returns on average common equity for the fourth quarters of 1994 and 1993 were 16.61% and 11.09%, respectively. On an annualized basis, adjusting for the nonrecurring items mentioned above, the fourth-quarter return on average total assets and return on average common equity were 1.28% and 17.86%, respectively, in 1994 and 1.38% and 18.64%, respectively, in 1993. The decrease in total noninterest expense in the fourth quarter of 1994 as compared with the fourth quarter of 1993, exclusive of merger and integration charges, reflected a $13.7 million decrease in net OREO expense and an $11.2 million decrease in personnel expense. These declines were offset in part by a $4.8 million increase in various components of miscellaneous expense and a $4.7 million increase in net occupancy expense. The lower provision for loan losses resulted from the continued overall improvement in asset quality. The decrease in taxable-equivalent net interest income reflected a decline in the net interest margin from 5.21% to 4.60% which more than offset the positive impact of a $6.0 billion increase in average earning assets, principally loans. The decline in the net interest margin was primarily due to growth in earning assets (principally new loan originations) at reduced spreads, increased reliance on market priced funding and a moderately liability-sensitive balance sheet in a rising interest rate environment. The decline in noninterest income, after excluding the net securities losses, reflected decreases of $12.5 million and $12.1 million in special asset management fees and mortgage banking income, respectively, offset in part by an $18.5 increase in other noninterest income. 44 29 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 34 SELECTED QUARTERLY FINANCIAL DATA
1994 1993 dollars in millions, --------------------------------------------------------------------------------------------- except per share amounts 4th 3rd 2nd 1st 4th 3rd 2nd 1st - -------------------------------------------------------------------------------------------------------------------------------- FOR THE QUARTER Interest income $ 1,191.8 $ 1,150.7 $1,102.6 $ 1,045.0 $ 1,050.5 $ 1,051.0 $ 1,065.0 $ 1,047.4 Interest expense 526.5 471.1 422.3 376.9 372.2 378.6 390.8 393.3 Net interest income 665.3 679.6 680.3 668.1 678.3 672.4 674.2 654.1 Provision for loan losses 26.2 27.2 35.0 36.8 46.4 49.9 59.5 55.9 Noninterest income 205.3 223.3 227.4 226.6 237.1 288.7 253.3 222.6 Noninterest expense 555.6 530.1 538.7 542.8 689.5 590.8 569.8 535.0 Income before income taxes 288.8 345.6 334.0 315.1 179.5 320.4 298.2 285.8 Net income 193.8 229.3 221.8 208.6 122.3 200.8 196.9 189.9 Net income applicable to Common Shares 189.8 225.3 217.8 204.6 118.4 196.6 192.4 184.4 - -------------------------------------------------------------------------------------------------------------------------------- PER COMMON SHARE Net income $ .79 $ .92 $ .89 $ .85 $ .49 $ .82 $ .81 $ .77 Cash dividends .32 .32 .32 .32 .28 .28 .28 .28 Book value at period-end 18.88 18.65 18.17 17.88 17.53 17.32 16.74 16.19 Market price: High 30.88 33.50 33.75 33.00 33.50 35.75 37.25 35.75 Low 23.63 30.13 29.50 28.88 27.25 30.88 28.63 30.88 Close 25.00 30.50 31.88 30.00 29.75 32.00 35.13 34.63 Weighted average Common Shares (millions) 241.4 244.1 244.8 241.9 240.8 240.8 239.5 237.9 - -------------------------------------------------------------------------------------------------------------------------------- AT PERIOD-END Loans $46,224.7 $44,608.8 $43,157.6 $41,379.8 $40,071.3 $39,070.7 $38,375.9 $38,371.7 Earning assets 60,046.5 58,638.1 57,347.0 55,913.5 54,352.7 52,935.5 52,699.9 52,346.4 Total assets 66,798.1 64,500.3 63,356.6 61,475.8 59,631.2 58,169.2 57,944.5 57,850.8 Deposits 48,564.2 47,816.5 47,796.2 46,880.6 46,499.1 44,339.9 44,400.8 44,964.3 Long-term debt 3,569.8 2,177.8 2,123.6 1,744.5 1,763.9 1,908.4 1,957.2 1,904.1 Common shareholders' equity 4,538.5 4,541.9 4,438.8 4,376.3 4,233.6 4,150.1 3,999.5 3,852.4 Total shareholders'equity 4,698.5 4,701.9 4,598.8 4,536.3 4,393.6 4,310.1 4,183.5 4,036.4 - --------------------------------------------------------------------------------------------------------------------------------- PERFORMANCE RATIOS Return on average total assets 1.19% 1.43% 1.43% 1.41% .83% 1.40% 1.38% 1.38% Return on average common equity 16.61 19.95 19.77 19.20 11.09 19.10 19.67 19.83 Return on average total equity 16.38 19.60 19.43 18.88 11.05 18.73 19.22 19.27 Efficiency 61.10 57.90 58.43 60.13 61.35 60.13 60.54 60.04 Overhead 48.01 44.48 44.87 47.27 48.12 46.50 46.15 46.84 Net interest margin 4.60 4.79 4.92 5.03 5.21 5.30 5.35 5.40 - --------------------------------------------------------------------------------------------------------------------------------- CAPITAL RATIOS AT PERIOD-END Equity to assets 7.03% 7.29% 7.26% 7.38% 7.37% 7.41% 7.22% 6.98% Tangible equity to tangible assets 6.19 6.45 6.42 6.55 6.51 6.52 6.16 5.89 Tier I risk-adjusted capital 8.48 8.86 8.77 8.91 8.73 8.66 8.42 8.05 Total risk-adjusted capital 11.62 12.07 12.03 12.34 12.22 12.18 11.98 11.24 Leverage 6.63 6.79 6.76 6.85 6.72 6.74 6.48 6.37 - -------------------------------------------------------------------------------------------------------------------------------- The comparability of the information presented above is affected by certain acquisitions and divestitures completed by KeyCorp in the time periods presented. For further information concerning these transactions, refer to Note 2, Mergers, Acquisitions and Divestitures appearing on page 56.
45 30 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 35 BANKING SERVICES DATA BY REGION
Year ended December 31, Northeast Region Great Lakes Region ------------------- ------------------ dollars in millions 1994 1993 1994 1993 - --------------------------------------------------------------------------------------- SIGNIFICANT RATIOS Return on average total assets 1.35% 1.28% 1.57% 1.54% Net interest margin 4.94 5.35 4.54 5.31 Nonperforming loans to year-end loans .74 1.01 .47 .91 Allowance for loan losses to year-end loans 1.34 1.43 2.32 2.69 Net loan charge-offs to average loans .46 .80 .16 .56 Efficiency 50.68 52.27 55.35 55.66 AVERAGE BALANCES Loans $12,254 $11,454 $19,163 $17,870 Earning assets 16,570 15,458 26,412 23,058 Total assets 17,710 16,697 28,767 25,074 Deposits 13,928 13,921 20,364 18,774 Shareholders' equity 1,367 1,280 2,057 2,058 - ----------------------------------------------------------------------------------------
Rocky Mountain Region Northwest Region ---------------------- ------------------ 1994 1993 1994 1993 - ---------------------------------------------------------------------------------------- SIGNIFICANT RATIOS Return on average total assets 1.41% 1.31% 1.15% 1.50% Net interest margin 5.25 5.35 4.80 5.79 Nonperforming loans to year-end loans .58 .26 .47 .63 Allowance for loan losses to year-end loans 1.38 1.37 1.28 1.29 Net loan charge-offs to average loans .28 .25 .13 .22 Efficiency 56.49 59.44 60.26 57.43 AVERAGE BALANCES Loans $3,026 $2,511 $ 9,214 $ 8,358 Earning assets 3,956 3,394 11,042 9,735 Total assets 4,298 3,687 12,023 10,787 Deposits 3,446 3,030 9,472 8,976 Shareholders' equity 338 278 911 886 - -----------------------------------------------------------------------------------------
46 31 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 36 SIX-YEAR CONSOLIDATED BALANCE SHEETS
December 31, Compound Annual Rate of Change dollars in millions 1994 1993 1992 1991 1990 1989 (1989-1994) - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 3,511.4 $ 2,777.4 $ 3,079.7 $ 3,150.5 $ 3,061.3 $ 3,445.4 .4% Short-term investments 670.0 107.2 985.5 1,693.4 1,167.1 2,080.5 (20.3) Mortgage loans held for sale 355.2 1,325.3 938.5 691.9 389.9 110.4 26.3 Securities available for sale 2,521.0 1,726.8 2,458.7 -- 101.8 172.6 71.0 Investment securities 10,275.6 11,122.1 8,976.3 10,288.3 8,815.7 7,937.5 5.3 Loans 46,224.7 40,071.3 36,021.8 35,534.3 34,193.7 31,570.4 7.9 Less: Allowance for loan losses 830.3 802.7 782.6 793.5 677.3 452.7 12.9 - ---------------------------------------------------------------------------------------------------------------------------- Net loans 45,394.4 39,268.6 35,239.2 34,740.8 33,516.4 31,117.7 7.8 Premises and equipment 987.2 912.9 843.3 719.9 676.8 621.7 9.7 Other real estate owned, net of allowance 79.0 150.4 332.4 330.7 211.5 123.6 (8.6) Intangible assets 598.9 549.3 601.6 629.5 662.2 457.9 5.5 Purchased mortgage servicing rights 194.8 188.6 165.4 128.8 8.6 6.6 96.8 Other assets 2,210.6 1,502.6 1,447.8 1,227.1 1,342.1 1,131.2 14.3 - ---------------------------------------------------------------------------------------------------------------------------- Total assets $66,798.1 $59,631.2 $55,068.4 $53,600.9 $49,953.4 $47,205.1 7.2% ========= ========= ========= ========= ========= ========= LIABILITIES Deposits in domestic offices: Noninterest-bearing $ 9,135.7 $ 8,826.3 $ 8,291.4 $ 7,085.5 $ 6,906.1 $ 6,746.9 6.2% Interest-bearing 36,003.4 35,658.3 34,026.5 35,448.4 33,534.2 29,569.8 4.0 Deposits in foreign offices -- interest-bearing 3,425.1 2,014.5 1,115.2 301.1 495.0 1,058.7 26.5 - ---------------------------------------------------------------------------------------------------------------------------- Total deposits 48,564.2 46,499.1 43,433.1 42,835.0 40,935.3 37,375.4 5.4 Federal funds purchased and securities sold under repurchase agreements 5,499.1 4,120.3 4,207.5 4,254.1 3,395.7 3,847.7 7.4 Other short-term borrowings 3,277.6 1,776.2 874.9 833.4 594.2 1,010.2 26.5 Other liabilities 1,188.9 1,078.1 835.5 937.5 857.3 815.0 7.8 Long-term debt 3,569.8 1,763.9 1,790.1 1,224.5 1,145.2 1,177.4 24.8 - ---------------------------------------------------------------------------------------------------------------------------- Total liabilities 62,099.6 55,237.6 51,141.1 50,084.5 46,927.7 44,225.7 7.0 SHAREHOLDERS' EQUITY Preferred stock 160.0 160.0 244.0 244.0 84.0 50.3 26.0 Common Shares 245.9 242.8 237.4 179.1 166.3 166.5 8.1 Capital surplus 1,454.2 1,433.9 1,336.5 1,487.4 1,270.1 1,293.8 2.4 Retained earnings 3,169.3 2,641.5 2,206.1 1,848.7 1,758.1 1,696.2 13.3 Loans to ESOP trustee (63.9) (63.9) (65.5) (65.4) (67.2) (71.7) (2.3) Net unrealized losses, net of taxes, on securities (115.3) -- -- -- -- -- N/M Treasury stock at cost (151.7) (20.7) (31.2) (177.4) (185.6) (155.7) (.5) - ----------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 4,698.5 4,393.6 3,927.3 3,516.4 3,025.7 2,979.4 9.5 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $66,798.1 $59,631.2 $55,068.4 $53,600.9 $49,953.4 $47,205.1 7.2% ========= ========= ========= ========= ========= ========= - ----------------------------------------------------------------------------------------------------------------------------- N/M = Not Meaningful
47 32 ------------------------ KEYCORP AND SUBSIDIARIES FIGURE 37 SIX-YEAR CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, Compound Annual Rate dollars in millions, of Change except per share amounts 1994 1993 1992 1991 1990 1989 (1989-1994) - ----------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $3,608.5 $3,313.7 $3,254.1 $3,655.9 $3,637.6 $3,572.3 .2% Mortgage loans held for sale 51.1 74.0 59.4 47.0 27.7 9.4 40.3 Taxable investment securities 507.0 556.4 676.9 678.2 582.6 535.5 (1.1) Tax-exempt investment securities 89.6 107.4 119.8 126.3 134.9 142.8 (8.9) Securities available for sale 227.4 140.9 57.2 59.6 .9 3.0 137.6 Short-term investments 6.5 21.5 31.4 85.4 145.1 147.2 (46.4) - ----------------------------------------------------------------------------------------------------------------------------- Total interest income 4,490.1 4,213.9 4,198.8 4,652.4 4,528.8 4,410.2 .4 INTEREST EXPENSE Deposits 1,324.6 1,233.3 1,469.0 2,135.7 2,230.8 2,078.7 (8.6) Federal funds purchased and securities sold under repurchase agreements 243.5 130.2 142.9 213.7 272.3 337.3 (6.3) Other short-term borrowings 90.9 44.5 31.1 74.5 67.5 81.1 2.3 Long-term debt 137.8 126.9 107.1 95.5 97.1 118.7 3.0 - ----------------------------------------------------------------------------------------------------------------------------- Total interest expense 1,796.8 1,534.9 1,750.1 2,519.4 2,667.7 2,615.8 (7.2) - ----------------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 2,693.3 2,679.0 2,448.7 2,133.0 1,861.1 1,794.4 8.5 Provision for loan losses 125.2 211.7 338.4 466.2 517.2 306.2 (16.4) - ----------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 2,568.1 2,467.3 2,110.3 1,666.8 1,343.9 1,488.2 11.5 NONINTEREST INCOME Service charges on deposit accounts 263.2 252.5 236.6 217.4 191.9 171.2 9.0 Trust and asset management income 219.8 244.6 250.8 235.8 217.3 168.1 5.5 Mortgage banking income 88.0 127.9 97.6 74.3 31.9 28.4 25.4 Credit card fees 76.2 73.5 80.9 71.4 62.3 50.9 .4 Net securities gains (losses) (14.7) 28.3 14.6 18.9 11.5 6.8 N/M Gains on certain asset sales -- 29.4 22.9 24.0 4.8 20.4 N/M Other income 250.1 245.5 221.8 207.5 224.5 189.3 5.7 - ----------------------------------------------------------------------------------------------------------------------------- Total noninterest income 882.6 1,001.7 925.2 849.3 744.2 635.1 6.8 NONINTEREST EXPENSE Personnel 1,059.9 1,100.7 1,013.6 925.3 853.5 809.1 5.5 Net occupancy 216.9 204.2 189.7 184.8 160.6 145.8 8.3 Equipment 158.0 161.3 151.6 134.1 127.4 134.9 3.2 FDIC insurance assessments 98.7 98.7 96.2 84.7 42.4 28.8 27.9 Merger and integration charges -- 118.7 92.7 93.8 26.9 -- N/M Other expense 633.7 701.5 626.6 643.0 608.7 587.2 1.5 - ----------------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,167.2 2,385.1 2,170.4 2,065.7 1,819.5 1,705.8 4.9 INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,283.5 1,083.9 865.1 450.4 268.6 417.5 25.2 Income taxes 430.0 374.0 279.6 136.7 15.2 130.8 26.9 - ----------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 853.5 709.9 585.5 313.7 253.4 286.7 24.4 Cumulative effect of accounting change -- -- 6.6 -- 2.7 -- N/M - ----------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 853.5 $ 709.9 $ 592.1 $ 313.7 $ 256.1 $ 286.7 24.4% ======== ======== ========= ======== ======== ======== Net income applicable to Common Shares $ 837.5 $ 691.8 $ 568.1 $ 297.5 $ 249.0 $ 281.3 24.4% Net income per Common Share: Before cumulative effect of accounting change $3.45 $2.89 $2.39 $1.31 $1.13 $1.26 22.3% After cumulative effect of accounting change 3.45 2.89 2.42 1.31 1.13 1.26 22.3 Weighted average Common Shares outstanding (000) 243,067.5 239,775.2 235,004.8 227,116.2 220,078.6 223,901.3 1.7% Taxable-equivalent adjustment $58.8 $63.1 $72.2 $81.7 $90.1 $94.4 (9.0)% - ---------------------------------------------------------------------------------------------------------------------------- N/M = Not Meaningful
48 33 ------------------------ KEYCORP AND SUBSIDIARIES REPORT OF MANAGEMENT The management of KeyCorp and its subsidiaries (the "Corporation") is responsible for the preparation, content and integrity of the financial statements and other statistical data and analyses compiled for this report. The financial statements and related notes have been prepared in conformity with generally accepted accounting principles and, in the judgment of management, present fairly and consistently the Corporation's financial position, results of operations, and cash flows. Management also believes that financial information presented elsewhere in this report is consistent with that in the financial statements. The amounts contained in the financial statements are based on management's best estimates and judgments. Management is also responsible for establishing and maintaining a system of internal controls designed to provide reasonable assurance as to the protection of assets and the integrity of the financial statements. 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 careful selection and training of qualified personnel. Management also maintains a code of ethics that addresses, among other things, conflicts of interest, compliance with laws and regulations, and the prompt reporting of any failure or circumvention of controls. Compliance with the Corporation's code of ethics is certified annually. In addition, an effective internal audit function periodically tests the system of internal controls. Management takes actions to correct control deficiencies as they are identified. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Management believes that the system of internal controls provides reasonable assurances that financial transactions are recorded properly to permit the preparation of reliable financial statements. The Board of Directors discharges its responsibility for KeyCorp's financial statements through its Audit Committee. The Corporation's Audit Committee, composed exclusively of outside directors, also has responsibility for recommending the independent auditors. The Audit Committee meets regularly with the independent auditors and internal auditors to review the scope of their audits and audit reports and to discuss action to be taken. Both the independent auditors and internal auditors have direct access to the Audit Committee. Management has made an assessment of the Corporation's internal control structure and procedures over financial reporting using the 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 the Corporation maintained an effective system of internal control for financial reporting as of December 31, 1994. /s/ VICTOR J. RILEY, JR. Victor J. Riley, Jr. Chairman of the Board and Chief Executive Officer /s/ JAMES W. WERT James W. Wert Senior Executive Vice President and Chief Financial Officer REPORT OF ERNST & YOUNG LLP / INDEPENDENT AUDITORS Shareholders and Board of Directors KeyCorp We have audited the accompanying consolidated balance sheets of KeyCorp and subsidiaries as of December 31, 1994 and 1993, 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, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 KeyCorp and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, in 1994 the Corporation changed its method of accounting for certain investments in debt and equity securities. Cleveland, Ohio /s/ ERNST & YOUNG LLP January 18, 1995 except for Note 2, as to which the date is February 28, 1995 49 34 ------------------------ KEYCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, dollars in thousands 1994 1993 - ---------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 3,511,368 $ 2,777,438 Short-term investments 670,010 107,219 Mortgage loans held for sale 355,198 1,325,338 Securities available for sale (at fair value in 1994; fair value of $1,794,845 in 1993) 2,521,049 1,726,828 Investment securities (fair value: $9,757,032 and $11,340,206) 10,275,638 11,122,093 Loans 46,224,644 40,071,244 Less: Allowance for loan losses 830,298 802,712 - ---------------------------------------------------------------------------------------------------------- Net loans 45,394,346 39,268,532 Premises and equipment 987,231 912,870 Other real estate owned, net of allowance 79,007 150,362 Intangible assets 598,887 549,348 Purchased mortgage servicing rights 194,757 188,592 Other assets 2,210,613 1,502,531 - ---------------------------------------------------------------------------------------------------------- Total assets $66,798,104 $59,631,151 =========== =========== LIABILITIES Deposits in domestic offices: Noninterest-bearing $ 9,135,760 $ 8,826,300 Interest-bearing 36,003,352 35,658,315 Deposits in foreign offices-interest-bearing 3,425,125 2,014,533 - ---------------------------------------------------------------------------------------------------------- Total deposits 48,564,237 46,499,148 Federal funds purchased and securities sold under repurchase agreements 5,499,117 4,120,258 Other short-term borrowings 3,277,611 1,776,192 Other liabilities 1,188,895 1,078,116 Long-term debt 3,569,794 1,763,870 - ---------------------------------------------------------------------------------------------------------- Total liabilities 62,099,654 55,237,584 SHAREHOLDERS' EQUITY Preferred stock, $1 par value; authorized 25,000,000 shares, none issued -- -- 10% Cumulative Preferred Stock Class A (Series B in 1993), $125 stated value; authorized 1,400,000 shares, issued 1,280,000 shares 160,000 160,000 Common Shares, $1 par value; authorized 900,000,000 shares (400,000,000 shares in 1993); issued 245,944,390 and 242,827,755 shares 245,944 242,828 Capital surplus 1,454,177 1,433,861 Retained earnings 3,169,315 2,641,450 Loans to ESOP trustee (63,909) (63,909) Net unrealized losses, net of taxes, on securities (115,280) -- Treasury stock at cost (5,582,273 and 1,280,604 shares) (151,797) (20,663) - ---------------------------------------------------------------------------------------------------------- Total shareholders' equity 4,698,450 4,393,567 - ---------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $66,798,104 $59,631,151 =========== =========== - ---------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
50 35 ------------------------ KEYCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, dollars in thousands, except per share amounts 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Loans $3,608,488 $3,313,689 $3,254,085 Mortgage loans held for sale 51,133 74,062 59,392 Taxable investment securities 506,971 556,381 676,908 Tax-exempt investment securities 89,548 107,363 119,788 Securities available for sale 227,414 140,895 57,167 Short-term investments 6,516 21,484 31,451 - --------------------------------------------------------------------------------------------------------------------- Total interest income 4,490,070 4,213,874 4,198,791 INTEREST EXPENSE Deposits 1,324,576 1,233,331 1,468,974 Federal funds purchased and securities sold under repurchase agreements 243,532 130,213 142,894 Other short-term borrowings 90,924 44,451 31,165 Long-term debt 137,794 126,902 107,085 - --------------------------------------------------------------------------------------------------------------------- Total interest expense 1,796,826 1,534,897 1,750,118 - --------------------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 2,693,244 2,678,977 2,448,673 Provision for loan losses 125,157 211,662 338,337 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 2,568,087 2,467,315 2,110,336 NONINTEREST INCOME Service charges on deposit accounts 263,192 252,537 236,573 Trust and asset management income 219,804 244,646 250,788 Mortgage banking income 87,971 127,869 97,598 Credit card fees 76,220 73,466 80,947 Insurance and brokerage income 58,619 65,685 50,036 Special asset management fees 17,304 45,948 5,869 Net securities gains (losses) (14,673) 28,319 14,627 Gains on certain asset sales -- 29,410 22,906 Other income 174,185 133,826 165,849 - --------------------------------------------------------------------------------------------------------------------- Total noninterest income 882,622 1,001,706 925,193 NONINTEREST EXPENSE Personnel 1,059,859 1,071,444 977,820 Net occupancy 216,946 204,205 189,709 Equipment 158,074 161,281 151,615 FDIC insurance assessments 98,678 98,707 96,179 Professional fees 50,020 53,274 75,983 OREO expense, net 2,497 43,088 43,580 Merger and integration charges -- 118,718 92,716 Other expense 581,164 634,406 542,810 - --------------------------------------------------------------------------------------------------------------------- Total noninterest expense 2,167,238 2,385,173 2,170,412 INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,283,471 1,083,898 865,117 Income taxes 429,981 373,972 279,632 - --------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 853,490 709,926 585,485 Cumulative effect of accounting change -- -- 6,613 - --------------------------------------------------------------------------------------------------------------------- NET INCOME $ 853,490 $ 709,926 $ 592,098 ========== ========== ========== Net income applicable to Common Shares $ 837,490 $ 691,829 $ 568,069 Net income per Common Share: Before cumulative effect of accounting change $3.45 $2.89 $2.39 After cumulative effect of accounting change 3.45 2.89 2.42 Weighted average Common Shares outstanding 243,067,487 239,775,188 235,004,821 - --------------------------------------------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements.
51 36 KEYCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Loans to Net Unrealized Treasury Preferred Common Capital Retained ESOP Securities Stock dollars in thousands, except per share amounts Stock Shares Surplus Earnings Trustee Gains (Losses) at Cost - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT JANUARY 1, 1992 $ 243,970 $ 179,104 $1,487,384 $1,848,698 $ (65,349) $(177,379) Adjustments relating to pooling of interests (2) (132) (381) Cancellation of treasury stock of pooled company (3,300) (124,793) 128,093 Net income 592,098 Cash dividends: Common Shares ($.98 per share) (101,547) Fixed/Adjustable Rate Cumulative Preferred Stock ($3.89 per share) (4,670) Declared by pooled companies prior to mergers: Common stock (109,667) Preferred stock (19,359) Issuance of Common Shares: Acquisitions-838,307 shares 838 8,255 Dividend reinvestment, stock option and purchase plans-1,956,516 net shares 1,395 25,171 18,111 Tax benefits attributable to ESOP dividends 879 Loan payments from ESOP trustee (129) Two-for-one stock split effected by means of a 100% stock dividend paid March 22, 1993 59,329 (59,329) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1992 243,970 237,364 1,336,556 2,206,051 (65,478) (31,175) Net income 709,926 Cash dividends: Common Shares ($1.12 per share) (131,031) Fixed/Adjustable Rate Cumulative Preferred Stock ($1.297 per share) (1,556) Declared by pooled company prior to merger: Common stock (125,992) Preferred stock (17,059) Issuance of Common Shares: Acquisitions-4,494,543 shares 4,495 79,364 Dividend reinvestment, stock option and purchase plans-1,620,479 net shares 969 19,741 10,512 Redemption of 1,200,000 shares of Fixed/ Adjustable Rate Cumulative Preferred Stock (60,000) (1,800) Redemption of 479,394 shares of Series A Preferred Stock (23,970) Tax benefits attributable to ESOP dividends 1,111 Loan payments from ESOP trustee 1,569 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1993 160,000 242,828 1,433,861 2,641,450 (63,909) (20,663) Adjustment of securities available for sale to fair value at January 1, net of deferred tax expense of $26,621 $ 46,153 Adjustments relating to poolings of interests- 12,990 shares (11) (375) (71) Net income 853,490 Cash dividends: Common Shares ($1.28 per share) (271,074) Cumulative Preferred Stock ($12.50 per share) (12,000) Declared by pooled company prior to merger: Common stock (39,793) Preferred stock (4,000) Issuance of Common Shares: Acquisitions-5,120,205 shares 2,900 18,850 62,474 Conversion of subordinated debentures- 120,213 shares (701) 2,309 Dividend reinvestment, stock option and purchase plans-1,170,238 net shares 227 2,542 19,752 Repurchase of Common Shares-7,582,700 shares (215,598) Change in net unrealized gains (losses) on securities, net of deferred tax benefit of $(93,109) (161,433) Tax benefits attributable to ESOP dividends 1,242 - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1994 $160,000 $ 245,944 $1,454,177 $3,169,315 $ (63,909) $(115,280) $(151,797) ======== ========= ========== ========== ========= ========= ========= - ------------------------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Financial Statements.
52 37 KEYCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW
Year ended December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 853,490 $ 709,926 $ 592,098 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 125,157 211,662 338,337 Depreciation expense 121,912 110,852 104,330 Amortization of intangibles 58,518 58,050 61,692 Amortization of purchased mortgage servicing rights 37,271 56,566 29,607 Gains on certain asset sales -- (29,410) (22,906) Deferred income taxes 170,334 49,431 68,700 Net securities (gains) losses 14,673 (28,319) (14,627) Gains on sales of mortgage servicing rights (3,045) (25,494) -- (Gains) losses from the sales of other real estate owned (2,094) 748 3,082 Net decrease (increase) in mortgage loans held for sale 996,682 (386,797) (156,911) Other operating activities, net (656,159) 123,149 (408,475) - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 1,716,739 850,364 594,927 INVESTING ACTIVITIES Net increase in loans (5,322,212) (1,807,283) (99,078) Purchases of investment securities (4,444,870) (5,441,846) (5,266,842) Proceeds from sales of investment securities 23,043 142,092 662,221 Proceeds from prepayments and maturities of investment securities 2,544,315 3,709,134 3,425,344 Purchases of securities available for sale (898,848) (280,634) (581,755) Proceeds from sales of securities available for sale 2,232,569 630,761 661,926 Proceeds from prepayments and maturities of securities available for sale 517,398 445,559 93,273 Net (increase) decrease in short-term investments (228,377) 1,040,389 835,503 Purchases of premises and equipment (204,513) (172,157) (270,787) Proceeds from sales of premises and equipment 25,333 24,492 46,261 Proceeds from sales of other real estate owned 73,805 189,571 162,961 Purchases of mortgage servicing rights (43,437) (77,312) (67,359) Proceeds from sales of subsidiaries -- 153,254 4,800 Net cash provided by (used in) acquisitions 40,167 (37,427) 52,381 - ------------------------------------------------------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (5,685,627) (1,481,407) (341,151) FINANCING ACTIVITIES Net increase (decrease) in deposits 599,907 (57,506) (26,545) Net increase (decrease) in short-term borrowings 2,858,177 695,185 (32,795) Net proceeds from issuance of long-term debt 1,954,060 556,439 700,337 Payments on long-term debt (154,325) (568,529) (174,249) Redemption of preferred stock -- (85,770) -- Purchase of treasury shares (215,598) -- -- Proceeds from issuance of common stock pursuant to employee stock purchase, stock option and dividend reinvestment plans 18,623 28,238 39,442 Cash dividends (358,811) (262,532) (233,480) Sales of branch offices and loans: Deposit liabilities assumed by purchasers -- -- (1,032,006) Loans sold -- -- 377,578 Long-term debt issued to fund branch sale -- -- 36,154 Other, net -- -- 23,956 Other financing activities, net 785 23,219 (2,984) - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 4,702,818 328,744 (324,592) - ------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 733,930 (302,299) (70,816) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 2,777,438 3,079,737 3,150,553 - ------------------------------------------------------------------------------------------------------------------ CASH AND DUE FROM BANKS AT END OF YEAR $3,511,368 $2,777,438 $3,079,737 ========== ========== ========== - ------------------------------------------------------------------------------------------------------------------ Additional disclosures relative to cash flow: Interest paid $1,753,894 $1,529,058 $1,803,194 Income taxes paid 263,378 306,489 242,346 Net payments received on portfolio swaps 79,314 148,818 74,128 Noncash items: Transfers of loans to other real estate owned 52,664 88,709 193,628 Net transfer of securities from investment to available for sale portfolio 2,723,143 -- 2,632,085 Transfers of loans to mortgage loans held for sale -- -- 86,155 - ------------------------------------------------------------------------------------------------------------------ See Notes to Consolidated Financial Statements.
53 38 ------------------------ KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES KeyCorp is a financial services holding company headquartered in Cleveland, Ohio, and is engaged primarily in the business of commercial and retail banking. It provides a wide range of banking, fiduciary, asset management, mortgage banking, insurance and other financial services to corporate, institutional and individual customers. The accounting policies of KeyCorp and its subsidiaries (the "Corporation") conform with generally accepted accounting principles and prevailing practices within the financial services industry. The following is a summary of significant accounting and reporting policies. KEYCORP-SOCIETY MERGER On March 1, 1994, KeyCorp ("old KeyCorp") merged into and with Society Corporation ("Society"), which was the surviving corporation under the name KeyCorp. The merger was accounted for as a pooling of interests and, accordingly, the financial information for all prior periods has been restated to present the combined financial condition and results of operations of both companies as if the merger had been in effect for all periods presented. Further details pertaining to the merger are presented in Note 2, Mergers, Acquisitions and Divestitures, on page 56 of this report. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of KeyCorp and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. BUSINESS COMBINATIONS In business combinations accounted for as poolings of interests, the assets, liabilities and shareholders' equity of the respective companies are carried forward at their historical amounts. The companies' results of operations are combined and the prior periods' financial statements are restated to give effect to the merger. In business combinations accounted for as purchases, the results of operations of the acquired businesses are included from the respective dates of acquisition. Net assets of the companies acquired are recorded at their cost to the Corporation at the date of acquisition and related purchase premiums and discounts are amortized over the remaining lives of the respective assets or liabilities. STATEMENT OF CASH FLOWS Cash and due from banks are considered cash and cash equivalents for purposes of complying with the reporting requirements prescribed by Statement of Financial Accounting Standards ("SFAS") No. 95, "Statement of Cash Flows." SECURITIES AND TRADING ACCOUNT ASSETS Effective January 1, 1994, the Corporation adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under this standard, equity securities with readily determinable fair values and all investments in debt securities are classified and accounted for in one of three categories: securities held to maturity, trading account assets and securities available for sale. Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as securities held to maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts using the level yield method. Securities held to maturity and equity securities that do not have readily determinable fair values are presented as investment securities on the balance sheet. Debt and equity securities that are bought and principally held for the purpose of selling them in the near term are classified as trading account assets, reported at fair value and included in short-term investments with realized and unrealized gains and losses reported in noninterest income. short-term investments with realized and unrealized gains and losses reported in noninterest income. Debt and equity securities that the Corporation has not classified as investment securities or trading account assets are classified as securities available for sale and, as such, are reported at fair value, with unrealized gains and losses, net of deferred taxes, reported as a component of shareholders' equity. Prior to the adoption of SFAS No. 115, securities available for sale were carried at the lower of aggregate cost or market value. Gains or losses from sales of securities available for sale are computed using the specific identification method and included in net securities gains (losses). MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale are carried at the lower of aggregate cost, market value, or contracted sales value when fixed price commitments to sell exist. LOANS Loans are carried at the principal amount outstanding, net of unearned income, including deferred loan fees. Certain nonrefundable loan origination and commitment fees and the direct costs associated with originating or acquiring the loans are deferred. The net deferred amount is amortized as an adjustment to the related loan yield over the contractual lives of the related loans. Student loans held for sale are carried at the lower of aggregate cost or market value. 54 39 ------------------------ KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest income on loans is primarily accrued based on principal amounts outstanding. The accrual of interest is discontinued when circumstances indicate that collection is questionable, or generally when payment is over 90 days past due. In such cases, interest accrued but not collected is charged against the allowance for loan losses. Thereafter, payments received are first applied to principal. Depending on management's assessment of the ultimate collectibility of the loan, interest income may be recognized on a cash basis. Loans are returned to accrual status when management determines that the circumstances have improved to the extent that there has been a sustained period of repayment performance and both principal and interest are deemed collectible. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is the amount which, in the opinion of management, is necessary to absorb potential losses in the loan portfolio. Management's evaluation of the adequacy of the allowance is based on the market area served, local economic conditions, the growth and composition of the loan portfolios and their related risk characteristics, and the continual review by management of the quality of the loan portfolio. FINANCIAL INSTRUMENTS HELD OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES The Corporation uses interest rate swaps in the management of its interest rate risk. Interest rate swaps used to modify the repricing or maturity characteristics of specified assets or liabilities are not marked to market. The net interest income or expense associated with such interest rate swaps is accrued and recognized as an adjustment to the interest income or interest expense of the asset or liability being managed. The related interest receivable or payable from the contract is recorded in other assets or other liabilities. Realized gains and losses resulting from the early termination of interest rate swaps are deferred and amortized using the straight-line method over the shorter of the projected remaining life of the related swap contract at its termination or the underlying instrument. FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES The Corporation uses interest rate swaps, caps, floors and futures and foreign exchange forward and option contracts for dealer and proprietary trading purposes. These financial instruments are reported at fair value with the changes included in noninterest income. The fair value adjustments of financial instruments for which a right of offset does not exist are reported on a gross basis. Interest income and expense related to financial instruments held or issued for trading purposes are included as interest on short-term investments. The related interest receivable or payable is recorded in other assets or liabilities. PREMISES AND EQUIPMENT Premises and equipment, including leasehold improvements, are stated at cost less accumulated depreciation and amortization. Depreciation of premises and equipment is determined using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized using the straight-line method over the terms of the leases. OTHER REAL ESTATE OWNED Other real estate owned includes real estate acquired through foreclosure or a similar conveyance of title and real estate considered to be in-substance foreclosed when specific criteria are met. Other real estate owned is carried at the lower of its recorded amount (net of allowance) or fair value less estimated cost of disposal. Writedowns of the assets at, or prior to, the dates of acquisition are charged to the allowance for loan losses. Subsequent writedowns, income and expenses incurred in connection with holding such assets, and gains and losses resulting from the sales of such assets, are included in noninterest expense. INTANGIBLE ASSETS Goodwill, representing the excess of the cost of acquisitions over the fair value of net assets acquired, is amortized using the straight-line method over the estimated period to be benefited, generally not exceeding 25 years. Core deposit intangibles represent the net present value of the future economic benefits related to the use of deposits purchased. They are being amortized using an accelerated method over periods ranging from 7 to 15 years. Other intangibles are generally being amortized using the straight-line method over periods ranging from 4 to 15 years. The Corporation reviews its intangible assets for possible impairment when there is a significant event that detrimentally impacts operations. Impairment is measured using estimates of the future earnings potential of the entity or assets acquired. PURCHASED MORTGAGE SERVICING RIGHTS Purchased mortgage servicing rights represent the cost of the right to receive future servicing income. Purchased mortgage servicing rights are amortized, as a reduction of mortgage banking income, over the estimated lives of the related loans in proportion to the recognition of estimated net servicing income. An evaluation of the carrying amount of the purchased mortgage servicing rights is performed on a disaggregated basis by discounting the expected future cash flows, taking into consideration the estimated level of prepayments based upon current industry expectations. 55 40 ------------------------ KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Effective January 1, 1992, the Corporation prospectively adopted SFAS No. 109, "Accounting for Income Taxes." The cumulative effect of adopting SFAS No. 109 was not material. The Corporation files a consolidated Federal income tax return. EARNINGS PER COMMON SHARE Earnings per Common Share is computed by dividing net income, less preferred stock dividends, by the weighted average number of Common Shares outstanding. These amounts have been adjusted to reflect stock splits. 2. MERGERS, ACQUISITIONS AND DIVESTITURES COMPLETED TRANSACTIONS KEYCORP - SOCIETY MERGER On March 1, 1994, old KeyCorp merged into and with Society which was the surviving corporation and assumed the name KeyCorp. Under the terms of the merger agreement, 124,351,183 KeyCorp Common Shares were exchanged for all of the outstanding shares of old KeyCorp common stock (based on an exchange ratio of 1.205 shares for each share of old KeyCorp). The outstanding preferred stock of old KeyCorp was exchanged for 1,280,000 shares of a comparable, new issue of 10% Cumulative Preferred Stock of KeyCorp. The merger was accounted for as a pooling of interests and, accordingly, financial results for prior periods presented have been restated to include the combined results of both companies. AMERITRUST TEXAS CORPORATION On September 15, 1993, KeyCorp completed the sale of Ameritrust Texas Corporation ("ATC"), a wholly owned subsidiary, to Texas Commerce Bank, National Association, an affiliate of Chemical Banking Corporation. ATC was based in Dallas, Texas, and provided a range of investment management and fiduciary services to institutions, businesses and individuals through 11 offices operating in Texas. For the 1993 year-to-date period through the closing date, ATC had net income of $3.2 million. A $29.4 million gain was realized on the sale ($12.2 million after tax, $.05 per Common Share) and included in noninterest income in 1993. PUGET SOUND BANCORP On January 15, 1993, Puget Sound Bancorp ("PSB"), a bank holding company headquartered in Tacoma, Washington, Mergers and acquisitions completed by KeyCorp during the three years ended December 31, 1994, along with the related accounting treatment, are as follows:
Common dollars in millions Location Date Assets Shares Issued Cash Paid - ----------------------------------------------------------------------------------------------------------------------- POOLINGS OF INTEREST The Bank of Greeley2 Colorado December 1994 $ 60 259,697 -- Commercial Bancorporation of Colorado2 Colorado March 1994 409 2,900,389 -- KeyCorp-Society1 New York/Ohio March 1994 See note 1 124,351,183 -- Jackson County Federal Bank2 Oregon December 1993 338 1,430,813 -- Home Federal Savings Bank2 Colorado June 1993 230 590,485 -- National Savings Bank of Albany2 New York February 1993 671 2,111,638 -- Puget Sound Bancorp1 Washington January 1993 4,700 31,391,544 -- Valley Bancorporation2 Idaho June 1992 221 838,308 -- Ameritrust Corporation1 Ohio March 1992 10,000 49,550,862 -- PURCHASES First Citizens Bancorp of Indiana Indiana December 1994 347 1,960,119 -- State Home Savings Bank Ohio September 1994 321 -- $ 44 Northwestern National Bank Washington July 1993 49 361,607 -- First Federal Savings & Loan Association Florida January 1993 1,100 -- 144 First of America Bank, Monroe Michigan September 1992 160 -- 12 Olympic Savings Bank Washington July 1992 81 -- 3 Other3 Various Various 2,400 -- 135 - ----------------------------------------------------------------------------------------------------------------------- 1 See text above for more information regarding this transaction. 2 Financial statements for periods prior to the transaction were not restated to include the accounts and results of operations of the pooled company because the transaction was not material to KeyCorp. 3 Primarily includes the purchase of banking branches and nonbank subsidiaries.
56 41 ------------------------ KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS with approximately $4.7 billion in assets as of December 31, 1992, merged into Key Bancshares of Washington, Inc., a wholly owned subsidiary of KeyCorp. A total of 31,391,544 KeyCorp Common Shares were exchanged for all of the outstanding shares of PSB common stock (based on an exchange ratio of 1.32 shares for each share of PSB). The merger was accounted for as a pooling of interests and, accordingly, financial results for prior periods presented have been restated to include the combined results of both companies. AMERITRUST CORPORATION On March 16, 1992, Ameritrust Corporation ("Ameritrust"), a financial services holding company located in Cleveland, Ohio, with approximately $10 billion in assets as of December 31, 1991, merged with and into KeyCorp. Under the terms of the merger agreement, 49,550,862 KeyCorp Common Shares were exchanged for all of the outstanding shares of Ameritrust common stock (based on an exchange ratio of .65 shares of KeyCorp for each share of Ameritrust). The outstanding preferred stock of Ameritrust was exchanged on a one-for-one basis for 1,200,000 shares of a comparable, new issue of Fixed/Adjustable Rate Cumulative Preferred Stock of KeyCorp. The merger was accounted for as a pooling of interests and, accordingly, financial results for the prior periods presented have been restated to include the combined results of both companies. In connection with the merger and as part of an agreement with the United States Department of Justice, KeyCorp sold 28 branches in Ohio in June 1992. Deposits of $933.3 million and loans or loan participations totaling $331.8 million were sold along with the branches at a gain of $20.1 million ($13.2 million after tax, $.06 per Common Share) which is included in non-interest income. TRANSACTIONS PENDING AS OF DECEMBER 31, 1994 OMNIBANCORP On February 28, 1995, KeyCorp acquired OMNIBANCORP, based in Denver, Colorado, in a tax-free exchange of stock. Under the terms of the merger agreement, 4,043,653 KeyCorp Common Shares were exchanged for all of the outstanding shares of OMNIBANCORP common stock (based on an exchange ratio of .2452 common shares for each share of OMNIBANCORP). OMNIBANCORP had five Colorado-chartered banks ("Omnibanks") and had 19 branches and total assets of approximately $500.2 million (unaudited) at the date of acquisition. The Omnibanks will be merged with and into Key Bank of Colorado, a wholly owned subsidiary of KeyCorp. The transaction was accounted for as a purchase. CASCO NORTHERN BANK, NATIONAL ASSOCIATION On February 16, 1995, KeyCorp acquired Casco Northern Bank, National Association ("Casco Northern"), headquartered in Portland, Maine, for cash consideration of $205.1 million. The transaction was accounted for as a purchase. At the date of acquisition, Casco Northern had total assets of $1.0 billion (unaudited) and 34 branches in Maine, but pursuant to the terms of a letter dated December 16, 1994, from the United States Department of Justice, KeyCorp will divest 11 of these branches. The remaining 23 branches of Casco Northern were acquired by Key Bank of Maine, an indirect wholly owned subsidiary of KeyCorp. BANKVERMONT CORPORATION On January 27, 1995, KeyCorp acquired BANKVERMONT Corporation, headquartered in Burlington, Vermont, for cash consideration of $90.3 million. The transaction was accounted for as a purchase. Upon consummation of the acquisition, BANKVERMONT Corporation's only subsidiary, Bank of Vermont, with 12 branches and total assets of $660.5 million (unaudited), became an indirect wholly owned subsidiary of KeyCorp. KEYCORP MORTGAGE INC. On February 22, 1995, KeyCorp entered into a definitive agreement for the sale of the residential mortgage loan servicing operations of KeyCorp Mortgage Inc. ("KMI"), an indirect wholly owned subsidiary of KeyCorp, to NationsBanc Mortgage Corp., a subsidiary of NationsBank Corp. KMI services approximately $28 billion of residential mortgage loans. The transaction is expected to close by the end of the first quarter of 1995, pending necessary Federal regulatory approvals. After the sale of KMI, KeyCorp will continue to service commercial mortgages and to originate residential mortgage loans through its banking franchise. KeyCorp plans to package and sell the rights to service all residential mortgage loans originated after the KMI sale through a newly formed subsidiary. SPEARS, BENZAK, SALOMON & FARRELL, INC. On January 17, 1995, KeyCorp entered into a definitive agreement under which KeyCorp Asset Management Holdings, Inc., an indirect wholly owned subsidiary of KeyCorp, will acquire Spears, Benzak, Salomon & Farrell, Inc., a New York-based investment management firm ("Spears, Benzak"). The transaction, which is subject to certain regulatory approvals, is expected to close during the second quarter of 1995 and will be accounted for as a purchase. Spears, Benzak had aggregate assets under management of approximately $3 billion (unaudited) as of December 31, 1994. 57 42 ------------------------ KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3. SECURITIES AVAILABLE FOR SALE Effective January 1, 1994, the Corporation adopted the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under this new accounting standard, equity securities having readily determinable fair values and all debt securities are classified and accounted for in one of three categories: securities held to maturity, trading account assets and securities available for sale. Debt securities that the Corporation has the positive intent and ability to hold to maturity are classified as securities held to maturity and are carried at amortized cost. Securities held to maturity and equity securities that do not have readily determinable fair values are presented as investment securities on the balance sheet. Debt and equity securities that are bought and principally held for the purpose of selling them in the near term are classified as trading account assets and reported at fair value, with realized and unrealized gains and losses included in noninterest income. Debt and equity securities not classified as either investment securities or trading account assets are classified as securities available for sale and reported at fair value, with the unrealized gains and losses, net of deferred taxes, excluded from operating results and reported as a component of shareholders' equity. Upon adoption of SFAS No. 115, the Corporation transferred approximately $4.0 billion of securities from the investment securities portfolio to the securities available for sale portfolio. Securities available for sale were adjusted to fair value and shareholders' equity was increased by $46.2 million, representing the net unrealized gain on these securities, net of deferred income taxes. During the third quarter of 1994, the Corporation transferred approximately $1.3 billion of mortgage-backed securities from the securities available for sale portfolio to the investment securities portfolio. This transfer was made in response to guidance issued by the Financial Accounting Standards Board ("FASB") with regard to the classification of "nonhigh-risk" mortgage securities in accordance with SFAS No. 115. The securities were transferred at their fair value and the unrealized loss (approximately $57.8 million before taxes) is being amortized as a yield adjustment over their remaining lives. At December 31, 1994, approximately $2.5 billion of securities were classified as available for sale and shareholders' equity was reduced by $115.3 million, representing the net unrealized loss on securities, net of deferred income taxes. The amortized cost, unrealized gains and losses and approximate fair values of securities available for sale were as follows:
December 31, 1994 GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR in thouands COST GAINS LOSSES VALUE - ----------------------------------------------------------------------------------------------------- U.S. Treasury, agencies and corporations $1,067,726 $1,117 $ 16,384 $1,052,459 States and political subdivisions 28,871 192 3,145 25,918 Mortgage-backed securities 1,334,132 211 105,989 1,228,354 Other securities 223,299 47 9,028 214,318 - ----------------------------------------------------------------------------------------------------- Total $2,654,028 $1,567 $134,546 $2,521,049 ========== ====== ======== ========== - ----------------------------------------------------------------------------------------------------- December 31, 1993 Gross Gross Amortized Unrealized Unrealized Fair in thousands Cost Gains Losses Value - ----------------------------------------------------------------------------------------------------- U.S. Treasury, agencies and corporations $1,433,980 $64,136 $ 171 $1,497,945 Mortgage-backed securities 269,735 4,165 861 273,039 Other securities 23,113 753 5 23,861 - ----------------------------------------------------------------------------------------------------- Total $1,726,828 $69,054 $1,037 $1,794,845 ========== ======= ====== ========== - -----------------------------------------------------------------------------------------------------
58 43 ------------------------ KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Securities available for sale by remaining contractual maturity were as follows:
December 31, 1994 AMORTIZED FAIR in thousands COST VALUE - -------------------------------------------------------------- Due in one year or less $ 377,931 $ 368,946 Due after one through five years 876,714 885,724 Due after five through ten years 1,390,572 1,256,142 Due after ten years 8,811 10,237 - -------------------------------------------------------------- Total $2,654,028 $2,521,049 ========== ========== - --------------------------------------------------------------
Mortgage-backed securities are included in the maturity schedule based on their expected average lives. Other securities consist primarily of floating-rate notes and equity securities. Proceeds from the sales of securities available for sale were $2.2 billion, $630.8 million and $661.9 million during 1994, 1993 and 1992, respectively. Gross realized gains and losses related to these securities were $14.9 million and $29.6 million, respectively, in 1994; $35.3 million and $.02 million, respectively, in 1993; and $9.6 million and $7.1 million, respectively, in 1992. 4. INVESTMENT SECURITIES The amortized cost, unrealized gains and losses and approximate fair values of investment securities were as follows:
December 31, 1994 GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR in thousands COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------------------------- U.S. Treasury, agencies and corporations $ 532,619 $ 280 $ 33,619 $ 499,280 States and political subdivisions 1,508,534 33,329 6,982 1,534,881 Mortgage-backed securities 7,834,169 10,023 481,426 7,362,766 Other securities 400,316 875 41,086 360,105 - -------------------------------------------------------------------------------------------------- Total $10,275,638 $44,507 $563,113 $9,757,032 =========== ======= ======== ========== - -------------------------------------------------------------------------------------------------- December 31, 1993 GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR in thousands COST GAINS LOSSES VALUE - -------------------------------------------------------------------------------------------------- U.S. Treasury, agencies and corporations $ 795,966 $ 11,601 $ 134 $ 807,433 States and political subdivisions 1,677,823 102,402 394 1,779,831 Mortgage-backed securities 7,877,216 108,627 18,582 7,967,261 Other securities 771,088 14,900 307 785,681 - -------------------------------------------------------------------------------------------------- Total $11,122,093 $237,530 $19,417 $11,340,206 =========== ======= ======== ========== - --------------------------------------------------------------------------------------------------
Investment securities by remaining contractual maturity were as follows:
December 31, 1994 AMORTIZED FAIR in thousands COST VALUE - -------------------------------------------------------------- Due in one year or less $ 1,365,911 $1,362,855 Due after one through five years 5,492,087 5,217,384 Due after five through ten years 1,385,334 1,339,004 Due after ten years 2,032,306 1,837,789 - -------------------------------------------------------------- Total $10,275,638 $9,757,032 =========== ========== - --------------------------------------------------------------
Mortgage-backed securities are included in the maturity schedule based on their expected average lives. Other securities consist primarily of those collateralized by credit card and automobile installment loan receivables, Federal Reserve Bank stock, floating-rate notes and venture capital investments. Proceeds from the sales of investment securities were $23.0 million, $142.1 million and $662.2 million during 1994, 1993 and 1992, respectively. In 1994, the proceeds related to the sales of certain venture capital investments. Gross realized gains and losses related to sales of investment securities were $.8 million and $7.8 million, respectively, in 1993; and $13.0 million and $.9 million, respectively, in 1992. At December 31, 1994, investment and available for sale securities with an aggregate amortized cost of approximately $8.3 billion were pledged to secure public and trust deposits and securities sold under repurchase agreements, and for other purposes required or permitted by law. 59 44 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. LOANS Loans are summarized as follows:
December 31, in thousands 1994 1993 - --------------------------------------------------------------------------- Commercial, financial and agricultural $10,190,582 $ 8,965,528 Real estate-construction 1,287,195 1,160,480 Real estate-commercial mortgage 6,774,860 6,228,188 Real estate-residential mortgage 13,567,077 11,026,319 Consumer 10,183,798 9,276,334 Student loans held for sale 1,816,524 1,648,611 Lease financing 2,307,212 1,702,472 Foreign 97,396 63,312 - --------------------------------------------------------------------------- Total $46,224,644 $40,071,244 =========== =========== - ---------------------------------------------------------------------------
Changes in the allowance for loan losses are summarized as follows:
Year ended December 31, in thousands 1994 1993 1992 - --------------------------------------------------------------------------- Balance at beginning of year $802,712 $782,649 $793,519 Charge-offs (208,791) (303,160) (440,396) Recoveries 99,640 90,385 79,930 - --------------------------------------------------------------------------- Net charge-offs (109,151) (212,775) (360,466) Provision for loan losses 125,157 211,662 338,337 Allowance of acquired companies 11,580 21,176 11,259 - --------------------------------------------------------------------------- Balance at end of year $830,298 $802,712 $782,649 ======== ======== ======== - ---------------------------------------------------------------------------
In the ordinary course of business, KeyCorp's banking affiliates have made loans at prevailing interest rates and terms to directors and executive officers of KeyCorp and its subsidiaries and their associates (as defined by the Securities and Exchange Commission). Such loans, in management's opinion, did not present more than the normal risk of collectibility or incorporate other unfavorable features. The aggregate amount of loans outstanding to qualifying related parties at January 1, 1994, was $196.4 million. During 1994, activity with respect to these loans included new loans of $562.7 million, repayments of $519.1 million and a net decrease of $46.7 million due to changes in the status of executive officers and directors. As a result of these activities, the aggregate balance of loans outstanding to related parties at December 31, 1994, was $193.3 million. 6. NONPERFORMING ASSETS In May 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which takes effect for fiscal years beginning after December 15, 1994. SFAS No. 114 prescribes a valuation methodology for impaired loans. Generally, a loan is considered impaired if management believes that it is probable that all amounts due will not be collected according to the contractual terms, as scheduled in the loan agreement. An impaired loan must be valued using the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the loan's underlying collateral. The Corporation expects to adopt SFAS No. 114 prospectively in the first quarter of 1995. The Corporation will concurrently adopt SFAS No. 118, "Accounting by Creditors for Impairment 60 45 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS of a Loan-Income Recognition and Disclosures." This Statement amends SFAS No. 114 to require information about certain impaired loans and their related income recognition. Nonperforming assets were as follows:
December 31, in thousands 1994 1993 - ------------------------------------------------------- Nonaccrual loans $254,499 $329,843 Restructured loans 1,550 6,469 - ------------------------------------------------------- Total nonperforming loans 256,049 336,312 Other real estate owned 100,265 186,052 Allowance for OREO losses (21,258) (35,690) - ------------------------------------------------------- Other real estate owned, net of allowance 79,007 150,362 Other nonperforming assets 4,777 13,462 - ------------------------------------------------------- Total $339,833 $500,136 ======== ======== - -------------------------------------------------------
The adoption of these standards will not have a material effect on the Corporation's financial condition or results of operations. The effect on interest income of loans classified as nonperforming at December 31 was as follows:
in thousands 1994 1993 1992 - ------------------------------------------------------------------ Interest income which would have been recorded if assets had been current under original terms $20,484 $30,037 $52,002 Less: Interest income recorded during the period (5,132) (7,900) (20,536) - ------------------------------------------------------------------ Net reduction to reported interest income $15,352 $22,137 $31,466 ======= ======= ======= - ------------------------------------------------------------------
At December 31, 1994, there were no significant commitments to lend additional funds to borrowers with nonaccrual or restructured loans. Changes in the allowance for OREO losses are summarized as follows:
Year ended December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------------------ Balance at beginning of year $35,690 $17,915 $19,191 Net charge-offs (21,808) (21,697) (33,793) Provision for losses on other real estate owned 7,162 39,132 32,517 Allowance of acquired company 214 340 -- - ------------------------------------------------------------------------------ Balance at end of year $21,258 $35,690 $17,915 ======= ======= ======= - ------------------------------------------------------------------------------
7. PREMISES AND EQUIPMENT Premises and equipment were as follows: December 31,
in thousands 1994 1993 - ------------------------------------------------------------------------ Land $ 122,034 $ 116,335 Buildings and leasehold improvements 821,003 741,043 Furniture and equipment 762,757 759,721 - ------------------------------------------------------------------------ 1,705,794 1,617,099 Accumulated depreciation and amortization (718,563) (704,229) - ------------------------------------------------------------------------ Total $ 987,231 $ 912,870 ========== ========== - ------------------------------------------------------------------------
Depreciation and amortization expense related to premises and equipment totaled $121.9 million, $110.9 million, and $104.3 million in 1994, 1993, and 1992, respectively. At December 31, 1994, KeyCorp's affiliates were obligated under noncancelable leases for land and buildings and for other property, consisting principally of data processing equipment. Rental expense under all operating leases totaled $124.2 million in 1994, $123.7 million in 1993 and $116.5 million in 1992. Minimum future rental payments under noncancelable leases at December 31, 1994, were as follows: 1995-$103.0 million; 1996-$94.2 million; 1997- $83.3 million; 1998-$72.2 million; 1999-$67.0 million; and subsequent years-$575.8 million. 61 46 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8. INTANGIBLE ASSETS AND PURCHASED MORTGAGE SERVICING RIGHTS Intangible assets, net of accumulated amortization, were as follows:
December 31, in thousands 1994 1993 - ----------------------------------------------------------- Goodwill $418,462 $385,359 Core deposit intangibles 154,146 139,501 Credit card intangibles 19,518 16,648 Other 6,761 7,840 - ----------------------------------------------------------- Total $598,887 $549,348 ======== ======== - ----------------------------------------------------------- Purchased mortgage servicing rights $194,757 $188,592 - -----------------------------------------------------------
The amortization expense for intangible assets was as follows:
Year ended December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------ Goodwill $25,722 $24,210 $21,589 Core deposit intangibles 25,428 22,436 25,049 Credit card intangibles 3,196 4,460 4,449 Other 4,172 6,944 10,605 - ------------------------------------------------------------------ Total $58,518 $58,050 $61,692 ======= ======= ======= - ------------------------------------------------------------------
The amortization expense for purchased mortgage servicing rights totaled $37.3 million, $56.6 million and $29.6 million in 1994, 1993 and 1992, respectively. The amount of purchased mortgage servicing rights capitalized during 1994 was $43.5 million. Substantially all of the purchased mortgage servicing rights will be sold in connection with the pending sale of the residential mortgage loan servicing operations of KMI, previously described in Note 2, Mergers, Acquisitions and Divestitures. 9. SHORT-TERM BORROWINGS Short-term borrowings consist primarily of Federal funds purchased and securities sold under repurchase agreements, which generally represent overnight borrowing transactions. Other short-term borrowings consist primarily of Medium-Term Bank Notes with original maturities of one year or less, and Treasury, tax and loan demand notes. During 1994, four KeyCorp banking affiliates (Society National Bank ("SNB"), KeyCorp's Ohio banking affiliate, Key Bank of New York, Key Bank of Washington and Society National Bank, Indiana) authorized the issuance of up to $5 billion of Medium-Term Bank Notes, to be offered on a continuous basis. This program replaced the SNB Medium-Term Note program which was authorized on November 30, 1992. At December 31, 1994 and 1993, $2.3 billion and $685.0 million, respectively, in debt securities were outstanding under these programs. These notes have original maturities of one year or less. The details of short-term borrowings were as follows:
dollars in thousands 1994 1993 1992 - ------------------------------------------------------------------------------- FEDERAL FUNDS PURCHASED Balance at year-end $3,055,369 $1,932,211 $1,826,522 Average during the year 3,063,429 1,828,606 1,519,406 Maximum month-end balance 3,322,299 3,127,134 2,924,193 Weighted average rate during the year 4.37% 3.06% 3.74% Weighted average rate at December 31 4.91 3.13 3.30 - ------------------------------------------------------------------------------- SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Balance at year-end $2,443,748 $2,188,047 $2,380,998 Average during the year 2,786,957 2,549,582 2,542,522 Maximum month-end balance 2,990,963 3,163,603 3,036,009 Weighted average rate during the year 3.94% 2.91% 3.38% Weighted average rate at December 31 4.43 2.84 2.97 - ------------------------------------------------------------------------------- OTHER SHORT-TERM BORROWINGS Balance at year-end $3,277,611 $1,776,192 $ 874,887 Average during the year 1,929,631 1,196,188 721,800 Maximum month-end balance 3,383,102 1,776,192 1,144,870 Weighted average rate during the year 4.71% 3.72% 4.31% Weighted average rate at December 31 5.08 3.16 3.57 - -------------------------------------------------------------------------------
62 47 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. LONG-TERM DEBT The components of long-term debt, presented net of unamortized discount where appropriate, were as follows:
December 31, dollars in thousands 1994 1993 - --------------------------------------------------------------------- Medium-Term Notes due through 2003 $ 870,200 $ 546,230 8.125% Subordinated Notes due 2002 198,148 197,902 8.00% Subordinated Notes due 2004 125,000 125,000 8.40% Subordinated Capital Notes due 1999 75,000 75,000 8.875% Notes due 1996 74,829 74,772 11.125% Notes due 1995 49,992 49,979 8.404% Notes due 1997 through 2001 48,864 48,864 8.255% Notes due 1996 22,794 22,794 12.63% Notes due 1994 -- 1,860 All other long-term debt 374 384 - --------------------------------------------------------------------- Total parent company 1,465,201 1,142,785 Medium-Term Bank Notes due through 1997 1,398,245 -- 7.85% Subordinated Notes due 2002 199,843 199,823 6.75% Subordinated Notes due 2003 198,886 198,823 Federal Home Loan Bank Advances1 252,328 165,100 10.00% Notes due 1995 36,735 36,735 Industrial revenue bonds 10,144 10,938 All other long-term debt 8,412 9,666 - --------------------------------------------------------------------- Total subsidiaries 2,104,593 621,085 - --------------------------------------------------------------------- Total $3,569,794 $1,763,870 ========== ========== - --------------------------------------------------------------------- FN 1 Long-term advances from the Federal Home Loan Bank (FHLB) are at adjustable and fixed rates ranging from 3.80% to 12.125% at December 31, 1994, and mature at various dates through 2012. Real estate loans and securities of $271.3 million and $174.5 million at December 31, 1994 and 1993, respectively, collateralize FHLB advances.
Scheduled principal payments on long-term debt are as follows:
in thousands Parent Subsidiaries Total - -------------------------------------------------------------------------- 1995 $160,518 $ 104,232 $ 264,750 1996 604,516 1,124,324 1,728,840 1997 48,005 402,558 450,563 1998 82,655 1,390 84,045 1999 107,332 51,369 158,701 - --------------------------------------------------------------------------
During 1994, the parent company filed a universal shelf registration with the Securities and Exchange Commission which authorizes the issuance of a broad range of debt and equity securities in the amount of $750.0 million. Under this shelf registration, the parent company issued $395.0 million in Medium-Term Notes with original maturities exceeding one year. In the prior year, the parent company issued $305.1 million in long-term debt securities under a separate Medium-Term Note program. The proceeds from the issuances described above were used to fund acquisitions and for general corporate purposes. At December 31, 1994 and 1993, the parent company's Medium-Term Notes as presented in the table had weighted average interest rates of 6.68% and 6.61%, respectively and had varying maturities through 2003. The 8.125% Subordinated Notes, 8.875% Notes and 11.125% Notes are not redeemable prior to maturity. The 8.40% Subordinated Capital Notes due 1999 may, at maturity, be exchanged for common stock, preferred stock or other eligible securities having a market value equal to the principal amount of the Notes. In 1989, to fund a leveraged employee stock ownership plan ("ESOP"), the parent company borrowed $71.7 million from several institutional investors through the placement of unsecured notes totaling $22.8 million (the "8.255% Notes") and $48.9 million (the "8.404% Notes"). As a result of the increase in the Federal tax rate in 1993, the rates on these notes were adjusted retroactively from 8.33% and 8.48%, respectively. The interest on these notes totaled $6.0 million in each of the years 1994, 1993 and 1992. The ESOP trustee used the proceeds to purchase 5.8 million KeyCorp Common Shares. These shares are held by the ESOP trustee for matching employee contributions to the Plan. The net difference between the cost of the treasury shares sold to the ESOP 63 48 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. LONG-TERM DEBT (CONTINUED) trustee and their market value was recorded as a reduction to retained earnings. Except for the repayment schedule, the loans to the ESOP trustee are on substantially similar terms as the borrowings from the institutional investors and, in addition, are secured by the unallocated shares held by the ESOP trustee. The ESOP trustee will repay the loans from KeyCorp using corporate contributions made by the Plan for that purpose and dividends on the Common Shares acquired with the loans. The amount of dividends on the ESOP shares used for debt service by the ESOP trustee totaled $4.4 million in 1994, $3.9 million in 1993 and $3.1 million in 1992. As contributions and dividends are received, a portion of the shares acquired with the loans will be allocated to Plan participants. Interest income recognized on loans to the ESOP trustee is netted against the interest expense incurred on the notes payable to the institutional investors. KeyCorp's receivable from the ESOP trustee, representing deferred compensation to the Corporation's employees, has been recorded as a negative component of shareholders' equity. During 1994, SNB issued $1.4 billion of Medium-Term Bank Notes with original maturities exceeding one year. The proceeds from the sales of these notes were used for general corporate purposes. At December 31, 1994, SNB's Medium-Term Bank Notes as presented in the table had a weighted average interest rate of 6.71% and mature in 1996 and 1997. The 7.85% Subordinated Notes, 6.75% Subordinated Notes and 10.00% Notes are all obligations of SNB. None of these notes may be redeemed prior to their respective maturity dates. Industrial revenue bonds issued by affiliate banks have varying maturities extending to the year 2009 and had weighted average interest rates of 6.96% and 7.14%, respectively, at December 31, 1994 and 1993. Other long-term debt at December 31, 1994 and 1993, consisted of capital lease obligations and various secured and unsecured obligations of corporate subsidiaries and had weighted average interest rates of 9.64% and 13.54%, respectively. Long-term debt qualifying as supplemental capital for purposes of calculating Tier II capital under Federal Reserve Board Guidelines amounted to $943.2 million and $993.4 million at December 31, 1994, and 1993, respectively. 11. SHAREHOLDERS' EQUITY COMMON SHARES AND PREFERRED STOCK In connection with the KeyCorp-Society merger, at a special meeting held on February 16, 1994, shareholders increased the authorized number of shares of KeyCorp to 926,400,000 of which 1,400,000 are shares of nonvoting 10% Cumulative Preferred Stock, Class A ("Class A"), par value $5 per share; 25,000,000 are shares of Preferred Stock, par value $1 per share; and 900,000,000 are Common Shares, par value $1 per share. At December 31, 1994, 1,280,000 shares of Class A were outstanding, represented by 6,400,000 Depositary Shares; each Depositary Share represents a one-fifth interest in a share of Class A, $125 liquidation preference per share. Preferred stock is reported on the accompanying consolidated balance sheet at its stated value of $125 per share. In the merger, each Series B share previously outstanding was converted into one share of Class A. On March 30, 1994, 120,213 Common Shares in treasury were issued in connection with the conversion of all Commercial Bancorporation of Colorado ("CBC") adjustable rate convertible subordinated debentures then outstanding. CBC was acquired by KeyCorp on March 24, 1994, and is more fully described in Note 2, Mergers, Acquisitions and Divestitures on page 56 of this report. In January 1995, KeyCorp announced a program to repurchase up to 12,000,000 of its Common Shares. This represents an addition to previously existing programs which authorized the repurchase of up to 8,000,000 Common Shares. During 1994, 7,582,700 Common Shares were repurchased for a total cost of $215.6 million. Of these repurchased shares, 6,000,000 were issued, or designated for reissuance, in connection with previously announced acquisitions. Under the new program, shares will be repurchased from time to time, at management's discretion, in the open market or through negotiated transactions. Repurchased shares will be held in treasury and subsequently reissued in connection with employee stock purchase, savings and option plans, and other corporate purposes. KeyCorp's Board of Directors adopted a Shareholder Rights Plan ("Rights") in 1989 under which each shareholder received one Right for each Common Share of KeyCorp. 64 49 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11. SHAREHOLDERS' EQUITY (CONTINUED) Each Right represents the right to purchase a Common Share of KeyCorp at a price of $65. The Rights become exercisable 20 days after a person or group acquires 15% or more of the outstanding shares or commences a tender offer that could result in such an ownership interest. Until the Rights become exercisable, they will trade with the Common Shares, and any transfer of the Common Shares will also constitute a transfer of associated Rights. When the Rights become exercisable, they will begin to trade separate and apart from the Common Shares. Twenty days after the occurrence of certain "Flip-In Events," each Right will become the right to purchase a Common Share of KeyCorp for the then par value per share (now $1 per share) and the Rights held by a 15% or more shareholder will become void. KeyCorp may redeem these Rights at its option at $.005 per Right subject to certain limitations. Unless redeemed earlier, the Rights expire on September 12, 1999. In 1993, KeyCorp amended the Rights so that the merger would not activate the provisions of the Rights. KeyCorp effected a two-for-one stock split on March 22, 1993, by means of a 100% stock dividend. All relevant Common Share amounts, per Common Share amounts and related data in this report have been adjusted to reflect this split. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS KeyCorp maintains various incentive compensation plans which provide for its ability to grant stock options, stock appreciation rights, limited stock appreciation rights, restricted stock and performance shares to selected employees and directors. Generally, the terms of these plans stipulate that the exercise price of options may not be less than the fair market value of KeyCorp's Common Shares at the date the options are granted. Options granted expire not later than ten years and one month from the date of grant. At December 31, 1994 and 1993, options for Common Shares available for future grant totaled 4,385,377 and 1,237,965, respectively. The terms of KeyCorp's plans stipulate that stock appreciation rights may be granted only in tandem with stock options. The appreciation rights have the same terms as do the options, except that, upon exercise, the holder may receive either cash or shares for the excess of the current market value of KeyCorp's Common Shares over the option's exercise price. Upon exercise of a stock appreciation right, the related option is surrendered. During 1993, all stock appreciation rights for which exercisability was limited to a period following a change in control of the Corporation were cancelled. The following table presents a summary of pertinent information with respect to KeyCorp's stock options and stock appreciation rights.
STOCK OPTIONS 1994 1993 --------------------------- --------------------------- SHARES OPTION PRICE Shares Option Price - -------------------------------------------------------------------------------------------------- Outstanding at beginning of year 9,609,915 $ 4.79 - 38.18 9,324,776 $ 3.89 - 32.06 Granted 3,960,983 25.00 - 35.69 2,062,544 29.37 - 38.18 Assumed in acquisition 327,975 6.46 - 29.15 9,008 4.69 - 7.61 Exercised 1,460,899 4.79 - 30.61 1,697,458 3.89 - 28.25 Lapsed or cancelled 335,938 10.52 - 38.18 88,955 13.77 - 33.94 - -------------------------------------------------------------------------------------------------- Outstanding at end of year 12,102,036 $ 4.79 - 38.18 9,609,915 $ 4.79 - 38.18 - -------------------------------------------------------------------------------------------------- Exercisable at end of year 7,833,731 $ 4.79 - 38.18 6,529,168 $ 4.79 - 38.18 - -------------------------------------------------------------------------------------------------- STOCK APPRECIATION RIGHTS 1994 1993 --------------------------- --------------------------- SHARES OPTION PRICE Shares Option Price - -------------------------------------------------------------------------------------------------- Outstanding at beginning of year 44,000 $11.69 2,028,240 $11.69 - 28.25 Granted -- -- 222,000 33.94 Exercised or surrendered -- -- 36,400 11.69 - 20.88 Lapsed or cancelled 2,000 11.69 2,169,840 11.69 - 33.94 - -------------------------------------------------------------------------------------------------- Outstanding at end of year 42,000 $11.69 44,000 $11.69 - -------------------------------------------------------------------------------------------------- Exercisable at end of year 42,000 $11.69 44,000 $11.69 - --------------------------------------------------------------------------------------------------
65 50 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. MERGER AND INTEGRATION CHARGES Merger and integration charges of $118.7 million ($80.6 million after tax, $.33 per Common Share) and $92.7 million ($66.6 million after tax, $.29 per Common Share) were recorded in 1993 and 1992, respectively. The 1993 charges were incurred in connection with the March 1, 1994, merger of old KeyCorp into and with Society (the "Merger"), while the 1992 charges related to the mergers with PSB and Ameritrust. The merger and integration charges recorded in 1993 included accruals for merger expenses, consisting primarily of investment banking and other professional fees directly related to the Merger ($20.5 million); severance payments and other employee costs ($49.6 million); systems and facilities costs ($35.7 million); and other costs incidental to the Merger ($12.9 million). These charges were recorded by the parent company in the fourth quarter of 1993 at which time management determined that it was probable that a liability for all such charges had been incurred and could be reasonably estimated. The merger and integration charges recorded in connection with the PSB and Ameritrust mergers in 1992 were similar in nature. During 1994 there were no material developments or adjustments with respect to merger and integration charges, and management presently considers the remaining liability of $33.5 million at December 31, 1994, to be adequate. The above mergers are described in greater detail in Note 2, Mergers, Acquisitions and Divestitures, on page 56 of this report. 13. EMPLOYEE BENEFITS PENSION PLANS Effective January 1, 1995, the noncontributory pension plans sponsored by KeyCorp and its subsidiaries were merged into a single amended and restated plan under the name of the KeyCorp Cash Balance Pension Plan (the "Cash Balance Plan"). The Benefits paid from the predecessor plans, which covered substantially all employees, were based on age, years of service and compensation prior to retirement and were determined in accordance with defined formulas. On the effective date of adoption of the Cash Balance Plan, a bookkeeping account was established for each participant and was credited with an opening amount equal to the actuarial present value of benefits earned under the applicable predecessor plan. In addition to the opening balance, a participant's account is credited with interest determined at a specified rate and with credits based on qualifying compensation. The following table sets forth the status of the funded plans and the amounts recognized in the consolidated balance sheets:
December 31, in thousands 1994 1993 - ---------------------------------------------------------------------------------------------------------- Accumulated benefit obligations, including vested benefits of $497,653 and $444,018 $517,206 $454,831 - ---------------------------------------------------------------------------------------------------------- Fair value of plan assets, primarily listed stock and fixed income securities1 573,509 614,139 Projected benefit obligations 527,266 502,614 - ---------------------------------------------------------------------------------------------------------- Excess of fair value of plan assets over projected benefit obligations 46,243 111,525 Unrecognized net loss 116,377 56,834 Unrecognized prior service benefit (1,890) (2,850) Unrecognized net asset at January 1, 1986, being recognized over 15 years (33,369) (38,609) - ---------------------------------------------------------------------------------------------------------- Prepaid pension cost (included in other assets) $127,361 $126,900 ======== ======== - ---------------------------------------------------------------------------------------------------------- 1Including KeyCorp Common Shares valued at $23.7 million and $27.8 million at December 31, 1994 and 1993, respectively.
Certain "grandfathering" and enhancement provisions apply to participants meeting specified conditions, including age and service requirements. The actuarially determined amounts presented in the funded status table shown above, as of December 31, 1994, reflect the merger of the predecessor plans into the Cash Balance Plan. The adoption of the Cash Balance Plan did not have a material impact on the projected benefit obligations at December 31, 1994, and is not expected to have a material impact on net pension cost. The Corporation's funding policy is to contribute an amount to the Cash Balance Plan which meets the minimum funding 66 51 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS requirements set forth in the Employee Retirement Income Security Act (ERISA) of 1974, plus such additional amounts as the Corporation determines to be appropriate. The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefit obligations of both the funded and unfunded plans were 8.50% and 4.24%, respectively, at December 31, 1994, and 7.37% and 4.00%, respectively, at December 31, 1993. The weighted average expected long-term rate of return on pension assets used in determining net pension cost was 9.50% for 1994, 9.91% for 1993 and 9.60% for 1992. The Corporation also maintains several unfunded, non-qualified, supplemental executive retirement programs that provide additional defined pension benefits for certain officers. The following table sets forth the status of the unfunded plans and the amounts recognized in the consolidated balance sheets:
December 31, in thousands 1994 1993 - -------------------------------------------------------------------------- Accumulated benefit obligations, including vested benefits of $64,440 and $47,288 $68,619 $50,321 - -------------------------------------------------------------------------- Projected benefit obligations 77,013 62,659 Unrecognized prior service cost (13,499) (5,352) Unrecognized transition obligation (3,367) (3,864) Unrecognized net loss (14,836) (18,286) Adjustment to recognize minimum liability 25,785 11,653 - -------------------------------------------------------------------------- Accrued pension cost (included in other liabilities) $71,096 $46,810 ======= ======= - --------------------------------------------------------------------------
Net pension cost (income) for the funded and unfunded plans included the following components:
Year ended December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------------------- Service cost of benefits earned $23,253 $22,506 $21,424 Interest cost on projected benefit obligations 42,484 39,098 34,687 Actual loss (return) on plan assets 3,214 (44,619) (51,773) Net amortization and deferral (60,474) (14,229) (4,360) - ------------------------------------------------------------------------------- Net pension cost (income) $ 8,477 $ 2,756 $ (22) ======= ======= ======= - -------------------------------------------------------------------------------
OTHER POSTRETIREMENT BENEFIT PLANS The Corporation sponsors postretirement health care and life insurance plans that cover substantially all employees. The postretirement health care plans are nonfunded and contributory, with retirees' contributions adjusted annually to reflect certain cost-sharing provisions and benefit limitations. The postretirement life insurance plans are noncontributory. The Corporation has adopted a funding policy for one of its life insurance plans and annually contributes the service cost of benefits earned plus one-thirtieth of the unfunded accumulated postretirement life insurance benefit obligations. Effective January 1, 1993, the Corporation adopted the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires that employers recognize the cost of providing postretirement benefits over the employees' active service periods to the date they attain full eligibility for such benefits. Postretirement benefits costs for 1992, which were recorded on a cash basis, have not been restated. Net postretirement benefits cost was $17.8 million in 1994, $16.9 million in 1993, including $8.2 million due to adoption of the new standard, and $7.7 million in 1992. Net postretirement benefits cost included the following components:
Year ended December 31, in thousands 1994 1993 - ---------------------------------------------------------- Service cost of benefits earned $ 2,769 $ 2,873 Interest cost on accumulated postretirement benefit obligations 9,204 8,713 Actual return on plan assets (26) (22) Amortization of transition obligation over 20 years 5,350 5,372 Net amortization and deferral 498 (10) - ---------------------------------------------------------- Net postretirement benefits cost $17,795 $16,926 ======= ======= - ----------------------------------------------------------
67 52 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT 13. EMPLOYEE BENEFITS (CONTINUED) The following table sets forth the plans' combined funded status reconciled with the amounts recognized in the consolidated balance sheets:
December 31, in thousands 1994 1993 - ----------------------------------------------------------------------- Accumulated postretirement benefit obligations: Retirees $ 97,705 $ 81,208 Fully eligible plan participants 9,199 10,624 Other active plan participants 23,896 27,396 - ----------------------------------------------------------------------- 130,800 119,228 Fair value of plan assets 418 168 - ----------------------------------------------------------------------- Accumulated postretirement benefit obligations in excess of plan assets 130,382 119,060 Unrecognized transition obligation (95,475) (101,654) Unrecognized net loss (14,236) (7,826) - ----------------------------------------------------------------------- Accrued postretirement benefits cost (included in other liabilities) $ 20,671 $ 9,580 ======== ======== - -----------------------------------------------------------------------
The assumed 1995 health care cost trend rate was 9.5% for both Medicare- eligible retirees and non-Medicare-eligible retirees. The rate is assumed to decrease gradually to 5.5% by the year 2003 and remain constant thereafter. In 1994, the assumed rate was 11.0% for Medicare-eligible retirees and 13.0% for non-Medicare-eligible retirees. Increasing the assumed health care cost trend rates by one percentage point in each future year would have an immaterial impact on postretirement benefits cost due to cost-sharing provisions and benefit limitations in the related postretirement plans. The weighted average discount rate used in determining the accumulated postretirement benefit obligations was 8.5% and 7.4% at December 31, 1994 and 1993, respectively. EMPLOYEE STOCK PURCHASE AND SAVINGS PLANS Substantially all of the Corporation's employees are covered under stock purchase and savings plans that are qualified under Section 401(k) of the Internal Revenue Code. Under provisions of these plans, employees may contribute 1% to 15% of eligible compensation, with up to 6% being eligible for matching contributions from the Corporation. At least half of such matching contributions is in the form of KeyCorp Common Shares. Under a discretionary profit sharing component, employees can receive additional matching employer contributions from the Corporation based on a formula established each year by KeyCorp's Board of Directors. Total expense associated with these plans was $28.0 million, $40.4 million and $30.4 million in 1994, 1993 and 1992, respectively. POSTEMPLOYMENT BENEFITS The Corporation adopted the provisions of SFAS No. 112, "Employers' Accounting for Postemployment Benefits," during 1993. This standard requires that employers who provide benefits to former or inactive employees after employment but before retirement recognize a liability for such benefits if specified conditions are met. Adoption of this standard increased noninterest expense in 1993 by $4.0 million. Postemployment benefits for 1992, which were recorded on a cash basis, were not restated. 14. INCOME TAXES Income taxes included in the consolidated statements of income are as follows:
Year ended December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------- Currently payable: Federal $237,229 $289,987 $182,277 State 22,418 34,554 28,655 - ------------------------------------------------------------------- 259,647 324,541 210,932 Deferred: Federal 152,326 55,043 68,297 State 18,008 (5,612) 403 - ------------------------------------------------------------------- 170,334 49,431 68,700 - ------------------------------------------------------------------- Total income tax expense $429,981 $373,972 $279,632 ======== ======== ======== - -------------------------------------------------------------------
Income taxes on securities transactions totaled $(6.3) million, $9.9 million and $5.1 million in 1994, 1993 and 1992, respectively. 68 53 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The differences between income tax expense and the amount computed by applying the statutory Federal tax rate to income before taxes are as follows:
Year ended December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------------------- Income before taxes times statutory tax rate1 $449,215 $379,364 $294,139 State income tax, net of Federal tax benefit 26,277 18,295 19,636 Amortization of non-deductible intangibles 9,589 10,349 11,317 Tax-exempt interest income (34,777) (40,610) (47,228) Tax credits (4,325) (4,184) (3,120) Other (15,998) 10,758 4,888 - ------------------------------------------------------------------------------- Total income tax expense $429,981 $373,972 $279,632 ======== ======== ======== - ------------------------------------------------------------------------------- 1 35% for 1994 and 1993; 34% for 1992.
Significant components of KeyCorp's deferred tax asset (liability) are as follows:
December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------------------- Provision for loan losses $ 290,589 $ 259,082 $ 263,531 Leasing income reported using the operating method for tax purposes (527,947) (381,393) (282,006) Merger and integration charges 32,414 48,677 14,700 Writedown of other real estate owned 20,932 25,289 24,393 Net unrealized securities losses 66,488 -- -- Other (86,265) (50,523) (61,216) - ------------------------------------------------------------------------------- Deferred tax asset (liability) $(203,789) $ (98,868) $ (40,598) ========= ========= ========= - -------------------------------------------------------------------------------
15. COMMITMENTS, CONTINGENT LIABILITIES AND OTHER DISCLOSURES LEGAL PROCEEDINGS In the ordinary course of business, KeyCorp and its subsidiaries are subject to legal actions which involve claims for substantial monetary relief. Management, based upon the advice of the Corporation's counsel, does not believe that any currently known legal actions, individually or in the aggregate, will have a material adverse effect on KeyCorp's consolidated financial condition. RESTRICTIONS ON CASH, DUE FROM BANKS, SUBSIDIARY DIVIDENDS AND LENDING ACTIVITIES Under the provisions of the Federal Reserve Act, depository institutions are required to maintain certain average balances in the form of cash or noninterest-bearing balances with the Federal Reserve Bank. Average reserve balances aggregating $1.1 billion in 1994 were maintained in fulfillment of these requirements. The principal source of cash flows for the parent company, including cash flows to pay dividends on shares of its common and preferred stock and to service its debt, is dividends from the parent company's banking and other subsidiaries. Various Federal and state statutory and regulatory provisions limit the amount of dividends that may be paid to KeyCorp by its banking subsidiaries without regulatory approval. Under all of the laws, regulations and other restrictions applicable to KeyCorp's banking subsidiaries, at December 31, 1994, such subsidiaries could have declared dividends estimated to be $642.4 million in the aggregate, without obtaining prior regulatory approval. Loans and advances from banking subsidiaries to KeyCorp are also limited by law and are required to be collateralized. 69 54 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 16. FAIR VALUE DISCLOSURES OF FINANCIAL INSTRUMENTS The following disclosures are made in accordance with the provisions of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," which requires the disclosure of fair value information about both on-and off-balance sheet financial instruments where it is practicable to estimate that value. Fair value is defined in SFAS No. 107 as the amount at which an instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. In accordance with the provisions of SFAS No. 107, the estimated fair values of deposits, credit card loans and residential real estate mortgage loans do not take into account the fair values of long-term relationships, which are integral parts of the related financial instruments. The disclosed estimated fair values of such instruments would increase significantly if the fair values of the long-term relationships were considered. In cases where quoted market prices were not available, fair values were estimated using discounted cash flow or other valuation methods, as described below. 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. The use of different assumptions (e.g., discount rates and cash flow estimates) and estimation methods could have a significant effect on fair value amounts. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. Because SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements, any aggregation of the fair value amounts presented would not represent the underlying value of the Corporation.
December 31, 1994 1993 --------------------------- --------------------------- Carrying Fair Carrying Fair in thousands Amount Value Amount Value - ------------------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks1 $ 3,511,368 $ 3,511,368 $ 2,777,438 $ 2,777,438 Short-term investments1 670,010 670,010 107,219 107,219 Mortgage loans held for sale1 355,198 355,198 1,325,338 1,325,338 Securities available for sale2 2,521,049 2,521,049 1,726,828 1,794,845 Investment securities2 10,275,638 9,757,032 11,122,093 11,340,206 Loans, net of allowance3 45,394,346 44,610,441 39,268,532 40,023,240 LIABILITIES Deposits4 $48,564,237 $48,191,660 $46,499,148 $46,717,907 Federal funds purchased and securities sold under repurchase agreements1 5,499,117 5,499,117 4,120,258 4,120,258 Other short-term borrowings1 3,277,611 3,277,611 1,776,192 1,776,192 Long-term debt5 3,569,794 3,485,803 1,763,870 1,908,159 - ------------------------------------------------------------------------------------------------------------------- Valuation Methods and Assumptions - --------------------------------- 1 Fair value equals or approximates carrying amount. 2 Securities available for sale were carried at fair value at December 31, 1994, and at amortized cost at December 31, 1993. At each of these dates the fair values of securities available for sale and investment securities were, generally, based on quoted market prices. Where quoted market prices were not available, fair values were based on quoted market prices of similar instruments. 3 In both 1994 and 1993 fair values of certain loans were estimated using a discounted cash flow model. Certain residential real estate loans and student loans held for sale were valued based on quoted market prices of similar loans offered or sold in recent sales or securitization transactions. Lease financing receivables, although excluded from the scope of SFAS No. 107, were included in the estimated fair value of loans at their carrying amounts. 4 Fair values of certificates of deposit were estimated based on discounted cash flows. For all other deposits, carrying amounts were used as a reasonable approximation of their fair values. 5 Fair values of long-term debt were estimated based on discounted cash flows.
Interest rate swaps, caps and floors were valued based on discounted cash flow models and had an aggregate negative fair value of $528.3 million at December 31, 1994. At December 31, 1993, interest rate swaps had an aggregate fair value of $57.2 million, and the fair value of caps and floors was not material. Foreign exchange forward contracts, which were valued based on quoted market prices, had a fair value of $3.7 million and $2.1 million at December 31, 1994 and 1993, respectively. Off-balance sheet financial instruments, including their fair values, are discussed in greater detail in Note 17, Financial Instruments with Off-Balance Sheet Risk, on page 71 of this report. 70 55 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Corporation, mainly through its affiliate banks, is party to various financial instruments with off-balance sheet risk. The banks use these financial instruments in the normal course of business to meet the financing needs of their customers and to effectively manage their exposure to market risk. Market risk is the possibility that the Corporation's net interest income will be adversely affected as a result of changes in interest rates or other economic factors. Credit risk is the possibility that the Corporation will incur a loss due to a counterparty's failure to perform its contractual obligations. The primary financial instruments used include commitments to extend credit, standby and commercial letters of credit, interest rate swaps, caps, floors and foreign exchange forward contracts. All of the interest rate swaps held are over-the-counter instruments. These financial instruments may be used for lending-related, asset and liability management and trading purposes, as discussed below. FINANCIAL INSTRUMENTS HELD OR ISSUED FOR LENDING-RELATED PURPOSES These instruments involve, to varying degrees, credit risk in excess of amounts recognized in the Corporation's consolidated balance sheet. The Corporation mitigates its exposure to credit risk through internal controls over the extension of credit. These controls include the process of credit approval and review, the establishment of credit limits and, when deemed necessary, securing collateral. The following is a summary of the contractual amount of each class of lending- related off-balance sheet financial instrument outstanding wherein the Corporation's maximum possible accounting loss equals the contractual amount of the instruments. The banks' commitments to extend credit are agreements with customers to provide financing at predetermined terms as long as the customer continues to meet specified criteria. Loan commitments serve to meet the financing needs of the banks' customers and generally carry variable rates of interest, have
December 31, in thousands 1994 1993 - -------------------------------------------------------------------- Loan commitments: Credit card lines $ 5,482,566 $ 4,561,794 Home equity 3,243,618 2,690,127 Commercial real estate and construction 1,503,707 1,184,443 Other 7,356,564 8,382,207 - -------------------------------------------------------------------- Total loan commitments 17,586,455 16,818,571 Other commitments: Standby letters of credit 1,003,275 1,095,521 Commercial letters of credit 205,434 347,705 Loans sold with recourse 231,048 156,070 - -------------------------------------------------------------------- Total loan and other commitments $19,026,212 $18,417,867 =========== =========== - --------------------------------------------------------------------
fixed expiration dates or other termination clauses, and may require the payment of fees. Since the commitments may expire without being drawn upon, the total amount of the commitments does not necessarily represent the future cash outlay to be made by the Corporation. The credit-worthiness of each customer is evaluated on a case-by-case basis. The estimated fair values of these commitments and the standby letters of credit discussed below are not material. The Corporation does not have any significant concentrations of credit risk. Standby letters of credit enhance the credit-worthiness of the banks' customers by assuring the customers' financial performance to third parties in connection with specified transactions. Amounts drawn under standby letters of credit generally carry variable rates of interest, and the credit risk involved is essentially the same as that involved in the extension of loan facilities. FINANCIAL INSTRUMENTS HELD OR ISSUED FOR ASSET AND LIABILITY MANAGEMENT PURPOSES The Corporation manages its exposure to market risk, in part, by using off-balance sheet instruments to modify the existing interest rate risk characteristics of its assets and liabilities. Primary among the financial instruments used by both the parent company and its affiliate banks are interest rate swap contracts used to manage market risk. Interest rate swaps used for this purpose are designated as portfolio swaps. The notional amount of the interest rate swap contracts represents only an agreed-upon amount on which calculations of interest payments to be exchanged are based, and is significantly greater than the amount at risk. The amount at risk is measured as the cost of replacing, at current market rates, contracts in an unrealized gain position. 71 56 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 17. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (Continued) Although the Corporation is exposed to credit-related losses in the event of nonperformance by the counterparties, based on management's assessment, as of December 31, 1994, all counterparties were expected to meet their obligations. In addition, the Corporation deals exclusively with counterparties with high credit ratings, obtains bilateral collateral arrangements and, where appropriate, arranges master netting agreements. These agreements include legal rights of setoff that provide for the net settlement of the subject contracts with the same counterparty in the event of default. At December 31, 1994, the Corporation had credit exposure of an aggregate $21.2 million to seven counterparties, with the largest credit exposure to an individual counterparty amounting to $14.2 million. Under conventional interest rate swap contracts, payments based on fixed or variable rates are received based upon the notional amounts of the swaps in exchange for payments based on variable or fixed rates. Under an indexed amortizing swap contract, the notional amount remains constant for a specified period of time after which, based upon the level of the index at each payment review date, the swap contract will mature, the notional amount will begin to amortize, or the swap will continue in effect until the contractual maturity of the agreement. At December 31, 1994, the Corporation was party to $2.9 billion and $2.6 billion of indexed amortizing swaps that used a LIBOR (London Interbank Offered Rates) index and a CMT (Constant Maturity Treasuries) index, respectively, for the payment review date measurement. Otherwise, the characteristics of indexed amortizing swaps are similar to those of conventional swap contracts. Under basis swap contracts, interest payments based on different floating indices are received. Forward-starting swaps are interest rate swaps with contractual terms that commence at a specified future date. The table on the following page summarizes the notional amount and the fair value of portfolio interest rate swaps by type. Based on the weighted average rates in effect at December 31, 1994, portfolio interest rate swaps were providing a slightly positive contribution to net interest income (since the weighted average rate received exceeded the weighted average rate paid by .07%) even though the portfolio had an aggregate negative fair value of $529.7 million at the same date. The aggregate fair value was derived through the use of discounted cash flow models, which contemplate interest rates using the applicable forward yield curve, and represents an estimate of the cost that would be recognized if the portfolio were to be liquidated at that date. The swaps have an expected average maturity of 4.4 years. Portfolio interest rate swaps are used to manage interest rate risk by modifying the repricing or maturity characteristics of specified on-balance sheet assets and liabilities, principally loans ($7.1 billion), fixed rate liabilities ($1.7 billion) and variable rate liabilities ($1.5 billion). Interest from these swaps is recognized on an accrual basis over the lives of the respective contracts as an adjustment of the interest income or expense of the asset or liability being managed. Portfolio interest rate swaps contributed $98.6 million to net interest income in 1994 and $140.3 million in 1993. Gains and losses realized upon the termination of interest rate swaps are deferred and amortized using the straight-line method generally over the projected remaining lives of the swap contracts at their termination. During 1994, swaps with a notional amount of $3.4 billion were terminated, resulting in net deferred losses of $44.9 million. A summary of the Corporation's deferred swap gains and (losses) is as follows:
December 31, 1994 dollars in thousands - ------------------------------------------------------------------- Weighted Average Remaining Deferred Amortization Asset/Liability Managed Gains (Losses) (Years) - ------------------------------------------------------------------- Loans $(15,585) 1.4 Mortgage loans held for sale1 (25,051) .3 Debt 12,603 7.5 Deposits 5,453 1.2 - ------------------------------------------------------------------- Total $(22,580) ======== - ------------------------------------------------------------------- 1 Assumes full recognition of the loss in connection with the sale of the residential mortgage loan servicing operations of KMI. Actual amortization period could be longer.
The Corporation uses forward sale agreements and option contracts to manage the risk associated with the potential impact of adverse movements in interest rates on mortgage loans held for sale. The sale agreements commit the Corporation's affiliates to deliver mortgage loans in future periods, while the option contracts allow the affiliates to sell or purchase mortgage loans at a specified price, at a specified future date. Commitments to sell mortgage loans totaled $365.6 million and $1.1 billion at December 31, 1994 and 1993, respectively, while mortgage loan options at the end of 1994 and 1993 were not material. 72 57 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994 1993 ------------------------------ ------------------------------ Notional Fair Notional Fair in thousands Amount Value Amount Value - ------------------------------------------------------------------------------------------------------------------------------- Receive fixed/pay variable indexed amortizing $ 5,786,597 $(341,654) $5,250,000 $ 6,719 Receive fixed/pay variable - conventional 3,010,171 (199,648) 2,309,000 53,462 Pay fixed/receive variable - conventional 1,456,500 11,541 150,000 (8,747) Basis swaps 200,000 132 150,000 -- Forward-starting -- -- 500,000 1,548 - ------------------------------------------------------------------------------------------------------------------------------- Total portfolio swaps $10,453,268 $(529,629) $8,359,000 $52,982 =========== ========= ========== ======= - -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES The Corporation's affiliate banks also use interest rate contracts for dealer activities, which are generally limited to the banks' current lending customers. Interest rate swap contracts entered into with customers are typically limited to conventional swaps, as previously described. The Corporation offsets the interest rate risk of customer swaps by entering into offsetting swaps (also included in the customer swap portfolio) with third parties. The swap position and any offsetting swap with a third party are recorded at their estimated fair values. Adjustments to fair value for customer swaps are included in noninterest income. Interest rate cap and floor agreements provide that one party pays the other when interest rates rise above a specified level (caps) or fall below a specified level (floors). The risk from writing interest rate caps and floors is minimized by the banks through offsetting caps and floors. The contracts are recorded at fair value, with any changes in fair value recognized in noninterest income. The Corporation also enters into foreign exchange forward contracts to accommodate the business needs of its customers and for proprietary trading purposes. Foreign exchange-based forward contracts provide for the delayed delivery or purchase of foreign currency. The foreign exchange risk associated with these contracts is mitigated by entering into offsetting foreign exchange forward contracts. Adjustments to the fair value of foreign exchange forward contracts are included in non-interest income. A summary of the notional amount and the respective fair value of derivative financial instruments held or issued for trading purposes at December 31, 1994, and on average for the year then ended, is presented below. The positive fair values represent assets to the Corporation, while the negative fair values represent liabilities. At December 31, 1994, credit exposure from financial instruments held or issued for trading purposes is limited to the aggregate fair value of each contract with a positive fair value. The risk of counterparties defaulting on their obligations is monitored on an ongoing basis. The parent company and its affiliate banks contract with counterparties with high credit ratings and enter into master netting agreements when possible in an effort to manage credit risk. Trading income recognized on interest rate and foreign exchange forward contracts totaled $2.3 million and $7.6 million, respectively, in 1994 and $1.5 million and $5.9 million, respectively, in 1993.
December 31, 1994 Year ended December 31, 1994 --------------------------- --------------------------------- Notional Fair Average Average in thousands Amount Value Notional Amount Fair Value - ------------------------------------------------------------------------------------------------------------------------------- Interest rate contracts: Swaps: Assets $674,749 $ 23,418 $657,434 $ 13,072 Liabilities 573,574 (21,447) 638,721 (11,177) Caps and floors held 559,418 2,263 201,911 12 Caps and floors written 692,887 (2,920) 278,860 (184) Foreign exchange forward contracts: Assets 721,582 23,158 611,761 18,053 Liabilities 626,929 (19,449) 579,666 (16,689) - -------------------------------------------------------------------------------------------------------------------------------
73 58 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 18. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY CONDENSED BALANCE SHEETS
December 31, in thousands 1994 1993 - ---------------------------------------------------------------------------------------------------------- ASSETS Cash and due from banks $ 565 $ 1,004 Interest-bearing deposits with bank affiliates 528,793 481,000 Securities purchased from bank affiliates under resale agreements 1,597 5,466 Investment securities 48,218 46,936 Securities available for sale 88,991 -- Loans and advances to subsidiaries: Banks and bank holding companies 188,890 218,507 Nonbank subsidiaries 278,636 227,403 - ---------------------------------------------------------------------------------------------------------- 467,526 445,910 Investment in subsidiaries: Banks and bank holding companies 4,964,314 4,515,267 Nonbank subsidiaries 238,311 192,953 - ---------------------------------------------------------------------------------------------------------- 5,202,625 4,708,220 Other assets 363,747 226,770 - ---------------------------------------------------------------------------------------------------------- Total assets $6,702,062 $5,915,306 ========== ========== LIABILITIES Short-term borrowings $ 175,000 $ 27,600 Accrued interest and other liabilities 363,411 351,354 Long-term debt 1,465,201 1,142,785 - ---------------------------------------------------------------------------------------------------------- Total liabilities 2,003,612 1,521,739 SHAREHOLDERS' EQUITY1 4,698,450 4,393,567 - ---------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $6,702,062 $5,915,306 ========== ========== - ---------------------------------------------------------------------------------------------------------- 1 See page 52 for the Parent Company's Statement of Changes in Shareholders' Equity.
CONDENSED STATEMENTS OF INCOME
Year ended December 31, in thousands 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------- INCOME Dividends from subsidiaries: Banks and bank holding companies $402,543 $664,981 $218,764 Nonbank subsidiaries 2,218 3,843 5,292 Management fees and interest income from subsidiaries 245,776 113,684 95,169 Other income 10,378 34,549 12,323 - ---------------------------------------------------------------------------------------------------------- 660,915 817,057 331,548 EXPENSES Interest on borrowed funds 74,208 97,584 84,613 Merger and integration charges -- 118,718 77,380 Personnel and other expenses 263,632 198,136 82,743 - ---------------------------------------------------------------------------------------------------------- 337,840 414,438 244,736 Income before income tax benefit and equity in undistributed net income of subsidiaries 323,075 402,619 86,812 Income tax benefit 27,165 81,710 45,403 - ---------------------------------------------------------------------------------------------------------- 350,240 484,329 132,215 Equity in undistributed net income of subsidiaries 503,250 225,597 459,883 - ---------------------------------------------------------------------------------------------------------- NET INCOME $853,490 $709,926 $592,098 ======== ======== ======== - ----------------------------------------------------------------------------------------------------------
74 59 KEYCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONDENSED STATEMENTS OF CASH FLOW
Year ended December 31, in thousands 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Operating activities Net income $ 853,490 $ 709,926 $ 592,098 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes 13,706 (15,315) (63) Gain on sale of subsidiary -- (29,410) -- Net increase in other assets (130,087) (38,037) (53,552) Net increase in other liabilities 100,501 72,688 12,570 Amortization of intangibles 8,353 8,754 7,704 Net (decrease) increase in accrued merger and integration charges (76,231) 78,261 18,930 Equity in undistributed net income of subsidiaries (503,250) (225,597) (459,883) Other operating activities, net 16,991 3,377 7,627 - ------------------------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 283,473 564,647 125,431 INVESTING ACTIVITIES Proceeds from prepayments and maturities of investment securities 130,384 8,523 8,404 Purchases of investment securities (134,939) (5,929) (15,834) Proceeds from prepayments and maturities of securities available for sale 32,130 -- -- Purchases of securities available for sale (124,208) -- -- Net decrease (increase) in security resale agreements 3,869 (4,863) 237,974 Net increase in interest-bearing deposits (47,793) (137,000) (273,071) Net decrease (increase) in loans and advances to subsidiaries 12,736 116,676 (259,774) Proceeds from sale of subsidiary -- 148,054 -- Purchase of subsidiary, net of cash acquired -- (137,431) -- Purchases of premises and equipment (3,165) (10,895) (3,317) Increase in investments in subsidiaries (71,577) (6,460) (24,893) Other investing activities, net 6,172 -- (2,442) - ------------------------------------------------------------------------------------------------------------------ NET CASH USED IN INVESTING ACTIVITIES (196,391) (29,325) (332,953) FINANCING ACTIVITIES Net increase (decrease) in short-term borrowings 147,365 (92,400) 64,122 Net proceeds from issuance of long-term debt 394,696 305,100 451,655 Payments on long-term debt (72,890) (430,465) (115,630) Redemption of preferred stock -- (85,770) -- Purchase of treasury shares (215,598) -- Proceeds from issuance of common stock pursuant to employee stock purchase, stock option and dividend reinvestment plans 18,623 28,238 39,442 Cash dividends (358,811) (262,528) (233,480) Other financing activities, net (906) 2,680 (515) - ------------------------------------------------------------------------------------------------------------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (87,521) (535,145) 205,594 - ------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (439) 177 (1,928) CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 1,004 827 2,755 - ------------------------------------------------------------------------------------------------------------------ CASH AND DUE FROM BANKS AT END OF YEAR $ 565 $ 1,004 $ 827 ========= ========= ========== - ------------------------------------------------------------------------------------------------------------------ For the years ended December 31, 1994, 1993 and 1992, the parent company paid interest on borrowed funds of $60.0 million, $98.1 million and $78.2 million, respectively.
75 EX-21 12 KEYCORP EX-21 1 EXHIBIT 21 KEYCORP SUBSIDIARIES OF THE REGISTRANT AT FEBRUARY 28, 1995
Jurisdiction of Incorporation Parent or Organization Company(1) ---------------- ---------- HOLDING COMPANY SUBSIDIARIES Key Bancshares of Alaska, Inc. (KBsAK) Alaska KeyC Key Bancshares of Idaho, Inc. (KBsID) Idaho KeyC Key Bancshares of Maine, Inc. (KBsME) Maine KeyC Key Bancshares of New York Inc. (KBsNY) New York KeyC Key Bancshares of Utah Inc. (KBsUT) Utah KeyC Key Bancshares of Vermont, Inc. (KBsVT) Vermont KeyC Key Bancshares of Washington, Inc. (KBsWA) Washington KeyC Key Bancshares of Wyoming, Inc. (KBsWY) Wyoming KeyC Society Bancorp of Michigan, Inc. (SBMI) Michigan KeyC BANK SUBSIDIARIES Casco Northern Bank, National Association (CNB) United States KBsME Citizens Banking Company (CBC) Indiana KeyC Key Bank of Colorado (KBCO) Colorado KeyC Key Bank of Alaska (KBAK) Alaska KBsAK Key Bank of Idaho (KBID) Idaho KBsID Key Bank of Maine (KBME) Maine KBsME Key Bank of New York (KBNY) New York KBsNY Key Bank of Oregon (KBOR) Oregon KBsAK Key Bank USA N.A. (KBUSA) United States KBsNY Key Bank of Utah (KBUT) Utah KBsUT Key Bank of Vermont (KBVT) Vermont KBsVT Key Bank of Washington (KBWA) Washington KBsWA Key Bank of Wyoming (KBWY) Wyoming KBsWY Key Savings Bank (KSB) Washington KBsWA OMNIBANK Aurora Colorado KeyC OMNIBANK Commerce City Colorado KeyC OMNIBANK Iliff Colorado KeyC OMNIBANK Parker Road Colorado KeyC OMNIBANK Southeast (OS) Colorado KeyC Society First Federal Savings Bank (SFF) United States KeyC Society Bank, Michigan Michigan SBMI Society National Bank (SNB) United States KeyC Society National Bank, Indiana (SNBIN) United States KeyC OTHER SUBSIDIARIES A.T. -Sentinel. Inc. Delaware SNB American Advisers, Inc. Ohio SAM Bar T Bar Fiduciary Holding Company Arizona SNB Beechnut Development Company Washington KeyC Black & Warr Insurance Agency, Inc. Idaho Gem State Boulevard, Inc. Idaho KBID CIBCO Realty Indiana KeyC Commercial Agency, Inc. Colorado KBCO Commercial Building Corporation Utah KBUT Gem State Properties Corporation (Gem State) Idaho KBID
2 KEYCORP SUBSIDIARIES OF THE REGISTRANT AT FEBRUARY 28, 1995 (continued)
Jurisdiction of Incorporation Parent or Organization Company ---------------- ------------- OTHER SUBSIDIARIES (CONTINUED) GoLdome Mortgage Investment Corp. Delaware KMI INDORE Corp. Indiana SNBIN Investco Wyoming KBsWY KBID Leasing Corporation Idaho KBID KBNY Leasing, Inc. New York KBNY KBWA Leasing Corporation Washington KBWA KC Funding Corp. Ohio SNB Key Agricultural Credit Corporation Wyoming KBWY Key Bank Life Insurance, Ltd. Arizona KeyC Key Capital Corporation Ohio KeyC Key Clearing Corp. Ohio KAMHI Key Community Development Corporation Ohio KeyC Key Equity Capital Corporation Ohio SNB Key Financial Services Inc. New York KBNY Key Investments Inc. New York SNB Key Lease, Inc. of Ohio Ohio SNB Key Mortgage Services, Inc. Ohio SNB Key Services Corporation New York KBsNY Key Trust Company New York KBNY Key Trust Company of the West Wyoming KBsWY Key Trust Company of Alaska Alaska KBAK Key Trust Company of Maine Maine KBsME Key Trust Company of the Northwest Washington KeyC Key Trust Company of Ohio, National Association United States SNB Key Trust Company of Indiana, National Association United States SNBIN Key Trust Company of Florida, National Association United States KeyC KeyCorp Asset Management Holdings, Inc. (KAMHI) Ohio SNB KeyCorp Aviation Company Delaware KeyC KeyCorp Finance Inc. Ohio KeyC KeyCorp Insurance Agency (Idaho), Inc. Idaho KBUSA KeyCorp Insurance Agency (Maine), Inc. Maine UBUSA KeyCorp Insurance Agency (Wyoming), Inc. Wyoming KBUSA KeyCorp Insurance Agency, Inc. New York KBUSA KeyCorp Insurance Company Ltd. Bermuda KeyC KeyCorp Leasing Ltd. Delaware KBUSA KeyCorp Management Company Ohio KeyC KeyCorp Mortgage Inc. (KMI) Maryland KBNY KeyCorp Network Holdings, Inc. Oregon KeyC KeyCorp Network Holdings Inc. Delaware KeyC KeyCorp Shareholder Services, Inc. Delaware SNB KLIHTC, Corp. New York KBNY Mansfield Development Corp. Vermont KBVT Merchants Mortgage and Trust Corporation Colorado KeyC Michigan Shared Properties Company Ohio SNB Midwest Power Company Ohio KeyC Millennium Asset Holding Corporation New York KBNY M.L.O., Inc. Colorado OS
3 KEYCORP SUBSIDIARIES OF THE REGISTRANT AT FEBRUARY 28, 1995 (continued)
Jurisdiction of Incorporation Parent or Organization Company ----------------- ----------- OTHER SUBSIDIARIES (CONTINUED) Mountain Ash Real Estate, Inc. Vermont KBVT NCB Properties, Inc. New York KBsNY Niagara Asset Corporation New York KBNY Niagara Portfolio Management Corp. Texas KBNY OREO Corp. Ohio SNB P.B. Participation Oregon KeyC P.S.M. Financial Management Corp. Washington KSB PacWest Building Corporation Oregon KeyC Platinum Spring Corporation Maryland KBNY Progressive Financial Services, Inc. Colorado KeyC Puget Sound Mortgage Servicing Corporation Washington KSB Puget Sound Plaza, Inc. (PSP) Washington KBWA Puget Sound Securities, Inc. Washington KSB Royal Skies Development Co. (RSD) Washington KBWA Schaenen Wood & Associates, Inc. New York KAMHI Second Street Community Urban Redevelopment Coation Ohio SNB SELCO Service Corporation Ohio SNB Society Asset Management, Inc. (SAM) Ohio KAMHI Society Equipment Leasing Company Ohio KeyC Society Equipment Leasing Corporation Ohio SNB Society Trust Company of New York New York KeyC St. Joseph Insurance Agency, Inc. Indiana KeyC State Financial Services, Inc. Ohio SNB Summit International Sales, Inc. Virgin Islands SNB Swan Island Salmon, Ltd. Maine KBME Trustcorp Financing Services, Inc. Ohio KeyC Vermont Coconut Grove Corp. Vermont KBVT Vermont Realty, Inc. Vermont KBVT Virginia Stone Corporation New York KBNY Washington Mortgage Corporation Washington KBsWA
Note: Listing excludes subsidiaries that are inactive or discontinued operations. (1) Each subsidiary is 100% owned by its parent company or KeyCorp (KeyC) unless otherwise noted. EX-23 13 KEYCORP EX-23 1 EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of KeyCorp of our report dated January 18, 1995, except for Note 2, as to which the date is February 28, 1995, included in the 1994 Annual Report to Shareholders of KeyCorp. We also consent to the incorportion by reference in the following Registration Statements of KeyCorp and in the related Prospectuses of our report dated January 18, 1995, except for Note 2, as to which the date is February 28, 1995, with respect to the consolidated financial statements incorporated herein by reference in this Annual Report (Form 10-K) for the year ended December 31, 1994: Form S-3 No. 33-5064 Form S-3 No. 33-10634 Form S-3 No. 33-39733 Form S-3 No. 33-39734 Form S-3 No. 33-51652 Form S-3 No. 33-53643 Form S-3 No. 33-56879 Form S-4 No. 33-31569 Form S-4 No. 33-44657 Form S-4 No. 33-51717 Form S-4 No. 33-55573 Form S-4 No. 33-57329 Form S-8 No. 2-67589 Form S-8 No. 2-96769 Form S-8 No. 2-97452 Form S-8 No. 33-21643 Form S-8 No. 33-42691 Form S-8 No. 33-45518 Form S-8 No. 33-46278 Form S-8 No. 33-52293 Form S-8 No. 33-54819 Form S-8 No. 33-56745 Form S-8 No. 33-56881 Form S-8 No. 33-57408 Form S-8 No. 33-31569 (Post-Effective Amendment No. 1 to Form S-4) Form S-8 No. 33-31569 (Post-Effective Amendment No. 2 to Form S-4) Form S-8 No. 33-31569 (Post-Effective Amendment No. 3 to Form S-4) Form S-8 No. 33-44657 (Post-Effective Amendment No. 1 to Form S-4) Form S-8 No. 33-51717 (Post-Effective Amendment No. 1 to Form S-4) /s/ Ernst & Young LLP Cleveland, Ohio March 24, 1995 EX-24 14 KEYCORP EX-24 1 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Victor J. Riley, Jr. ------------------------------- Typed Name: Victor J. Riley, Jr. ------------------------------- 2 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Robert W. Gillespie ------------------------------- Typed Name: Robert W. Gillespie ------------------------------- 3 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ James W. Wert ------------------------------- Typed Name: James W. Wert ------------------------------- 4 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Lee Irving ------------------------------- Typed Name: Lee Irving ------------------------------- 5 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ H. Douglas Barclay ------------------------------- Typed Name: H. Douglas Barclay ------------------------------- 6 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ William G. Bares ------------------------------- Typed Name: William G. Bares ------------------------------- 7 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ A.C. Bersticker ------------------------------- Typed Name: A.C. Bersticker ------------------------------- 8 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Thomas A. Commes ------------------------------- Typed Name: Thomas A. Commes ------------------------------- 9 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Kenneth M. Curtis ------------------------------- Typed Name: Kenneth M. Curtis ------------------------------- 10 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ John C. Dimmer ------------------------------- Typed Name: John C. Dimmer ------------------------------- 11 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Stephen R. Hardis ------------------------------- Typed Name: Stephen R. Hardis ------------------------------- 12 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Henry S. Hemingway ------------------------------- Typed Name: Henry S. Hemingway ------------------------------- 13 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Charles R. Hogan ------------------------------- Typed Name: Charles R. Hogan ------------------------------- 14 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Lawrence A. Leser ------------------------------- Typed Name: Lawrence A. Leser ------------------------------- 15 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Steven A. Minter ------------------------------- Typed Name: Steven A. Minter ------------------------------- 16 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ M. Thomas Moore ------------------------------- Typed Name: M. Thomas Moore ------------------------------- 17 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ John C. Morley ------------------------------- Typed Name: John C. Morley ------------------------------- 18 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Richard W. Pogue ------------------------------- Typed Name: Richard W. Pogue ------------------------------- 19 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ R.A. Schumacher ------------------------------- Typed Name: R.A. Schumacher ------------------------------- 20 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Ronald B. Stafford ------------------------------- Typed Name: Ronald B. Stafford ------------------------------- 21 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Dennis W. Sullivan ------------------------------- Typed Name: Dennis W. Sullivan ------------------------------- 22 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Peter G. Ten Eyck, II ------------------------------- Typed Name: Peter G. Ten Eyck, II ------------------------------- 23 POWER OF ATTORNEY The undersigned, an officer or director, or both an officer and director, of KeyCorp, an Ohio corporation, which proposes to file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Exchange Act of 1934, as amended, its Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "Annual Report"), hereby constitutes and appoints Carter B. Chase, Roger Noall, and James W. Wert and each of them, as attorney for the undersigned, with full power of substitution and resubstitution, for and in the name, place, and stead of the undersigned, to sign and file the Annual Report and exhibits thereto, and any and all amendments thereto, with full power and authority to do and perform any and all acts and things whatsoever requisite and necessary to be done in the premises, hereby ratifying and approving the acts of such attorney or any such substitute. IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand as of March 16, 1995. /s/ Nancy B. Veeder ------------------------------- Typed Name: Nancy B. Veeder ------------------------------- EX-27 15 KEYCORP EX-27
9 1,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 3,511,368 380,651 163,798 125,561 2,521,049 10,275,638 9,757,032 46,224,644 830,298 66,798,104 48,564,237 8,776,728 1,188,895 3,569,794 245,944 0 160,000 4,292,506 66,798,104 3,659,621 823,933 6,516 4,490,070 1,324,756 1,796,826 2,693,244 125,157 (14,673) 2,167,238 1,283,471 853,490 0 0 853,490 3.41 3.41 4.83 254,499 50,150 1,550 146,251 802,712 208,791 99,640 830,298 830,298 0 478,116
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