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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, 1995
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
[LOGO]
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)
(216) 689-6300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $8,772,463,158 at February 29, 1996. (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 29, 1996.)
233,155,167
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(NUMBER OF KEYCORP COMMON SHARES OUTSTANDING AS OF FEBRUARY 29, 1996)
Certain specifically designated portions of KeyCorp's 1995 Annual Report to
Shareholders are incorporated by reference into Parts I, II and IV of this Form
10-K. Certain specifically designated portions of KeyCorp's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Form 10-K.
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KEYCORP
1995 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
ITEM PAGE
NUMBER NUMBER
- - - ------ ------
PART I
1 Business................................................... 1
2 Properties................................................. 8
3 Legal Proceedings.......................................... 8
4 Submission of Matters to a Vote of Security Holders........ 8
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 9
6 Selected Financial Data.................................... 9
7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................ 9
8 Financial Statements and Supplementary Data................ 9
9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................. 9
PART III
10 Directors and Executive Officers of the Registrant......... 9
11 Executive Compensation..................................... 9
12 Security Ownership of Certain Beneficial Owners and
Management............................................... 10
13 Certain Relationships and Related Transactions............. 10
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................. 10
Signatures................................................. 14
Exhibits................................................... 15
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PART I
ITEM 1. BUSINESS
OVERVIEW
KeyCorp (also referred to herein as the "Corporation") 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 creditor of such banking and other subsidiaries may be
recognized.
KeyCorp, organized in 1958 under the laws of the state of Ohio and registered
under the Bank Holding Company Act of 1956, as amended, is headquartered in
Cleveland, Ohio, and is engaged primarily in the business of commercial and
retail banking. At December 31, 1995, it was one of the nation's largest bank
holding companies with consolidated total assets of approximately $66.3 billion.
KeyCorp provides a wide range of banking, fiduciary and other financial services
to its corporate, individual and institutional customers through four primary
lines of business: Corporate Banking, National Consumer Finance, Community
Banking and Key PrivateBank (Personal Financial Services). These services are
provided across much of the country through a network of banking subsidiaries
operating approximately 1,300 full-service banking offices, a 24-hour telephone
banking call center services group and nearly 1,500 ATMs in 14 states as of
December 31, 1995. At February 29, 1996, the Corporation and its subsidiaries
had approximately 28,905 full-time equivalent employees.
In addition to the customary banking services of accepting deposits and making
loans, the Corporation's bank and certain nonbank subsidiaries provide
specialized services tailored to specific markets, including personal and
corporate trust services, customer access to mutual funds, cash management
services, investment banking services, international banking services and
investment management services.
The Corporation also provides other financial services both in and outside of
its primary banking markets through its nonbank subsidiaries. These services
include providing life, 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 services, securities brokerage, automobile financing and other
financial services. The Corporation is also an equity participant in a joint
venture with a number of other unaffiliated bank holding companies in Electronic
Payment Services, Inc.
In February 1996, the Corporation received approval from the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") to establish a
nonbank subsidiary, Key Capital Markets, Inc., headquartered in Ohio, to engage
in various capital markets services and activities, including financial advisory
services, certain trading and underwriting activities and services,
institutional broker services and foreign exchange and derivatives advisory
services for public sector and corporate customers.
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The following financial data is included in the KeyCorp 1995 Annual Report to
Shareholders and is incorporated herein by reference as indicated below:
DESCRIPTION OF FINANCIAL DATA PAGE
----------------------------- ----
Selected Financial Data..................................................... 31
Average Balance Sheets, Net Interest Income and Yields/Rates................ 36
Components of Net Interest Income Changes................................... 39
Maturities and Sensitivity of Certain Loans to Changes in Interest Rates.... 44
Composition of Loans........................................................ 48
Securities Available for Sale............................................... 50
Investment Securities....................................................... 50
Allocation of the Allowance for Loan Losses................................. 52
Summary of Loan Loss Experience............................................. 53
Summary of Nonperforming Assets and Past Due Loans.......................... 53
Maturity Distribution of Time Deposits of $100,000 or More.................. 55
Nonperforming Assets........................................................ 74
Short-Term Borrowings....................................................... 76
The executive offices of KeyCorp are located at 127 Public Square, Cleveland,
Ohio 44114-1306, and its telephone number is (216) 689-6300.
MERGERS, ACQUISITIONS AND DIVESTITURES
The information presented in Note 2, "Mergers, Acquisitions and Divestitures",
beginning on page 70 of the KeyCorp 1995 Annual Report to Shareholders, is
incorporated herein by reference.
COMPETITION
The market for banking and related financial 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.
Recent mergers between financial institutions have added competitive pressure to
KeyCorp's core banking services. In addition, competition is expected to
intensify further as a consequence of interstate banking laws now in effect in
the majority of states which permit banking organizations to expand
geographically. Further, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") removed the restrictions on
interstate acquisitions of banks and bank holding companies as of September 29,
1995. The act also authorizes nationwide interstate branching and bank mergers
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.
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.
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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 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")
(See Note 2, "Mergers, Acquisitions and Divestitures," starting on page 70 of
the KeyCorp 1995 Annual Report to Shareholders which is incorporated herein by
reference), 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, KeyBank National Association ("KBNA") and Key Bank USA,
National Association ("Key-USA") 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. 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 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 state banking authorities; and the Corporation's
insurance subsidiaries are subject to regulation
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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 principal source of cash flow to 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, KBNA and Key-USA, and the Corporation's trust company subsidiaries that
are national banks, are subject to these restrictions.
Key Bank of New York ("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 Bank of Washington
("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 similar
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 it is undercapitalized or if payment would cause it to
become 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, 1995, the
Corporation's banking subsidiaries could have declared dividends estimated to be
$317.7 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.
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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, all covered transactions between a
banking subsidiary and any one of its nonbanking affiliates are limited in
amount to 10% of that banking subsidiary's capital and surplus and, with respect
to all covered transactions with all nonbanking 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 a subsidiary bank 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 noncumulative, 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
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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, 1995, the Corporation's Tier I and total
capital to risk-adjusted assets ratios were 7.53% and 10.85%, respectively.
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, 1995, the Corporation's Tier I leverage ratio was 6.20%. 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. As of December 31, 1995, the Corporation's tangible Tier
I leverage ratio was 6.16%.
Pursuant to Federal Reserve Board rules, net unrealized gains and losses on
investments in debt securities classified as "available for sale" are excluded
from the computation of Tier I capital for purposes of the risk-based capital
and leverage standards. Net unrealized losses on equity securities with readily
determinable fair values, which are held in the "available for sale" portfolio,
must be deducted from Tier I capital.
The Corporation's banking subsidiaries are also subject to capital requirements
adopted by their respective primary Federal 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, 1995, each
of the Corporation's banking subsidiaries had capital in excess of all minimum
regulatory requirements.
On July 14, 1995, the Federal Reserve Board, OCC and FDIC issued a joint notice
of proposed rulemaking in which the agencies proposed to amend their respective
risk-based capital requirements to incorporate a measure for general market risk
and for specific risk pertaining to an institution's foreign exchange and
commodity activities and trading of debt and equity instruments. Under the
proposal, bank holding companies such as KeyCorp, and banks, such as KeyCorp's
bank subsidiaries, would be required to hold capital based on the measure of
their market risk exposure, in addition to the capital such institutions are
presently required to maintain for credit risk exposure. Also under the
proposal, institutions with relatively large trading activities would be
permitted to calculate their respective capital charge for market risk using
either their own internal, so-called "value-at-risk" model or, alternatively,
they may adopt the risk measurement techniques developed by banking supervisory
authorities (the so-called "standardized approach"). KeyCorp has not yet
assessed the impact of this proposal, if any, on its operations, including the
effect, if any, on its levels of required capital.
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 I 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 I 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 I
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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 I 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 (the
"SAIF") of the FDIC. The assessments are based on the institution's risk
classification which, in turn, 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 insurance fund, absent effective corrective action).
On August 8, 1995, the FDIC amended its regulations on insurance assessments to
establish a new assessment rate schedule of 4 to 31 cents per $100 of domestic
deposits in replacement of the previous schedule of 23 to 31 cents per $100 of
domestic deposits for institutions whose deposits are subject to assessment by
the BIF. The new BIF schedule became effective on June 1, 1995. Assessments
collected in accordance with the previous assessment schedule that exceed the
amount due under the new schedule have been refunded, with interest, from the
effective date of June 1, 1995. For the period commencing June 1 through
December 31, 1995, insurance premiums on deposits of all of the Corporation's
banking subsidiaries were assessed at the rate of 4 cents per $100 of domestic
deposits. The BIF rate has been further reduced to zero as of January 1, 1996.
The FDIC has maintained the current assessment rate schedule of 23 to 31 cents
per $100 of domestic deposits for institutions whose deposits are subject to
assessment by the SAIF. Various legislative proposals regarding the future of
the SAIF have been issued recently. One such proposal includes a one-time
special assessment for SAIF deposits of 85 cents per $100 of SAIF deposits. As
of December 31, 1995, the Corporation held $4.4 billion in SAIF deposits which
would be subject to the assessment. The Corporation does not know when, or if,
this proposal may be adopted nor, if adopted, if it would result in a reduction
of the
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SAIF assessment rate of $.23 per $100 of insured deposits. Accordingly, no
liability for the special assessment has been recorded.
INTERSTATE BANKING AND OTHER RECENT LEGISLATION
On September 29, 1994, the Interstate Act was enacted into federal law. Under
the Interstate Act, commencing on September 29, 1995, bank holding companies
were 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
establish 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. The Corporation periodically reviews the
consolidation opportunities which may become available to it under the terms of
the Interstate Act, including under the various states' proposed or enacted
"opt-in" and "opt-out" legislative initiatives. The Corporation intends to
consolidate the banks within each of its four banking regions to the extent
permitted by Federal and state laws and consistent with its business needs,
beginning with the Great Lakes and Northwest Regions in 1996.
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 United
States 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 695,000 square feet of the complex, encompassing the first
twenty-two floors, the 28th floor and the 54th through 56th floors of the
57-story Society Tower. At December 31, 1995, the banking subsidiaries of
KeyCorp owned 775 of their branch banking offices and leased 509 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 75 of the KeyCorp 1995 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Corporation 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 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.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The dividend restrictions discussion on page 4 of this report and the following
disclosures included in the KeyCorp 1995 Annual Report to Shareholders are
incorporated herein by reference:
PAGE
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Discussion of Common Shares and shareholder information presented in the
Capital and Dividends section............................................... 56
Presentation of quarterly market price and cash dividends per Common Share.... 58
Discussion of dividend restrictions presented in Note 15, Commitments,
Contingent Liabilities and Other Disclosures................................ 83
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data presented on page 31 of the KeyCorp 1995 Annual
Report to Shareholders are 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 of
Financial Condition and Results of Operations" presented on pages 27 through 59
of the KeyCorp 1995 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 58 and on pages 63 through 89, respectively, of the
KeyCorp 1995 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" contained in KeyCorp's
definitive Proxy Statement for the 1996 Annual Meeting of Shareholders to be
held May 23, 1996, and is incorporated herein by reference. KeyCorp expects to
file its proxy statement on or about April 9, 1996.
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 "EMPLOYMENT, SEVERANCE, AND CHANGE OF CONTROL AGREEMENTS"
contained in KeyCorp's definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders to be held May 23, 1996, and is incorporated herein by reference.
The information set forth in the sections captioned "COMPENSATION AND
ORGANIZATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION" and "KEYCORP STOCK
PRICE PERFORMANCE" contained in KeyCorp's definitive Proxy Statement for
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the 1996 Annual Meeting of Shareholders to be held May 23, 1996, is not
incorporated by reference in this Report on Form 10-K. KeyCorp expects to file
its proxy statement on or about April 9, 1996.
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 AND PHANTOM STOCK UNITS" contained in KeyCorp's definitive
Proxy Statement for the 1996 Annual Meeting of Shareholders to be held May 23,
1996, and is incorporated herein by reference. KeyCorp expects to file its proxy
statement on or about April 9, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth in the section captioned
"ELECTION OF DIRECTORS" contained in KeyCorp's definitive Proxy Statement for
the 1996 Annual Meeting of Shareholders to be held May 23, 1996, and is
incorporated herein by reference. KeyCorp expects to file its proxy statement on
or about April 9, 1996.
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 its subsidiaries, and the
auditor's report thereon, are incorporated herein by reference to the pages
indicated in the KeyCorp 1995 Annual Report to Shareholders:
PAGE
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Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors........................... 62
Consolidated Balance Sheets at December 31, 1995 and 1994................... 63
Consolidated Statements of Income for the Years Ended December 31, 1995,
1994 and 1993............................................................ 64
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993................................... 65
Consolidated Statements of Cash Flow for the Years Ended December 31, 1995,
1994 and 1993............................................................ 66
Notes to Consolidated Financial Statements.................................. 67
(A) (2) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules for KeyCorp and its 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.
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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.
10.1 KeyCorp Short Term Incentive Compensation Plan. Filed as Exhibit 10.1 to Form
10-K for the year ended December 31, 1994 and incorporated herein by
reference.
10.2 KeyCorp Long Term Cash Incentive Compensation Plan. Filed as Exhibit 10.2 to
Form 10-K for the year ended December 31, 1994, and incorporated herein by
reference.
10.3 KeyCorp 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.
10.4 Compensation Continuation Agreements executed between Society Corporation and
certain executive officers of Society Corporation as of December 5, 1990.
10.5 Compensation Continuation Agreements 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.
10.6 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.
10.7 Amended and Restated Employment Agreement between KeyCorp and Victor J. Riley,
Jr., dated May 18, 1995. Filed as Exhibit 10.1 to Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein by reference.
10.8 Amended and Restated Employment Agreement between KeyCorp and Robert W.
Gillespie, dated May 18, 1995. Filed as Exhibit 10.2 to Form 10-Q for the
quarter ended June 30, 1995, and incorporated herein by reference.
10.9 Amended and Restated Employment Agreement between KeyCorp and Roger Noall,
dated July 19, 1995. Filed as Exhibit 10.1 to Form 10-Q for the quarter ended
September 30, 1995, and incorporated herein by reference.
10.10 Employment Agreement between KeyCorp and Gary Allen, dated July 1, 1993. Filed
as Exhibit 10.14 to Form 10-K for the year ended December 31,1994, and
incorporated herein by reference.
10.11 KeyCorp Director Deferred Compensation Plan (January 1, 1995 Restatement).
Filed as Exhibit 10.15 to Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference.
10.12 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.
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10.13 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.
10.14 Society Corporation 1984 Stock Option Plan, as amended.
10.15 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.
10.16 1987 Stock Option Plan of Trustcorp, Inc.
10.17 1981 Incentive Stock Option Plan of Toledo Trustcorp, Inc.
10.18 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.
10.19 Restatement of the Ameritrust Long-Term Incentive Plan as the Ameritrust Stock
Option Plan.
10.20 Trust Agreement (Executive Benefits Rabbi Trust), dated November 3, 1988.
10.21 Ameritrust Corporation Deferred Compensation Plan.
**10.22 Old KeyCorp Supplemental Disability Benefit Plan (Specimen Document).
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 Form of Change of Control Agreement for old KeyCorp executives, dated February
25, 1994. Filed as Exhibit 10.36 to Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.
10.28 KeyCorp Directors' Stock Option Plan (November 17, 1994 Restatement). Filed as
Exhibit 10.37 to Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference.
10.29 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.
10.30 KeyCorp Excess Cash Balance Pension Plan, effective January 1, 1996.
10.31 KeyCorp Excess 401(k) Savings Plan, effective January 1, 1996.
**10.32 KeyCorp Executive Deferred Compensation Plan, effective June 1, 1990.
**10.33 KeyCorp Survivor Benefit Plan, effective September 1, 1990.
**10.34 KeyCorp Directors' Survivor Benefit Plan, effective September 1, 1990.
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**10.35 KeyCorp Supplemental Retirement Benefit Plan for Key Executives, effective
July 1, 1990 and restated August 16, 1990.
**10.36 KeyCorp Umbrella Trust for Executives, between KeyCorp and National Bank of
Detroit dated July 1, 1990.
**10.37 KeyCorp Umbrella Trust for Directors, between KeyCorp and National Bank of
Detroit dated July 1, 1990.
11 Statement re: Computation of Per Share Earnings.
12 Statement re: Computation of Ratios.
13 KeyCorp 1995 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP, 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 10.37 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.
(B) REPORTS ON FORM 8-K
October 6, 1995 -- Item 5. Other Events and Item 7. Financial
Statements, Pro Forma Financial Statements and
Exhibits. Reporting that the Registrant had completed
the following transactions: (a) the acquisition of
AutoFinance Group, Inc., (b) the execution of 3(a)(3)
Commercial Paper Agreements and Private Placement
Letters of Understanding in connection with the
issuance of $500 million of commercial paper, and (c)
the obtainment of a $500 million revolving line of
credit.
October 19, 1995 -- 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, 1995, announcing its
earnings results for the three- and nine-month
periods ended September 30, 1995.
No other reports on Form 8-K were filed during the fourth quarter of 1995.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTIONS 13 OR 15(D) OF THE SECURITIES AND
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
ROGER NOALL
Senior Executive Vice President,
Chief Administrative Officer, General
Counsel, and Secretary
March 14, 1996
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
--------- ----- --------- -----
*Robert W. Gillespie President and Chief *Stephen R. Hardis Director
Executive Officer
(Principal Executive *Henry S. Hemingway Director
Officer)
*Charles R. Hogan Director
*K. Brent Somers Senior Executive Vice
President and Chief *Douglas J. McGregor Director
Financial Officer
(Principal Financial *Steven A. Minter Director
Officer)
*M. Thomas Moore Director
*Lee G. Irving Executive Vice
President and Chief *John C. Morley Director
Accounting Officer
(Principal Accounting *Richard W. Pogue Director
Officer)
*Victor J. Riley, Jr. Chairman of the Board
*Cecil D. Andrus Director
*Robert A. Schumacher Director
*William G. Bares Director
*Ronald B. Stafford Director
*Albert C. Bersticker Director
*Dennis W. Sullivan Director
*Thomas A. Commes Director
*Peter G. Ten Eyck, II Director
*Kenneth M. Curtis Director
*Nancy B. Veeder Director
*John C. Dimmer Director
*Lucie J. Fjeldstad Director *By Roger Noall, attorney-in-fact
March 14, 1996
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