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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)
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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)
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(216) 689-6300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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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)
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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
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ITEM PAGE
NUMBER NUMBER
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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:
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DESCRIPTION OF FINANCIAL DATA PAGE
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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
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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
7
<PAGE> 10
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.
8
<PAGE> 11
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:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
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
9
<PAGE> 12
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:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
(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*
<TABLE>
<C> <S>
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.
</TABLE>
10
<PAGE> 13
<TABLE>
<S> <C>
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.
</TABLE>
11
<PAGE> 14
<TABLE>
<S> <C>
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.
</TABLE>
12
<PAGE> 15
<TABLE>
<C> <S>
**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.
<FN>
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.
</TABLE>
(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.
13
<PAGE> 16
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE SIGNATURE TITLE
--------- ----- --------- -----
<S> <C> <C> <C>
*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
</TABLE>
14
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT CONTINUATION AGREEMENTS
----------------------------------
Attached is a copy of the Employment Continuation Agreement executed
between Society Corporation and the following executive officers of Society as
of the dates indicated:
DECEMBER 5, 1990
----------------
Patrick V. Auletta
James S. Bingay
R. Bruce Campbell
Lawrence J. Carlini
George H. Cress
Donald Cruse
Frederick A. Deal
James A. Fishell
Robert W. Gillespie
Allen J. Gula, Jr.
Michael J. Hammes
Douglas L. Hawthorne
Robert B. Heisler
Anthony Heyworth
Michael P. Malone
D. Allen McDaniel
Henry L. Meyer III
A. Jay Meyerson
Bruce C. Murray
Roger Noall
Robert M. Patrick
Frank G. Ponchak
William J. Simon
Martin J. Walker
Stephen E. Wall
James J. Wert
FEBRUARY 1, 1991
----------------
Daniel J. Gannon
Carl C. Heintel, Jr.
FEBRUARY 8, 1991
----------------
Michael D. Hansen
<PAGE> 2
AGREEMENT
This AGREEMENT ("Agreement"), made as of the __ day of _________, 19__,
between SOCIETY CORPORATION, an Ohio corporation ("Society"), and
____________________________ (the "Executive"),
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Society has determined that, in light of the importance of the
Executive's continued services to the continuity of management of Society and
its Subsidiaries (as defined in Section 1 below), it is in Society's best
interest 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 (as defined in Section 1 below) of Society;
NOW, THEREFORE, Society and the Executive agree as follows:
1. Definitions.
-----------
(a) ACCOUNTING FIRM. The term "Accounting Firm" means the independent
auditors of Society 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
-1-
<PAGE> 3
Agreement, Society 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
Society or any of its affiliates (as defined in Rule 12b-2 promulgated under
the Securities Exchange Act of 1934, as amended).
(b) 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 both the Society Management
Incentive Compensation Plan and the Society Long Term Incentive Compensation
Plan for that year. For these purposes, an incentive compensation award payable
to the Executive under the Society Long Term Incentive Compensation Plan with
respect to any three-year period will be deemed to be "for" the last year of
that three-year period. Thus, for example, the incentive compensation award
payable to the Executive under the Society Long Term Incentive Compensation
Plan with respect to the three year period comprised of 1988, 1989, and 1990
will be deemed to be "for" 1990 (without regard to the time of payment), the
entire award under that plan for that period will be part of the Aggregate
Incentive Compensation Award for 1990, and no part of the award under
-2-
<PAGE> 4
that plan for that period will be part of the Aggregate Incentive Compensation
Award for any year other than 1990.
(c) AVERAGE ANNUAL INCENTIVE COMPENSATION. The term
"Average Annual Incentive Compensation" shall mean the greater of:
(i) 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, or
(ii) 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 first Change of
Control occurring after the execution of this Agreement.
(d) CAUSE. The employment of the Executive by Society 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:
(i) the Executive shall have been convicted of a felony,
(ii) 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 Society 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 Society (other than the
Executive, if the Executive is a Director of Society) 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, or
(iii) after being notified in writing by the Board of Directors of
Society to cease the Competitive Activity in question, the Executive
-3-
<PAGE> 5
shall intentionally continue to engage in such Competitive Activity
while the Executive remains in the employ of Society or a Subsidiary.
(e) CHANGE OF CONTROL. A "Change of Control" shall be deemed to have
occurred if at any time or from time to time after the date of this Agreement:
(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 Securities
Exchange Act of 1934, as amended, disclosing the acquisition of 25% or
more of the voting stock of Society 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 Securities Exchange Act of 1934, as amended),
(ii) during any period of 24 consecutive calendar months, individuals
who at the beginning of such period constitute the directors of Society
cease for any reason to constitute at least a majority thereof unless the
election of each new director of Society was approved or recommended by the
vote of at least two-thirds of the directors of Society then still in
office who were directors of Society at the beginning of any such period,
(iii) Society merges with or into or consolidates with another
corporation and, after giving effect to such merger or consolidation, less
than sixty percent (60%) of the then outstanding voting securities of the
surviving or resulting corporation represent or were issued in exchange
for voting securities of Society outstanding immediately prior to such
merger or consolidation,
(iv) 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 Society, or
(v) the shareholders of Society shall approve any plan or proposal for
the liquidation or dissolution of Society.
(f) COMPETITIVE ACTIVITY. The Executive shall be deemed to
have engaged in "Competitive Activity" if the Executive:
-4-
<PAGE> 6
(i) engages in any business or business activity in which Society 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 Society or any of its
Subsidiaries), or
(ii) 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, or other financial services
company other than Society or any 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 (ii)
shall not prohibit or restrict the Executive from serving in any such
capacity with the consent of Society.
(g) DAY. A "day" as used in this Agreement means a calendar
day unless business day is specifically referred to.
(h) FULL-TIME EMPLOYMENT WITH AN UNAFFILIATED EMPLOYER.
"Full-time Employment with an Unaffiliated Employer" means full-time (more
than 30 hours per week) employment at either a base salary, hourly rate,
partnership interest, or other form of participation, which will result in
annual compensation to the Executive of at least 75% of the annual base
salary of the Executive with Society and its Subsidiaries at the highest rate
in effect at any time from one year prior to the Change of Control to the
Termination Date, but does not include employment by (i) a corporation or
other firm organized or formed by the Executive as a new business (including,
without limitation, a consulting
-5-
<PAGE> 7
business) after the Termination Date, or (ii) a corporation or other firm the
majority of the equity interests of which were acquired by the Executive and/or
the Executive's immediate family members after the Termination Date.
(i) NON-WINDOW VOLUNTARY RESIGNATION. A "Non-Window Voluntary
Resignation" shall have occurred if the Executive, on any day during the two-
year period beginning on the date of a Change of Control other than any day
that falls within the Window Period, terminates the Executive's employment
with Society and all its subsidiaries by voluntarily resigning, unless during
that two year period and prior to the Executive's voluntary resignation, there
has occurred a Reduction of Base Salary or a Mandatory Relocation; provided
further, in the event that there has been more than one Change of Control,
there shall not be a Non-Window Voluntary Resignation if the Termination Date
occurs during the Window Period with respect to any of the Changes of Control.
(j) PERMITTED EMPLOYMENT TERMINATION. A "Permitted Employment
Termination" shall have occurred if, after a Change of Control, the employment
of the Executive by Society or any of its Subsidiaries is terminated:
(i) by Society or its Subsidiary, for Cause,
(ii) by Society, its Subsidiary, or the Executive by reason of
disability of the Executive, as a result of accidental bodily injury or
sickness for a period of 180 consecutive days, but only if the Executive
begins to receive payments under the Society Long Term Disability Plan, or
(iii) by the death of the Executive.
-6-
<PAGE> 8
(k) REDUCTION OF BASE SALARY OR A MANDATORY RELOCATION. A
"Reduction of Base Salary or a Mandatory Relocation" shall have occurred if
either of the following has occurred:
(i) after a Change of Control, the base salary of the Executive is at
any time reduced, or
(ii) after a Change of Control, the Executive is required to relocate
the Executive's principal place of employment for Society or its Subsidiary
more than 35 miles from where the Executive was located prior to the
Change of Control.
(l) SOCIETY LONG TERM DISABILITY PLAN. The term "Society Long
Term Disability Plan" means and includes the Amended and Restated Society
Corporation Long Term Disability Plan as from time to time amended, restated,
or otherwise modified, including any long term disability plan hereafter
succeeding, replacing, or being substituted for such plan.
(m) SOCIETY LONG TERM INCENTIVE COMPENSATION PLAN. The term
"Society Long Term Incentive Compensation Plan" means and includes the Society
Corporation Long Term Incentive Compensation Plan (January 1, 1990 Restatement)
as from time to time amended, restated, or otherwise modified, including any
incentive compensation plan hereafter succeeding, replacing, or being
substituted for such plan.
(n) SOCIETY MANAGEMENT INCENTIVE COMPENSATION PLAN. The term
"Society Management Incentive Compensation Plan" means and includes the Society
Corporation Management Incentive Compensation Plan (January 1, 1990
Restatement) as from time to time amended, restated, or
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otherwise modified, including any incentive compensation plan hereafter
succeeding, replacing, or being substituted for such plan.
(o) SOCIETY RETIREMENT PLANS. The term "Society Retirement
Plans" means and includes the Retirement Plan for Employees of Society
Corporation and Subsidiaries (January 1, 1986 Restatement), the Society
Corporation Excess Benefit Retirement Plan (April 26, 1990 Amendment and
Restatement), and the Society Corporation Supplemental Retirement Plan (April
26, 1990 Amendment and Restatement), in all cases, as from time to time
amended, restated, or otherwise modified, including any plan hereafter
succeeding, replacing, or being substituted for any such plan, and all
retirement plans of any nature (including, without limitation, retirement
benefits or rights provided under employment contracts or agreements with the
Executive or provided in resolutions adopted by the Board of Directors of
Society or any of its Subsidiaries) maintained by Society or any of its
Subsidiaries in which the Executive was participating prior to the Termination
Date.
(p) SOCIETY SAVINGS PLANS. The term "Society Savings Plans"
means and includes the Society Corporation Employee Stock Purchase and Savings
Plan (January 1, 1989 Restatement) and the Amended and Restated Society
Corporation Supplemental Stock Purchase and Savings Plan, in both cases, as
from time to time amended, restated, or otherwise modified, including any plan
hereafter
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succeeding, replacing, or being substituted for either such plan, and all
salary reduction, savings, profit-sharing, or stock bonus plans (including,
without limitation, all plans involving employer matching contributions,
whether or not constituting a qualified cash or deferred arrangement under
Section 401(k) of the Internal Revenue Code), maintained by Society or any of
its Subsidiaries in which the Executive was participating prior to the
Termination Date.
(q) SOCIETY SUPPLEMENTAL RETIREMENT PLAN. The term "Society
Supplemental Retirement Plan" means and includes the Society Corporation
Supplemental Retirement Plan (April 26, 1990 Amendment and Restatement) as from
time to time amended, restated, or otherwise modified, including any
supplemental retirement plan hereafter succeeding, replacing, or being
substituted for such plan.
(r) 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 Society.
(s) TERMINATION DATE. The term "Termination Date" means the
date on which the Executive's employment with Society and its Subsidiaries
terminates.
(t) WINDOW PERIOD. The term "Window Period," with respect to
any 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
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fifteenth month after the month in which the Change of Control occurs.
2. COMPENSATION CONTINUATION, SEVERANCE, AND OTHER BENEFITS IF
EMPLOYMENT IS TERMINATED 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 Society and its Subsidiaries is terminated for any reason
(whether by Society or its Subsidiary or by resignation of the Executive),
other than a Non-Window Voluntary Resignation or a Permitted Employment
Termination, this Section 2 shall become applicable and Society, either
directly or through one or more of its Subsidiaries, shall pay to the Executive
the amounts specified in Paragraphs (a) and (b) of this Section 2 on the dates
indicated therein and shall provide to the Executive the benefits specified in
Paragraphs (c) and (d) of this Section 2 for the period specified therein:
(a) Society or a Subsidiary shall pay to the Executive monthly
compensation continuation payments for 24 months (commencing on the fifteenth
day of the month following the month in which the Termination Date occurs and
continuing on the fifteenth day of each of the next succeeding 23 months). The
amount of each such monthly payment shall be the sum of (i) one month's base
salary of the Executive (at the highest rate in effect at any time from one
year prior to the Change of Control to the Termination Date), plus (ii)
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one-twelfth (1/12) of the Executive's Average Annual Incentive Compensation.
(b) Society or a Subsidiary shall pay to the Executive, within
10 business days after the Termination Date, a lump sum severance payment in
an amount equal to six times the amount of the monthly payment calculated under
Paragraph (a), above.
(c) Society or a Subsidiary shall arrange to provide the
Executive, for 24 months following the Termination Date, with medical benefits
(including, if applicable, dental), long term disability benefits, and group
term life insurance benefits, in all cases at substantially the same level of
coverage, and subject to the same (by dollar amount) employee contribution
requirement (if any), as those which the Executive was receiving or entitled to
receive as an officer of Society or its Subsidiary on the Termination Date.
(d) For 24 months following the Termination Date, Society
shall cause the Executive to continue to be covered by and to participate in
all Society Retirement Plans and Society Savings Plans that the Executive was
entitled to be covered by and participating in as an officer of Society or its
Subsidiary on the Termination Date, except where such coverage or
participation is "impermissible," as defined below. For purposes of determining
the benefits, if any, to be provided to the Executive under
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this Paragraph (d): (i) the 24 month period following the Termination Date that
the Executive is entitled to continued coverage by and participation in such
plans shall be included in determining the Executive's years of service; (ii)
the Executive's base salary during such 24 month period shall be deemed to be
the amount the Executive receives under clause (i) of Paragraph (a) of this
Section 2 and that portion of the amount payable under clause (ii) of
Paragraph (a) of this Section 2 that is attributable to incentive compensation
paid under the Society Management Incentive Compensation Plan shall be deemed
to be incentive compensation paid under the Society Management Incentive
Compensation Plan; and (iii) the Executive, if not already fully vested under
the Society Supplemental Retirement Plan will be treated as immediately vested
under that plan without regard to age or years of service. For purposes of
this Paragraph (d), the Executive's continued coverage by and participation in
any of the Society Retirement Plans and Society Savings Plans will be deemed
to be "impermissible" if such a continuation would violate the provisions of
such plan, would cause such plan to fail to be qualified under Section 401(a)
of the Internal Revenue Code, or would be unlawful. If, during the 24 month
period referred to in this Paragraph (d), Society determines in good faith that
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continuing, after the Termination Date, the Executive's coverage by and
participation in any of the Society Retirement Plans or any of the Society
Savings Plans is impermissible, Society shall not be required to cause the
Executive to continue to be covered by and to participate in such affected
plan or plans, but in lieu thereof, Society shall, within 45 days after the end
of such 24 month period, pay to the Executive a lump-sum amount, with respect
to each such plan in which the Executive's coverage or participation ceased for
any time during such 24 month period, equal to (x) in the case of any of the
Society Savings Plans, the aggregate maximum amount of the employer matching
contributions which would have been, but were not, credited to the Executive's
account if the Executive had, at all times during such 24 month period,
continued to be and participate in that plan to the maximum extent permitted,
and (y) in the case of any of the Society Retirement Plans, the difference
between the actuarial equivalent of the benefit under that plan which the
Executive would have received if the Executive had, at all times during such
24 month period, continued to be covered by and participate in that plan and
had thereafter elected to receive a straight life annuity at age 65 under that
plan and the actuarial equivalent of the actual benefit paid or payable to the
Executive under that plan determined as if the Executive had
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elected to receive a straight life annuity at age 65 under that plan. For
purposes of determining these actuarial equivalents, the discount rate used
shall be the lowest "immediate annuity rate" published by the Pension Benefit
Guaranty Corporation under PBGC Regulation Section 2619 for plans with
valuation dates during the 90-day period ending on the Termination Date and the
accrual formulas and actuarial assumptions utilized shall be the most
favorable to the Executive of those in effect with respect to that plan during
the 90-day period prior to the Termination Date. All determinations and
calculations required to be made under sub-clauses (x) and (y) of this
Paragraph (d) shall be made by the Accounting Firm, which shall provide
detailed supporting calculations both to Society and the Executive within 30
days after the end of such 24 month period. All such determinations and
calculations by the Accounting Firm shall be final and binding upon Society
and the Executive.
The payments under Paragraph (a) of this Section 2 and the benefits required to
be provided by Paragraphs (c) and (d) of this Section 2 are subject to
reduction or earlier termination, as the case may be, as provided in Section 4
of this Agreement in the event that the Executive accepts Full-time Employment
with an Unaffiliated Employer within 24 months following the Termination Date.
The payments provided in
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this Section are also subject to reduction as provided in Section 8 dealing
with excess parachute payments.
3. REIMBURSEMENT OF CERTAIN EXPENSES AFTER A CHANGE OF CONTROL.
(a) From and after a Change of Control, Society 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.
(b) From and after a Change of Control, Society shall pay, as
incurred, all expenses, including the reasonable fees of counsel engaged by the
Executive, of prosecuting any action to compel Society to comply with the terms
of this agreement upon receipt from Executive of an undertaking to repay
Society for such expenses if, and only if, it is ultimately determined by a
court of competent jurisdiction that the Executive had no reasonable grounds
for bringing that action (which determination need not be made simply because
the Executive fails to succeed in the action).
(c) From and after a Change of Control, expenses (including
attorney's fees) incurred by the Executive in defending any action, suit, or
proceeding commenced or threatened against the Executive for any action or
failure to act as an employee, officer, or director of Society or any
Subsidiary shall be paid by
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Society, as they are incurred, in advance of final disposition of the action,
suit, or proceeding upon receipt of an undertaking by or on behalf of the
Executive in which the Executive agrees to reasonably cooperate with Society
or the Subsidiary, as the case may be, concerning the action, suit, or
proceeding, and (i) if the action, suit, or proceeding is commenced or
threatened against the Executive for any action or failure to act as a
director, to repay the amount if it is proved by clear and convincing evidence
in a court of competent jurisdiction that the Executive's action or failure to
act involved an act or omission undertaken with deliberate intent to cause
injury to Society or a Subsidiary or (ii) if the action, suit, or proceeding is
commenced or threatened against the Executive for any action or failure to act
as an officer or employee, to repay the amount if it is ultimately determined
that the Executive is not entitled to be indemnified. The provisions of
this Paragraph (c) shall not apply if the only liability asserted against the
Executive in such action, suit, or proceeding is against the Executive in the
Executive's status as a director pursuant to Section 1701.95 of the Ohio
Revised Code.
4. NO SET-OFF; NO OBLIGATION TO SEEK OTHER EMPLOYMENT OR TO
OTHERWISE MITIGATE DAMAGES. Society's obligation to make the payments provided
for in this
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Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense, or other claim
whatsoever which Society or any of its Subsidiaries may have against the
Executive; provided, however, if the Executive is indicted or charged by
information in criminal proceedings on account of theft from Society or its
Subsidiary, Society may thereafter suspend payments under this Agreement
pending conclusion (including available appeals) of such criminal proceedings
and, if the Executive is convicted at the conclusion of the criminal
proceedings of theft from Society or its Subsidiary, Society may set-off
amounts owing under this Agreement against the amounts taken by theft by the
Executive; otherwise, at the conclusion of the criminal proceedings without the
Executive being convicted of theft from Society or its Subsidiary, all
suspended payments shall be immediately paid to 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. Except as
provided in the next following sentence, 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. In the event
that the Executive accepts Full-time Employment with an Unaffiliated Employer
within 24 months following the Termination Date:
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(i) the Executive shall, within five business days after
accepting such employment, notify Society of such fact,
(ii) as long as Society is obligated to continue to make
monthly compensation continuation payments under Paragraph (a) of
Section 2 of this Agreement, the Executive shall, by the fifth
business day of each month occurring after accepting such employment,
notify Society of the amount of cash compensation the Executive
received during the preceding month from the Executive's new employer,
(iii) each remaining monthly compensation continuation payment
under Paragraph (a) of Section 2 of this Agreement shall be reduced
(but in no event to less than zero) by the amount of cash compensation
received by the Executive from the Executive's employment with the
Executive's new employer during the month preceding the month in which
such payment is made, and
(iv) Society's obligation to provide the Executive with
benefits under Paragraphs (c) and (d) of Section 2 of this Agreement
shall cease on the date that the Executive commences Full-time
Employment with an Unaffiliated Employer instead of at the end of the
24 month period specified in Paragraphs (c) and (d) of Section 2 of
this Agreement; at each place in such Paragraphs (c) and (d) that
there is a reference to a 24 month period, the reference shall be
deemed to be to the period from the Termination Date to the
commencement date of Full-time Employment with an Unaffiliated
Employer; and if Society has an obligation to make a lump-sum payment
under clauses (x) or (y) of Paragraph (d) of Section 2, such lump-sum
payment shall be made within 45 days after the date that the Executive
commences Full-time Employment with an Unaffiliated Employer
for the period from the Termination Date to such commencement date.
5. NO EFFECT ON OTHER PLANS OR RIGHTS. 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
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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 plans, or other similar contract, plan or
arrangement of Society or any Subsidiary. If the Executive becomes entitled to
receive 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.
6. INDEMNIFICATION. Society shall indemnify the Executive, to the full
extent permitted or authorized by the Ohio General Corporation Law as it may
from time to time be amended, if the Executive is made or threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative, by
reason of the fact that the Executive is or was a director, officer, or
employee of Society or any Subsidiary, or is or was serving at the request of
Society or any Subsidiary as a director, trustee, officer, or employee of a
bank, corporation, partnership, joint venture, trust, or other enterprise. The
indemnification provided by this Section 6 shall not be deemed exclusive of any
other rights to which the Executive may be entitled under the articles of
incorporation or the
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regulations of Society or of any Subsidiary, or any agreement, vote of
shareholders or disinterested directors, or otherwise, both as to action in the
Executive's official capacity and as to action in another capacity while
holding such office, and shall continue as to the Executive after the Executive
has ceased to be a director, trustee, officer, or employee and shall inure to
the benefit of the heirs, executors, and administrators of the Executive.
7. DISABILITY. If, after a Change of Control and prior to the
Termination Date, the Executive is unable to perform services for Society or
any Subsidiary for any period by reason of disability of the Executive, as a
result of accidental bodily injury or sickness, Society 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 Society
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 Society, (b) the date on which the Executive
becomes eligible for payment of long term disability benefits under the Society
Long Term Disability Plan, (c) the date on which Society 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.
8. EXCESS PARACHUTE PAYMENT REDUCTION. Anything in this
Agreement to the contrary notwithstanding, in
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the event it shall be determined that any payment or distribution by Society 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 Society 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 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 which maximizes the aggregate present value
of Agreement Payments without causing any Payment to be nondeductible by
Society because of Section 280G of the Internal Revenue Code and applicable
regulations promulgated thereunder. For purposes of this Section 8, 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 8 shall be made by the
Accounting Firm which shall provide detailed supporting calculations both to
Society and the Executive within 30 days after the Termination Date or such
earlier time as is requested by Society. Society and the Executive shall
cooperate with each other
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and the Accounting Firm and will 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 Society 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 8, provided that, if the
Executive does not make such determination within 20 days of the receipt of the
calculations made by the Accounting Firm, Society shall elect which of the
Agreement Payments shall be eliminated or reduced consistent with the
requirements of this Section 8 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 Society which should not have
been made ("Overpayment") or that additional Agreement Payments will not be
made by Society which could have been made ("Underpayment"), in each case,
consistent with the calculations required to be made hereunder. In the event
that 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
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treated for all purposes as a loan to the Executive which the Executive shall
repay to Society 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
the Executive to Society (or if paid by the Executive to Society, 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. In the event that 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 Society 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.
9. TAXES; WITHHOLDING OF TAXES. Without limiting the right of
Society or its Subsidiary to withhold taxes pursuant to this Section, 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 and benefits provided in this Agreement,
including, without limitation, the payments and benefits provided under Section
2 of this Agreement. Society or its Subsidiary may withhold from any
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amounts payable under this Agreement all federal, state, city, or other taxes
as Society shall determine to be required pursuant to any law or government
regulation or ruling.
10. SUCCESSOR TO SOCIETY. Society will 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 Society under this Agreement,
and the term "Society" as used in this Agreement shall be deemed to refer to
such successor corporation or bank.
11. PAYMENTS TO CONTINUE AFTER EXECUTIVE'S DEATH. If, at the
time of the Executive's death, the Executive is entitled to receive payments
under this Agreement, all amounts still payable in accordance with the terms of
this Agreement shall be paid to the individual or trust designated in a writing
delivered to Society by the Executive prior to the Executive's death (with the
Executive having the right to change from time to time such designation by
delivering to Society prior to the Executive's death a new written designation)
or, if there is no such designation, to the Executive's estate. As provided in
the preceding sentence, this Agreement will inure to the benefit of and be
enforceable by the Executive's personal
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representatives, executors, administrators, successors, heirs, and designees.
12. TERM OF THIS AGREEMENT. This Agreement shall be effective
immediately and shall continue in full force and effect until terminated as
provided in this Section 12.
(a) This Agreement shall automatically terminate on the first
date occurring before a Change of Control on which both: (i) the
Executive is neither an elected officer of Society nor an elected
officer of any Subsidiary; and (ii) it is not contemplated that the
Executive will be elected an officer of Society or any Subsidiary
within 60 days thereafter; provided, however, that any termination of
employment of the Executive or removal of the Executive as an elected
officer done primarily in contemplation of a Change of Control shall
be deemed to be a termination or removal of the Executive as of
immediately after such Change of Control, if such Change of Control in
fact occurs, for purposes of this Agreement.
(b) Before a Change of Control, Society may terminate this
Agreement by giving the Executive not less than twelve months' prior
written notice of its intention to terminate this Agreement; provided,
however, that any such notice of intention to terminate shall not be
effective if a Change of Control occurs during such twelve month
period, and, provided further,
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that Society shall in no event give a notice under this Paragraph (b)
prior to February 22, 1995.
After a Change of Control, this Agreement may not be terminated. However, in
the event the Executive's employment with Society and its Subsidiaries
continues for two years or more following the occurrence of a Change of
Control, then, for all purposes of this Agreement, such Change of Control shall
thereafter be treated as if it never occurred.
13. 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, as follows:
If to Society or a Subsidiary:
Society Corporation
800 Superior Avenue
Cleveland, Ohio 44114
Attention: Secretary
If to the Executive:
___________________________
___________________________
___________________________
___________________________
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.
14. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement shall create any right or duty on the part of Society or the
Executive to have the Executive
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continue as an officer of Society or a Subsidiary or to remain in the
employment of Society or a Subsidiary.
15. ADMINISTRATION. Society shall be responsible for the general
administration of this Agreement and for making payments under this Agreement.
All payments under this Agreement shall be made solely from the general assets
of Society or one of its Subsidiaries, and the Executive shall have the rights
of an unsecured general creditor of Society. All expenses incurred to or costs
of the Accounting Firm are the responsibility of Society.
16. CLAIMS REVIEW PROCEDURE. Whenever Society decides for
whatever reason to deny, whether in whole or in part, a claim for benefits
under this Agreement by the Executive, Society 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 Society 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 Society a written request
therefor, which request shall contain the following information:
(i) the date on which the request was filed with Society,
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(ii) the specific portions of the denial of the Executive's
claim which the Executive requests Society to review, and
(iii) any written material which the Executive desires Society
to examine.
Within 30 days of the date specified in clause (i) of this Section, Society
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 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 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 shall not
bar or prohibit the subsequent compliance by the Executive with those
procedures and thereafter the Executive shall have the right to institute legal
proceedings to enforce this Agreement.
17. 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.
18. MISCELLANEOUS. No provision of this Agreement may be
modified, waived, or discharged unless such
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waiver, modification, or discharge is agreed to in a writing signed by the
Executive and Society. 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
be governed by and construed in accordance with the laws of the State of Ohio.
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"
________________________
_____________ (type name)
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SOCIETY CORPORATION Exhibit 10.14
1984 STOCK OPTION PLAN
1. Purpose. This 1984 Stock Option Plan (the "Plan") is designed to provide
selected officers of Society Corporation (the "Corporation") or any subsidiary
incentives by affording them the opportunity to purchase Common Shares of the
Corporation and to enable the Corporation and its subsidiaries to attract
qualified officers.
2. Types of Options. Options granted under the Plan may be (a) "incentive
stock options" within the meaning of Section 422A of the Internal Revenue Code
of 1954, as amended, or (b) non-incentive stock options.
3. Administration. The Plan shall be administered by a committee composed
of not less than three directors of the Corporation to be appointed by the Board
of Directors (the "Committee"). The members of the Committee shall not be
officers or employees of the Corporation or any subsidiary. The Board of
Directors may also appoint one or more directors as alternate members of the
Committee. No option shall be granted to any member or alternate member of the
Committee. The Committee shall have authority to grant options under the Plan,
to construe and interpret the Plan and to supervise its administration. A
majority of the Committee shall constitute a quorum, and the action of the
members of the Committee present at any meeting at which a quorum is present, or
actions unanimously approved in writing, shall be the actions of the Committee.
The construction and interpretation by the Committee of any provision of
the Plan or any stock option agreement entered into pursuant to the Plan and any
determination by the Committee pursuant to any provision of the Plan or any
stock option agreement shall be final and conclusive. No member or alternate
member of the Committee shall be liable for any such action or determination
made in good faith.
4. Eligibility. Options may be granted to officers of the Corporation or
any subsidiary (including officers who are members of the Board of Directors of
the Corporation or any subsidiary). An officer of the Corporation or any
subsidiary who has been granted an option or options under the Plan may be
granted an additional option or options.
5. Stock Available for Options. The stock which may be issued and sold upon
the exercise of options granted under the Plan may be authorized and unissued
Common Shares of the Corporation or treasury shares as the Board of Directors
may from time to time determine. The Corporation may reacquire Common Shares at
the time options are exercised, or from time to time in advance, whenever the
Board of Directors may deem such purchase advisable.
<PAGE> 2
Common Shares may be either Ordinary Shares or Book Value Shares. "Ordinary
Shares" are Common Shares of the Corporation for which there is a generally
recognized trading market and which are freely transferable. "Book Value Shares"
are Common Shares of the Corporation which have the same voting, dividend and
liquidation rights as Ordinary Shares, except that they shall not be
transferable other than to the Corporation and except that they shall be subject
to the repurchase provisions set forth in the stock option agreements pursuant
to which they were acquired or purchased.
Subject to adjustment as provided in Section 14 of the Plan, the total
number of Common Shares of the Corporation which may be issued or sold upon the
exercise of all options granted under this 1984 Stock Option Plan shall not
exceed the following:
(a) 500,000 Ordinary Shares; and
(b) a number of Book Value Shares, which as of the respective dates of
grant is proportionate to the number of Ordinary Shares described in (a) above,
based on the ratio of the then fair market value per share of Ordinary Shares to
the then applicable Book Value Per Share (as hereinafter defined in Section 6)
of the Book Value Shares; provided, however, that such number of Book Value
Shares shall not exceed 750,000, and the number of Book Value Shares so
determined shall be rounded to the next lowest whole number of Book Value
Shares.
The exercise of an option or stock appreciation right relating to Ordinary
Shares will reduce proportionately the number of Book Value Shares, if any,
subject to the same option or stock appreciation right, and vice versa. Any Book
Value Shares or Ordinary Shares ceasing to be subject to the related option
because of such reduction shall no longer be available for the future grant of
options under the Plan.
In the event that any outstanding option under the Plan for any reason
expires or is terminated prior to the end of the period during which options may
be granted under the Plan, the Common Shares subject to the unexercised portion
of such option shall again be available for the future grant of options under
the Plan.
6. Option Price. The option price under an option to purchase Ordinary
Shares, whether an incentive stock option or a non-incentive stock option, shall
be not less than the fair market value of the Ordinary Shares covered by the
option, as determined by the Committee, on the date the option is granted.
The option price for any Book Value Share shall be not less than the Book
Value Per Share on the Fiscal Quarter Date coincident with or immediately
preceding the date of the grant of the option. "Book Value Per Share" as of any
date means the shareholders' equity allocable to Common Shares of the
Corporation, as set forth in the consolidated balance sheet of the Corporation
and its subsidiaries as at the Fiscal Quarter Date coincident with or
immediately preceding such date, divided by the number of Common Shares of the
Corporation outstanding as of such Fiscal Quarter Date; provided, however,
<PAGE> 3
that the Book Value Per Share, for the purpose of calculating the repurchase
price of Book Value Shares, may be adjusted to such an extent as may be
determined by the Committee to preserve the benefit of the arrangement for
holders of options on Book Value Shares and the Corporation, if in the opinion
of the Committee, after consultation with the Corporation's independent public
accountants, changes in the Corporation's accounting policies, acquisitions or
other unusual or extraordinary items have materially affected the number of the
Corporation's Common Shares outstanding or shareholders' equity allocable to the
Corporation's Common Shares.
"Fiscal Quarter Date" means March 31, June 30, September 30 or December 31
of any year or such other dates as the Corporation may, from time to time, fix
as ending dates of fiscal quarters of the Corporation.
7. Grant of Stock Options; Stock Option Agreements.
(a) Incentive Stock Options. The Committee may, from time to time, grant
incentive stock options under the Plan. Any grant of an incentive stock option
shall be to purchase a specified number of Ordinary Shares. The day on which
the Committee authorizes the grant of an incentive stock option shall be the
day on which such incentive stock option is granted. No optionee may be
granted incentive stock options for Ordinary Shares in any calendar year
(under all plans of the Corporation and its subsidiaries) which exceed an
aggregate fair market value (determined at the time of grant), of $100,000
plus any unused limit carryover of such optionee to such year from each of the
three preceding calendar years. For the purposes of this subsection (a) of
this Section 7, the unused limit carryover to any year shall have the meaning
attributed to it in Section 422A of the Internal Revenue Code of 1954, as from
time to time amended. As of the date of adoption of this 1984 Stock Option
Plan, said Section 422A provides that the unused limit carryover means
one-half of the amount by which $100,000 exceeds the value (at the time of
grant) of the stock for which incentive stock options were granted to the
employee in the three preceding calendar years under all plans of the
Corporation and its subsidiaries, and further provides that the amount of the
unused limit carryover from any calendar year which may be taken into account
in any succeeding calendar year shall be the amount of such carryover reduced
by the amount of such carryover which was used in prior calendar years.
(b) Non-Incentive Stock Options. The Committee may, from time to time,
grant nonincentive stock options under the Plan. Any grant of a non-incentive
stock option may be to purchase a specified number of Ordinary Shares or Book
Value Shares, or both, and may give the optionee the election to purchase
either Ordinary Shares or Book Value Shares. The day on which the Committee
authorizes the grant of a nonincentive stock option shall be considered to be
the day on which such non-incentive stock option is granted, unless the
Committee specifies a later day. The
<PAGE> 4
exercise of a non-incentive stock option to purchase Ordinary Shares will
reduce proportionately the number of Book Value Shares, if any, covered by the
same non-incentive stock option, and vice versa. Any grant in respect of Book
Value Shares shall provide for the repurchase thereof by the Corporation, and
upon such repurchase the repurchase price may be paid in cash, in Ordinary
Shares, or a combination of such methods of payment, and may either give to
the optionee in the Committee the right to elect the method of payment of the
repurchase price.
(c) Stock Option Agreements. Each grant of an incentive stock option or a
non-incentive stock option under the Plan shall be evidenced by a stock option
agreement executed on behalf of the Corporation by an officer designated by
the Committee and accepted by the optionee. Such stock option agreement shall
contain such terms and provisions, consistent with the Plan, as the Committee
may approve.
(d) Election. The Committee may, at the time of the grant of a stock
option, permit the optionee to irrevocably elect at such time whether such
stock option shall be an incentive stock option subject to the terms and
conditions set forth in the Plan applicable to incentive stock options, which
terms and conditions, if such election is made, shall be set forth in the
stock option agreement.
8. Exercise of Options. Options, whether incentive stock options or
non-incentive stock options, shall be exercised by delivery of written notice of
exercise to the Corporation accompanied by payment of the option price. Except
as otherwise provided in Section 9, an option may be exercised only while the
optionee is in the employ of the Corporation or of a subsidiary. An optionee to
whom an option has been granted must remain in the continuous employ of the
Corporation or of a subsidiary for one year from the date on which the option is
granted before he or she may exercise any part of the option. There after, and
during the life of the option, the option may be exercised at any time as to all
of the Common Shares subject to the option, or from time to time, as to any
portion of such Common Shares. No fraction of a Common Share may, however, be
purchased upon the exercise of an option.
An incentive stock option shall not be exercisable while there is
outstanding any incentive stock option which was granted before the grant of
such incentive stock option to the optionee to purchase Ordinary Shares of the
Corporation or a subsidiary (determined at the time of granting of the incentive
stock option) or a predecessor of any of such corporations. An incentive stock
option shall be treated as outstanding for this purpose until it is exercised in
full or expires by reason of lapse of time.
Notwithstanding any provision of this Section 8 to the contrary, any
option, whether an incentive stock option or a non-incentive stock option,
granted pursuant to the Plan (a) may, in the discretion of the Committee, become
fully exercisable as to all optioned shares from and after the time the optionee
ceases to be an employee of the Corporation or any of its subsidiaries as a
result of the sale or other disposition by the Corporation of assets or property
(including shares of any subsidiary) in respect of which
<PAGE> 5
the optionee had theretofore been employed or as a result of which optionee's
continued employment with the Corporation or any subsidiary is no longer
required, and (b) shall, in the case of a change in control (as hereinafter
defined) of the Corporation, become fully exercisable as to all optioned shares
from and after the date of such change in control. For purposes of this
paragraph, the term "change in control" shall be deemed to occur upon
(i) the approval by the shareholders of the Corporation of (A) any
consolidation or merger in which the Corporation is not the continuing or
surviving corporation or pursuant to which Common Shares of the Corporation
would be converted into cash, securities or other property, other than a
merger in which the holders of Common Shares of the Corporation immediately
prior to the merger will have the same proportionate ownership of common stock
of the surviving corporation immediately after the merger, (B) any 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, or
(C) adoption of any plan or proposal for the liquidation or dissolution of the
Corporation, or
(ii) any "person" (as defined in Section 13(d) of the Securities Exchange
Act of 1934 as amended), corporation or other entity, other than the
Corporation or any subsidiary or employee benefit plan or trust maintained by
the Corporation or any of its subsidiaries, shall become the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934),
directly or indirectly, of more than 25% of the Common Shares of the
Corporation outstanding at the time, without the prior approval of the Board
of Directors of the Corporation.
9. Exercise of Options After Termination of Employment or Death.
(a) Incentive Stock Options. An incentive stock option may be exercised
after termination of employment, whether upon death, disability, retirement or
otherwise only to the extent provided in this Section 9(a).
(i) Upon any termination of employment for any reason other than the
optionee's retirement under any retirement plan, program or policy of the
Corporation or of a subsidiary, disability or death, the optionee shall have
the right within the period of three months next following the date of such
termination of employment, to purchase all or any part of the Common Shares
which the optionee would have been entitled to purchase if he or she had
exercised his or her option on the date of such termination of employment,
except that, if the employment of the optionee is terminated by the
Corporation or a subsidiary, the optionee may exercise his or her incentive
stock option only with the consent of the Committee.
(ii) Upon any termination of employment due to retirement under any
retirement plan, program or policy of the Corporation or of a subsidiary, the
optionee shall have the right within the period of two years next following
the date of termination of
<PAGE> 6
employment, to purchase all or any part of the Common Shares which the
optionee would have been entitled to purchase if he or she had exercised his
or her incentive stock option on the date of such termination of employment.
(iii) Upon any termination of employment due to disability, the optionee
shall have the right within the period of one year next following the date of
termination of employment, to purchase all or any part of the Common Shares
which the optionee would have been entitled to purchase if he or she had
exercised his or her incentive stock option on the date of such termination of
employment.
(iv) Upon the death of the optionee while in the active service of the
Corporation or of a subsidiary, or within the period referred to in subsection
(i), (ii) or (iii) of this Section 9(a), the optionee's executor or
administrator or the person or persons to whom the optionee's rights under his
or her option are transferred by will or the laws of descent and distribution
shall have the right, within the period of two years next following the date
of the optionee's death, to purchase all or any part of the Common Shares
which the optionee would have been entitled to purchase if he or she had
exercised his or her incentive stock option on the date of death.
(b) Non-Incentive Stock Options. A non-incentive stock option may be
exercised after termination of employment, whether upon death, retirement, or
otherwise only to the extent provided in this Section 9(b).
(i) Upon any termination of employment (A) due to retirement under any
retirement plan, program or policy of the Corporation or of a subsidiary, or
(B) due to disability, the optionee shall have the right within the period of
two years next following the date of such termination of employment, to
purchase all or any part of the Common Shares which the optionee would have
been entitled to purchase if he or she had exercised his or her non-incentive
stock option on the date of such termination of employment.
(ii) Upon any termination of employment for any other reason except the
optionee's retirement as specified in (i)(A) or disability as specified in
(i)(B) above, or the optionee's death, the optionee shall have the right
within the period of six months next following the date of such termination of
employment, to purchase all or any part of the Common Shares which the
optionee would have been entitled to purchase if he or she had exercised his
or her non-incentive stock option on the date of such termination of
employment, except that, if the employment of the optionee is terminated by
the Corporation or a subsidiary, the optionee may exercise his or her
non-incentive stock option only with the consent of the Committee.
(iii) Upon the death of the optionee while in the active service of the
Corporation or of a subsidiary, or within the period referred to in subsection
(i) or (ii) of this Section 9(b), the optionee's executor or administrator or
the person or persons to whom the optionee's rights under his or her option
are transferred by will or the laws
<PAGE> 7
of descent and distribution shall have the right, within the period of two
years next following the date of the optionee's death to purchase all or any
part of the Common Shares which the optionee would have been entitled to
purchase if he or she had exercised his or her option on the date of death.
10. Termination of Options. Notwithstanding any other provision in this
Plan, any option, whether an incentive stock option or a non-incentive stock
option, granted under the Plan shall terminate, and the right of the optionee or
other person to purchase Common Shares shall expire, at the time set forth in
the grant, which shall be not later than ten years from the date such option is
granted.
11. Payment for Shares. Upon exercise of an option, whether an incentive
stock option or a non-incentive stock option, the option price shall be payable
either (a) in cash, or (b) by the transfer to the Corporation by the optionee of
Ordinary Shares or Book Value Shares having a value (current market value in the
case of Ordinary Shares and Book Value Per Share in the case of Book Value
Shares) equal to the option price, including, in the discretion of the Committee
exercised at the time the option is granted, the right to transfer shares
acquired upon the exercise of a part of an option in payment of the option price
upon immediate exercise of a further part of the option, or (c) by a combination
of the methods described in (a) and (b) of this Section 11.
12. Assignability. Except as otherwise provided in Section 9, an option,
whether an incentive stock option or a non-incentive stock option, granted under
the Plan shall not be transferred and may be exercised only by the optionee to
whom granted.
13. Options in Substitution for Stock Options Granted by Other Companies.
Options, whether incentive stock options or non-incentive stock options, may be
granted under the Plan in substitution for stock options held by employees of a
company who become or are about to become officers of the Corporation or a
subsidiary as a result of the merger or consolidation of the employer company
with the Corporation or a subsidiary, or the acquisition by the Corporation or a
subsidiary of the assets of the employer company, or the acquisition by the
Corporation or a subsidiary of stock of the employer company as a result of
which it becomes a subsidiary of the Corporation. The terms, provisions and
benefits of the substitute options so granted may vary from the terms,
provisions and benefits set forth in or authorized by the Plan to such extent as
the Committee at the time of grant may deem appropriate to conform, in whole or
in part, to the terms, provisions and benefits of the options in substitution
for which they are granted.
14. Adjustment Upon Changes in Shares. In the event of any change in the
Common Shares subject to the Plan or to any option, whether an incentive stock
option or a non-incentive stock option, granted under the Plan, by reason of any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Corporation, or any merger,
consolidation, separation, reorganization or partial or complete liquidation, or
any other corporate transaction or event having an effect similar
<PAGE> 8
to any of the foregoing, the aggregate number of Ordinary Shares and Book Value
Shares as to which the options may thereafter be granted under the Plan, the
number and class of shares subject to each outstanding option and the option
price with respect to such share shall be appropriately adjusted.
15. Purchase For Investment. Each person exercising an option, whether an
incentive stock option or a non-incentive stock option, may be required by the
Corporation to furnish a representation that he or she is acquiring the shares
purchased upon such exercise as an investment and not with a view to
distribution thereof if the Corporation shall, in its sole discretion, determine
that such representation is required to insure that a re-sale or other
disposition of the shares would not involve a violation of the Securities Act of
1933, as amended, or of applicable blue sky laws. Any investment representation
so furnished shall no longer be applicable at any time such representation is no
longer necessary for such purposes.
16. Duration and Termination of the Plan. The Plan shall remain in effect
through February 15, 1994, and shall then terminate, unless terminated at an
earlier date by action of the Board of Directors; provided, however, that
termination of the Plan shall not affect Options granted prior thereto.
17. Amendment of the Plan. The Board of Directors may alter or amend the
Plan from time to time prior to its termination, except that, without
shareholder approval, no amendment shall increase the aggregate number of shares
with respect to which options may be granted (except in accordance with the
provisions of Section 14), reduce the option price at which options may be
exercised, extend the time within which options may be granted under the Plan or
the time within which an option may be exercised, or change the requirements
relating to either eligibility for participation in the Plan or administration
of the Plan. Except in accordance with the provisions of Section 14, neither the
Board of Directors nor the Committee may, without the consent of the holder of
an option granted under the Plan, alter or impair such option. The Committee
may, with the agreement of the affected optionee, cancel any stock option
agreement entered into pursuant to the Plan. In the event of such cancellation,
the Committee may authorize the grant of a new incentive stock option or
non-incentive stock option for the same or a different number of Common Shares
specified in the cancelled stock option agreement, at such option price and upon
terms and provisions which would have been applicable under the Plan had the
cancelled stock option agreement not been entered into.
18. Effective Date. The Plan was originally adopted by the Board of
Directors of the Corporation on February 16, 1984, and approved by the
affirmative vote of the holders of shares of the Corporation entitling them to
exercise a majority of the voting power on such proposal on June 21, 1984.
<PAGE> 1
Exhibit 10.16
1987 STOCK OPTION PLAN
OF
TRUSTCORP, INC.
The terms and conditions of the 1987 Stock Option Plan (hereinafter referred to
as the "Plan") of Trustcorp, Inc. (hereinafter referred to as "Company"), a
Delaware corporation, are set forth below:
1. PURPOSE OF THE PLAN. The purpose of the Plan is to encourage
ownership of shares of the Common Stock, par value $1.00 per share, of the
Company (said shares are hereinafter referred to as "Company Common Stock") by
an Eligible Employee (as said term is hereinafter defined in paragraph 3 of
this Plan) and to encourage each of them to remain in the employ of the
Company. It is also intended that any option granted pursuant to the terms of
this Plan (an option granted under this Plan is hereinafter referred to as an
"Option" and all options granted under this Plan are hereinafter collectively
referred to as the "Options") shall be, unless specifically designated
otherwise in the written option agreement, an "incentive stock option" within
the meaning of Section 422A of the Internal Revenue Code of 1986 (hereinafter
as may be hereafter amended referred to as the "Code").
2. ADMINISTRATION OF PLAN. The Board of Directors of the Company
(hereinafter referred to as the "Board") shall appoint a Stock Option Committee
(hereinafter referred to as the "Committee") which shall consist of not less
than three members of the Board. Subject to the provisions of this Plan, the
Committee shall have authority to supervise, administer and interpret this Plan
including, but not limited to, the authority to (i) determine the Eligible
Employee to whom an Option shall be granted, (ii) determine the number of
shares of Company Common Stock to be the subject of each Option, (iii)
determine the time or times at which an Option shall be granted and/or
exercised, (iv) determine the period of each of the Options, (v) determine in
good faith the fair market value of Company Common Stock in accordance with
rules and/or regulations adopted by the Internal Revenue Service (hereinafter
referred to as the "IRS") under Section 422A of the Code or sections of similar
import or, in the absence of such rules or regulations, reasonable valuation
methods and, in furtherance of such authority, to seek the opinions of
independent and well-qualified experts as to the fair market value of Company
Common Stock and (vi) make, amend and rescind rules and regulations relating to
the Plan. The determination of the Committee shall be made in accordance with
its judgment as to the best interests of the Company and its shareholders and
in accordance with the purposes of the Plan. The Committee's determination in
all cases arising under the Plan shall be final, conclusive and binding unless
otherwise determined by the Board. Notwithstanding anything contained in this
Plan to the contrary, no member of the Board shall be eligible to receive an
Option under this Plan while a member of the Committee unless the Board
approves the granting of such Option.
<PAGE> 2
The Board may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute a
quorum. All actions of the Committee shall be taken by a written instrument
signed by a majority of the members and action so taken shall be fully as
effective as if it had been taken by a vote of a majority of the members at a
meeting duly called and held. The Committee may appoint a secretary who shall
keep minutes of its meetings. The Committee shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
3. ELIGIBLE EMPLOYEE DEFINED. For purposes of this Plan, the term
"Eligible Employee" shall be defined to mean an individual who is an employee
of either the Company, a Parent of the Company (as that term is defined in
Sections 422A(a)(2) and 425 of the Code) or a Subsidiary of the Company (as
that term is defined in Sections 422A(a)(2) and 425 of the Code), and who at
least either holds the office of Vice President of the Company, a Parent of the
Company or a Subsidiary of the Company, or who performs such managerial
functions or duties consistent with, in the opinion of the Committee, the level
of a Vice President of the Company, a Parent of the Company or a Subsidiary of
the Company. Notwithstanding anything contained in this Plan to the contrary,
no Option shall be granted to an individual (i) who, at the time such Option is
granted, "owns" (as defined in Sections 422A and 425 of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, a Parent of the Company or a Subsidiary of the Company
unless at the time such Option is granted the option price is at least 110% of
the fair market value of the Company Common Stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five (5)
years from the date such Option is granted and (ii) unless such individual is
an employee of the Company, a Parent of the Company or a Subsidiary of the
Company at the time of the granting of the Option.
4. COMPANY COMMON STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in paragraph 12 of this Plan, the aggregate number of shares of
Company Common Stock which shall be reserved and which may be issued upon the
exercise of all Options to be granted from time to time under this Plan is
400,000, whether or not such shares of Company Common Stock are (i) treasury
shares, (ii) authorized but unissued shares, or (iii) both. In the event that
an Option expires or terminates without having been exercised as to the full
number of shares of Company Common Stock subject thereto, the shares of Company
Common Stock as to which such Option was not exercised shall be available for
Options which may thereafter be granted under this Plan.
5. GRANT OF OPTION. Each Option shall be granted within ten (10) years
from (i) the date this Plan is adopted by the Board, or (ii) the date this Plan
is approved by the shareholders of the Company as required by Section
422A(b)(2) of the Code, whichever date is earlier.
<PAGE> 3
6. TERM OF OPTION. The term of each Option, other than an Option
specifically designated in the written option agreement as being other than an
incentive stock option, shall be for a period not to exceed ten (10) years from
the date the Option is granted.
7. EXERCISE OF OPTION. Except as otherwise provided in this Plan, an
Option shall be exercisable only by the individual to whom it is granted during
his lifetime and only if such individual was an employee of either the Company,
a Parent of the Company or a Subsidiary of the Company, or a corporation or a
parent or subsidiary of such corporation issuing or assuming a stock option in
a transaction to which Section 425(a) of the Code applies, at all times during
the period beginning on the date of the granting of the Option and ending on
the date of such exercise (including the date of such exercise); provided,
however, in the case of an employee who is disabled (within the meaning of
Section 105(d)(4) of the Code), the ending date of the period shall be one (1)
year before the date of such exercise. An Option shall be deemed exercised only
if written notice of its exercise is delivered to the Company prior to the
expiration of the term of the Option. Notwithstanding anything contained in
this Plan to the contrary, no Option may be exercised unless and until this
Plan is approved by the shareholders of the Company in the manner and within
the time required by Section 422A of the Code.
8. OPTION PRICE. The purchase of Company Common Stock which shall be
the subject of an Option shall be not less than the fair market value of
Company Common stock at the time such Option is granted. The written option
agreement may provide that the option price may be paid in cash or Company
Common Stock, or both.
9. NONTRANSFERABILITY OF OPTION. An Option shall not be transferable
by the individual to whom it is granted except by (i) will, or (ii) the laws of
descent and distribution.
10. TERMINATION OF EMPLOYMENT. In the event that an individual to whom
an Option is granted under this Plan (hereinafter referred to as an "Optionee")
shall cease to be employed by the Company, a Parent of the Company or a
Subsidiary of the Company, whether voluntarily or involuntarily, for any reason
other than death or disability (within the meaning of Section 105(d)(4) of the
Code) and shall no longer be employed by any of them, such Option and all of
the Optionee's rights to further exercise his Option shall expire as of the
date the employment of such individual is terminated; provided, however, that
no Option other than an Option specifically designated in the written option
agreement as being other than an incentive stock option shall be exercisable
after the expiration of ten (10) years from the date such Option is granted.
Nothing in this Plan shall confer upon any Optionee the right to be continued
in the employment of the Company, a Parent of the Company or a Subsidiary of
the Company, or interfere in any way with the right of the Company, a Parent of
the Company or a Subsidiary of the Company to terminate the employment of an
Optionee, whether for cause or otherwise. A leave of absence with the express
written consent of the Company shall not be considered termination of
employment for purposes of this paragraph.
<PAGE> 4
11. DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
disability of an Optionee while employed by the Company, a Parent of the
Company or a Subsidiary of the Company, his Option may be exercised by him or,
in the case of the death of an Optionee, by his personal representative or by
any person or persons who shall have acquired the Option directly from the
Optionee by will or by the laws of descent and distribution at any time within
three (3) months after the date of his death or within one (1) year after the
date of his disability; provided, however, that no Option (other than an Option
specifically designated in the written option agreement as being other than an
incentive stock option) shall be exercisable after the expiration of ten (10)
years from the date such Option is granted.
12. ADJUSTMENTS IN COMPANY COMMON STOCK. In the event of any changes
in the issued and outstanding shares of Company Common Stock by reason of (i)
share dividends, (ii) split-ups, (iii) recapitalizations, (iv) mergers, (v)
consolidations, (vi) combinations, (vii) separations, (viii) reorganizations,
or (ix) exchange of shares, the aggregate number and class of shares available
under this Plan shall be correspondingly adjusted by the Committee; provided,
however, that neither this Plan nor any Option (except for any Option
specifically designated in the written option agreement as being other than an
incentive stock option) shall be adjusted in a manner that causes such Option
not to qualify as an incentive stock option within the meaning of Section 422A
of the Code.
13. TIME OF GRANTING OPTIONS. Nothing contained in the Plan or in any
resolution adopted or to be adopted by the Board or the shareholders of the
Company nor any action taken by the Committee shall constitute the granting of
an Option. The granting of an Option shall take place only when the written
option agreement referred to in paragraph 21 of this Plan shall have been duly
executed and delivered by or on behalf of the Company and the Optionee.
14. RIGHTS AS A SHAREHOLDER. Except as otherwise provided by the laws
of the State of Delaware, an Optionee shall have no rights as a shareholder of
the Company with respect to any shares covered by his Option until the date of
the issuance of a share certificate to him for such shares. Except as otherwise
provided in paragraph 12 of this Plan and by the laws of the State of Delaware,
no adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions or other rights on
Company Common Stock for which the record date is prior to the date such share
certificate is issued.
15. AMENDMENT OF PLAN. To the extent permitted by law, the Board may
at any time and from time to time modify or amend the Plan in such respects as
it shall deem advisable; provided, however, that such modification or amendment
shall not change any rights under any outstanding Option without the written
consent of the Optionee; provided further, however, that such modification or
amendment shall not, without the approval of the shareholders of the Company,
change the Plan so as to cause any of the
<PAGE> 5
Options to fail to meet the requirements of an incentive stock option under
Section 422A of the Code.
16. TERMINATION OF PLAN. Notwithstanding anything contained in this
Plan to the contrary, the Board may at any time terminate or discontinue this
Plan or any Option granted hereunder provided that such action shall not,
without the written consent of the Optionee affected, impair the rights of such
Optionee under any Option previously granted under the plan.
17. GOVERNMENTAL REGULATIONS. This Plan and the granting and exercise
of any Option and the obligations of the Company to sell and deliver shares of
Company Common Stock under any such Option shall be subject to all applicable
laws, rules and regulations, and to such approvals by any governmental agencies
as may be required.
18. COMPLIANCE WITH SECURITIES LAWS. Options granted and shares of
Company Common Stock issued by the Company upon the exercise of Options shall
be granted and issued only in full compliance with all applicable securities
laws including, but not limited to, the Securities Act of 1933, as amended, and
the general rules and regulations promulgated thereunder by the Securities and
Exchange Commission and applicable state blue sky laws. In connection with such
compliance, the Committee may impose such conditions on transfer of the shares
of Company Common Stock subject to an Option and other restrictions, conditions
and limitations as it may deem necessary and appropriate.
19. PROCEEDS FROM SALE OF COMPANY COMMON. The proceeds to be received
by the Company upon the exercise of any Option shall be used for general
corporate purposes.
20. OBLIGATIONS OF OPTIONEE. The granting of an Option shall impose no
obligation upon the Optionee to exercise such Option.
21. OPTION AGREEMENT. Options granted under this Plan shall be
evidenced by written agreements in such form as the Committee shall from time
to time approve, which agreements (i) shall comply with and be subject to the
terms and conditions of this Plan, (ii) may contain such other provisions not
inconsistent with this Plan as the Committee shall deem advisable including,
without limitation, restrictions upon exercise of an Option, (iii) may
specifically designate the Option it evidences as being other than an incentive
stock option, and (iv) shall contain such other limitations and restrictions
upon the exercise of an Option as shall be necessary in order that the granting
of such Option shall be in compliance with federal and state securities laws.
22. EFFECTIVENESS OF PLAN. This Plan shall become effective on the
date this Plan is approved by the Board; provided, however, that the Plan shall
be submitted to the shareholders of the Company in the manner and within the
time required by Section 422A of the Code. In the event this Plan is not
approved by the shareholders of the Company as aforesaid, then this Plan shall
be terminated, null and void and all Options granted under this Plan shall
terminate.
<PAGE> 6
23. DETERMINATION OF DISABILITY. For purposes of this Plan, the
determination as to whether an Optionee's employment is terminated because of
"disability" shall be vested solely in the Committee and its determination
shall be final and conclusive on all parties.
24. PRIORITY. To the extent that any of the provisions of Sections 421
and 422A of the Code are inconsistent with the provisions of this Plan and such
inconsistency would cause any Option granted under this Plan (other than any
Option specifically designated in the written option agreement as being other
than an incentive stock option) not to be treated for federal income tax
purposes as an incentive stock option, the provisions of this Plan and of
Options granted hereunder shall be deemed to be amended in a manner to comply
with the provisions of Section 421 or 422A of the Code, as the case may be.
IN WITNESS WHEREOF, the undersigned, being the duly elected and
authorized Secretary of the Company, hereby certifies that this Plan was
legally and validly approved by the Board at a meeting thereof on November 5,
1987, held in South Bend, Indiana.
TRUSTCORP, INC.
By /s/ David A. Snavely
---------------------
David A. Snavely, Secretary
<PAGE> 1
Exhibit 10.17
1981 INCENTIVE STOCK OPTION PLAN
OF
TOLEDO TRUSTCORP, INC.
--------------------------------
The terms and conditions of the 1981 Incentive Stock Option Plan
(hereinafter referred to as the "Plan") of Toledo Trustcorp, Inc. (hereinafter
referred to as Company"), a Delaware corporation, is set forth below:
1. PURPOSE OF THE PLAN. The purpose of the Plan is to encourage
ownership of shares of the Common Stock, par value $20.00 per share, of the
Company (said shares are hereinafter referred to as "Company Common Stock") by
an Eligible Employee (as said term is hereinafter defined in paragraph 3 of
this Plan) and to encourage each of them to remain in the employ of the
Company. It is also intended that any option granted pursuant to the terms of
this Plan (an option granted under this Plan is hereinafter referred to as an
"Option" and all options granted under this Plan are hereinafter collectively
referred to as the "Options") shall be an "incentive stock option" within the
meaning of Section 422A of the Internal Revenue Code of 1954, as amended
(hereinafter referred to as the "Code").
2. ADMINISTRATION OF PLAN. The Board of Directors of the Company
(hereinafter referred to as the "Board") shall appoint a Stock Option Committee
(hereinafter referred to as the "Committee") which shall consist of not less
than three members of the Board. Subject to the provisions of this Plan, the
Committee shall have authority to supervise, administer and interpret this Plan
including, but not limited, to the authority to (i) determine the Eligible
Employee to whom an Option shall be granted, (ii) determine the number of
shares of Company Common Stock to be the subject of each Option, (iii)
determine the time or times at which an Option shall be granted and/or
exercised, (iv) determine the period of each of the Option, (v) determine in
good faith the fair market value of Company Common Stock in accordance with
rules and/or regulations adopted by the Internal Revenue Service (hereinafter
referred to as the "IRS" ) under Section 422A of the Code or sections of
similar import or, in the absence of such rules or regulations, reasonable
valuation methods and, in furtherance of such authority to seek the opinions of
independent and well-qualified experts as to the fair market value of Company
Common Stock and (vi) make, amend and rescind rules and regulations relating to
the Plan. The determination of the Committee shall be made in accordance with
its judgment as to the best interests of the Company and its shareholders and
in accordance with the purposes of the Plan. The Committee's determination in
all cases arising under the Plan shall be final, conclusive and binding unless
otherwise determined by the Board. Notwithstanding anything contained in this
Plan to the contrary, no member of the Board shall be eligible to receive an
Option under this Plan while a member of the Committee unless the Board
approves the granting of such Option.
<PAGE> 2
The Board may from time to time appoint members of the Committee in
substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and
places as it shall deem advisable. A majority of its members shall constitute
a quorum. All action of the Committee shall be taken by a written instrument
signed by a majority of the members and action so taken shall be fully as
effective as if it had been taken by a vote of a majority of the members at a
meeting duly called and held. The Committee may appoint a secretary who shall
keep minutes of its meetings. The Committee shall make such rules and
regulations for the conduct of its business as it shall deem advisable.
3. ELIGIBLE EMPLOYEE DEFINED. For purposes of this Plan, the term
"Eligible Employee" shall be defined to mean an indivitual who is an employee
of either the Company, a Parent of the Company (as that term is defined in
Sections 422A(a)(2) and 425 of the Code) or a Subsidiary of the Company (as
that term is defined in Sections 422A(a)(2) and 425 of the Code), and who at
least either holds the office of Vice President of the Company, a Parent of the
Company or a Subsidiary of the Company, or who performs such managerial
functions or duties consistent with, in the opinion of the Committee, the level
of a Vice President of the Company, a Parent of the Company or a Subsidiary of
the Company. Notwithstanding anything contained in this Plan to the contrary,
no Option shall be granted to an individual (i) who, at the time such Option is
granted, "owns" (as defined in Sections 422A and 425 of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, a Parent of the Company or a Subsidiary of the Company
unless at the time such Option is granted the option price is at least 110% of
the fair market value of the Company Common Stock subject to the Option and
such Option by its terms is not exercisable after the expiration of five (5)
years from the date such Option is granted and (ii) unless such individual is
an employee of the Company, a Parent of the Company or a Subsidiary of the
Company at the time of the granting of the Option.
4. COMPANY COMMON STOCK SUBJECT TO THE PLAN. Subject to adjustment as
provided in paragraph 14 of this Plan, the aggregate number of shares of
Company Common Stock which shall be reserved and which may be issued upon the
exercise of all Options to be granted from time to time under this Plan is
l50,000 shares of Company Common Stock, whether or not such shares of Company
Common Stock are (i) treasury shares, (ii) authorized but unissued shares or
(iii) both. In the event that an Option expires or terminates without having
been exercised as to the full number of shares of Company Common Stock subject
thereto, the shares of Company Common Stock as to which such Option was not
exercised shall be available for Options which may thereafter be granted under
this Plan.
5. GRANT OF OPTION. Each Option shall be granted within ten (10) years
from (i) the date this Plan is adopted by the Board or (ii) the date this Plan
is approved by the shareholders of the Company as required by Section
422A(b)(2) of the Code, whichever date is earlier.
<PAGE> 3
6. TERM OF OPTION. The term of each Option shall be for a period not
to exceed ten (10) years from the date the Option is granted.
7. EXERCISE OF OPTION. Except as otherwise provided in this Plan, an
Option shall be exerciseble only by the individual to whom it is granted during
his lifetime and only if such individual was an employee of either the Company,
a Parent of the Company or a Subsidiary of the Company, or a corporation or a
parent or subsidiary of such corporation issuing or assuming a stock option in
a transaction to which Section 425(a) of the Code applies, at all times during
the period beginning on the date of the granting of the Option and ending on
the date of such exercise (including the date of such exercise); provided,
however, in the case of an employee who is disabled (within the meaning of
Section 105(d)(4) of the Code), the ending date of the period shall be one (1)
year before the date of such exercise. An Option shall be deemed exercised only
if written notice of its exercise is delivered to the Company prior to the
expiration of the term of the Option. Notwithstanding anything contained in
this Plan to the contrary, no Option may be exercised unless and until this
Plan is approved by the shareholders of the Company in the manner and within
the time required by Section 422A of the Code.
8. OPTION PRICE. The purchase price of Company Common Stock which
shall be the subject of an Option shall be not less than the fair market value
of Company Common Stock at the time such Option is granted.
9. PRIOR OUTSTANDING OPTIONS. No Option shall be exercisable while
there is outstanding (within the meaning of Section 422A(c)(7) of the Code) any
incentive stock option (as said term is defined in Section 422A of the Code)
which was granted, before the granting of such Option, to the individual to
whom the Option was granted to purchase stock in the Company or in a
corporation which, at the time the Option is granted, is a Parent of the
Company or a Subsidiary of the Company, or in a predecessor corporation of any
such corporations.
10. ANNUAL LIMIT ON OPTIONS. Notwithstanding anything contained in
this Plan to the contrary, the aggregate fair market value (determined as of
the time the Option is granted) of Company Common Stock for which an Eligible
Employee may be granted an Option in any calendar year (under all such plans of
his employer corporation and its Parent and Subsidiary) shall not exceed
$100,000 plus any unused limit carryover to such year as determined in
accordance with the provisions of Section 422A(c)(4) of the Code.
11. NONTRANSFERABILITY OF OPTION. An Option shall not be transferable
by the individual to whom it is granted except by (i) will or (ii) the laws of
descent and distribution.
12. TERMINATION OF EMPLOYMENT. In the event that an individual to whom
an Option is granted under this Plan (hereinafter referred to as an "Optionee")
shall cease to
<PAGE> 4
be employed by the Company, a Parent of the Company or a Subsidiary of the
Company, whether voluntarily or involuntarily, for any reason other than death
or disability (within the meaning of Section 105(d)(4) of the Code) and shall
no longer be employed by any of them, such Option and all of the Optionee's
rights to further exercise of his Option shall expire as of the date the
employment of such individual is terminated; provided, however, that no Option
shall be exercisable after the expiration of ten (10) years from the date such
Option is granted. Nothing in this Plan shall confer upon any Optionee the
right to be continued in the employment of the Company, a Parent of the Company
or a Subsidiary of the Company, or interfere in any way with the right of the
Company, a Parent of the Company or a Subsidiary of the Company to terminate
the employment of an Optionee, whether for cause or otherwise. A leave of
absence with the express written consent of the Company shall not be considered
termination of employment for purposes of this paragraph.
13. DEATH OR DISABILITY OF OPTIONEE. In the event of the death or
disability of an Optionee while employed by the Company, a Parent of the
Company or a Subsidiary of the Company, his Option may be exercised by him or,
in the case of the death of Optionee, by his personal representative or by any
person or persons who shall have acquired the Option directly from the Optionee
by will or by the laws of descent and distribution at an time within three (3)
months after the date of his death or within one (1) year after the date of his
disability; provided, however, that no Option shall be exercisable after the
expiration of ten (10) years from the date such Option is granted.
14. ADJUSTMENTS IN COMPANY COMMON STOCK. In the event of any changes in
the issued and outstanding shares of Company Common Stock by reason of (i)
share dividends, (ii) split-ups, (iii) recapitalizations, (iv) mergers, (v)
consolidations, (vi) combinations, (vii) separations, (viii) reorganizations or
(ix) exchange of shares, the aggregate number and class of shares available
under this Plan shall be correspondingly adjusted by the Committee; provided,
however, that neither this Plan nor an Option shall be adjusted in a manner
that causes an Option not to qualify as an incentive stock option within the
meaning of Section 422A of the Code.
15. TIME OF GRANTING OPTIONS. Nothing contained in the Plan or in any
resolution adopted or to be adopted by the Board or the shareholders of the
Company nor any action taken by the Committee shall constitute the granting of
an Option. The granting of an Option shall take place only when the written
option agreement referred to in paragraph 23 of this Plan shall have been duly
executed and delivered by or on behalf of the Company and the Optionee.
16. RIGHTS AS A SHAREHOLDER. Except as otherwise provided by the laws
of the State of Delaware, an Optionee shall have no rights as a shareholder of
the Company with respect to any shares covered by his Option until the date of
the issuance of a share certificate to him for such shares. Except as otherwise
provided in paragraph 14 of this Plan and by the laws of the State of Delaware,
no adjustment shall be made for dividends (ordinary or extraordinary, whether
in cash, securities or other property) or distributions
<PAGE> 5
or other rights on Company Common Stock for which the record date is prior to
the date such share certificate is issued.
17. AMENDMENT OF PLAN. To the extent permitted by law, the Board may
at any time and from time to time modify or amend the Plan in such respects as
it shall deem advisable; provided, however, that such modification or amendment
shall not change any rights under any outstanding Option without the written
consent of the Optionee; provided further, however, that such modification or
amendment shall not, without the approval of the shareholders of the Company,
change the Plan so as to cause any of the Options to fail to meet the
requirements of an incentive stock option under Section 422A of the Code.
18. TERMINATION OF PLAN. Notwithstanding anything contained in
this Plan to the contrary, the Board may at any time terminate or discontinue
this Plan or any Option granted hereunder provided that such action shall not,
without the written consent of the Optionee affected, impair the rights of such
Optionee under any Option previously grantcd under the Plan.
19. GOVERNMENTAL REGULATIONS. This Plan and the granting and exercise
of any Option and the obligations of the Company to sell and deliver shares of
Company Common Stock under any such Option shall be subject to all applicable
laws, rules and regulations, and to such approvals by any governmental agencies
as may be required.
20. COMPLIANCE WITH SECURITIES LAWS. Options granted and shares of
Company Common Stock issued by Company upon the exercise of Options shall be
granted and issued only in full compliance with all applicable securities laws
including, but not limited to, the Securities Act of 1933, as amended, and the
general rules and regulations promulgated thereunder by the Securities and
Exchange Commission and applicable state blue sky laws. In connection with such
compliance, the Committee may impose such conditions on transfer of the shares
of Company Common Stock subject to an Option and other restrictions, conditions
and limitations as it may deem necessary and appropriate.
21. PROCEEDS FROM SALE OF COMPANY COMMON. The proceeds to be received
by the Company upon the exercise of any Option shall be used for general
corporate purposes.
22. OBLIGATIONS OF OPTIONEE. The granting of an Option shall impose no
obligation upon the Optionee to exercise such Option.
23. OPTION AGREEMENT. Options granted under this Plan shall be
evidenced by written agreements in such form as the Committee shall from time
to time approve, which agreements (i) shall comply with and be subject to the
terms and conditions of this Plan, (ii) may contain such other provisions not
inconsistent with this Plan as the Committee shall deem advisable including,
without limitation, restrictions upon exercise of an Option and (iii) shall
contain such other limitations and restrictions upon the exercise of an Option
as shall be necessary in order that such Option will be an incentive stock
<PAGE> 6
option as defined in Section 422A of the Code and that the granting of such
Option shall be in compliance with federal and state securities laws.
24. EFFECTIVENESS OF PLAN. This Plan shall become effective on the
date this Plan is approved be the Board; provided, however, that the Plan shall
be submitted to the shareholders of the Company in the manner and within the
time required by Section 422A of the Code. In the event this Plan is not
approved by the shareholders of the Company as aforesaid, then this Plan shall
be terminated, null and void and all Options granted under this Plan shall
terminate.
25. DETERMINATION OF DISABILITY. For purposes of this Plan, the
determination as to whether an Optionee's employment is terminated because of
"disability" shall be vested solely in the Committee and its determination
shall be final and conclusive on all parties.
26. PRIORITY. To the extent that any of the provisions of Sections 421
and 422A of the Code are inconsistent with the provisions of this Plan and such
inconsistency would cause this Plan or any Option granted hereunder not to be
treated for federal income tax purposes as an incentive stock option plan, the
provisions of this Plan and of Options granted hereunder shall be deemed to be
amended in a manner to comply with the provisions of Section 421 or 422A of the
Code, as the case may be.
IN WITNESS WHEREOF, the undersigned, being the duly elected and
authorized Secretary of the Company, hereby certifies that this Plan was
legally and validly approved by the Board at a meeting thereof on November 25,
1981 in Toledo, Lucas County, Ohio.
TOLEDO TRUSTCORP, INC.
BY________________________
David A. Snavely Secretary
<PAGE> 1
RESTATEMENT OF Exhibit 10.19
THE AMERITRUST LONG-TERM INCENTIVE PLAN
AS THE AMERITRUST STOCK OPTION PLAN
(Effective January 1, 1988)
WHEREAS, Ameritrust Corporation (the "Corporation or Ameritrust") adopted The
Ameritrust Long-Term Incentive Plan (the "Plan"), effective February 13, 1985;
and
WHEREAS, the Plan was amended to reflect changes to the rules governing
incentive stock options concerning the sequences in which such options must be
exercised and the $100,000 limitation on the value of grants and to comply with
the requirements of and changes made by the Tax Reform Act of 1986; and
WHEREAS, the Corporation has determined to make no further grants of Performance
Units under the Plan and desires to restate the Plan to delete all provisions of
the Plan relating to Performance Units, to provide for the exercise of options
in cases where the funds constituting the exercise price have been borrowed, to
provide for options that may become fully exercisable not less than six months
after the date they are granted, to change the name of the Plan to the
Ameritrust Stock Option Plan and to make such other changes to the Plan as are
deemed necessary and desirable.
NOW, THEREFORE, in consideration of the premises, the Plan is restated effective
January 1, 1988, as follows:
1. Purpose
The purpose of the Ameritrust Long-Term Incentive Plan now, by change of
name, the Ameritrust Stock Option Plan (the "Plan") is to advance the interests
of Ameritrust and its Subsidiaries by providing stock ownership opportunities to
certain senior executives and other key employees who contribute significantly
to the longer term performance of Ameritrust and its Subsidiaries. In addition
the Plan is intended to reinforce corporate strategic goals and enhance the
ability of Ameritrust and its Subsidiaries to attract and retain individuals of
superior managerial ability and to motivate such key employees to exert their
best efforts towards future progress and profitability of Ameritrust and its
Subsidiaries.
For purposes of the Plan, a Subsidiary shall be any corporation in an
unbroken chain of corporations beginning with Ameritrust if each of the
corporations other than the last corporation in such chain owns or controls,
directly or indirectly, stock possessing not less than 50 percent of the total
combined voting power of all classes of stock in one of the other corporations.
<PAGE> 2
2. Administration and Interpretation
a. ADMINISTRATION. The administration and operation of the Plan shall be
supervised by the Compensation and Organization Committee of the Board of
Directors of Ameritrust, or such other committee of such Board of Directors
which shall succeed to the functions and responsibilities, in whole or in part,
of said Compensation and Organization Committee (the "Committee"). The Committee
shall consist of not less than three members of the Board of Directors of
Ameritrust (the "Board of Directors") who are not officers of Ameritrust or any
Subsidiary. No member of the Committee shall be entitled to participate in the
Plan.
The Committee shall have the authority, consistent with the provisions of
the Plan, to determine the provisions of the awards to be granted under the
Plan; to determine the form of option agreement; to interpret the Plan and any
award granted under the Plan; to adopt, amend and rescind rules and regulations
for the administration of the Plan and the awards granted under the Plan; and to
make all determinations in connection therewith which may be necessary or
advisable. The day-to-day administration of the Plan shall be carried out by
such officers and employees of Ameritrust Company National Association as shall
be designated from time to time by the Committee.
b. INTERPRETATION. The interpretation and construction by the Committee of
any provisions of the Plan or of any award granted under the Plan and any
determination by the Committee under any provision of the Plan or any such award
shall be final and conclusive, unless otherwise determined by the Board of
Directors, in which event the determination of the Board of Directors shall be
final and conclusive.
c. LIMITATION ON LIABILITY. Neither the Board of Directors nor the
Committee, nor any member of either, shall be liable for any act, omission,
interpretation, construction or determination made in connection with the Plan
in good faith, and the members of the Board of Directors and the member of the
Committee shall be entitled to indemnification and reimbursement by Ameritrust
in respect of any claim, loss, damage or expense (including counsel fees)
arising therefrom to the full extent permitted by law and under any directors'
and officers' liability insurance coverage which may be in effect from time to
time.
3. Shares Subject to Awards Under the Plan
a. LIMITATION ON NUMBER OF SHARES. The shares subject to Options (as
defined in Section 4 below) ("Option Shares") shall be shares of Ameritrust's
authorized but unissued common stock, par value $1.66-2/3 per share ("Common
Stock"), and shares, if any, of such Common Stock held as treasury stock by
Ameritrust. The aggregate number of Option Shares as to which Options may be
granted under and issued pursuant to the Plan, shall not exceed 2,200,000.
<PAGE> 3
If any outstanding Option expires or terminates unexercised for any reason
prior to April 30, 1990, the shares allocable to the unexercised or terminated
portion of such Option may again be made the subject of grants under the Plan.
b. ADJUSTMENTS OF AGGREGATE NUMBER OF SHARES. The aggregate number of
shares stated in Section 3.a. shall be subject to appropriate adjustment, from
time to time, in accordance with the provisions of Sections 4.c.(8) and (9)
hereof. In the event of a change in the Common Stock of Ameritrust which is
limited to a change in the designation thereof to "Capital Stock" or other
similar designation, or to a change in the par value thereof, or from par value
to no par value, without increase or decrease in the number of issued shares,
the shares resulting from any such change shall be deemed to be Common Stock
within the meaning of the Plan.
4. Stock Options
a. ELIGIBILITY. The individuals who shall be eligible to receive options
under the Plan shall be such key employees (including officers and directors who
are employees) of Ameritrust or of any Subsidiary as the Board of Directors and
the Committee from time to time shall determine as provided below.
b. GRANTS OF OPTIONS.
(1) In General. Options granted under the Plan may be either "Incentive
Stock Options" or "Non-qualified Stock Options" (both as defined below and
collectively referred to as "Options"), or both; provided, however, that no
Option Shares under the Plan shall be subject to more than one Option. Options
granted under the Plan shall be of such type and for such number of Option
Shares (subject to the limitation contained in Section 3), as the Board of
Directors and the Committee shall designate.
The Committee, at any time and from time to time before May 1, 1990, may
authorize the granting of Incentive Stock Options and/or Non-qualified Stock
Options to any individual eligible to receive the same; provided, however, that
the Incentive Stock Options and/or Non-qualified Stock Options to be granted to
a senior executive officer of Ameritrust, as determined by the Board of
Directors, and the aggregate of the Incentive Stock Options and/or Non-qualified
Stock Options to be granted on a given date to all other eligible employees
shall be approved by the Board of Directors.
(2) Incentive Stock Options. The term "Incentive Stock Option" shall mean
an Option, or portion thereof, which is intended to qualify as an incentive
stock option under Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code"). For grants made in 1985 and 1986 the aggregate Market Value Per
Share (as defined in Section 4.c.(4) below) on the date of grant of the Common
Stock for which any eligible individual may be granted Incentive Stock Options
under the Plan (and any other incentive stock options which may be issued under
any stock option plan which may be
<PAGE> 4
maintained by Ameritrust or a Subsidiary) in any calendar year may not exceed
the sum of (i) $100,000 and (ii) any "unused limit carryover" applicable to such
year. For purposes of this subsection, the "unused limit carryover" applicable
to a given year shall be determined in accordance with the rules of Section
422A(c)(4) of the Code prior to its amendment by the Tax Reform Act of 1986.
(3) Non-qualified Stock Options. The term "Non-qualified Stock Option"
shall mean any Option, or portion thereof, which is not an Incentive Stock
Option. Except as specifically provided herein, the provisions of the Plan shall
apply in the same manner to Incentive Stock Options and to Non-qualified Stock
Options.
c. TERMS OF OPTIONS. Options granted pursuant to the Plan shall be
evidenced by agreements ("stock option agreements").
Stock option agreements shall comply with and be subject to the following
terms and conditions and may contain such other provisions, consistent with the
terms of the Plan, as the Committee or the Board of Directors shall deem
advisable.
(1) Medium of Payment. Upon exercise of an Option, the option price shall
be payable to Ameritrust (i) in United States dollars in cash or by certified
check, bank draft or money order payable to the order of Ameritrust or (ii) by
tendering to Ameritrust shares of Common Stock owned by the optionee having an
aggregate Market Value Per Share as of the date of exercise which is not greater
than the option price and by paying the remainder of the option price as
provided in (i) above. Payment instruments will be received subject to
collection. In the event the optionee borrows the funds constituting the option
price and requests in writing that the Option Shares be delivered to a specified
account or person in connection with such borrowing, then Ameritrust may, in its
sole discretion, enter into an appropriate agreement with the person lending
such funds (or such person's designated agent) to provide for the delivery of
the Option Shares in accordance with the optionee's written request.
(2) Number of Shares. Each stock option agreement shall state the total
number of Option Shares which are subject to the Option.
(3) Option Price. The option price for each Option Share shall be not less
than the "Market Value Per Share" on the date of the granting of the Option.
(4) Market Value Per Share. The Market Value Per Share as of any particular
date shall be the mean between the highest and lowest quoted selling prices for
shares of Common Stock as reported by the NASDAQ system on such date (or, if
such date shall not be a business day, then the next preceding day which shall
be a business day); or, if no sale takes place, then the mean between the bid
and asked prices on such date; and if no bid and asked prices are quoted for
such date, then such value as shall be determined by such method as the
Committee shall deem to reflect fair market value as of such date.
<PAGE> 5
(5) Term. The term of each Option shall be determined by the Committee at
the date of grant; provided, however, that each Option shall expire not more
than ten years from the date the Option is granted.
(6) Date of Exercise. Each stock option agreement shall state that the
Option granted therein may not be exercised in whole or in part for any period
or periods of time specified in such agreement or otherwise as specified by the
Committee. Except as may be so specified, any Option may be exercised in whole
or in part from time to time during its term; provided, however, that no Option,
or portion thereof, may be exercisable until at least six months after the date
of grant of such Option.
Each stock option agreement for an Incentive Stock Option granted in 1985
or 1986 shall further provide that such Incentive Stock Option shall not be
exercisable while there is outstanding with respect to the optionee any
incentive stock option (as defined in Section 422A of the Code) to purchase
stock of Ameritrust which was granted before the granting of such Incentive
Stock Option. For purposes of this subsection (6), an incentive stock option
shall be treated as outstanding until such option is exercised in full, or
expires by reason of lapse of time.
Each stock option agreement for an Incentive Stock Option granted after
1986 may provide that such Incentive Stock Option may be exercised in any order
which is consistent with the provisions of this subsection (6) and shall provide
that the aggregate Market Value Per Share (determined on the date of grant) of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the optionee during any calendar year (under all plans of
the optionee's employer and its parent and subsidiary corporations which grant
incentive stock options) shall not exceed $100,000.
(7) Termination of Employment. In the event that an optionee's employment
by Ameritrust or any of its Subsidiaries shall terminate, the optionee's Options
shall terminate immediately, except as hereinafter provided in this subsection.
In the event of termination of employment for any reason other than death
or retirement, the Committee, in its sole discretion, may determine that the
optionee's Option to the extent exercisable immediately prior to such
termination of employment, may remain exercisable for a designated period of
time not to exceed 90 days after such termination of employment.
If any termination of employment is due to retirement with the consent of
Ameritrust, the Committee shall have discretion to permit any unexercisable, or,
with respect to previously granted options, unmatured installments of, Options
to be accelerated as of the last to occur of the date of retirement or the
elapse of not less than six months after the date of grant and to permit the
optionee, subject to the provisions of subsections (5) and (6) above, to
exercise his Option at any time within the thirty-six
<PAGE> 6
month period after such retirement. Retirement by an optionee on or after the
optionee's normal retirement date in accordance with the provisions of the
retirement plan of Ameritrust or one of its Subsidiaries under which the
optionee is then covered shall be deemed to be retirement with the consent of
Ameritrust. Whether any other termination of employment is to be considered a
retirement with the consent of Ameritrust and whether an authorized leave of
absence or absence on military or government service or for other reasons shall
constitute a termination of employment for the purposes of the Plan shall be
determined by the Committee.
If an optionee shall die while entitled to exercise an Option, any
unmatured installments of the Options (relating to Options granted prior to
January 1, 1988) shall be accelerated and the optionee's estate, personal
representative, or beneficiary, as the case may be, shall have the right,
subject to the provisions of subsections (5) and (6) above, to exercise the
Option at any time within thirty-six months from the date of the optionee's
death (but in no event more than thirty-six months from the date of the
optionee's retirement with the consent of Ameritrust).
(8) Recapitalization. The aggregate number of shares stated in Section
3.a., the number of Option Shares to which each outstanding Option relates, and
the option price in respect of each such Option shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or consolidation of shares or other capital
adjustments, or the payment of a stock dividend or other increase or decrease in
such shares, effected without receipt of consideration by Ameritrust or a
Subsidiary; provided, however, that any fractional shares resulting from any
such adjustment shall be eliminated.
(9) Merger or Consolidation. In the event of any merger, consolidation,
separation or reorganization involving Corporation or any partial or complete
liquidation of Corporation, or any other corporate transaction or event having
an effect similar to any of the foregoing, the Corporation's Board of Directors
shall make such adjustments in the specified option price and in the allotted
number of shares (or other securities, if any, resulting from any such
transaction or event) as the Board in its sole discretion may in good faith
determine is equitably required to prevent any dilution or enlargement of
Optionee 's rights that might otherwise result, which determination shall be
conclusive. No adjustment provided for in this subsection (9) shall require the
Corporation to sell any fractional share.
(10) Unsupported Tender Offer. In the event of a tender offer for 50
percent or more of the Common Stock which is not supported by the Board of
Directors, the Board of Directors may, in its discretion, authorize the payment
in cash to each person who is subject to the provisions of Section 16 of the
Securities Exchange Act of 1934 of an amount equal to the tender price for a
share of Common Stock multiplied by the total number of such person's Option
Shares then outstanding and unexercised, and less the total option price for
such Option Shares.
<PAGE> 7
(11) Optionee's Agreement. If, at the time of the exercise of any Option,
in the opinion of counsel for Ameritrust, it is necessary or desirable, in order
to comply with any then applicable laws or regulations relating to the sale of
securities, that the optionee exercising the Option shall agree to hold any
Option Shares issued to the optionee for investment and without any present
intention to resell or distribute the same and that the optionee will dispose of
such shares only in compliance with such laws and regulations, the optionee
will, upon the request of Ameritrust, execute and deliver to Ameritrust a
further agreement to such effect.
d. EFFECT OF EXERCISE OF OPTIONS. The right of an optionee to exercise an
Option shall terminate to the extent that such Option is exercised.
e. OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options may be granted under the Plan from time to time in
substitution for stock options held by employees of corporations who become key
employees of Ameritrust or of any Subsidiary as a result of a merger or
consolidation of the employing corporation with Ameritrust or such Subsidiary,
or the acquisition by Ameritrust or a Subsidiary of the assets of the employing
corporation, or the acquisition by Ameritrust or a Subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
Subsidiary.
f. APPLICATION OF FUNDS. The proceeds received by Ameritrust from the sale
of Option Shares pursuant to Options will be used for general corporate
purposes.
5. Withholding for Taxes
Any distribution of Common Stock under the Plan shall not be made until
appropriate arrangements have been made for the payment of any amounts which may
be required to be withheld or paid with respect thereto.
6. Termination of Authority to Grant Awards
No awards shall be granted pursuant to this Plan after April 30, 1990.
7. Amendment and Termination.
The Board of Directors may from time to time and at any time alter, amend,
suspend, discontinue or terminate this Plan; provided, however, that no such
action of the Board of Directors may, without the approval of the stockholders
of Ameritrust, alter the provision of the Plan so as to (i) increase the maximum
number of shares of Common Stock which may be subject to awards and distributed
in the payment of awards under the Plan (except as provided in Section 3.b.);
(ii) change the class of employees eligible to receive awards under the Plan;
(iii) extend beyond ten years the maximum term of Options granted under the Plan
or extend the term of the Plan; (iv) decrease, directly or indirectly (by
cancellation and substitution of Options or otherwise), the option price
<PAGE> 8
applicable to any Option; provided, however, that the provisions of this clause
(iv) shall not prevent the granting to any person holding an Option of an
additional Option exercisable at a lower option price; (v) withdraw the
administration of the Plan from the Committee; or (vi) permit any member of the
Committee to be eligible to receive an award pursuant to the terms of the Plan.
8. Preemption by Applicable Laws and Regulations
Anything in the Plan or any stock option or other agreement entered into
pursuant to the Plan to the contrary notwithstanding, if, at any time specified
herein or therein for the making of any determination, the issue or other
distribution of shares of Common Stock, any law, regulation or requirement of
any governmental authority having jurisdiction in the premises shall require
either Ameritrust or the employee (or the employee's beneficiary), as the case
may be, to take any action in connection with any such determination or the
shares then to be issued or distributed, the issue or distribution of such
shares or the making of such determination, as the case may be, shall be
deferred until such action shall have been taken.
9. Miscellaneous
a. NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall be construed
as conferring upon an employee the right to continue in the employ of Ameritrust
or any Subsidiary.
b. EMPLOYMENT WITH SUBSIDIARIES. Employment by Ameritrust for the purposes
of the Plan shall be deemed to include employment by, and to continue during any
period in which an employee is in the employment of, any Subsidiary.
c. NO RIGHTS AS A STOCKHOLDER. An employee shall have no rights as a
stockholder with respect to Option Shares covered by the employee's Option until
the date of the issuance of such shares to the employee and only after such
shares are fully paid. No adjustment will be made for dividends or other
distributions or rights for which the record date is prior to the date of such
issuance.
d. NO RIGHT TO CORPORATE ASSETS. Nothing contained in the Plan shall be
construed as giving an employee, the employee's beneficiaries or any other
person any equity or interest of any kind in any assets of Ameritrust or a
Subsidiary or creating a trust of any kind or a fiduciary relationship of any
kind between Ameritrust or a Subsidiary and any such person.
e. NON-ASSIGNABILITY. Except as contemplated in Section 4.c.(1), neither an
employee nor an employee's beneficiary shall have the power or right to sell,
exchange, pledge, transfer, assign or otherwise encumber or dispose of such
employee's or beneficiary's interest in the Plan or in any award received under
the Plan; nor shall such interest be subject to seizure for the payment of an
employee's or beneficiary's debts,
<PAGE> 9
judgments, alimony, or separate maintenance or be transferable by operation of
law in the event of an employee's or beneficiary's bankruptcy or insolvency.
Ameritrust's or a Subsidiary's obligations under the Plan are not
assignable or transferable except to a corporation which acquires all or
substantially all of the assets of Ameritrust or such Subsidiary or to any
corporation into which Ameritrust or such Subsidiary may be merged or
consolidated.
f. OTHER BENEFIT PLANS. No awards under the Plan shall be taken into
account in determining any benefits under any retirement, profit-sharing or
other plan maintained by Ameritrust or a Subsidiary.
g. GOVERNING LAW; CONSTRUCTION. All rights and obligations under the Plan
shall be governed by, and the Plan shall be construed in accordance with, the
laws of the State of Ohio. Titles and headings to Sections herein are for
purposes of reference only, and shall in no way limit, define or otherwise
affect the meaning or interpretation of any provisions of the Plan.
10. Name of Plan
The name of the Plan is hereby changed to the "Ameritrust Stock Option Plan".
<PAGE> 1
TRUST AGREEMENT Exhibit 10.20
---------------
This Trust Agreement ("Trust Agreement") made this 3rd day of November, 1988
by and between AMERITRUST CORPORATION, a Delaware corporation ("Ameritrust")
and WACHOVIA BANK AND TRUST COMPANY, N.A, a national banking association (the
"Trustee");
WITNESSETH:
-----------
WHEREAS, in addition to benefits payable under the Ameritrust Retirement
Income Plan and the Ameritrust Indiana Retirement Income Plan, as the same have
been or may hereafter be supplemented, amended or restated or any successor
thereto (the "Retirement Plans"), and under the Ameritrust Corporation
Employees' Savings and Investment Plan, and the Ameritrust Indiana Corporation
Employees' Profit Sharing and Savings Plan, as the same has been or may
hereafter be supplemented, amended or restated or any successor thereto (the
"Savings Plans"), to certain employees and former employees listed on Exhibit
A-1 hereto or to the beneficiaries of such employees, as the case may be, the
employees and their beneficiaries are entitled to certain other benefits under
(1) the Ameritrust Corporation Deferred Compensation Plan, which plan became
effective on August 1, 1988, as the same has been or may hereafter be
supplemented, amended or restated or any successor thereto (the "Deferred
Compensation Plan"), (2) the Ameritrust Corporation
<PAGE> 2
Excess Benefits Plan, which plan became effective on June 17, 1988, as the same
has been or may hereafter be supplemented, amended or restated or any successor
thereto (the "Excess Plan"), (3) any unpaid second installment of an Award
payment under the Ameritrust Corporation Long-Term Cash Incentive Plan, which
plan became effective on September 1, 1988, as the same may hereafter be
supplemented, amended or restated or any successor thereto (the "Long Term
Plan"), and (4) the post-retirement benefits payable under the Executive Life
Insurance Program (the "Life Program") which Deferred Compensation Plan, Excess
Plan, Long Term Plan and Life Program are sometimes referred to herein as the
"Plans;"
WHEREAS, each of certain employees listed on Exhibit A-2 hereto has entered
into an employment agreement with Ameritrust or one of its Participating
Subsidiaries (as hereinafter defined) (the agreements are referred to herein
singularly as an "Agreement" or collectively as the "Agreements");
WHEREAS, the Plans and the Agreements provide for certain employment,
severance, retirement income, deferred income, death, disability and survivor
and/or other benefits, and Ameritrust and its Participating Subsidiaries wish
specifically to assure the payment to the individuals listed on Exhibits A-1
and A-2 (the "Executives") and their beneficiaries (the Executives and their
respective beneficiaries are referred to collectively as the "Trust
Beneficiaries") of amounts due thereunder (the amounts so payable being
collectively referred to herein as the "Benefits");
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<PAGE> 3
WHEREAS, subject to Section 9 hereof, the amounts and timing of Benefits to
which each Trust Beneficiary is presently or may become entitled are as
provided in and determined under the Agreements and the Plans, and, where
appropriate, the retirement Plans or the Savings Plans;
WHEREAS, Ameritrust wishes to establish a trust (the "Trust") under which
Ameritrust and each of its subsidiaries that executes a Participating
Subsidiary Deposit Agreement ("Deposit Agreement") as provided in Section 13
hereof (a "Participating Subsidiary"; and "Participating Employer" shall mean
Ameritrust or any Participating Subsidiary) may transfer to the Trust assets
which shall be held therein subject to the claims of the creditors of each
Participating Employer to the extent set forth in Section 3 hereof until paid
in full to all Trust Beneficiaries as Benefits in such manner and at such times
as specified herein unless the Participating Employer with respect to a Trust
Beneficiary is Insolvent (as defined herein) at the time that such Benefits
become payable;
WHEREAS, each Participating Subsidiary that executes a Deposit Agreement has
irrevocably appointed Ameritrust its agent and attorney for purposes of acting
on its behalf with respect to this Trust; and
WHEREAS, a Participating Employer shall be considered "Insolvent" for purposes
of this Trust Agreement at such time as such Participating Employer (i) is
subject to a pending voluntary or involuntary proceeding as a debtor under the
United States Bankruptcy Code, as heretofore or hereafter amended, or
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<PAGE> 4
(ii) is unable to pay its debts as they mature or (iii) if a Participating
Employer is a bank, whenever a receiver is appointed by the appropriate
regulatory authority.
NOW, THEREFORE, the parties do hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
1. TRUST FUND: (a) Subject to the claims of creditors of Participating
Employers to the extent set forth in Section 3 hereof, Ameritrust hereby
deposits with the Trustee in trust $100.00, which shall become the principal of
this Trust, to be held, administered and disposed of by the Trustee as herein
provided.
(b) The Trust hereby established shall be revocable by Ameritrust at any time
prior to the date on which occurs a "Change of Control," as that term is
defined in this Section l(b); on or after such date, this Trust shall be
irrevocable. In the event that a Change of Control has occurred, Ameritrust
shall, and an Executive may, so notify the Trustee promptly. The Trustee may
rely on such notice or on any other actual notice, satisfactory to the Trustee,
of such a Change of Control which the Trustee may receive. The Trustee shall
have no obligation to make an independent determination as to the occurrence of
a Change of Control.
(i) As used herein, the term "Change of Control" shall mean:
(A) the acquisition or ownership of 20% or more of the voting stock of
Ameritrust by any person (as the term
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<PAGE> 5
"person" is used in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), other than Ameritrust or its
subsidiaries of a tender offer or offer to purchase, market or privately
negotiated purchases or any other event or circumstance, as disclosed or
required to be disclosed in a report or an amendment to a report on Schedule
13D, Schedule 14D-1 or Form 8-X (or any successor schedule, form or report
under the Exchange Act);
(B) the merger or consolidation of Ameritrust with another corporation, the
sale of all or substantially all of Ameritrust's assets to another entity, or
any other fundamental change with respect to Ameritrust (which agreement, sale
or change is subject in any event to shareholder approval) to the extent that,
as a result of such merger or consolidation, sale, or change, either (A) less
than 80% of the outstanding voting securities of the surviving or resulting
corporation will be owned in the aggregate by the persons who were the
shareholders of Ameritrust immediately prior to such merger or consolidation,
sale, or change, or (B) Ameritrust will cease to be required, and any such
surviving or resulting corporation will not be required, to file information,
documents and reports under Section 13(e) of the Exchange Act; or
(C) individuals who, as of the date hereof, constitute the Board of
Directors of Ameritrust (the "Board" generally and as of the date hereof the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board,
-5-
<PAGE> 6
provided that any person becoming a director subsequent to the date hereof
whose election, or nomination for election by Ameritrust's shareholders, was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the Directors of Ameritrust, as
such terms are used in Rule 14a-11 of Regulation 15A promulgated under the
Exchange Act) shall be, for purposes of this Plan, considered as though such
person were a member of the Incumbent Board.
(c) The principal of the Trust and any earnings thereon shall be held in
trust separate and apart from other funds of each Participating Employer
exclusively for the uses and purposes herein set forth. No Trust Beneficiary
shall have any preferred claim on, or any beneficial ownership interest in, any
assets of the Trust prior to the time that such assets are paid to a Trust
Beneficiary as Benefits as provided herein. Each Trust Beneficiary shall have
the status of a general unsecured creditor with respect to the assets of the
Trust. The obligation of the Trustee to pay Benefits pursuant to the Trust
Agreement constitutes merely an unfunded and unsecured promise to pay such
Benefits.
(d) Ameritrust and any Participating Subsidiary may at any time or from time
to time make additional deposits of cash or other property in the Trust to
augment the principal to be held, administered and disposed of by the Trustee
as herein
-6-
<PAGE> 7
provided, but no payment of all or any portion of the principal of the Trust or
earnings thereon shall be made to any Participating Employer or any other
person or entity on behalf of any Participating Employer except as herein
expressly provided.
(e) Not later than the date on which the Trust has become irrevocable,
Ameritrust shall (i) specify the amounts and timing of the Benefits to which
each Trust Beneficiary may become entitled, as provided in and subject to
Section 9 hereof, in an exhibit ("Exhibit B"), and (ii) provide any
corresponding revisions to Exhibits A-1 and A-2 that may be required.
(f) The Trust is intended, with respect to each Participating Employer, to be
a grantor trust, within the meaning of section 671 of the Internal Revenue Code
of 1986, as amended (the "Code"), or any successor provision thereto, and shall
be construed accordingly. The Trust is not designed to qualify under section
401(a) of the Code or to be subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
2. PAYMENTS TO TRUST BENEFICIARIES: (a) Provided that a Trust Beneficiary's
Participating Employer is not Insolvent and commencing with the earlier to
occur of (i) appropriate notice by Ameritrust to the Trustee, or (ii) the date
on which the Trust becomes irrevocable, the Trustee shall make payments of
Benefits to the Trust Beneficiaries from the assets of the Trust in accordance
with the terms of the Agreements and Plans and subject to Section 9 hereof. The
Trustee shall be permitted to
-7-
<PAGE> 8
withhold from any payment due to a Trust Beneficiary hereunder the amount
required by law to be so withheld under federal, state and local withholding
requirements or otherwise, and shall pay over to the appropriate government
authority the amount so withheld. The Trustee may rely on instructions from
Ameritrust as to any required withholding and shall be fully protected under
Section 8(f) hereof in relying on such instructions.
(b) If the balance of an Executive's separate account maintained pursuant to
Section 7(b) hereof is not sufficient to provide for full payment of Benefits
to which such Executive's Trust Beneficiaries are entitled as provided herein,
the Executive's Participating Employer shall make the balance of each such
payment as provided in the applicable provision of the Agreement or the Plans.
No payment from the Trust assets to a Trust Beneficiary shall exceed the
balance of such separate account.
3. THE TRUSTEE'S RESPONSIBILITY REGARDING PAYMENTS TO A TRUST BENEFICIARY WHEN
A PARTICIPATING EMPLOYER IS INSOLVENT: (a) At all times during the
continuance of this Trust, the principal and income of the Trust with respect
to accounts maintained hereunder on behalf of a Participating Employer shall be
subject to claims of creditors of such Participating Employer as set forth in
this Section 3(a). The Board of Directors ("Board") of Ameritrust and of each
Participating Subsidiary and the Chief Executive Officer of Ameritrust and of
each Participating Subsidiary ("CEO") shall have the duty to inform the Trustee
if either the Board or the CEO believes that his or
-8-
<PAGE> 9
their respective Participating Employer is Insolvent. If the Trustee receives a
notice from the Board, the CEO, or a creditor of a Participating Employer
alleging that such Participating Employer is Insolvent, the Trustee will
independently determine within 30 days after receipt of such notice whether the
Participating Employer is Insolvent. Pending such determination or if the
Trustee has actual knowledge that a Participating Employer is Insolvent, the
Trustee shall (i) discontinue payments to any Trust Beneficiary from accounts
maintained hereunder on behalf of such Participating Employer (the "Identified
Participating Employer"), (ii) determine and allocate all Account Excesses in
accordance with Sections 4 and 7(b) hereof for the accounts of Executives then
employed by the Identified Participating Employer, or for whom such Identified
Participating Employer has obligations and liabilities or has assumed
obligations and liabilities pursuant to a Deposit Agreement, treating such
accounts solely for this purpose as if they comprised all of the accounts of
the Trust, and provided that for this purpose the Threshold Percentage shall be
equal to 100%, and (iii) hold the Trust assets attributable to accounts
maintained hereunder on behalf of Executives then employed by the Identified
Participating Employer, or for whom such Identified Participating Employer has
obligations and liabilities or has assumed obligations and liabilities pursuant
to a Deposit Agreement, for the benefit of the general creditors of such
Identified Participating Employer. The Trustee shall deliver any undistributed
principal and income in the Trust to
-9-
<PAGE> 10
the extent of the balances of the accounts maintained hereunder on behalf of
the Identified Participating Employer to the extent necessary to satisfy the
claims of the creditors of such Identified Participating Employer as a court of
competent jurisdiction may direct. Such payments of principal and income shall
be borne by the separate accounts of the Trust Beneficiaries maintained
hereunder on behalf of the Identified Participating Employer in proportion to
the balances on the date of such court order of their respective accounts
maintained hereunder on behalf of such Identified Participating Employer and
maintained pursuant to Section 7(b) hereof. If payments to any Trust
Beneficiary have been discontinued pursuant to this Section 3(a), the Trustee
shall resume payments to such Trust Beneficiary in accordance with this Trust
Agreement if the Trustee has determined that the Executive's Participating
Employer is not Insolvent, or is no longer Insolvent (if the Trustee initially
determined such Participating Employer to be Insolvent), or pursuant to the
order of a court of competent jurisdiction. The Trustee shall have no duty to
inquire as to whether a Participating Employer is Insolvent and may rely on
information concerning the Insolvency of a Participating Employer which has
been furnished to the Trustee by any creditor of a Participating Employer or by
any person (other than an employee or director of Ameritrust or a Subsidiary)
acting with apparent or actual authority with respect to Ameritrust or a
Subsidiary. Nothing in this Trust Agreement shall in any way diminish any
rights of any Trust Beneficiary to pursue his
-10-
<PAGE> 11
rights as a general creditor of the Executive's Participating Employer or any
other Participating Employer with respect to Benefits or otherwise, and the
rights of each Trust Beneficiary under the respective Agreement or Plans shall
in no way be affected or diminished by any provision of this Trust Agreement or
action taken pursuant to this Trust Agreement except that any payment actually
received by any Trust Beneficiary from the Trust shall reduce dollar-per-dollar
amounts otherwise due to such Trust Beneficiary pursuant to the respective
Agreement or Plans.
(b) If the Trustee discontinues payments of Benefits from the Trust pursuant
to Section 3(a) hereof, and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate amount of all
payments which would have been made to the Trust Beneficiaries in accordance
with this Trust Agreement during the period of such discontinuance, less the
aggregate amount of payments made to any Trust Beneficiary by the Participating
Employer pursuant to the Agreement or the Plans during any such period of
discontinuance, together with interest on the net amount delayed determined at
a rate equal to the rate actually earned during such period with respect to the
assets of the Trust corresponding to such net amount delayed; provided,
however, that no such payment shall exceed the balance of the respective Trust
Beneficiary's account as provided in Section 7(b) hereof.
4. PAYMENTS TO PARTICIPATING EMPLOYERS: Except to the extent expressly
contemplated by Section 1(b) and this Section 4,
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<PAGE> 12
no Participating Employer shall have any right or power to direct the Trustee
to return any of the Trust assets to such Participating Employer before all
payments of Benefits have been made to all Trust Beneficiaries of such
Participating Employer as herein provided. Upon the written request of a
Participating Employer made prior to the date on which the Trust becomes
irrevocable, the Trustee shall return to the Participating Employer any Trust
assets in accounts for Executives then employed by the Participating Employer,
or for whom such Participating Employer has obligations and liabilities or has
assumed obligations and liabilities pursuant to a Deposit Agreement, in excess
of One Hundred Dollars ($100) as may be specified in such request by such
Participating Employer. From time to time, but in no event before the third
anniversary of the date on which the Trust has become irrevocable, if and when
requested by Ameritrust to do so, the Trustee shall engage the services of The
Wyatt Company, or such other independent actuary as may be mutually
satisfactory to Ameritrust and to the Trustee, to determine the maximum
actuarial present values of the future Benefits that could become payable by
each Participating Employer under the Agreements and the Plans with respect to
the Trust Beneficiaries. The Trustee shall determine the fair market values of
the Trust assets allocated to the account of each Executive pursuant to Section
7(b) hereof. Ameritrust shall pay the fees of such independent actuary and of
any appraiser engaged by the Trustee to value any property held in the Trust.
The independent actuary shall make its
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<PAGE> 13
calculations based upon the assumptions set forth in Exhibit C hereto, or such
other assumptions as are recommended by such actuary and approved by Ameritrust
and, if the Trust is irrevocable, by two-thirds of the Executive Participants,
as hereafter defined (subject to the provisions of Sections 10(b)(i) and
(b)(ii) hereof). For purposes of this Trust Agreement, (a) "Executive
Participants" shall mean the individuals listed on Exhibit A-2 hereto; (b) the
"Fully Funded" amount with respect to the account of an Executive maintained
pursuant to Section 7(b) hereof shall be equal to the "Threshold Percentage,"
as defined below, multiplied by the maximum" actuarial present value of the
future Benefits that could become payable under the Agreement and the Plans
with respect to the Trust Beneficiaries of such Executive, (c) the "Account
Excess" with respect to such account shall be equal to the excess, if any, of
the fair market value of the assets held in the Trust allocated to an
Executive's account over the respective Fully Funded amount, and (d) the
"Aggregate Account Excess" with respect to a Participating Employer shall be
equal to the excess, if any, of the aggregate account balances of Executives
then employed by the Participating Employer, or for whom such Participating
Employer has obligations and liabilities or has assumed obligations and
liabilities pursuant to a Deposit Agreement, over their aggregate Fully Funded
amounts. Unless otherwise provided, the Threshold Percentage shall be equal to
125%. The Trustee shall allocate any Account Excess in accordance with Section
7(b) hereof. Thereafter, upon the
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request of Ameritrust, the Trustee shall pay to the Participating Employer its
Aggregate Account Excess; provided, however, that if such payment would leave
the Trustee with insufficient liquid assets to pay all premiums due and to
become due on any life insurance policies held in the Trust, the Trustee shall
retain sufficient liquid assets to pay such premiums.
5. INVESTMENT OF TRUST FUND: Prior to the date on which the Trust becomes
irrevocable, the Trustee shall invest and reinvest the assets of the Trust as
Ameritrust or its designee shall prescribe from time to time. Thereafter, or in
the absence of such instructions from Ameritrust, the Trustee shall have sole
power to invest the assets of the Trust; provided, however, that except as
provided in Section 8(j) hereof, the Trustee shall retain any insurance
policies in the Trust. The investment objective of the Trustee shall be to
preserve the principal of the Trust while obtaining a reasonable total rate of
return, measurement of which shall include market appreciation or depreciation
plus receipt of interest and dividends. The Trustee shall be mindful, in the
course of its management of the Trust, of the liquidity demands on the Trust
and any actuarial assumptions that may be communicated to it from time to time
in accordance with the provisions of this Trust Agreement. The Trustee shall
not be liable for any failure to maximize income on such portion of the Trust
assets as may be from time to time invested or reinvested as set forth above,
nor for any loss of income due to the liquidation of any
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investment which the Trustee, in its sole discretion, believes necessary to
make payments or to reimburse expenses under the terms of this Trust Agreement.
The Trustee shall have the right to invest assets of the Trust as the Trustee
may deem proper and suitable in non-interest bearing deposit accounts
(including any such accounts offered or maintained by the Trustee or any
successor or affiliated corporation).
6. INCOME OF THE TRUST: Except as provided in Section 3 hereof, during the
continuance of this Trust all net income (or loss) of the Trust shall be
allocated quarterly among the Trust Beneficiaries' separate accounts in
accordance with Section 7(b) hereof. Net income (or loss) of the Trust shall be
determined by taking into account (i) receipt of interest and dividends, (ii)
any increase or decrease in the value of the Trust assets attributable to
market appreciation or depreciation and (iii) any increase in the cash
surrender value of any life insurance policy held in the Trust other than the
portion of such increase attributable to the payment of the premiums due
thereon.
7. ACCOUNTING BY TRUSTEE: (a) The Trustee shall maintain such books,
records and accounts as may be necessary for the proper administration of the
Trust assets, including such specific records as shall be agreed upon in
writing by Ameritrust and the Trustee, and shall render to each Participating
Employer, within 60 days following the close of each calendar year following
the date of this Trust until the termination of this Trust or the removal or
resignation of the Trustee (and within 60 days after the date of such
termination, removal or resignation), an accounting with respect to the Trust
assets as of the end of the then most recent calendar year (and as of the date
of such termination,
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removal or resignation as the case may be). The Trustee shall furnish to each
Participating Employer on a monthly basis and in a timely manner such
information regarding the Trust as each Participating Employer shall require
for purposes of preparing its statements of financial condition. The Trustee
shall at all times maintain a separate bookkeeping account for each
Participating Employer and for each Executive as prescribed by Section 7(b)
hereof. Upon the written request of an Executive or Ameritrust, the Trustee
shall deliver to such Executive or Ameritrust, as the case may be, a written
report setting forth the amount held in the Trust for such Executive (or each
Executive if such request is made by Ameritrust) and a record of the deposits
made with respect thereto by each Participating Employer. Unless Ameritrust or
any Executive shall have filed with the Trustee written exceptions or
objections to any such statement and account within one hundred eighty (180)
days after receipt thereof, Ameritrust or the Executive shall be deemed to have
approved such statement and account, and in such case the Trustee shall be
forever released and discharged with respect to all matters and things reported
in such statement and account as though it had been settled by a decree of a
court of competent jurisdiction in an action or proceeding to which each
Participating Employer and the Executive were parties.
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(b) The Trustee shall maintain a separate account (i) for each Participating
Employer (a "Participating Employer Account") and (ii) within such
Participating Employer Account, a separate account for each Executive who
performs services for such Participating Employer and from whom such Executive
is entitled to Benefits (an "Executive's account"). Each asset of the Trust
shall be allocated to the account of a Participating Employer. Executive
accounts within a Participating Employer Account shall reflect undivided
portions of each asset in such Account. The Trustee shall credit or debit each
Executive's account as appropriate to reflect such Executive's allocable
portion of the Trust assets allocated to each Participating Employer Account,
as such Trust assets may be adjusted from time to time pursuant to the terms of
this Trust Agreement. Except as otherwise provided in this Section 7(b), the
Trustee shall allocate the income (or loss) of the Trust with respect to each
Participating Employer Account, and within such Account, to the separate
Executive accounts maintained thereunder in proportion to the balances of the
separate accounts of the Executives. All deposits of principal pursuant to
Sections 1(a) and 1(d) shall be allocated and reallocated as directed by the
Participating Employer making such deposit until such time as the Trust has
become irrevocable; thereafter, deposits of principal may be allocated, but not
reallocated, by a Participating Employer. The net proceeds of any life
insurance policies held in the Trust in excess of the cash surrender values
thereof shall be treated and allocated as income for purposes of this Section
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7(b). Any increase in the cash surrender value of any such policies
attributable solely to the payment by a Participating Employer of premiums due
thereon pursuant to Section 8(j) hereof shall be treated as a deposit of
principal that may be allocated by such Participating Employer for purposes of
this Section 7(b).
For purposes of this Trust Agreement
(a) "Accumulated Benefit" for a Trust Beneficiary shall mean the
Benefits to which such Trust Beneficiary may become entitled as of
each March 31 with respect to service by an Executive to such
date;
(b) "Projected Benefit" for a Trust Beneficiary shall mean the
Benefits to which such Trust Beneficiary may become entitled
projected as of the date three years after the date for determination
of the Accumulated Benefit with respect to projected service by an
Executive to such date, which Projected Benefit shall
include the Accumulated Benefit;
(c) the "Projected Benefit Account Excess" with respect to an
Executive account maintained pursuant to this Section 7(b) shall be
equal to the excess, if any, of the fair market value of the assets
held in the Trust allocated to such Executive's account over the
respective Projected Benefit; and
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(d) the "Aggregate Projected Benefit Account Excess" with respect to
a Participating Employer shall be equal to the excess, if any, of the
aggregate account balances of Executives then employed by the
Participating Employer, or for whom such Participating Employer has
obligations and liabilities or has assumed obligations and liabilities
pursuant to a Deposit Agreement, over their aggregate Projected
Benefits.
If any deposit of principal is not allocated by the Participating Employer such
amount shall be allocated by the Trustee as if it were a Projected Benefit
Account Excess with respect to Executives then employed by such Participating
Employer, or for whom such Participating Employer has obligations and
liabilities or has assumed obligations and liabilities pursuant to a Deposit
Agreement, in accordance with this Section 7(b). The Trustee shall determine
annually the amount of all Projected Benefit Account Excesses. The Trustee
shall allocate the Aggregate Projected Benefit Account Excess of a
Participating Employer to any accounts of Executives then employed by such
Participating Employer, or for whom such Participating Employer has obligations
and liabilities or has assumed obligations and liabilities pursuant to a
Deposit Agreement, that do not have a Projected Benefit Account Excess, in
proportion to the differences between the respective Projected Benefit amount
and account balance, insofar as
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possible until all accounts are not less than the Projected Benefit for such
Executive. Any then remaining Aggregate Projected Benefit Account Excess of a
Participating Employer allocated to all the accounts of Executives then
employed by such Participating Employer, or for whom such Participating
Employer has obligations and liabilities or has assumed obligations and
liabilities pursuant to a Deposit Agreement, in proportion to the respective
Projected Benefit amounts.
(c) Nothing in this Section 7 shall preclude the commingling of Trust assets
for investment.
8. RESPONSIBILITY OF TRUSTEE: (a) The duties and responsibilities of the
Trustee shall be limited to those expressly set forth in this Trust, and no
implied covenants or obligations shall be read into this Trust against Trustee.
(b) If all or any part of the Trust assets are at any time attached,
garnished, or levied upon by any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by a court affecting such property or any part
thereof, then and in any of such events the Trustee is authorized, in its sole
discretion, to rely upon and comply with any such order, judgment or decree,
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and it shall not be liable to any Participating Employer or any Executive by
reason of such compliance even though such order, judgment or decree
subsequently may be reversed, modified, annulled, set aside or vacated.
(c) The Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims; provided, however, that the Trustee shall
incur no liability to anyone for any action taken pursuant to a direction,
request, or approval given by any Participating Employer, or any Executive,
contemplated by and complying with the terms of this Trust Agreement. The
Trustee shall discharge its responsibility for the investment, management and
control of the Trust assets solely in the interests of the Executives and for
the exclusive purpose of assuring that, to the extent of available Trust assets
and in accordance with the terms of this Trust Agreement, all payments of
Benefits are made when due to the Executives.
(d) The Trustee may consult with legal counsel (who may be counsel for any
Participating Employer) to be selected by it, and the Trustee shall not be
liable for any action taken or suffered by it in accordance with the advice of
such counsel.
(e) The Trustee shall be reimbursed jointly and severally by Ameritrust and
each Participant Subsidiary for its reasonable expenses incurred in connection
with the performance of its duties hereunder (including, but not limited to the
fees and expenses of counsel incurred pursuant to Section 8(d) or 8(f) hereof)
and shall be paid reasonable fees for the
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performance of such duties in the manner provided by Section
8(f) hereof.
(f) Ameritrust and each Participating Subsidiary agrees jointly and
severally to indemnify and hold harmless the Trustee from and against any and
all damages, losses, claims or expenses as incurred (including expenses of
investigation and fees and disbursements of counsel to the Trustee and any
taxes imposed on the Trust assets or income of the Trust) arising out of or in
connection with the performance by the Trustee of its duties hereunder, other
than such damages, losses, claims or expenses arising out of the Trustee's
gross negligence or willful misconduct. The Trustee shall not be required to
undertake or to defend any litigation arising in connection with this Trust
Agreement unless it be first indemnified by Ameritrust or a Participating
Subsidiary against its prospective costs, expenses and liabilities (including
without limitation attorneys' fees and expenses) relating thereto, and
Ameritrust and each Participating Subsidiary hereby jointly and severally to
indemnify the Trustee and be primarily liable for such costs, expenses, and
liabilities. Any amount payable to the Trustee under Section 8(e) hereof or
this Section 8(f) shall be paid by Ameritrust or a Participating Subsidiary
promptly upon demand therefor by the Trustee or, in the event that Ameritrust
or a Participating Subsidiary fails to make such payment, from the Trust
assets, pro rata with respect to account balances. In the event that payment
is made hereunder to the Trustee from the Trust assets, the Trustee shall
promptly notify Ameritrust in
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writing of the amount of such payment. Ameritrust agrees that, upon receipt of
such notice, it will, jointly and severally, deliver or cause to be delivered
to the Trustee to be held in the Trust an amount in cash equal to any payments
made from the Trust assets to the Trustee pursuant to Section 8(e) hereof or
this Section 8(f). The failure of Ameritrust to transfer any such amount shall
not in any way impair the Trustee's right to indemnification, reimbursement and
payment pursuant to Section 8(e) hereof or this Section 8(f).
(g) The Trustee may vote any stock or other securities and exercise any
right appurtenant to any stock, other securities or other property held
hereunder, either in person or by general or limited proxy, power of attorney
or other instrument.
(h) The Trustee may hold securities in bearer form and may register
securities and other property held in the trust fund in its own name or in the
name of a nominee, combine certificates representing securities with
certificates of the same issue held by the Trustee in other fiduciary
capacities, and deposit, or arrange for deposit of property with any
depository; provided that the books and records of the Trustee shall at all
times show that all such securities are part of the trust fund.
(i) The Trustee may hire agents, accountants, actuaries, and financial
consultants, who may be agent, accountant, actuary, or financial consultant, as
the case may be, for Ameritrust or with respect to any Plan.
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(j) (i) The Trustee is empowered to take all actions necessary or advisable
in order to collect any life insurance, annuity, or other benefits or payments
of which the Trustee is the designated beneficiary. The Trustee shall maintain
in force all life insurance policies held in the Trust (A) by requesting that
the Participating Employers pay directly all premiums and other charges due
thereon in a timely manner, and (B) by paying all such premiums and charges
that are not so paid by the Participating Employers. To the extent the Trustee
has cash or its equivalent readily available for such purpose or policy loans
and/or dividends are available, the Trustee shall pay premiums due with such
cash or its equivalent or policy loans and/or dividends, as the Trustee may
deem best. If the Trustee does not have sufficient cash or its equivalent
readily available and policy loans and dividends are not available, then the
Trustee (C) shall first liquidate other assets held by it in the Trust to
generate the necessary cash for the payment of such premiums and charges and
for the payment of Benefits, and then (D) shall surrender and liquidate
policies in an Executive's account as necessary to pay Benefits to the Trust
Beneficiaries with respect to such account.
(ii) The Trustee shall be named sole owner and beneficiary of each life
insurance policy held in the Trust and shall have full authority and power to
exercise all rights of ownership relating to the policy, (x) except that the
Trustee shall have no power, other than in accordance with Sections 1(b), 4,
and 11 hereof, to name a beneficiary of the policy
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other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to
any person the proceeds of any borrowing against such policy or, except as
provided in the immediately preceding sentence, to surrender any policy or
allow any policy to lapse at any time when there are other assets in the Trust
that can be disposed of or otherwise used to generate any cash necessary to
maintain the policy or for the payment of Benefits, and (y) except to the
extent necessary to give effect to the provisions of any split-dollar life
insurance arrangement. The Trustee shall have the power, with the consent of
Ameritrust, to exchange that portion, if any, of the life insurance coverage on
any Executive that is in excess of the amount of such coverage necessary to
provide sufficient proceeds to pay the corresponding amount of Benefits, for
additional life insurance coverage on other Executives. The Trustee shall also
have the power to acquire additional life insurance coverage on Executives
through application for new life insurance.
(k) The Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law unless expressly provided otherwise herein.
(l) Notwithstanding any other provision of this Trust Agreement, in the
event of the termination of the Trust, or the resignation or discharge of the
Trustee, the Trustee shall have the right to a settlement of its accounts,
which accounting may be made, at the option of the Trustee, either (i) by a
judicial settlement in a court of competent jurisdiction, or (ii) by
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agreement of settlement, release and indemnity from the Participating Employers
to the Trustee.
9. AMENDMENTS, ETC. TO EXHIBITS, AGREEMENT AND PLANS; COOPERATION OF
PARTICIPATING EMPLOYERS: (a) Prior to the date on which the Trust becomes
irrevocable, the provisions of this Section 9(a) shall apply.
(i) Ameritrust shall furnish the Trustee with any amendments, restatements
or other changes in the Agreements and the Plans, and Ameritrust shall
prescribe or amend, as the case may be, Exhibit B hereto to reflect any such
amendment, restatement, or other change, or any changes in the compensation of
the Executives, or otherwise. Exhibit B shall prescribe, among other things,
the amounts and timing (i) of Benefits to which each Trust Beneficiary may
become entitled as of each March 31 for service to such date (the "Accumulated
Benefit") and (ii) Benefits to which each Trust Beneficiary may become entitled
projected as of the date three years after the date in (i) (the "Projected
Benefit"). The Projected Benefit shall be inclusive of the Accumulated Benefit.
(ii) At such time as may in the judgment of Ameritrust be appropriate,
Ameritrust shall furnish to the Trustee any amendment to Exhibits A-1 or A-2
and any corresponding amendment to Exhibit B required as a result of such
amendment to Exhibits A-1 or A-2.
(b) On or after the date on which the Trust becomes irrevocable, the
provisions of this Section 9(b) shall apply.
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(i) Not later than forty-five (45) calendar days after the end of each
calendar year and at such other time as may in the judgment of Ameritrust be
appropriate in view of a change in circumstances, Ameritrust and each Executive
(or his personal representative (including his guardian, executor or
administrator) (hereafter, his "Successor") shall agree upon and furnish any
amendment to Exhibit B hereto as shall be required to reflect:
(A) any required change in the amounts of Benefits (including Accumulated
Benefits and Projected Benefits) as a result of any change in such Executive's
compensation during the prior calendar year, or
(B) any amendment, restatement or other change in or to the Plans which
agreements to amendments to such Exhibit B shall be furnished to the Trustee
by Ameritrust or the Executives (or their Successors) and thereafter be deemed
to be a part of, and to amend to the extent thereof, this Trust Agreement;
provided, however, that in the event of the failure of Ameritrust and the
Executive (or Successor) to reach such agreement, the provisions of Section
9(b)(ii) hereof shall control.
(ii) Ameritrust has previously furnished the Trustee complete and correct
copies of the Agreements and the Plans, and Ameritrust shall, and any Trust
Beneficiary may, promptly furnish the Trustee true and correct copies of any
amendment, restatement or successor to any of the Agreements or the Plans.
Ameritrust shall, and any Trust Beneficiary
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may, also furnish the Trustee, upon the Trustee's request, such evidence of
changes in compensation of the Executives as the Trustee shall deem necessary
for its determination under this Section 9(b)(ii). Upon written notification
to the Trustee by Ameritrust or any Executive (or Successor) of the failure of
Ameritrust or any Executive (or Successor) to agree as provided in Section
9(b)(i), the Trustee shall, to the extent necessary in the sole judgment of
the Trustee,
(A) recompute the amount payable hereunder as set forth in Exhibit B hereto
to any Trust Beneficiary; and
(B) notify Ameritrust and the Executive (or Successor) in writing of its
computations. Thereafter, this Trust Agreement and all Exhibits thereto shall
be amended to the extent of such Trustee determinations without further
action; provided, however, that the failure of Ameritrust to furnish any such
amendment, restatement, successor or compensation information shall in no way
diminish the rights of any Trust Beneficiary hereunder or thereunder.
(iii) Any amendment to Exhibit A-1 must be
(A) agreed to by two-thirds of the Executive Participants, subject to the
provisions of Sections 10(b)(i) and (b)(ii) hereof, and
(B) in the case of an amendment that adds a new Executive as a Trust
Beneficiary, accompanied by the deposit into the Trust by a Participating
Employer on or before the effective date on which the new Executive would
become a Trust Beneficiary, an amount certified by The Wyatt Company,
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or such other actuary acceptable to Ameritrust and two-thirds of the
Executive Participants (as determined prior to the effective date of the
amendment and subject to Sections 10(b)(i) and (b)(ii) hereof) as
sufficient to pay such new Executive's Benefits hereunder (with such
sufficiency determined on the same actuarial basis as that used to
determine sufficiency with respect to the Benefits as in effect hereunder
immediately prior to the addition of such new Executive).
(C) Notwithstanding the foregoing provisions of this Section 9, any
amendment, restatement, successor or other change in an Agreement or a Plan
that would materially increase the responsibilities or liabilities of the
Trustee or materially change its duties shall also require the consent of the
Trustee, which consent shall not be unreasonably withheld.
10. REPLACEMENT OF THE TRUSTEE: (a) The Trustee shall continue to serve
until its successor accepts the Trust and receives delivery of the Trust
assets. The Trustee may resign and be discharged from its duties hereunder
after providing not less than ninety (90) days' notice in writing to Ameritrust
and the Executive Participants. Prior to the date on which the Trust becomes
irrevocable, the Trustee may be removed at any time upon notice in writing by
Ameritrust. On or after such date, such removal shall also require the
agreement of two thirds of the Executive Participants. Prior to the date on
which the Trust becomes irrevocable, a replacement or successor trustee shall
be appointed by Ameritrust. On or after such
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date, such appointment shall also require the agreement of two thirds of the
Executive Participants. No such removal or resignation shall be effective
until the acceptance of the Trust by a successor trustee designated in
accordance with this Section 10. If the Trustee should resign, and within
forty-five (45) days of the notice of such resignation Ameritrust and, if
required, two thirds of the Executive Participants, shall not have notified the
Trustee of an agreement as to a replacement trustee, the Trustee shall apply to
a court of competent jurisdiction for the appointment of a successor trustee,
which shall be such bank or trust company (A) that the court in its discretion
considers an appropriate trustee for the Trust, having due regard for the
objectives, magnitude and expected duration of the Trust; (B) (x) whose trust
assets under investment would place it among the 100 largest trust companies in
the United States, or (y) which is a national banking association or
established under the laws of one of the states of the United States, and which
has equity in excess of $100 million; and (C) that is independent and not
subject to the control of either Ameritrust or the Executives. The court in
its discretion may transfer jurisdiction of the Trust to the jurisdiction in
which the successor trustee has its principal place of business. The preceding
determinations shall be made as of the time of appointment of the successor
trustee. Upon the acceptance of the trust by a successor trustee, the Trustee
shall release all of the moneys and other property in the Trust to its
successor, who shall thereafter for all purposes of this
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Agreement be considered to be the "Trustee." In the event of its removal or
resignation, the Trustee shall duly file with Ameritrust and, after the Trust
becomes irrevocable, the Executives, a written statement or statements of
accounts and proceedings as provided in Section 7(a) hereof for the period
since the last previous annual accounting of the Trust, and if written
objection to such account is not filed as provided in Section 7(a) hereof, the
Trustee shall to the maximum extent permitted by applicable law be forever
released and discharged from all liability and accountability with respect to
the propriety of its acts and transactions shown in such account.
(b) For purposes of the removal or appointment of a Trustee under this
Section 10, (i) if any Executive Participant shall be deceased or adjudged
incompetent, such Executive Participant's Successor (or if no Successor, his
Trust Beneficiaries) shall participate in such Executive Participant's stead,
and (ii) no Successor or Trust Beneficiary shall participate if all payments
of Benefits have been made with respect to such Executive Participant
(including his Trust Beneficiaries).
11. AMENDMENT OR TERMINATION: (a) This Trust Agreement may be amended at
any time and to any extent by a written instrument executed by the Trustee,
Ameritrust and, after the Trust has become irrevocable, two thirds of the
Executive Participants; provided, however, that no amendment shall have the
effect of (i) making the Trust revocable after it has become irrevocable in
accordance with Section 1(b) hereof; or (ii)
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altering Section 8(j) (ii) or 11(b) hereof. Notwithstanding the previous
sentence, (x) amendments contemplated by Section 9 hereof shall be made as
therein provided, and (y) the approval by Ameritrust or by two thirds of the
Executive Participants shall not be required for any amendment necessary in
order to obtain a favorable private letter ruling from the Internal Revenue
Service regarding the effect of the Trust on the taxation of the Participating
Employers or the Trust Beneficiaries.
(b) After the Trust has become irrevocable, the Trust shall not terminate
until the date on which the Trust no longer contains any assets, or, if
earlier, the date on which each Trust Beneficiary is entitled to no further
payments hereunder.
(i) Notwithstanding any other provision of this Trust Agreement, if the
payments under an Agreement or Plan with respect to an Executive subject of
litigation, or arbitration, and if the balance of such Executive's separate
account maintained pursuant to Section 7(b) is greater than zero, the
Trust shall not terminate and the funds held in the Trust with respect to
such Executive shall continue to be held by the Trustee until the final
resolution of such litigation or arbitration. The Trustee may assume that
no Agreement or Plan is the subject of such litigation or arbitration
unless the Trustee receives written notice from any Executive or Ameritrust
with respect to such litigation or arbitration. The Trustee may rely upon
written notice from an Executive as to the final resolution of such
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litigation or arbitration. Following such final resolution, the Trust
shall terminate with respect to each Executive described in this Section
11(b)(i) upon the earlier of either of the following events: (x) the
exhaustion of the Trust assets held by the Trustee with respect to such
Executive; or (y) the final payment of all amounts payable to the Executive
pursuant to the Plans, as certified to the Trustee by such Executive.
(c) Upon termination of the Trust as provided in Section 11(b) hereof, any
assets remaining in the Trust, less all payments, expenses, taxes and other
charges under this Trust Agreement as of such date of termination, shall be
returned to Ameritrust or as it directs.
12. SPECIAL DISTRIBUTION: (a) It is intended that (i) the creation of,
transfer of assets to, and irrevocability of, the Trust will not cause any of
the Agreements or the Plans to be other than "unfunded" for purposes of Title I
of ERISA; (ii) transfers of assets to the Trust or the Trust becoming
irrevocable will not be transfers of property for purposes of section 83 of the
Code, or any successor provision thereto, nor will such transfers or
irrevocability cause a currently taxabable benefit to be realized by a Trust
Beneficiary pursuant to the "economic benefit" doctrine; and (iii) pursuant to
section 451 of the Code, or any successor provision thereto, amounts will be
includable as compensation in the gross income of a Trust Beneficiary in the
taxable year or years in which such amounts
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are actually distributable or made available to such Trust Beneficiary by the
Trustee.
(b) Notwithstanding anything to the contrary contained in this Agreement, if,
based upon a change in the federal tax or revenue laws, a published ruling or
similar announcement issued by the Internal Revenue Service, a regulation
issued by the Secretary of the Treasury, a decision by a court of competent
jurisdiction involving a Trust Beneficiary, or a closing agreement made under
section 7121 of the Code that is approved by the Internal Revenue Service and
involves a Trust Beneficiary, the Trustee determines that amounts are
includible as compensation in the gross income of a Trust Beneficiary in a
taxable year that is prior to the taxable year or years in which such amounts
would, but for this Section 12, otherwise actually be distributed or made
available to such Trust Beneficiary by the Trustee, then (i) the assets held in
trust shall be allocated in accordance with Section 7(b) hereof, and (ii)
subject to the last sentence of Section 2(b) hereof, the Trustee shall promptly
make a distribution to each affected Trust Beneficiary which, after taking into
account the federal, state and local income tax consequences of the special
distribution itself, is equal to the sum of any federal, state and local income
taxes, interest due thereon, and penalties assessed with respect thereto which
are attributable to amounts that are so includible in the income of such Trust
Beneficiary.
13. PARTICIPATING SUBSIDIARY DEPOSIT AGREEMENT: (a) Upon execution of a
Deposit Agreement in the form of Exhibit D
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hereto, a Subsidiary may at any time or from time to time make deposits of cash
or other property in the Trust pursuant to Section 1(d) hereof. Such Deposit
Agreement shall provide, among other things, for the designation of Ameritrust
as agent and attorney for the Participating Subsidiary for all purposes under
this Trust Agreement, including consenting to any amendments hereto, consenting
to any Trustee accounts and consenting to anything requiring the approval or
consent of a Participating Employer hereunder.
(b) Ameritrust is the sponsoring grantor for the Trust Agreement. It
reserves to itself, and each Subsidiary by execution of a Deposit Agreement
delegates to Ameritrust, the power to amend or terminate the Trust Agreement in
accordance with its terms.
14. GENERAL PROVISIONS: (a) Ameritrust and each Participating Subsidiary
shall, at any time and from time to time, upon the reasonable request of the
Trustee, execute and deliver such further instruments and do such further acts
as may be necessary or proper to effectuate the purposes of this Trust.
(b) Each Exhibit referred to in this Trust Agreement shall become a part
hereof and is expressly incorporated herein by reference.
(c) This Trust Agreement sets forth the entire understanding of the parties
with respect to the subject matter hereof and supersedes any and all prior
agreements, arrangements and understandings relating thereto. This Trust
Agreement shall
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be binding upon and inure to the benefit of the parties and their respective
successors and legal representatives.
(d) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio, other than and without reference to any
provisions of such laws regarding choice of laws or conflict of laws.
(e) In the event that any provision of this Trust Agreement or the
application thereof to any person or circumstances shall be determined by a
court of competent jurisdiction to be invalid or unenforceable to any extent,
the remainder of this Trust Agreement, or the application of such provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each provision of this Trust
Agreement shall be valid and enforced to the maximum extent permitted by law.
(f) The headings contained in this Trust Agreement are solely for the
purpose of reference, are not part of the agreement of the parties and shall
not in any way affect the meaning or interpretation of this Trust Agreement.
(g) No right or interest under this Trust Agreement of a Trust Beneficiary
(or any person claiming through or under any of them) other than the surviving
spouse of any Executive shall be assignable or transferable in any manner or be
subject to alienation, anticipation, sale, pledge, encumbrance or other legal
process or in any manner be liable for or subject to the debts or liabilities
of any such Trust Beneficiary. If any Trust Beneficiary (other than the
surviving spouse of any
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deceased Executive) shall attempt to or shall transfer, assign, alienate,
anticipate, sell, pledge or otherwise encumber his Benefits hereunder or any
part thereof, or if by reason of his bankruptcy or other event happening at any
time such Benefits would devolve upon anyone else or would not be enjoyed by
him, then the Trustee, in its discretion, may terminate his interest in any
such Benefit to the extent the Trustee considers necessary or advisable to
prevent or limit the effects of such occurrence. Termination shall be effected
by filing a written "termination declaration" with the Trust's records and
making reasonable efforts to deliver a copy to the Trust Beneficiary (the
"Terminated Beneficiary") whose interest is adversely affected.
As long as the Terminated Beneficiary is alive, any benefits affected by the
termination shall be retained by the Trustee and, in the Trustee's sole and
absolute judgment, may be paid to or expended for the benefit of the Terminated
Beneficiary, his spouse, his children or any other person or persons in fact
dependent upon him in such a manner as the Trustee shall deem proper. Upon the
death of the Terminated Beneficiary, all benefits withheld from him and not
paid to others in accordance with the preceding sentence shall be disposed of
according to the provisions of the Plans that would apply if he died prior to
the time that all Benefits to which he was entitled were paid to him; provided,
however, that if such provisions provide for distribution to the Terminated
Beneficiary's estate or to his creditors and if the Terminated Beneficiary
shall have
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descendants, including adopted children, then living, distribution shall be
made to the Terminated Beneficiary's then living descendants, including adopted
children, PER STIRPES.
(h) Any dispute between the Executives and Ameritrust or the Trustee as to
the interpretation or application of the provisions of this Trust and amounts
payable hereunder may, at the election of any party to such dispute (or, if
more than one Executive is such a party, at the election of two-thirds of such
Executives), be determined by binding arbitration within the greater Cleveland
metropolitan area in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award
in any court of competent jurisdiction. All fees and expenses of such
arbitration shall be paid by the Trustee and considered an expense of the Trust
under Section 8(f) hereof.
(i) Each Executive (and, where applicable, each Successor) is an intended
beneficiary under this Trust, and as an intended beneficiary shall be entitled
to enforce all terms and provisions hereof with the same force and effect as if
such person had been a party hereto.
(j) Each action taken by Ameritrust hereunder shall, unless otherwise
designated in such action by Ameritrust or unless the context or this Trust
Agreement requires otherwise, be deemed to be an action of Ameritrust on behalf
of each Participating Subsidiary pursuant to the authority granted to
Ameritrust by such Participating Subsidiary in the Deposit Agreement.
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15. NOTICES; IDENTIFICATION OF CERTAIN TRUST BENEFICIARIES: (a) All
notices, reguests, consents and other communications hereunder shall be in
writing and shall be deemed to have been duly given when received:
If to the Trustee, to:
Wachovia Bank and Trust Company, N.A.
301 North Main Street
Winston-Salem, N.C. 27150
Attention: Trust Department
If to Ameritrust, to:
Ameritrust Corporation
900 Euclid Avenue
Cleveland, Ohio 44115
Attention: Secretary
If to the Trust Beneficiaries, to the addresses
listed on Exhibits A-1 and A-2 hereto
provided, however, that if any party or any Trust Beneficiary or his, her or
its successors shall have designated a different address by written notice to
the other parties, then to the last address so designated.
(b) Ameritrust shall provide the Trustee with the names of the beneficiary
or beneficiaries designated by deceased
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Executives under the Plans (and who are, therefore, Trust Beneficiaries
hereunder).
IN WITNESS WHEREOF, each of Ameritrust and the Trustee
has caused counterparts of this Trust Agreement to be executed on its behalf on
November 3, 1988.
AMERITRUST CORPORATION
By: /s/ E. William Haffke, Jr.
-----------------------------
Its: Executive Vice President
-------------------------
WACHOVIA BANK AND TRUST COMPANY, N.A.
By /s/ Thomas R. McAllister
-----------------------------
/s/ Charles Haskins Its: Senior Vice President
-------------------------
ASSISTANT SECRETARY
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EXHIBIT 10.21
AMERITRUST CORPORATION DEFERRED COMPENSATION PLAN
ARTICLE I
PURPOSE
1.1 PURPOSE. The purpose of this Ameritrust Corporation Deferred
Compensation Plan (the "Deferred Compensation Plan") is to provide a means
whereby Ameritrust Corporation (the "Corporation"), may afford financial
security to a select group of key management and other highly compensated
employees of the Corporation and Selected Subsidiaries who have rendered and
continue to render valuable services to the Corporation or Selected
Subsidiaries which constitute an important contribution towards the
Corporation's continued growth and success, by providing for additional future
compensation so that such employees may be retained and their productive
efforts encouraged.
This Deferred Compensation Plan, effective August 1, 1988, supersedes
and replaces any prior plan or agreement providing similar benefits to a
Participant in this Deferred Compensation Plan.
ARTICLE 2
DEFINITIONS AND CERTAIN PROVISIONS
2.1 DEFINITIONS AND REFERENCES. Unless the context indicates
otherwise, the following terms shall have the meanings set forth below:
(1) "Agreement", the written agreement titled "Ameritrust
Corporation Deferred Compensation Plan Agreement" that shall be
entered into by the Employer and a Participant with respect to each
Benefit Unit to carry out the Plan with respect to such Participant.
(2) "Base Salary", the Participant's annual base salary
before reduction for deferrals pursuant to this Plan or any plan or
agreement of the Employer whereby compensation is deferred, including
but not limited to a plan whereby compensation is deferred in
accordance with Section 401(k) of the Internal Revenue Code.
(3) "Basic Contributions", a Participant's "basic participant
contributions" and "basic salary reduction contributions" (as defined
in the Savings Plan) which are eligible for Employer matching
contributions under the Savings Plan.
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(4) "Beneficiary", the person or persons designated as such in
accordance with Article 6.
(5) "Benefit Unit", a unit enrolled in by a Participant covered by a
separate Election Form pursuant to which the Participant agrees to defer a
specified amount or percent of Earnings for a fixed period of time in
accordance with Article 4. Each Benefit Unit provides benefits pursuant to
Article 5 in accordance with the Participant's Agreement for that Benefit Unit.
The initial Benefit Unit shall be for the period that commences with the
Deferred Compensation Plan's effective date and ends December 31, 1992.
Subsequent Benefit Units shall be for periods specified by the
Committee.
(6) "Board", the Board of Directors of Ameritrust Corporation.
(7) "Bonus", the Participant's annual bonus under the Ameritrust
Corporation Annual Executive Incentive Plan before reduction for deferrals
pursuant to this Deferred Compensation Plan or any plan or agreement of the
Employer whereby compensation is deferred, including but not limited to a plan
whereby compensation is deferred in accordance with Section 401(k) of the
Internal Revenue Code.
(8) "Change of Control", for the purpose of this Plan, a "Change of
Control" shall mean a change of control during the Change of Control period of
a nature that would be required to be reported in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"); provided that, without limitation, such a "Change of Control" shall be
deemed to have occurred if: (i) a third person, including a "group" as such
term is used in Section 13(d)(3) of the Exchange Act, becomes the beneficial
owner, directly or indirectly, of 20% or more of the combined voting power of
the Corporation's outstanding voting securities ordinarily having the right to
vote for the election of directors of the Corporation or (ii) individuals who,
as of the date hereof, constitute the Board of Directors of the Corporation
(the "Board" generally and as of the date hereof the "Incumbent Board") cease
for any reason to constitute at least a majority of the board, provided that
any person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Corporation's
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shareholders, was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of the Directors
of the Corporation, as such terms are used in Rule 14a-11 of Regulation 15A
promulgated under the Exchange Act) shall be, for purposes of this Plan,
considered as though such person were a member of the Incumbent Board.
(9) "Committee", the Compensation and Organization Committee of the
Board, or such other committee of such Board, which is appointed to
administer the Deferred Compensation Plan pursuant to Article 3.
(10) "Compensation", compensation (as defined in the Savings Plan or
the Retirement Plan) which is eligible for Employer matching contributions
under the Savings Plan or is used in computing benefits under the Retirement
Plan, before reduction for deferrals pursuant to this Deferred Compensation
Plan.
(11) "Declared Rate", the rate determined from time to time by the
Committee as the "Declared Rate".
(12) "Deferral Account", the account maintained on the books of
account of the Employer for each Participant for each Benefit Unit pursuant to
Section 4.3.
(13) "Disability" or "Disabled", physical or mental inability of a
permanent nature which prevents a Participant from performing the duties such
Participant was employed to perform for such Participant's Employer when such
Disability commenced. If an Employee makes application for disability benefits
under the Social Security Act, as now in effect or as hereafter amended, and
qualifies for such benefits, the Employee shall be presumed to suffer from a
Disability under this Deferred Compensation Plan. The Committee may require
the Employee to submit to an examination by a physician or medical clinic
selected by the Committee. On the basis of such medical evidence and in the
absence of qualification for disability benefits under the Social Security Act,
the determination of the Committee as to whether or not a condition of
Disability exists or continues shall be conclusive. To constitute Disability,
the same must commence after the Employee has become a Participant in the
Deferred Compensation Plan.
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(14) "Earnings", the Participant's Base Salary, Bonus and Long Term
Cash Incentive Award.
(15) "Election Form", an Eligible Employee's written election to
participate in the Deferred Compensation Plan with respect to each Benefit
Unit in accordance with Article 4.
(16) "Eligible Employee", an Employee who is authorized to participate
in the Deferred Compensation Plan by the Committee.
(17) "Employee", any person employed by the Employer on a regular
full-time salaried basis, including officers of the Employer.
(18) "Employer", with respect to a Participant, the Corporation or the
Selected Subsidiary which pays such Participant's Compensation.
(19) "Long Term Cash Incentive Award", the Participant's award under
the Ameritrust Corporation Long-Term Cash Incentive Plan before reduction for
deferrals pursuant to this Deferred Compensation Plan or any plan or agreement
of the Employer whereby compensation is deferred, including but not limited to
a plan whereby compensation is deferred in accordance with Section 401(k) of
the Internal Revenue Code.
(20) "Participant", an Eligible Employee who has entered into an
Agreement to participate in the Deferred Compensation Plan.
(21) "Plan Year", the calendar year, and in 1988, the period from the
effective date of the Deferred Compensation Plan through December 31.
(22) "Qualified Retirement", the termination of a Participant's
employment with the Employer for reasons other than death after the Participant
attains age 55 and completes five (5) years of Service.
(23) "Retirement Benefit", the payment to a Participant of the
Participant's Deferral Account[s] following Qualified Retirement pursuant
to Section 5.1.
(24) "Retirement Plan", The Ameritrust Retirement Income Plan and the
Ameritrust Indiana Retirement Income Plan, as amended from time to time.
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(25) "Retirement Plan Augmentation Benefit", the benefit paid
pursuant to Section 5.7.
(26) "Retirement Rate", the rate determined from time to time by the
Committee as the "Retirement Rate".
(27) "Savings Plan", the Ameritrust Corporation Employees' Savings and
Investment Plan and the Ameritrust Indiana Corporation Employees' Savings and
Investment Plan, as amended from time to time.
(28) "Selected Subsidiaries", any corporation in an unbroken chain of
corporations beginning with Ameritrust if each of the corporations other than
the last corporation in such chain owns or controls, directly or indirectly,
stock possessing not less than 50 percent of the total combined voting power of
all class of stock in one of the other corporations, as selected by the
Committee.
(29) "Service", the period of time during which an employment
relationship exists between an Employee and an Employer, including the period
of time such relationship existed prior to the time when the Employee became a
Participant.
(30) "Termination Benefit", the payment to a Participant of the
Participant's Deferral Account[s] on account of his termination of employment
other than due to Qualified Retirement, Disability or death or termination of
a Benefit Unit pursuant to Section 5.4.
(31) "Total Unit Deferral Amount", the sum of all amounts which the
Participant elects to defer plus the Employer's matching amounts during the
Unit Deferral Period with respect to a Benefit Unit.
(32) "Unit Deferral Period", the deferrals period for a Benefit Unit,
as shown in the Participant's Election Form for that Benefit Unit.
(33) "Unit Start Date", the date for commencement of deferrals for a
Benefit Unit, as shown in the Participant's Election Form for that Benefit
Unit. Except for 1988, the Unit Start Date will be January 1, unless the
Committee, in its sole discretion, permits another date. For 1988, the Unit
Start Date shall be the Deferred Compensation Plan's effective date.
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ARTICLE 3
ADMINISTRATION OF THE DEFERRED COMPENSATION PLAN
3.1 POWERS AND DUTIES OF THE COMMITTEE. The Committee shall
administer the Deferred Compensation Plan and is hereby authorized to
establish, adopt, or revise such rules and regulations as it may deem necessary
or advisable for the administration and operation of the Deferred Compensation
Plan and to interpret the provisions of the Deferred Compensation Plan, with
any such rules, regulations and interpretations to be conclusive. All
decisions of the Committee shall be by vote of a majority of its members.
Members of the Committee shall be eligible to participate in the Deferred
Compensation Plan while serving as members of the Committee, but a member of
the Committee shall not vote or act upon any matter which relates solely to
such member's interest in the Deferred Compensation Plan as a Participant.
ARTICLE 4
PARTICIPATION
4.1 ELECTION TO PARTICIPATE. An Eligible Employee may enroll in a
Benefit Unit under the Deferred Compensation Plan by filing a completed and
fully executed Election Form with the Committee prior to the Unit Start Date.
Pursuant to such Election Form, the Participant shall irrevocably elect the
deferral options in which he chooses to participate and designate the amount or
percent by which the Earnings of such Participant will be reduced over the Unit
Deferral Period. A Participant may further elect to receive an immediate
distribution with respect to the Benefit Unit in the event of a reduction in
the Declared Rate below six percent (6%). The Committee may permit new
Participants to enroll in Benefit Units at such times as it may permit in its
sole discretion. Separate Benefit Units may be established for separate
deferral options in which the Participant elects to participate, in the
Committee's sole discretion.
Various deferral options will be made available to Eligible Employees
under the Deferred Compensation Plan, subject to such limitations and
conditions as the Committee may impose, from time to time, in its complete and
sole discretion. The minimum annual deferral for a Benefit Unit will be $2,000.
In its sole discretion, the Committee may also permit amounts which Eligible
Employees previously elected to defer, or accrued, under other plans or
agreements with the employer to be transferred to this Deferred Compensation
Plan and credited to Deferral Accounts maintained hereunder; however, no
portion of any such amounts rolled into this Deferred Compensation Plan,
including the earnings thereon, may be paid to the Participant at a date that
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is later than the date or dates elected for distribution under such previous
plans. Such other plans are: the prior Ameritrust Corporation Participating
Subsidiaries Executive Incentive and Deferred Compensation Plan and the
Ameritrust Corporation and Participating Subsidiaries Supplemental Retirement
Benefit Plan.
(a) ACCELERATED REDUCTION. Prior to the beginning of any Plan
Year in any Unit Deferral Period as to which there are two or more
Plan Years remaining, a Participant may elect in a written notice
filed with the Committee to increase the amount of the reduction of
Earnings otherwise provided for any of the Plan Years remaining in
such Unit Deferral Period; provided, however, that any such increase
in the reduction of Earnings for any remaining Plan Years in the Unit
Deferral Period shall not increase the Total Unit Deferral Amount for
the Unit Deferral Period, but shall act to shorten the length of the
Unit Deferral Period unless the Participant elects in such written
notice to apply the increased reduction in Earnings for any Plan Year
as a credit against the reductions in Earnings that otherwise would
have resulted in subsequent Plan Years in the Unit Deferral Period,
and provided further, that the apportionment of such increases in
reduction of Earnings between Base Salary, Bonus and Long Term
Incentive Award shall be made by the Committee, in its sole
discretion.
(b) ENROLLMENT IN BENEFIT UNIT. For purposes of the Plan, a Benefit
Unit shall be deemed to be a Benefit Unit in which a Participant is
enrolled only as of and after the first day of the Unit Deferral
Period with respect to such Benefit Unit. Notwithstanding the
foregoing, the Survivor Benefits which are payable with respect to a
Benefit Unit shall only become effective after Earnings are actually
deferred with respect to such Benefit Unit.
4.2 EMPLOYER MATCHING AMOUNTS. The Employer shall credit Employer
matching amounts to the Deferral Account of each Participant who is eligible to
be allocated Employer matching contributions under the Savings Plan. The total
Employer matching amounts on behalf of a Participant shall be one hundred
percent (100%) of the Participant's elective deferrals under this Deferred
Compensation Plan and the Participant's Basic Contributions under the Savings
Plan, up to a total of six percent (6%) of the Participant's Compensation,
regardless of exceeding the limits on annual additions under tax qualified
plans. Employer matching amounts under this Deferred Compensation Plan shall be
reduced by employer matching contributions credited to the Participant under
the Savings Plan so that the total under both plans does not exceed 6% of
Compensation. Employer matching amounts under this Deferred
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Compensation Plan shall be credited to the Participant's Deferral
Accounts at the same time as Employer matching contributions would have been
credited under the Savings Plan.
4.3 DEFERRAL ACCOUNTS. The Committee shall establish and maintain a
separate Deferral Account for each of a Participant's Benefit Units. The
amounts by which a Participant's Earnings are reduced pursuant to Section 4.1
with respect to each Benefit Unit shall be credited by the Employer to the
Participant's Deferral Account for such Benefit Unit no later than the later of
15 days or the first day of the month following the month in which such
Earnings would otherwise have been paid. The Employer matching amounts
provided for by Section 4.2 shall be credited to the Deferral Account for
each Benefit Unit in accordance with Section 4.2. The Deferral Account for
a Benefit Unit shall be debited by the amount of any payments made by the
Employer to the Participant or the Participant's Beneficiary with respect
to such Benefit Unit pursuant to this Deferred Compensation Plan .
(a) INTEREST ON DEFERRAL ACCOUNTS. Interest will be credited
on Deferral Accounts as described below, subject to the limitations
set forth in subsection (b) of this Section 4.3.
(i) RETIREMENT RATE. Each Deferral Account of a
Participant which is distributed on account of Qualified
Retirement, Disability, death or an interim distribution after
a Participant is eligible for Qualified Retirement shall be
deemed to bear interest from the date such Deferral Account
was established through the date such Deferral Account is paid
out in full at the Retirement Rate for each Plan Year.
Interest will be credited at the end of each Plan Year on the
balance in a Deferral Account as of the end of that year at
the Retirement Rate for the applicable Plan Year. Interest
will be compounded annually.
(ii) DECLARED RATE. Each Deferral Account of a
Participant which is distributed other than on account of
Qualified Retirement, Disability, death or an interim
distribution after a Participant is eligible for Qualified
Retirement shall be deemed to bear interest from the date such
Deferral Account was established through the date such
Deferral Account is paid out in full at a rate equal to the
Declared Rate for each Plan Year. Interest will be credited at
the end of the Plan Year on the balance in a Deferral Account
as of the end of that year at the Declared Rate for the
applicable Plan Year. Interest will be compounded annually.
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(b) Notwithstanding subsection (a) of this Section 4.3,
(i) the Committee reserves the right, in its sole
discretion, to decrease retroactively, but not below six
percent (6%), the interest rate which is credited to Deferral
Accounts of Participants in the event any tax benefit is lost
because of any change in law or is disallowed by the Internal
Revenue Service to any Employer with respect to any investment
made by any Employer with respect to Employee deferrals or
Employer matching amounts; provided, nothing in subsection (a)
or (b) of this Section 4.3 shall give any Participant or
Beneficiary any right or interest in any such investment; and
(ii) the Committee reserves the right, in its sole
discretion, to increase or decrease the interest rate which is
credited to Deferral Accounts of Participants for periods
subsequent to such action; provided, however, that no such
reduction in the crediting rate may be made below the rate set
by the Committee at the time of a Change in Control.
(c) VESTING OF DEFERRAL ACCOUNTS. Each Participant shall be
vested in the amounts credited to such Participant's Deferral Accounts
as follows:
(i) ACCOUNTS DEFERRED. A Participant shall be one
hundred percent (100%) vested at all times in amounts deferred
by the Participant under this Deferred Compensation Plan.
(ii) EMPLOYER MATCHING AMOUNTS. A Participant shall
be vested in the Employer matching amounts credited to his
Deferral Accounts pursuant to Section 4.2, and interest
thereon, to the same extent as his Employer matching
contributions are vested under the Savings Plan or in
accordance with the following schedule:
Vested Percentage of
Years of Participation Employer Matching Amounts
---------------------- -----------------------------
less than 2 0%
2 25%
3 50%
4 75%
5 or more 100%
Any unvested portion of the Employer matching amounts, and
interest thereon, shall be forfeited at the same time as the
Participant's forfeiture occurs under the Savings Plan.
Forfeitures under this Deferred
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Compensation Plan shall not be reallocated to other
Participants but shall be used to reduce employer matching
amounts.
4.4 VALUATION OF ACCOUNTS. Each Deferral Account shall have three
values. The value of a Deferral Account as of any date shall equal the amounts
theretofore credited to such account, plus the interest deemed to be earned on
such account in accordance with (1) the Retirement Rate, (2) the Declared Rate
and (3) any other rate specified by the Committee pursuant to Section 4.3(b)
through the date preceding such date, less the amounts theretofore debited to
such account.
4.5 STATEMENT OF ACCOUNTS. The Committee shall submit to each
Participant, within one hundred twenty (120) days after the close of each Plan
Year, a statement in such form as the Committee deems desirable setting forth
the balance standing to the credit of each Participant in each of his Deferral
Accounts using both the Retirement Rate, the Declared Rate and any other rate
specified by the Committee pursuant to Section 4.3(b).
ARTICLE 5
BENEFITS
5.1 RETIREMENT BENEFIT. A Participant is eligible for a Retirement
Benefit under this Deferred Compensation Plan when he has satisfied all of the
requirements for Qualified Retirement (as defined in Article 2). The Retirement
Benefit for a Benefit Unit will be based on the total value of the Deferral
Account for the Benefit Unit. Deferral Accounts which are distributed on account
of Qualified Retirement will be credited with interest at the Retirement Rate
in accordance with Section 4.3(a)(i) but subject to Section 4.3(b) for each Plan
Year until such Deferral Accounts are paid out in full.
The retirement Benefit for a Benefit Unit will be paid beginning on
the date and in the manner which the Participant elects when he enrolls in the
Benefit Unit. After the Participant elects the commencement date and the form
of payment for a Benefit Unit, he may not change his election for such Benefit
Unit. A Participant may elect to receive his Retirement Benefit at Qualified
Retirement or on a specified date in either a lump sum or installments over a
specified number of years (not to exceed 15 years) or a combination of a lump
sum payment and installment payment. All installment payments will be
calculated and paid on an annual basis. If a Participant elects to receive all
or some portion of his Retirement Benefit in installment payments, the payments
will be redetermined annually by dividing the Participant's remaining Deferral
Account balance (or portion thereof) at the beginning of each year by the
number of remaining years in the payment period for the Retirement Benefit.
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5.2 INTERIM DISTRIBUTION. A Participant may elect when he enrolls in a
Benefit Unit to receive an interim distribution with respect to the Benefit
Unit beginning at any time at least five years after the Unit Start Date for
the Benefit Unit. The Participant may elect to receive all or any percentage of
his Deferral Account balance for a Benefit Unit as an interim distribution in
either a lump sum payment or in annual payments over a specified number of
years (not to exceed 15 years).
For purposes of calculating the amount of an interim distribution the
Deferral Account will be credited with interest at the Retirement Rate or the
Declared Rate in accordance with Section 4.3(a)(i) or (ii), respectively, but
subject to Section 4.3(b), depending on whether interim distributions are made
after or before a Participant is eligible for Qualified Retirement. If a
Participant elects to receive his Deferral Account balance for a Benefit Unit
as an interim distribution before he is eligible for Qualified Retirement and
later retires after he is eligible for Qualified Retirement, or dies or
becomes Disabled prior to becoming eligible for Qualified Retirement the
Deferral Account shall be retroactively credited with interest at the
Retirement Rate less the Declared Rate in accordance with Section 4.3(a)(i),
but subject to Section 4.3(b), on the amount of such interim distribution
through the date or dates of distribution of the Deferred Account.
5.3 DISABILITY. If a Participant suffers a Disability, and prior to
such Disability had elected to defer Base Salary, Bonus and any Long Term Cash
Incentive Award, the Employer shall credit such deferrals to the Participant's
Deferral Accounts during such Disability when they are paid. Any Base Salary
deferred under this Section 5.3 shall only be such amounts earned by the
Participant before Disability benefits commenced. The Employer shall credit
Employer matching amounts attributable to the deferred Base Salary. The
Participant's Deferral Accounts which are distributed on account of such
Disability will be credited with interest at the Retirement Rate in accordance
with Section 4.3(a)(i) for each Plan Year until such Deferral Accounts are paid
out in full.
In the event of a Disability, the Participant's Deferral Account
balances will be paid to the Participant in installments over a period of five
(5) years commencing after such Disability has continued for a 36-month period.
In the sole discretion of the Committee, the Employer may commence payments on
an earlier date. The installment payments will be determined by the Committee
and may be determined annually by dividing the Participant's remaining Deferral
Account balance at the beginning of each year by the number of remaining years
in the
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payment period. All of the Participant's elections as to the time and
manner of payment of his Deferral Accounts will be deemed to be cancelled. If a
Participant recovers from a Disability, payment of benefits on account of
Disability shall cease. If the Participant returns to employment with the
Employer, the Participant shall resume making deferrals for the remaining years
of the Unit Deferral Period, but the Unit Deferral Period shall not be extended
on account of the Disability.
5.4 TERMINATION BENEFIT.
(a) CERTAIN TERMINATIONS OF EMPLOYMENT. If a Participant (i)
ceases to be an Employee for any reason other than Qualified
Retirement, Disability or death or (ii) fails to return to the status
of an Employee within sixty (60) days following recovery from a
Disability that lasts less than 36 months prior to Qualified
Retirement, the Employer shall pay to the Participant in one lump sum
an amount (the "Termination Benefit") equal to the total value of the
Participant's Deferral Account[s]. In computing the Termination Benefit
the value of the Deferral Account[s] will be determined based on
crediting interest at the Declared Rate for each Plan year in
accordance with Section 4.3(a)(iii) subject, however, to any decrease
in rate pursuant to Section 4.3(b). The Participant shall be entitled
to no further benefits under this Deferred Compensation Plan. In such
event all of the Participant's elections as to the time and manner of
payment of his Deferral Accounts will be deemed to be cancelled.
(b) TERMINATION OF A BENEFIT UNIT. With the written consent of
the Committee, in its sole discretion, a Participant may terminate
enrollment in a Benefit Unit by filing with the Committee a written
request to so terminate the Benefit Unit. Upon termination of
enrollment in a Benefit Unit, no further reductions in the Participant
Earnings or Employer matching amounts shall be made for such Benefit
Unit, and the Participant shall immediately cease to be eligible for
any benefits with respect to such Benefit Unit other than the
Termination Benefit. No other benefit shall be payable to either the
Participant or any Beneficiary of such Participant with respect to
the terminated Benefit Unit. In its sole discretion, the Committee
may pay the Termination Benefit with respect to a terminated Benefit
Unit on a date earlier than a Participant's termination of employment
with the Employer, with such Termination Benefit to be calculated as
if the Participant had terminated employment with the Employer on the
date of such payment.
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5.5 SURVIVOR BENEFITS. Deferral Accounts which are distributed on
account of the Participant's death will be credited with interest at the
Retirement Rate in accordance with section 4.3(a)(i) but subject to Section
4.3(b) for each Plan Year until such Deferral Accounts are paid in full.
Participant deferrals and Employer matching amounts that would otherwise have
been credited to the Participant's Deferral Accounts if the Participant had
survived through the period covered by deferral elections made prior to the
Participant's death shall be made by the Employer effective upon the
Participant's death. For the purpose of computing such amounts, it shall be
assumed that the Participant's Earnings would have continued for Base Salary at
the same rate in effect immediately preceding his death and for Bonus and Long
Term Incentive Award at the higher of such amounts paid in the two Plan Years
preceding his death.
(a) BEFORE QUALIFIED RETIREMENT AGE. If a Participant dies
before he is eligible for Qualified Retirement, a Survivor Benefit
will be paid to his Beneficiary in a single lump sum. The Survivor
Benefit will be equal to the Deferral Account balance[s] for all of
the Participant's Benefit Unit[s]. All of the Participant's elections
as to the time and manner of payment of his Deferral Accounts will be
deemed to be cancelled.
(b) AFTER QUALIFIED RETIREMENT AGE. If a Participant dies
after he is eligible for Qualified Retirement, his Beneficiary will
be entitled to receive the remaining installments of the Retirement
Benefit or other benefit which would have been paid to the Participant
with respect to each of his Benefit Unit[s] if the Participant had
survived, in accordance with the Participant's election as to the
manner of payment for each Benefit Unit. However, if such payments
have not yet commenced for a Benefit Unit, such payments will commence
immediately upon the Participant's death, irrespective of when payments
would have commenced if the Participant had survived.
5.6 EMERGENCY BENEFIT. In the event that the Committee, upon written
petition of the Participant, determines, in its sole discretion, that the
Participant has suffered an unforeseeable financial emergency, the Employer
shall pay to the Participant, as soon as practicable following such
determination, an amount necessary to meet the emergency not in excess of the
Termination Benefit to which the Participant would have been entitled pursuant
to Section 5.4 if he had a termination of Service on the date of such
determination (the "Emergency Benefit"). For purposes of this Deferred
Compensation Plan, an unforeseeable financial emergency is an unexpected need
for cash arising from an illness, casualty loss,
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sudden financial reversal, or other such unforeseeable occurrence. Cash needs
arising from foreseeable events such as the purchase of a house or education
expenses for children shall not be considered to be the result of an
unforeseeable financial emergency. The amount of the benefits otherwise payable
under the Deferred Compensation Plan shall thereafter be adjusted to reflect
the early payment of the Emergency Benefit.
5.7 RETIREMENT PLAN AUGMENTATION BENEFIT. In addition to the other
benefits provided for in this Article 5, the Employer shall pay a Retirement
Plan Augmentation Benefit to Participants who have elected to defer a portion of
their Earnings in accordance with this Deferred Compensation Plan or its
predecessor, the Supplemental Retirement Benefit Plan and who thereby receive a
reduced benefit under the Retirement Plan. Said benefit shall be computed as
follows:
(a) The Participant's lump sum benefit shall be computed in
accordance with the Retirement Plan, but without regard to the
limitations imposed under Section 415 of the Internal Revenue Code,
and for purposes of said computation the Earnings (or that portion of
Earnings otherwise taken into account in computing such benefit)
deferred in accordance with Article 4 of this Deferred
Compensation Plan shall be included in the Participant's Compensation
(as defined in the Retirement Plan) and any years of credited service
granted through any other arrangement shall be included as Credited
Service (as defined in the Retirement Plan). The calculations and the
determination of the Retirement Plan Augmentation Benefit (and its
actuarial equivalents) to be made hereunder shall be made as of the
time of the Participant's initial entitlement to receive a benefit
under the Retirement Plan by the actuary appointed by the Plan
Administrator of the Retirement Plan, using the actuarial assumptions
then in effect for the Retirement Plan.
(b) The Participant's actuarial equivalent lump sum benefit
under the Retirement Plan shall be computed.
(c) The amount determined in subparagraph (b) shall be
subtracted from the amount determined in subparagraph (a). The
difference, less any portion of this difference which is paid pursuant
to any other non-qualified defined benefit retirement plan or
arrangement of the Employer, including the Ameritrust Corporation
Excess Benefit Plan, plus any amounts granted through any other
arrangements not otherwise paid, shall be the Participant's Retirement
Plan Augmentation Benefit. It is intended that the Retirement Plan
Augmentation Benefit shall include amounts from other arrangements
(other than the Excess Benefit Plan), and in no event shall any
Participant receive such benefits twice.
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The Retirement Plan Augmentation Benefit (or its actuarial equivalent) shall be
paid in installments over 15 years, or over such other period as the Committee
shall determine. A Participant who is not entitled to a benefit under the
Retirement Plan shall not be entitled to any Retirement Plan Augmentation
Benefit.
5.8 SMALL BENEFIT. In the event the Committee determines that
the balance of the Participant's Deferral Accounts and the present value, as
determined in Section 5.7(a), of the Retirement Plan Augmentation Benefit are
less than $50,000 at the time of commencement of payment of his Retirement
Benefit or Termination Benefit, or the portion of the balance of the
Participant's Deferral Accounts payable to any Beneficiary is less than $50,000
at the time of commencement of payment of a Survivor Benefit to such
Beneficiary, the Employer may pay the benefit in the form of a lump sum
payment, notwithstanding any provision of this Article 5 to the contrary. Such
lump sum payment shall be equal to the balance of the Participant's Deferral
Accounts, or portion thereof payable to a Beneficiary, and the then present
value of the unpaid portion of the Retirement Plan Augmentation Benefit.
5.9 WITHHOLDING FOR TAXES. To the extent required by the law in effect
at the time payments are made, the Employer shall withhold from payments made
hereunder the minimum taxes required to be withheld by the federal or any state
or local government.
5.10 INELIGIBLE PARTICIPANT. Notwithstanding any other provisions of
this Deferred Compensation Plan to the contrary, if the Committee determines
that any Participant may not qualify as a "management or highly compensated
employee" within the meaning of the Employee Retirement Income Security Act of
1974, as amended (ERISA) or Regulations thereunder, the Committee may
determine, in its sole discretion, that such Participant shall cease to be
eligible to participate in this Deferred Compensation Plan and may make an
immediate lump sum payment to the Participant equal to the amounts standing
credited to his Deferral Accounts. Upon such payment no Survivor Benefit or
other benefit shall thereafter be payable under this Deferred Compensation Plan
either to the Participant or any Beneficiary of the Participant. All of the
Participant's elections as to the time and manner of payment of his Deferral
Accounts will be deemed to be cancelled.
ARTICLE 6
BENEFICIARY DESIGNATION
6.1 BENEFICIARY DESIGNATION. Each Participant shall have the right,
at any time, to designate any person or persons as his Beneficiary or
Beneficiaries to whom payment under this
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Deferred Compensation Plan shall be made in the event of the
Participant's death prior to complete distribution of the
benefits due under the Deferred Compensation Plan. Each
Beneficiary designation shall become effective only when filed
in writing with the Committee during the Participant's lifetime
on a form prescribed by the Committee.
The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. Any finalized divorce or marriage
(other then a common law marriage) of a Participant subsequent to the date of
filing of a Beneficiary designation form shall revoke such designation,
unless in the case of divorce the previous spouse was not designated as
Beneficiary and unless in the case of marriage the Participant's new spouse had
previously been designated as Beneficiary. The spouse of a married
Participant's domiciled in a community property jurisdiction shall join in any
designation of a Beneficiary or Beneficiaries other than the spouse.
If a Participant fails to designate a Beneficiary as provided above,
or if his Beneficiary designation is revoked by marriage, divorce, or otherwise
without execution of a new designation, or if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the
Participant's benefits, then the Committee shall direct the distribution of
such benefits to the Participant's estate.
ARTICLE 7
AMENDMENT AND TERMINATION OF PLAN
7.1 AMENDMENT. The Committee may at any time amend the Deferred
Compensation Plan in whole or in part for any reason, including but not limited
to tax, accounting or other changes, which may result in termination of the
Deferred Compensation Plan for future deferrals, provided, however, that no
amendment, either before or after a Change of Control, shall be effective to
decrease the benefits under the Deferred Compensation Plan payable to any
Participant which have accrued prior to the date of such amendment. Written
notice of any amendment shall be given to each Participant then
participating in the Deferred Compensation Plan.
7.2 TERMINATION.
(a) COMPANY'S RIGHT TO TERMINATE. The Board or the Committee
may at any time terminate the Deferred Compensation Plan for any
reason whatsoever.
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(b) PAYMENTS UPON TERMINATION. Upon any termination of the
Deferred Compensation Plan under this Section 7.2, the Board or
Committee shall determine the date or dates of the Deferred
Compensation Plan distributions to the Participants, which date or
dates shall not be later than the date or dates on which the
Participants or their Beneficiaries would otherwise receive benefits
hereunder. Earnings shall prospectively cease to be deferred as of the
date determined by the Board or Committee.
ARTICLE 8
MISCELLANEOUS
8.1 UNSECURED GENERAL CREDITOR. Participants and their Beneficiaries,
heirs, successors, and assigns shall have no legal or equitable rights, claims,
or interests in any specific property or assets of the Employer, nor shall they
be Beneficiaries of, or have any rights, claims, or interests in any life
insurance policies, annuity contracts, or the proceeds therefrom owned or which
may be acquired by the Employer ("Policies"). Any such Policies or other assets
of the Employer shall be, and remain, the general, unpledged, unrestricted
assets of the Employer. The Employer's obligation under the Deferred
Compensation Plan shall be merely that of an unfunded and unsecured promise of
the Employer to pay money in the future.
8.2 TRUST FUND. The Employer shall be responsible for the payment of
all benefits provided under the Deferred Compensation Plan. At its discretion,
the Employer may establish one or more trusts, with such trustees as the Board
or Committee may approve, for the purpose of providing for the payment of such
benefits. Such trust or trusts may be irrevocable, but the assets thereof shall
be subject to the claims of the Employer's creditors. To the extent any
benefits provided under the Deferred Compensation Plan are actually paid from
any such trust, the Employer shall have no further obligation with respect
thereto, but to the extent not so paid, such benefits shall remain the
obligation of, and shall be paid by, the Employer.
8.3 OBLIGATIONS TO EMPLOYER. If a Participant becomes entitled to a
distribution of benefits under the Deferred Compensation Plan, and if at such
time the Participant has outstanding any debt, obligation, or other liability
representing an amount owing to the Employer, then the Employer may offset such
amount owed to it against the amount of benefits otherwise distributable. Such
determination shall be made by the Committee.
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8.4 NONASSIGNABILITY BY PARTICIPANT. No right or interest under this
Deferred Compensation Plan of a Participant or his designated beneficiary (or
any person claiming through or under any of them) other than the surviving
spouse of any Participant shall be assignable or transferable in any manner or
be subject to alienation, anticipation, sale, pledge, encumbrance or other
legal process or in any manner be liable for or subject to the debts or
liabilities of any such Participant or designated beneficiary. If any
Participant or designated beneficiary (other than the surviving spouse of any
deceased Participant) shall attempt to or shall transfer, assign, alienate,
anticipate, sell, pledge or otherwise encumber his benefits hereunder or any
part thereof, or if by reason of his bankruptcy or other event happening at any
time such benefits would devolve upon anyone else or would not be enjoyed by
him, then the Employer, in its discretion, may terminate his interest in any
such benefit to the extent the Employer considers necessary or advisable to
prevent or limit the effects of such occurrence. Termination shall be effected
by filing a written "termination declaration" with the Deferred Compensation
Plan's records and making reasonable efforts to deliver a copy to the
Participant or designated beneficiary (the "Terminated Participant") whose
interest is adversely affected.
As long as the Terminated Participant is alive, any benefits affected
by the termination shall be retained by the Employer and, in the Employer's
sole and absolute judgment, may be paid to or expended for the benefit of the
Terminated Participant, his spouse, his children or any other person or persons
in fact dependent upon him in such a manner as the Employer shall deem proper.
Upon the death of the Terminated Participant, all benefits withheld from him
and not paid to others in accordance with the preceding sentence shall be
disposed of according to the provisions of the Deferred Compensation Plan that
would apply if he died prior to the time that all benefits to which he was
entitled were paid to him; provided, however, that if such provisions provide
for distribution to the Terminated Participant's estate or to his creditors and
if the Terminated Participant shall have descendants, including adopted
children, then living, distribution shall be made to the Terminated
Participant's then living descendants, including adopted children, PER STIRPES.
8.5 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan nor any
action taken hereunder shall be construed as a contract of employment or as
giving any Employee any rights to be retained in employment with the Employer.
8.6 PROTECTIVE PROVISIONS. Each Participant shall cooperate with the
Employer by furnishing any and all information requested by the Employer in
order to facilitate the
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payment of benefits hereunder, taking such physical examinations
as the Employer may deem necessary and taking such other
relevant action as may be requested by the Employer. If a
Participant refuses so to cooperate, the Employer shall have no
further obligation to the Participant under the Deferred
Compensation Plan, other than payment to such Participant of the
cumulative reductions in Earnings theretofore made pursuant to
this Deferred Compensation Plan. If a Participant commits
suicide during the two (2) year period beginning on the later of
(a) the first day on which he participates in the Deferred
Compensation Plan or (b) the first day of the Participant's Unit
Deferral Period for any new Benefit Unit under the Deferred
Compensation Plan, or if the Participant makes any material
misstatement of information or nondisclosure of medical history,
then no benefits with respect to any affected Benefit Unit will
be payable hereunder to such Participant or his Beneficiary,
other than payment to such Participant of the cumulative
reductions in Earnings theretofore made pursuant to this
Deferred Compensation Plan, provided, that in the Employer's sole
discretion, benefits may be payable in an amount reduced to
compensate the Employer for any loss, cost, damage or expense
suffered or incurred by the Employer as a result in any way of
any such action, misstatement or nondisclosure.
8.7 GENDER, SINGULAR & PLURAL. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, or neuter, as the identity
of the person or persons may require. As the context may require, the singular
may be read as the plural and the plural as the singular.
8.8 CAPTIONS. The captions of the articles, sections, and paragraphs of
this Deferred Compensation Plan are for convenience only and shall not control
or affect the meaning or construction of any of its provisions.
8.9 VALIDITY. In the event any provision of this Deferred Compensation
Plan is held invalid, void, or unenforceable, the same shall not affect, in
any respect whatsoever, the validity of any other provision of this Deferred
Compensation Plan.
8.10 NOTICE. Any notice or filing required or permitted to be given to
the Committee under the Deferred Compensation Plan shall be sufficient if in
writing and hand delivered, or sent by registered or certified mail, to the
principal office of the Employer, directed to the attention of the Human
Resources Division of the Employer. Such notice shall be deemed given as to the
date of delivery or, if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
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8.11 APPLICABLE LAW. This Deferred Compensation Plan shall be governed
and construed in accordance with the laws of the State of Ohio.
8.12 SUCCESSORS AND ASSIGNS. This Deferred Compensation Plan shall be
binding upon the Corporation and its successors and assigns.
8.13 INDEMNITY. It is the intent of the Corporation and each Employer
that no Participant be required to incur the expenses associated with the
enforcement of his or her rights under this Deferred Compensation Plan by
litigation or other legal action because the cost and expense thereof would
substantially detract from the benefits intended to be extended to a
Participant hereunder. Accordingly, if it should appear to a Participant that
the Corporation or any Employer has failed to comply with any of its
obligations under this Deferred Compensation Plan or in the event that the
Corporation, any Employer or any other person takes any action to declare this
Deferred Compensation Plan void or unenforceable, or institutes any litigation
designed to deny, or to recover from, the Participant the benefits intended to
be provided to such Participant hereunder, the Corporation and any Employer
irrevocably authorize such Participant from time to time to retain counsel of
his or her choice, at the expense of the Employer as hereafter provided, to
represent such Participant in connection with the initiation or defense of any
litigation or other legal action, whether by or against the Corporation, any
Employer or any director, officer, stockholder or other person affiliated with
the Corporation or any Employer in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Corporation or any
Employer and such counsel, the Corporation and any Employer irrevocably consent
to such Participant's entering into an attorney-client relationship with such
counsel, and in that connection the Corporation, any Employer and such
Participant agree that a confidential relationship shall exist between such
Participant and such counsel. The Employer shall pay and be solely responsible
for any and all attorneys and related fees and expenses incurred by such
Participant as a result of the failure of the Corporation or any Employer to
perform under this Deferred Compensation Plan or any provision thereof; or as
a result of the Corporation, the Employer or any person contesting the validity
or enforceability of this Deferred Compensation Plan or any provision thereof.
Notwithstanding any other provision in this Deferred Compensation Plan, this
paragraph cannot be amended so long as any amounts accrued under the Deferred
Compensation Plan remain unpaid to the Participants or their designated
Beneficiaries.
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FIRST AMENDMENT TO THE
AMERITRUST CORPORATION
DEFERRED COMPENSATION PLAN
WHEREAS, Ameritrust Corporation established the Ameritrust Corporation
Deferred Compensation Plan ("Plan") for purposes of providing financial
security to a select group of Key Employees, and
WHEREAS, Society Corporation became the legal successor-in-interest by
reason of merger with Ameritrust Corporation; and
WHEREAS, Society Corporation now deems it necessary to terminate
future compensation payments and deferrals to be made to the Plan on and after
December 31, 1992;
NOW, THEREFORE, the Plan is amended as follows:
1. As of the Effective Date below, the Plan is hereby terminated
with regard to any future deferrals or contributions under the
Plan, including Base Salary, Basic Contributions, Bonus
Earnings, Long Term Cash Awards, Employer Matching Amounts,
Compensation, Retirement Benefits, and Retirement Plan
Augmentation Benefit.
2. The Effective Date of this Amendment shall be December 30,
1992.
IN WITNESS WHEREOF, Society Corporation has caused this First
Amendment to the Plan to be executed this 1st day of December, 1992.
---
SOCIETY CORPORATION
/s/ Michael L. Evans
--------------------
Michael L. Evans
Senior Vice President
<PAGE> 1
EXHIBIT 10.30
KEYCORP
EXCESS CASH BALANCE PENSION PLAN
ARTICLE I
---------
THE PLAN
--------
The KeyCorp Excess Cash Balance Pension Plan ("Plan") is hereby established
effective January 1, 1995, for the purpose of supplementing the pension
benefits of certain selected key employees of KeyCorp and its subsidiaries who
are covered by the Plan in accordance with the terms hereof. It is the
intention of KeyCorp and of the Participants covered under the Plan, that the
Plan be unfunded for tax purposes and for purposes of Title I of the Employee
Retirement Income Security Act of 1974, as amended.
ARTICLE II
----------
DEFINITIONS
-----------
2.1 MEANINGS OF DEFINITIONS. As used herein, the following words and phrases
shall have the meanings hereinafter set forth, unless a different meaning is
plainly required by the context:
(a) "BENEFICIARY" shall mean the trust, person, or persons determined
pursuant to the provisions of Article VII of the Pension Plan entitled to
receive the benefits hereunder in the event the Participant dies before his or
her Excess Pension Benefit shall have been distributed to him or her in full.
(b) "CREDITED SERVICE" shall be calculated by measuring the period of
service commencing on the Participant's Employment Commencement Date and
Re-Employment Commencement Date, if applicable, and ending on the
Participant's Severance from Service Date, and shall be computed based on each
full month during which time the Employee is employed by an Employer.
(c) "COMPENSATION" of a Participant for any Plan Year or any partial
Plan Year in which the Participant incurs a Severance From Service Date shall
mean the entire amount of compensation paid to such Participant during such
period by reason of his employment as an Employee, as reported for federal
income tax purposes, or which would have been paid except for (1) the timing of
an Employer's payroll processing operations, (2) the Participant's written
election to defer receipt of compensation during the Plan Year, (3) the
provisions of the KeyCorp 401(k) Savings Plan, or (4) the provisions of the
KeyCorp Flexible Benefits Plan provided, however, that the term shall not
include:
1
<PAGE> 2
(i) any amount attributable to the Participant's exercise of stock
appreciation rights and the amount of any gain to the
Participant upon the exercise of stock options;
(ii) any amount attributable to the Participant's receipt of
non-cash remuneration whether or not it is included in the
Participant's income for federal income tax purposes;
(iii) any amount attributable to the Participant's receipt of moving
expenses and any relocation bonus paid to the Participant
during the Plan Year;
(iv) any amount attributable to a lump sum severance payment paid
by an Employer or the Corporation to the Participant;
(v) any amount attributable to fringe benefits (cash and
non-cash),
(vi) any amount attributable to any bonus or payment made as an
inducement for the Participant to accept employment with an
Employer,
(vii) any amount attributable to salary deferrals paid to the
Participant during the Plan Year, which have been previously
included as Compensation under the Plan during the Plan
Year or any prior Plan Year,
(viii) any amount paid to the Participant during the Plan Year which
is attributable to interest earned on Compensation deferred
under a plan of an Employer or the Corporation; and
(ix) any amount paid for any period after the Participant's
termination or retirement date.
In the case of a Disabled Participant, such Participant's Compensation for each
year while Disabled shall equal an amount which shall reflect the Participant's
Compensation for the calendar year preceding the date of the Participant's
Disability.
(b) "CORPORATION" shall mean KeyCorp, an Ohio corporation, its
corporate successors, and any corporation or corporations into or with which it
may be merged or consolidated.
(c) "EMPLOYEE" shall mean a person who is regularly employed by an
Employer provided, however, that the term Employee shall specifically exclude
those individuals who are participants in a KeyCorp-sponsored Supplemental
Retirement Plan.
2
<PAGE> 3
(d) "EMPLOYER" shall mean KeyCorp and all of its subsidiaries or
affiliates unless specifically excluded as an Employer for Plan purposes by
written action by an officer of the Corporation. An Employer's participation
shall be subject to any conditions or requirements made by the Corporation as
the Plan Administrator, and each Employer shall be deemed to appoint the Plan
Administrator as its exclusive agent under the Plan.
(e) "EXCESS PENSION BENEFIT" shall mean the pension benefit payable
pursuant to the terms of this Plan to a Participant meeting the eligibility
requirements of Section 3.1 of the Plan.
(f) "INTEREST CREDIT" shall mean the rate at which a Participant's
Opening Account Balance as provided for under Section 3.3 of the Plan, is
periodically increased with interest. The Interest Credit allocated to a
Participant's Opening Account Balance shall be determined based on one-quarter
of the effective annual calendar-year interest rate equal to the average
(rounded to the nearest one-hundredth of one percent) 5-year United States
Treasury Bill rate in effect each month during the twelve (12) month period
ending on October 31 or the last business day in October of the preceding
calendar year. The procedures to determine such Interest Credit shall be
determined by the Pension Trust Oversight Committee, and the Pension Trust
Oversight Committee in its sole and exclusive discretion may modify the
Interest Credit to be allocated under this Plan. Interest Credits shall cease
accruing as of the Participant's retirement or termination date.
(g) "PARTICIPANT" shall mean an Employee who is a participant in the
Pension Plan and who is selected by the Corporation to become a Participant in
the Plan, and whose participation in the Plan has not been terminated by the
Corporation.
(h) "PENSION PLAN" shall mean the KeyCorp Cash Balance Pension Plan as
the same shall be in effect on the date of a Participant's retirement, death,
Disability or other termination of employment.
(i) "SUPPLEMENTAL RETIREMENT PLAN" shall mean the KeyCorp
Supplemental Retirement Plan (formerly known as the Society Corporation
Supplemental Retirement Plan), the KeyCorp Supplemental Retirement Benefit
Plan, and the Supplemental Retirement Benefit Plan for Key Executives, with all
amendments, modifications, and supplements which may be made thereto.
All other capitalized and undefined terms used herein shall have the
meanings given them in the Pension Plan, unless a different meaning is plainly
required by the context.
The masculine gender includes the feminine, and singular references include
the plural, unless the context clearly requires otherwise.
3
<PAGE> 4
ARTICLE III
EXCESS PENSION BENEFIT
3.1 ELIGIBILITY. Subject to the provisions of Article VI hereof, a Participant
shall be eligible for an Excess Pension Benefit hereunder if the Participant
(i) retires on or after age 65 with five or more years of Credited Service,
(ii) terminates employment with an Employer on or after age 55 with ten or more
years of Credited Service, (iii) terminates his active employment with an
Employer upon becoming Disabled and has met the age and service requirements of
(i) or (ii) after disability benefits cease under the KeyCorp Long Term
Disability Plan, or (iv) dies after completing the age and service requirements
of (i) or (ii) and has a Beneficiary who is eligible for a benefit under the
Pension Plan.
3.2 AMOUNT OF EXCESS PENSION BENEFIT. The Excess Pension Benefit payable to a
Participant shall be in such amount as is required, when added to the Accrued
Benefit payable in lump sum form to the Participant under the Pension Plan as
of the Participant's retirement or termination date, to produce a lump sum cash
aggregate benefit equal to the benefit which would have been payable under the
Pension Plan formula in lump sum form to the Participant if the limitations of
Section 415 of the Code and Section 401(a)(17) of the Code had not been in
effect with regard to the Participant's Compensation, as defined herein. For
purposes of this Section 3.2 hereof, the term "Pension Plan formula" means the
method of calculating a Participant's pension benefit as reflected in Article
IV of the Pension Plan, and shall not include any Predecessor Plan
grandfathered benefit formulas.
3.3 OPENING ACCOUNT BALANCE.
(1) Effective January 1, 1995, all "Employees" (other than
"Grandfathered Employees") as defined in the Society Corporation
Supplemental Retirement Plan, as amended and restated as the KeyCorp
Supplemental Retirement Plan ("Supplemental Retirement Plan") whose
Supplemental Retirement Plan benefit was valued as of January 1, 1995
in the form of a lump sum cash benefit and thereafter the value of
which was transferred to this Plan pursuant to the provisions of
Article IX of the Supplemental Retirement Plan, shall have the value
of such lump sum cash benefit reflected in a bookkeeping opening
account balance ("Opening Account Balance") established for such
Participant. Such Opening Account Balance shall be credited with
Interest Credit as of the last day of each calendar quarter, based on
the value of the Participant's Opening Account Balance as of the first
day of the applicable quarter, provided, however, that no Interest
Credit shall be allocated to the Participant's Opening Account Balance
on or after the Participant's benefit distribution date. A
Participant's entitlement to such Opening Account Balance shall be
governed by the eligibility provisions of Section 3.1 of this Plan,
and the value of the opening account balance shall be added to and
become a part of such Participant's Excess Pension Benefit, which
shall be payable in accordance with the terms of this Plan.
4
<PAGE> 5
(2) Effective January 1, 1995, all participants in the Ameritrust
Corporation Excess Benefit Plan and all participants in the Ameritrust
Corporation Deferred Compensation Plan (hereinafter collectively
referred to as "Ameritrust Plan"), whose Ameritrust Plan benefit was
valued as of January 1, 1995, in the form of a lump sum cash benefit
and thereafter the value of which was transferred to this Plan shall
have the value of such lump sum cash benefit reflected in a
bookkeeping opening account balance ("Opening Account Balance")
established for such Participant. Such Opening Account Balance shall
be credited with Interest Credit as of the last day of each calendar
quarter, based on the value of the Participant's Opening Account
Balance as of the first day of the applicable quarter, provided,
however, that no Interest Credit shall be allocated to the
Participant's Opening Account Balance on or after the Participant's
benefit distribution date. A Participant shall be fully vested in
such Opening Account Balance, and the value of the Opening Account
Balance shall be added to and become a part of such Participant's
Excess Pension Benefit, which shall be payable in accordance with the
terms of this Plan. If the Participant fails to meet eligibility
requirements of Section 3.1 entitling Participant to an Excess Pension
Benefit accruing under this Plan on and after January 1, 1995, the
Participant shall nonetheless receive, at his or her termination date,
the Participant's vested Opening Account Balance valued as of the
Participant's termination date, which shall be paid pursuant to the
benefit distribution (payment) options contained in Article IV of
this Plan.
ARTICLE IV
----------
PAYMENT OF EXCESS PENSION BENEFIT
---------------------------------
4.1 IMMEDIATE PAYMENT UPON TERMINATION OR RETIREMENT OF PARTICIPANT. Subject
to the provisions of Section 4.2 hereof, a Participant meeting the age and
service eligibility requirements of Section 3.1 shall receive an immediate
distribution of his or her Excess Pension Benefit upon the Participant's
retirement or termination of employment, in the form of a lump sum cash
payment, unless the Participant elects in writing, a minimum of one year prior
to his or her retirement or termination date to receive payment of his or her
Excess Pension Benefit under a different form of payment. The forms of payment
from which a Participant may elect shall be identical to those forms of payment
specified in the Pension Plan.
The Excess Pension Benefit payable to a Participant in a form other than a
lump sum payment shall be the actuarial equivalent to such lump sum cash
payment. In making the determination provided for in this Article IV, the
Corporation shall rely upon calculations made by the independent actuaries for
the Pension Plan, who shall apply the actuarial assumptions and interest rate
then in use under the Pension Plan for converting the form of payment elected
by the Participant.
5
<PAGE> 6
4.2 DEFERRED BENEFIT PAYMENT. A Participant who retires or terminates his or
her employment with an Employer after meeting the age and service requirements
of Section 3.1, may elect to defer receipt of his or her Excess Pension Benefit
until a date specified by the Participant, provided (1) the Participant
notifies the Corporation in writing of his or her deferral election a minimum
of one year prior to the Participant's retirement or termination of employment,
(2) the Participant specifies the future date on which such Excess Pension
Benefit is to be distributed, and (3) the Participant commences his or her
Excess Pension Benefit no later than the first day of the month immediately
following the Participant's sixty-fifth (65th) birthday. The election to
defer, once made by the Participant, shall be irrevocable.
Notwithstanding the foregoing, in the case of a Participant's
"unforeseeable emergency", upon written application by the Participant to the
Corporation, the Corporation, in its sole discretion, may accelerate the
distribution of the Participant's deferred Excess Pension Benefit. For
purposes of this Section 4.2, the term "unforeseeable emergency" 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 Participant
if such premature distribution were not permitted.
4.3 PAYMENT UPON DEATH OF PARTICIPANT.
(a) Upon the death of a Participant who has met the age and service
requirements of Section 3.1, but who has not yet commenced distribution of his
or her Excess Pension Benefit, there shall be paid to the Participant's
Beneficiary the Excess Pension Benefit which the Participant would have been
entitled to receive had he or she retired on his or her date of death and
elected to receive his or her Excess Pension Benefit. Such Excess Pension
Benefit shall be paid in the form of a lump sum cash payment.
(b) In the event of a Participant's death after the Participant has
commenced distribution of his or her Excess Pension Benefit, there shall be
paid to the Participant's Beneficiary only those survivor benefits provided
under the form of benefit payment elected by the Participant.
4.4 PAYMENT UPON PARTICIPANT'S ATTAINMENT OF AGE 70-1/2. A Participant shall
be required to commence distribution of his or her vested Excess Pension
Benefit in conjunction with the distribution of the Participant's Pension Plan
benefit, no later than April 1 of the calendar year following the year in which
the Participant attains age 70-1/2.
ARTICLE V
---------
ELECTION BETWEEN PLAN BENEFITS
------------------------------
5.1 PARTICIPANT ELECTION BETWEEN PLAN BENEFITS. A Participant meeting the
eligibility requirements for an Excess Pension Benefit, who is also a
participant in, and meets the
6
<PAGE> 7
eligibility requirements for a plan benefit under the KeyCorp Executive
Supplemental Pension Plan, shall be required, prior to the Participant's
retirement or termination date, to elect a benefit from either this Plan, or
from the KeyCorp Executive Supplemental Pension Plan. A Participant's failure
to elect between Plan benefits prior to the Participant's retirement or
termination date shall result in an automatic default election by the
Participant of an Excess Pension Benefit under the Plan, to be paid to the
Participant as of his or her retirement or termination date in the form of a
lump sum cash payment.
5.2 BENEFICIARY ELECTION BETWEEN PLAN BENEFITS. If a Participant dies after
having met the eligibility requirements for an Excess Pension Benefit, and the
Participant at the time of his or her death also is a Participant in the
KeyCorp Executive Supplemental Pension Plan and eligible for a benefit under
the KeyCorp Executive Supplemental Pension Plan, the Participant's Beneficiary
shall be required to elect a death benefit from either this Plan or from the
KeyCorp Executive Supplemental Pension Plan, but in no event may the
Participant's Beneficiary elect a benefit under both this Plan and the KeyCorp
Executive Supplemental Pension Plan. The terms of each respective Plan shall
control the form of payment which may be elected by the Participant's
Beneficiary.
A beneficiary's failure to elect between Plan benefits within 120 days from
the date of the Participant's death shall result in an automatic default
election by the Beneficiary of an Excess Pension Benefit under this Plan, to be
paid to the Beneficiary in a cash lump sum payment.
ARTICLE VI
----------
ADMINISTRATION
--------------
6.1 ADMINISTRATION. The Corporation, which shall be the "Administrator" of the
Plan for purposes of ERISA and the "Plan Administrator" for purposes of the
Code, shall be responsible for the general administration of the Plan, for
carrying out the provisions hereof, and for making payments hereunder. The
Corporation shall have the sole and absolute discretionary authority and power
to carry out the provisions of the Plan, including, but not limited to, the
authority and power (a) to determine all questions relating to the eligibility
for and the amount of any benefit to be paid under the Plan, (b) to determine
all questions pertaining to claims for benefits and procedures for claim
review, (c) to resolve all other questions arising under the Plan, including
any questions of construction, and (d) to take such further action as the
Corporation shall deem advisable in the administration of the Plan. All
findings, decisions and determinations of any kind made by the Corporation
shall not be disturbed unless the Corporation has acted in an arbitrary and
capricious manner. Subject to the requirements of law, the Corporation shall
be the sole judge of the standard of proof required in any claim for benefits
and in any determination of eligibility for a benefit. All decisions of the
Corporation shall be final and binding on all parties. The Corporation may
employ such attorneys, investment counsel, agents, and accountants as it may
deem necessary
7
<PAGE> 8
or advisable to assist it in carrying out its duties hereunder. The actions
taken and the decisions made by the Corporation hereunder shall be final and
binding upon all interested parties subject, however, to the provisions of
Section 6.2. The Plan Year, for purposes of Plan administration, shall be the
calendar year.
6.2 CLAIMS REVIEW PROCEDURE. Whenever the Corporation decides for whatever
reason to deny, whether in whole or in part, a claim for benefits under the
Plan filed by any person (herein referred to as the "Claimant"), the
Corporation shall transmit a written notice of its decision to the Claimant,
which notice shall be written in a manner calculated to be understood by the
Claimant and shall contain a statement of the specific reasons for the denial
of the claim and a statement advising the Claimant that, within 60 days of the
date on which the Claimant receives such notice, Claimant may obtain review of
the decision of the Corporation in accordance with the procedures hereinafter
set forth. Within such 60-day period, the Claimant or Claimant's authorized
representative may request that the claim denial be reviewed by filing with the
Corporation a written request therefore, which request shall contain the
following information:
(i) the date on which the request was filed with the Corporation;
provided, however, that the date on which the request for review was
in fact filed with the Corporation shall control in the event that the
date of the actual filing is later than the date stated by the
Claimant pursuant to this paragraph (i);
(ii) the specific portions of the denial of the Claimant's claim which the
Claimant requests the Corporation to review;
(iii) a statement by the Claimant setting forth the basis upon which
Claimant believes the Corporation should reverse its previous denial
of the Claimant's claim and accept the Claimant's claim as made;
(iv) any written material which the Claimant desires the Corporation to
examine in its consideration of the Claimant's position as stated
pursuant to paragraph (iii) above.
In accordance with this Section, if the Claimant requests a review of the
Corporation's decision, such review shall be made by the Corporation, which
shall, within sixty (60) days after receipt of the request form, review and
render a written decision on the claim containing the specific reasons for the
decision including reference to Plan provisions upon which the decision is
based. All findings, decisions, and determinations of any kind made by the
Corporation shall not be modified unless the Corporation has acted in an
arbitrary and capricious manner. Subject to the requirements of law, the
Corporation shall be the sole judge of the standard of proof required in any
claim for benefits, and any determination of eligibility for a benefit. All
decisions of the Corporation shall be binding on the Claimant and upon all
other Persons. If the Participant or Beneficiary shall not file written notice
with the
8
<PAGE> 9
Corporation at the times set forth above, such individual shall have waived all
benefits under the Plan other than as already provided, if any, under the Plan.
ARTICLE VII
-----------
FUNDING
-------
All benefits paid under the Plan shall be payable solely out of the general
assets of the Corporation. The Corporation shall have no obligation to
establish a trust or fund to fund its obligation to pay benefits under the
Plan or to insure any benefits under the Plan. Notwithstanding any provision
of this Plan, the Corporation may, in its sole discretion, combine the payment
due and owing under this Plan with one or more other payments owing to a
Participant or the Participant's Beneficiary under any other plan, contract, or
otherwise (other than any payment due under the Pension Plan), in one check,
direct deposit, wire transfer, or other means of payment.
ARTICLE VIII
------------
AMENDMENT AND TERMINATION
-------------------------
The Corporation reserves the right to amend or terminate the Plan at any
time by action of its Board of Directors, or any duly authorized Committee of
such Board of Directors; provided, however, that no such action shall adversely
affect any Participant who has met the age and service requirements of Section
3.1, or any Participant or Participant's Beneficiary who is receiving, or who
is eligible to receive an Excess Pension Benefit hereunder, unless an
equivalent benefit is provided under the Pension Plan or another plan
maintained by an Employer.
ARTICLE IX
----------
MISCELLANEOUS
-------------
9.1 INTEREST OF PARTICIPANT. The obligation of an Employer under the Plan to
provide a Participant or the Participant's Beneficiary with an Excess Pension
Benefit merely constitutes the unsecured promise of his Employer to make
payments as provided herein, and no person shall have any interest in, or a
lien or prior claim on, any property of an Employer.
9.2 BENEFITS. Nothing in the Plan shall be construed to confer any right or
claim upon any person, firm, or corporation other than Participants and
Participants' Beneficiaries who become entitled to a benefit under the Plan.
9
<PAGE> 10
9.3 RESTRICTIONS ON ALIENATION. Except to the extent permitted by law, no
benefit under the Plan at any time shall be subject in any manner to
anticipation, alienation, assignment (either at law or in equity), encumbrance,
garnishment, levy, execution, or other legal or equitable process. No person
shall have power in any manner to anticipate, transfer, assign, (either at law
or in equity), alienate or subject to attachment, garnishment, levy, execution,
or other legal or equitable process, or in any way encumber his benefits under
the Plan, or any part thereof, and any attempt to do so shall be void.
9.4 ABSENCE OF LIABILITY. No member of the Board of Directors of the
Corporation or a subsidiary, or any officer of the Corporation or a subsidiary
shall be liable for any act or action hereunder, whether of commission or
omission, taken by any other member, or by any officer, agent, or Employee,
except in circumstances involving his or her bad faith or willful misconduct.
9.5 EXPENSES. The expenses of administration of the Plan shall be paid by the
Corporation.
9.6 PRECEDENT. Except as otherwise specifically provided, no action taken in
accordance with the Plan by the Corporation shall be construed or relied upon
as a precedent for similar action under similar circumstances.
9.7 DUTY TO FURNISH INFORMATION. The Corporation shall furnish to each
Participant or Participant's Beneficiary any documents, reports, returns
statements, or other information that it reasonably deems necessary to perform
its duties imposed hereunder or otherwise imposed by law.
9.8 WITHHOLDING. The Corporation shall withhold any tax required by any
present or future law to be withheld from any payment hereunder to any
Participant or Participant's Beneficiary.
9.9 VALIDITY OF PLAN. The validity of the Plan shall be determined and the
Plan shall be construed and interpreted in accordance with the provisions of
the Act, the Code, and to the extent applicable, the laws of the State of Ohio.
The invalidity or illegality of any provision of the Plan shall not affect the
validity or legality of any other part thereof.
9.10 PARTIES BOUND. The Plan shall be binding upon the Employer, all
Participants, or Participants' Beneficiaries, and the executors,
administrators, successors, and assigns of each of them.
10
<PAGE> 11
9.11 HEADINGS. All headings used in the Plan are for convenience of
reference only and are not part of the substance of the Plan.
Executed at Cleveland, Ohio, to be effective as of the first day of
January, 1995.
KEYCORP
By:
--------------------------------
Title:
-----------------------------
11
<PAGE> 1
EXHIBIT 10.31
KEYCORP EXCESS 401(k) PLAN
The Society Corporation Supplemental Stock Purchase and Savings Plan ("Plan"),
originally established effective April 15, 1987, and thereafter amended and
restated in its entirety effective January 1, 1989, and December 30, 1992, is
hereby amended and restated in its entirety as the KeyCorp Excess 401(k) Plan
("Plan"). The Plan as amended and restated, is intended to provide
Participants with a benefit equal to the Employer Contributions that cannot be
paid under the KeyCorp 401(k) Savings Plan due to the contribution and
compensation limits imposed by Sections 402(g) and 401(a)(17) of the Internal
Revenue Code of 1986, as amended from time to time.
ARTICLE I
---------
DEFINITIONS
-----------
1.1 MEANING OF DEFINITIONS. For the purposes hereof, the following words and
phrases shall have the meanings hereinafter set forth, unless a different
meaning is plainly required by the context:
(a) "401(k) PLAN" shall mean the KeyCorp 401 (k) Savings Plan, with all
amendments, modifications, supplements thereto and hereafter made.
(b) "BENEFICIARY" shall mean the person or entity (including a trust or
the estate of the Participant) designated pursuant to and in accordance with
the 401(k) Plan.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time. Reference to a section of the Code includes such section
and any comparable section or sections of any future legislation that amends,
supplements, or supersedes such section.
(d) "CORPORATE CONTRIBUTIONS" shall mean (i) those Matching Employer
Contributions and Profit Sharing Contributions an Employee would have received
for the applicable Plan Year as a Participant in the 401(k) Plan, were it not
for the contribution limitations imposed by Section 402(g) of the Code, or the
compensation limits imposed by Section 401(a)(17) of the Code, and (ii) those
Matching Incentive Contributions and Incentive Profit Sharing Contributions
that the Corporation has agreed to contribute to the Plan based on a percentage
of a Participant's incentive compensation deferred under an Incentive Plan. All
Corporate Contributions shall be subject to the vesting requirements of the
401(k) Plan.
(e) "CORPORATION" shall mean KeyCorp, an Ohio Corporation, its
corporate successors, and any corporation or corporations into or with which it
may be merged or consolidated.
<PAGE> 2
(f) "EMPLOYEE" shall mean any person who is employed by the Corporation
and who meets the definitional requirements of "Employee" as contained in the
401(k) Plan.
(g) "EMPLOYER" shall mean the Corporation and any of its subsidiaries
unless specifically excluded as an Employer for Plan purposes by written action
of the Corporation's Executive Vice President, Human Resources and approved by
the Corporation. An Employer's participation shall be subject to any
conditions or requirements made by the Corporation, and each Employer shall be
deemed to appoint the Plan Administrator as its exclusive agent under the Plan
as long as it continues as a subsidiary.
(h) "INCENTIVE PLAN" shall mean the KeyCorp Short Term Incentive
Compensation Plan, the KeyCorp Long Term Cash Incentive Compensation Plan, and
the KeyCorp Management Incentive Compensation Plan, as such Plans may be from
time to time amended, and including any replacement plan for such Plans.
(i) "MATCHING EMPLOYER CONTRIBUTIONS" shall mean the amount which an
Employer would be obligated to contribute to the 401(k) Plan but for the dollar
limitation imposed by Section 402(g) of the Code, and the compensation limits
imposed by Section 401(a)(17) of the Code, subject to all vesting requirements
of the 40l(k) Plan.
(j) "MATCHING INCENTIVE CONTRIBUTIONS" shall mean those contributions
that the Corporation has agreed to contribute to the Plan, which shall match up
to the first six percent of incentive compensation, awarded to the Participant
under an Incentive Plan during the applicable Plan Year, for which the
Participant elected in writing to defer its receipt in accordance with the
provisions of the Incentive Plan.
(k) "PARTICIPANT" shall mean an Employee who meets the eligibility
requirements set forth in Section 2.1 and becomes a Plan Participant pursuant
to Section 2.2.
(l) "PLAN" shall mean the KeyCorp Excess 401(k) Plan, effective January
1, 1995, with all amendments, modifications, and supplements hereafter made.
(m) "PLAN ACCOUNT" shall mean a ledger bookkeeping account established
by the Corporation for each Plan Participant, which shall reflect all Corporate
Contributions credited by the Corporation to each Participant, and all
dividends and other earnings, if any, which would be attributable thereto, if
such credited Plan Account balance had been invested in the Corporation Stock
Fund of the 401(k) Plan. Neither the maintenance of, nor the crediting of
amounts to such Plan Account shall be treated as (i) the allocation of any
Corporation assets to, or a segregation of any Corporation assets in any such
Plan Account, or (ii) as otherwise creating a right in any person or
Participant to receive specific assets of the Corporation. Benefits under the
Plan shall be paid from the general assets of the Corporation, at such time and
in such manner as determined by the Corporation in its sole and absolute
discretion.
<PAGE> 3
(n) "PROFIT SHARING CONTRIBUTIONS" shall mean those discretionary
contributions which an Employer may contribute to the 401(k) Plan pursuant to
Article VI of the 401(k) Plan.
(o) "INCENTIVE PROFIT SHARING CONTRIBUTIONS" shall mean those
discretionary contributions which an Employer may contribute to the Plan which
shall be based on a percent of the Participant's incentive compensation
deferred under an Incentive Plan during the applicable Plan Year.
(p) "RETIREMENT" shall mean the termination of employment of a
Participant under circumstances making him eligible to receive a benefit under
the KeyCorp Cash Balance Pension Plan as the same shall be in effect on the
date of a Participant's Retirement.
(q) "UNFORSEEABLE EMERGENCY" 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.
1.2 PRONOUNS: The masculine pronoun wherever used herein includes the feminine
in any case so requiring, and the singular may include the plural.
1.3 ADDITIONAL REFERENCE: All other words and phrases used herein shall have
the meaning given them in the 401(k) Plan, unless a different meaning is
clearly required by the context.
ARTICLE II
EMPLOYEE PARTICIPATION
2.1 EMPLOYEE ELIGIBILITY. An employee of the Corporation shall be eligible to
become a Plan Participant provided that such Employee is a Participant in the
401(k) Plan (as defined by that Plan), and (i)(a) the Employee's elective
deferral of Compensation to the 401(k) Plan equals or exceeds the maximum
contribution permitted by Sections 402(g) or 401(a)(17) of the Code during the
Plan Year, and (b) the Corporation selects such Employee to participate in the
Plan; or (ii)(a) such Employee is a participant in an Incentive Plan, (b) such
Employee receives an incentive award under an Incentive Plan and elects to
defer receipt of all or a portion of the incentive award in accordance with the
provisions of the Incentive Plan, and (c) the Corporation selects such Employee
to participate in the Plan.
2.2 NOTIFICATION OF NEW PARTICIPANTS. The Corporation shall notify an Employee
of his eligibility to participate in the Plan and shall automatically cause
such Employee to become a Plan Participant, unless otherwise specifically
directed by the Employee.
2.3 EFFECT AND DURATION. Upon becoming a Participant, an Employee shall be
entitled to the benefits and shall be bound by all terms and conditions of the
Plan. Each Employee who becomes a Participant shall remain a Participant until
his or her Termination of Participation,
<PAGE> 4
as provided in Article IV hereof, provided such Employee continues to meet the
eligibility requirements of Section 2.1 of the Plan, and the Corporation elects
to continue the Employee's continued participation in the Plan.
ARTICLE III
CORPORATE CONTRIBUTIONS
3.1 PLAN ACCOUNT. The Corporation shall establish a separate Plan Account for
each Participant to reflect the balance of Corporate Contributions credited by
the Corporation to each Participant. Such Plan Account shall also reflect the
balance of dividends and other earnings, if any, that would be attributable to
each Participant's balance of credited Corporate Contributions had such
Corporate Contributions been invested in the 401(k) Plan's Corporation Stock
Fund.
3.2 ALLOCATION OF MATCHING EMPLOYER CONTRIBUTIONS AND PROFIT SHARING
CONTRIBUTIONS. Matching Employer Contributions shall be credited to a
Participant's Plan Account as of the last day of each month immediately
following the pay period in which the Participant's elective deferral of
Compensation to the 401(k) Plan equals the maximum contribution amount
permitted by Sections 402(g) or 401(a)(17) of the Code for Plan Year. Profit
Sharing Contributions, if any, shall be allocated to Participants' Plan
Accounts, prior to March 31, immediately following the applicable Plan Year.
3.3 ALLOCATION OF MATCHING INCENTIVE CONTRIBUTIONS AND INCENTIVE PROFIT SHARING
CONTRIBUTIONS. Matching Incentive Contributions shall be credited to a
Participant's Plan Account as of the last day of the month immediately
following the date on which an award of incentive compensation is made to the
Participant under an Incentive Plan, for which the Participant has elected in
writing to defer all or a portion of such award in accordance with the
provisions of the Incentive Plan. Incentive Profit Sharing Contributions, if
any, shall be allocated to Participant's Plan Accounts, prior to March 31
immediately following the applicable Plan Year.
3.4 CORPORATE ASSETS. All Corporate Contributions, dividends, and any other
earnings credited to a Participant's Plan Account remain the assets and
property of the Corporation, subject to distribution and withdrawals by the
Participant only in accordance with Article IV and Article V of the Plan. All
payments hereunder shall be in the form of cash and shall be made from the
general assets of the Corporation, and Participants and Beneficiaries shall
have the status of general unsecured creditors of the Corporation. The
obligations of the Corporation to make distribution in accordance with Article
IV or Article V of the Plan constitute a mere promise to make payments in the
future. Nothing contained in the Plan shall create, or be construed as
creating a trust of any kind or any other fiduciary relationship between a
Participant, the Corporation, or any other person. It is the intention of the
<PAGE> 5
Corporation and the Participant that the Plan be unfunded for tax purposes and
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended.
3.5 NO PRESENT INTEREST. Subject to any federal statue to the contrary, no
right or benefit under the Plan and no right or interest in each Participant's
Plan Account shall be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge any right or benefit under the Plan, or
Participant's Plan Account shall be void. No right, interest, or benefit under
the Plan or Participant's Plan Account shall be liable for or subject to the
debts, contracts, liabilities, or torts of the Participant or Beneficiary. If
the Participant or Beneficiary becomes bankrupt or attempts to alienate, sell,
assign, pledge, encumber, or charge any right under the Plan or Participant's
Plan Account, then such right or benefit under the Plan and Participant's Plan
Account shall, in the discretion of the Corporation, cease and terminate.
3.6 DETERMINATION OF AMOUNT. The Corporation shall verify the amount of
Corporate Contributions, dividends, and earnings, if any, to be credited to
each Participant's Plan Account in accordance with the provision of the Plan.
This determination shall be final and conclusive upon all Participants and
Beneficiaries hereunder. As soon as reasonably practicable after the close of
the Plan Year, the Corporation shall send to each Participant an itemized
accounting statement which shall reflect the Participant's Plan Account
balance.
3.7 EFFECT OF PLAN TERMINATION. Notwithstanding anything to the contrary
contained in the Plan, the termination of the Plan or the termination of the
401(k) Plan shall terminate the liability of the Corporation to make further
Corporate Contributions to the Plan.
ARTICLE IV
TERMINATION OF PARTICIPATION AND DISTRIBUTION
4.1 TERMINATION OF PARTICIPATION. Each Participant shall cease to be a
Participant hereunder and shall be entitled to distribution under the Plan, on
the first to occur of the following dates:
(a) On the date of such Participant's Retirement from the employ
of his or her Employer;
(b) On the date such Participant's employment with his or her
Employer is terminated because of the death or permanent
disability of such Participant;
(c) On the date such Participant's employment with his or her
Employer is terminated under any other circumstance;
provided, however, that if any such date shall be the last day of any calendar
month, the Participant shall for all purposes hereof cease to be a Participant
upon the next succeeding day.
<PAGE> 6
Written notice of a Participant's termination of participation shall be given
promptly by the Participant or his Beneficiary to the Corporation.
4.2 DISTRIBUTION. As of a Participant's Termination of Participation, after
notice has been provided to the Corporation, the funds attributable to the
Participant's Plan Account, if vested, shall be distributed to him or to his
Beneficiary in a lump sum payment. A Participant retiring from the employ of
his or her Employer may request, subject to Corporation approval, that
distribution be made in a series of quarterly installments over a fixed period
of time, which shall not exceed ten years.
Distribution under either method shall be made or commenced as soon as
reasonably practicable, but in no event later than 60 days after the close of
the Plan Year in which the Participant's termination of Participation has
occurred.
If a Participant or former Participant dies after the distribution of his
or her interest under the Plan has commenced, the remaining portion of his or
her entire interest under the Plan, if any, shall be distributed to the
Participant's Beneficiary under the method of distribution being used as of the
Participant's or former Participant's date of death. If a Participant or
former Participant dies before the distribution of his or her entire interest
has commenced, the Participant's or former Participant's entire interest under
the Plan shall be distributed to his or her Beneficiary in a lump-sum payment.
4.3 FORM OF DISTRIBUTION. The distribution of a Participant's or former
Participant's interest under the Plan shall be made in the form of cash.
4.4 FACILITY OF PAYMENT. If it is found that any individual to whom an amount
is payable hereunder is incapable of attending to his or her financial affairs
because of any mental or physical condition, including the infirmities of
advanced age, such amount (unless prior claim therefor shall have been made by
a duly qualified guardian or other legal representative) may, in the discretion
of the Corporation, be paid to another person for the use or benefit of the
individual found incapable of attending to his financial affairs or in
satisfaction of legal obligations incurred by or on behalf of such individual.
Any such payment shall be charged to the Participant's Plan Account from which
any such payment would otherwise have been paid to the individual found
incapable of attending to his financial affairs, and shall be a complete
discharge of any liability therefor under the Plan.
<PAGE> 7
ARTICLE V
---------
WITHDRAWALS
-----------
5.1 WITHDRAWAL OF CORPORATE CONTRIBUTIONS. Prior to a Participant's
Termination of Participation, a Participant may not withdraw from the Plan any
amounts attributable to Corporate Contributions credited to his or her Plan
Account or any dividends or earnings, if any, attributable thereto, unless the
Corporation, in its sole and absolute discretion, determines the existence of
an Unforeseeable Emergency of the Participant. Notwithstanding the foregoing,
no Participant may receive any such withdrawal at any time during which such
Participant is an executive officer of the Corporation for purposes of Section
16(a) of the Securities Exchange Act of 1934.
To request a withdrawal pursuant to this Section 5.1, hereof, the
Participant must file written notice with the Corporation not less than 15 days
prior to the last day of any calendar month on which the requested withdrawal
is to be valued, and shall provide the Corporation with satisfactory evidence
which substantiates the Participant's Unforeseeable Emergency. The amount of
such withdrawal may not exceed the amount determined by the Corporation as
necessary to meet the above-described Unforeseeable Emergency.
ARTICLE VI
----------
ADMINISTRATION
--------------
ADMINISTRATION AND CLAIMS PROCEDURE
-----------------------------------
6.1 ADMINISTRATION. The Corporation, which shall be the "Administrator"
of the Plan for purposes of ERISA and the "Plan Administrator" for
purposes of the Code, shall be responsible for the general
administration of the Plan, for carrying out the provisions hereof,
and for making payments hereunder. The Corporation shall have the
sole and absolute discretionary authority and power to carry out the
provisions of the Plan, including, but not limited to, the authority
and power (a) to determine all questions relating to the eligibility
for and the amount of any benefit to be paid under the Plan, (b) to
determine all questions pertaining to claims for benefits and
procedures for claim review, (c) to resolve all other questions
arising under the Plan, including any questions of construction and
interpretation, and (d) to take such further action as the Corporation
shall deem necessary or advisable in the administration of the Plan.
All findings, decisions, and determinations of any kind made by the
Plan Administrator shall not be disturbed unless the Plan
Administrator has acted in an arbitrary and capricious manner.
Subject to the requirements of law, the Plan Administrator shall be
the sole judge of the standard of proof required in any claim for
benefits and in any determination of eligibility for a benefit.
All decisions of the Plan Administrator shall
<PAGE> 8
be final and binding on all parties. The Corporation may employ such
attorneys, investment counsel, agents, and accountants as it may deem
necessary or advisable to assist it in carrying out its duties
hereunder. The actions taken and the decisions made by the
Corporation hereunder shall be final and binding upon all interested
parties subject, however, to the provisions of Section 6.2. The
Plan Year, for purposes of Plan administration, shall be the calendar
year.
6.2 CLAIMS REVIEW PROCEDURE. Whenever the Plan Administrator decides for
whatever reason to deny, whether in whole or in part, a claim for
benefits under this Plan filed by any person (herein referred to as
the "Claimant"), the Plan Administrator shall transmit a written
notice of its decision to the Claimant, which notice shall be written
in a manner calculated to be understood by the Claimant and shall
contain a statement of the specific reasons for the denial of the
claim and a statement advising the Claimant that, within 60 days of
the date on which he receives such notice, he may obtain review of the
decision of the Plan Administrator in accordance with the procedures
hereinafter set forth. Within such 60-day period, the Claimant or his
authorized representative may request that the claim denial be
reviewed by filing with the Plan Administrator a written request
therefore, which request shall contain the following
information:
(i) the date on which the request was filed with the Plan
Administrator; provided, however, that the date on which the
request for review was in fact filed with the Plan
Administrator shall control in the event that the date of the
actual filing is later than the date stated by the Claimant
pursuant to this paragraph (i);
(ii) the specific portions of the denial of his claim
which the Claimant requests the Plan Administrator to
review;
(iii) a statement by the Claimant setting forth the basis
upon which he believes the Plan Administrator should reverse
its previous denial of his claim and accept his claim as
made; and
(iv) any written material which the Claimant desires the
Plan Administrator to examine in its consideration of his
position as stated pursuant to paragraph (ii) above.
In accordance with this Section, if the claimant requests a review of
the Plan Administrator's decision, such review shall be made by the Plan
Administrator, who shall, within sixty (60) days after receipt of the request
form, review and render a written decision on the claim containing the specific
reasons for the decision including reference to Plan provisions upon which the
decision is based. All findings, decisions, and determinations of any kind
made by the Plan Administrator shall not be modified unless the Plan
Administrator has acted in an arbitrary and capricious manner. Subject to the
requirements of a law, the Plan Administrator shall be the sole judge of the
standard of proof required in any claim for benefits, and any determination of
eligibility for a benefit. All decisions of the Plan
<PAGE> 9
Administrator shall be binding on the claimant and upon all other Persons. If
the Participant, or Beneficiary shall not file written notice with the Plan
Administrator at the times set forth above, such individual shall have waived
all benefits under the Plan other than as already provided, if any, under the
Plan.
ARTICLE VII
-----------
AMENDMENT AND TERMINATION
-------------------------
7.1 RESERVATION OF RIGHTS. The Corporation reserves the right to terminate the
Plan at any time by action of the Board of Directors of the Corporation, or any
duly authorized committee thereof, and to modify or amend the Plan, in whole or
in part, at any time and for any reason including, but not limited to, changes
in the Federal tax laws.
7.2 EFFECT OF PLAN TERMINATION. If the Corporation terminates the Plan,
Participants shall receive distribution of their interests under the Plan as of
the Plan's termination date, in a lump-sum payment. Distribution of the
Participants' interest under the Plan shall be made as soon as reasonably
practicable, but in no event later than sixty (60) days after the close of the
Plan Year.
ARTICLE VIII
------------
BENEFICIARIES
-------------
The Beneficiary designated under the 401(k) Plan shall receive distribution of
the Participant's unpaid vested interest under the Plan upon the Participant's
death.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
9.1 NO COMMITMENT AS TO EMPLOYMENT. Nothing herein contained shall be
construed as a commitment or agreement upon the part of any Employee hereunder
to continue his or her employment with an Employer, and nothing herein
contained shall be construed as a commitment on the part of any Employer to
continue the employment or rate of compensation of any Employee hereunder for
any period. All Participants shall remain subject to discharge to the same
extent as if the Plan had never been put into effect.
9.2 BENEFITS. Nothing in the Plan shall be construed to confer any right or
claim upon any person, firm, or corporation other than the Participants, former
Participants, and Beneficiaries.
9.3 ABSENCE OF LIABILITY. No member of the Board of Directors of the
Corporation or a subsidiary or committee authorized by the Board of Directors,
or any officer of the
<PAGE> 10
Corporation or a subsidiary or officer of a subsidiary shall be liable for any
act or action hereunder, whether of commission or omission, taken by any other
member, or by any officer, agent, or Employee, except in circumstances
involving bad faith or willful misconduct, for anything done or omitted to be
done.
9.4 EXPENSES. The expenses of administration of the Plan shall be paid by the
Corporation.
9.5 PRECEDENT. Except as otherwise specifically provided, no action taken in
accordance with the Plan by the Corporation shall be construed or relied upon
as a precedent for similar action under similar circumstances.
9.6 WITHHOLDING. The Corporation shall withhold any tax which the Corporation
in discretion deems necessary to be withheld from any payment to any
Participant, former Participant, or Beneficiary hereunder, by reason of any
present or future law.
9.7 VALIDITY OF PLAN. The validity of the Plan shall be determined and the
Plan shall be construed and interpreted in accordance with the provisions of
the Act, the Code, and, to the extent applicable, the laws of the State of
Ohio. The invalidity or illegality of any provision of the Plan shall not
affect the validity or legality of any other part thereof.
9.8 PARTIES BOUND. The Plan shall be binding upon the Employers, Participants,
former Participants, and Beneficiaries hereunder, and, as the case may be, the
heirs, executors, administrators, successors, and assigns of each of them.
9.9 HEADINGS. All headings used in the Plan are for convenience of reference
only and are not part of the substance of the Plan.
9.10 RESTRICTIONS ON ALIENATION. Except to the extent permitted by
law, no benefit under the Plan shall be subject to anticipation, alienation,
assignment (either at law or in equity), encumbrance, garnishment, levy,
execution, or other legal or equitable process. No person shall have power in
any manner to anticipate, transfer, assign, (either at law or in equity),
alienate or subject to attachment, garnishment, levy, execution, or other legal
or equitable process, or in any way encumber his benefits under the Plan, or
any part thereof, and any attempt to do so shall be void. Notwithstanding the
foregoing, the interest of any Participant, former Participant, or Beneficiary
hereunder shall be subject to all the terms and conditions of a Qualified
Domestic Relations Order as that term is defined under the Code.
<PAGE> 11
9.11. DUTY TO FURNISH INFORMATION. The Corporation shall furnish to
each Participant, former Participant, or Beneficiary any documents, reports,
returns, statements, or other information that it reasonably deems necessary to
perform its duties imposed hereunder or otherwise imposed by law.
Executed at Cleveland, Ohio, to be effective as of the 1st day of January,
1995.
KEYCORP
By:
-----------------------------------
Michael L. Evans
Senior Vice President
Human Resources
<PAGE> 1
<TABLE>
EXHIBIT 11
KEYCORP
COMPUTATION OF NET INCOME PER COMMON SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET INCOME APPLICABLE TO COMMON SHARES
Net income......................................... $ 824,982 $ 853,490 $ 709,926
Less: Preferred dividend requirements.............. 16,000 16,000 18,097
----------- ----------- -----------
Net income applicable to Common Shares............. $ 808,982 $ 837,490 $ 691,829
=========== =========== ===========
NET INCOME PER COMMON SHARE
Weighted average Common Shares outstanding......... 234,787,423 243,067,487 239,775,188
=========== =========== ===========
Net income applicable to Common Shares............. $ 808,982 $ 837,490 $ 691,829
=========== =========== ===========
Net income per Common Share........................ $ 3.45 $ 3.45 $ 2.89
=========== =========== ===========
NET INCOME PER COMMON SHARE -- PRIMARY
Weighted average Common Shares outstanding......... 234,787,423 243,067,487 239,775,188
Dilutive common stock options (1).................. 2,246,571 2,398,245 1,803,680
----------- ----------- -----------
Weighted average Common Shares and Common Share
equivalents outstanding.......................... 237,033,994 245,465,732 241,578,868
=========== =========== ===========
Net income applicable to Common Shares............. $ 808,982 $ 837,490 $ 691,829
=========== =========== ===========
Net income per Common Share........................ $ 3.41 $ 3.41 $ 2.86
=========== =========== ===========
NET INCOME PER COMMON SHARE -- FULLY DILUTED
Weighted average Common Shares outstanding......... 234,787,423 243,067,487 239,775,188
Dilutive common stock options (1).................. 3,519,099 2,400,089 1,944,892
----------- ----------- -----------
Weighted average Common Shares and Common Share
equivalents outstanding.......................... 238,306,522 245,467,576 241,720,080
=========== =========== ===========
Net income applicable to Common Shares............. $ 808,982 $ 837,490 $ 691,829
=========== =========== ===========
Net income per Common Share........................ $ 3.39 $ 3.41 $ 2.86
=========== =========== ===========
</TABLE>
[FN]
- - - ---------------
(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.
15
<PAGE> 1
<TABLE>
EXHIBIT 12
KEYCORP
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(UNAUDITED)
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
COMPUTATION OF EARNINGS
Net income.................................. $ 824,982 $ 853,490 $ 709,926 $ 592,098 $ 313,696
Add: Provision for income taxes............. 368,465 429,981 373,972 279,632 136,684
Less: Cumulative effect of accounting
change................................... -- -- -- 6,613 --
Extraordinary item....................... 35,790 -- -- -- --
---------- ---------- ---------- ---------- ----------
Income before income taxes and
extraordinary item..................... 1,157,657 1,283,471 1,083,898 865,117 450,380
Fixed charges, excluding interest on
deposits................................. 818,081 513,225 344,585 324,365 422,189
---------- ---------- ---------- ---------- ----------
Total earnings for computation, excluding
interest on deposits................... 1,975,738 1,796,696 1,428,483 1,189,482 872,569
Interest on deposits........................ 1,704,775 1,324,576 1,233,331 1,468,974 2,135,651
---------- ---------- ---------- ---------- ----------
Total earnings for computation, including
interest on deposits................... $3,680,513 $3,121,272 $2,661,814 $2,658,456 $3,008,220
========== ========== ========== ========== ==========
COMPUTATION OF FIXED CHARGES
Net rental expense.......................... $ 116,851 $ 124,168 $ 130,361 $ 130,973 $ 118,855
========== ========== ========== ========== ==========
Portion of net rental expense deemed
representative of interest............... $ 38,561 $ 40,975 $ 43,019 $ 43,221 $ 38,450
Interest on short-term borrowed funds....... 518,157 334,456 174,664 174,059 288,220
Interest on long-term debt.................. 261,363 137,794 126,902 107,085 95,519
---------- ---------- ---------- ---------- ----------
Total fixed charges, excluding interest
on deposits............................ 818,081 513,225 344,585 324,365 422,189
Interest on deposits........................ 1,704,775 1,324,576 1,233,331 1,468,974 2,135,651
---------- ---------- ---------- ---------- ----------
Total fixed charges, including interest
on deposits............................ $2,522,856 $1,837,801 $1,577,916 $1,793,339 $2,557,840
========== ========== ========== ========== ==========
COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
Preferred stock dividend requirement on a
pre-tax basis............................ $ 23,470 $ 24,061 $ 27,630 $ 35,505 $ 23,292
Total fixed charges, excluding interest
on deposits............................ 818,081 513,225 344,585 324,365 422,189
---------- ---------- ---------- ---------- ----------
Combined fixed charges and preferred
stock dividends, excluding interest on
deposits............................... 841,551 537,286 372,215 359,870 445,481
Interest on deposits........................ 1,704,775 1,324,576 1,233,331 1,468,974 2,135,651
---------- ---------- ---------- ---------- ----------
Combined fixed charges and preferred
stock dividends, including interest on
deposits............................... $2,546,326 $1,861,862 $1,605,546 $1,828,844 $2,581,132
========== ========== ========== ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES
Excluding deposit interest............... 2.42X 3.50x 4.15x 3.67x 2.07x
Including deposit interest............... 1.46X 1.70x 1.69x 1.48x 1.18x
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Excluding deposit interest............... 2.35X 3.34x 3.84x 3.31x 1.96x
Including deposit interest............... 1.45X 1.68x 1.66x 1.45x 1.17x
</TABLE>
16
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[LOGO]
FINANCIAL
REVIEW
Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . 28
Introduction. . . . . . . . . . . . . . . . . . . . . . . . .29
Performance Overview. . . . . . . . . . . . . . . . . . . . .29
Line of Business Results. . . . . . . . . . . . . . . . . . .30
Results of Operations. . . . . . . . . . . . . . . . . . . . 35
Net Interest Income. . . . . . . . . . . . . . . . . . . .35
Asset and Liability Management. . . . . . . . . . . . . . 39
Noninterest Income. . . . . . . . . . . . . . . . . . . . 44
Noninterest Expense. . . . . . . . . . . . . . . . . . . .46
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . 47
Financial Condition. . . . . . . . . . . . . . . . . . . . . 47
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . .47
Securities. . . . . . . . . . . . . . . . . . . . . . . . 49
Asset Quality. . . . . . . . . . . . . . . . . . . . . . .51
Deposits and Other Sources of Funds. . . . . . . . . . . .54
Liquidity. . . . . . . . . . . . . . . . . . . . . . . . .55
Capital and Dividends. . . . . . . . . . . . . . . . . . .56
Fourth Quarter Results. . . . . . . . . . . . . . . . . . . .57
Banking Services Data by Region. . . . . . . . . . . . . . . 59
Six-Year Consolidated Balance Sheets. . . . . . . . . . . . 60
Six-Year Consolidated Statements of Income. . . . . . . . . 61
Report of Management. . . . . . . . . . . . . . . . . . . . 62
Report of Ernst & Young LLP, Independent Auditors. . . . . .62
Consolidated Financial Statements. . . . . . . . . . . . . .63
<PAGE> 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 total
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.
TIER I CAPITAL: The sum of common shareholders' equity (excluding net
unrealized gains or 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%.
DERIVATIVES: Interest rate or currency swaps, futures, forwards, option
contracts, or other off-balance sheet financial instruments used for asset and
liability management or trading purposes. These instruments derive their values
or contractually determined cash flows from the price of an underlying asset or
liability, reference rate, index or other security.
EARNING ASSETS: The sum of loans, mortgage 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 certain other nonrecurring charges) divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities gains
(losses) and gains on certain asset sales).
INTEREST-BEARING LIABILITIES: The sum of interest-bearing deposits, Federal
funds purchased, securities sold under agreements to repurchase, 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 nonaccrual status (for purposes of
interest recognition) plus restructured loans (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 foreclosure or
comparable proceedings under which possession of the collateral has been taken.
OVERHEAD RATIO: Noninterest expense (excluding merger and integration charges
and certain other nonrecurring charges) less noninterest income (excluding net
securities gains (losses) and gains on certain 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.
SECURITIZATION: A transaction involving the transfer of a pool of assets with
similar characteristics to an unaffiliated trust, wherein securities
(representing undivided interests in, or obligations of, the trust) are
purchased by investors.
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.
28
<PAGE> 3
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------
INTRODUCTION
This section of the report provides a discussion and analysis of the financial
condition and results of operations of KeyCorp and its subsidiaries (the
"Corporation") for the periods presented. It should be read in conjunction with
the consolidated financial statements and notes thereto, presented on pages 63
through 89 of this report.
In the third quarter of 1994, the Corporation launched a strategic plan
designed to leverage the capabilities of the franchise by reallocating
resources to businesses with higher earnings potential and by heightening the
focus on certain customer segments. A number of significant actions were taken
throughout 1995 in connection with the implementation of this strategic plan.
In the first quarter, the Corporation completed the sale of the residential
mortgage loan servicing operations of KeyCorp Mortgage Inc., a mortgage banking
subsidiary. This transaction was followed by the second quarter acquisition of
Spears, Benzak, Salomon & Farrell, Inc., a New York-based investment management
firm ("Spears Benzak"). Actions taken during the third quarter included the
formation of the Corporation's national consumer finance business through the
establishment of Key Bank USA, National Association ("KeyBank USA"), a
nationally chartered bank located in Ohio which serves as the national platform
for credit card lending, mortgage loan originations and all non-branch consumer
finance business; and the acquisition of AutoFinance Group, Inc. ("AFG"), one
of the nation's leading subprime automobile finance companies, based in
Chicago, Illinois. In the fourth quarter, the Corporation sold its bond
services business (a relatively minor portion of the Corporation's overall
corporate trust business). During the same quarter, the Corporation entered
into a definitive agreement to sell Society First Federal Savings Bank, its
Florida savings association subsidiary. This transaction is expected to close
during the second quarter of 1996, pending necessary regulatory approvals.
In addition to the above actions, the Corporation strengthened its retail
franchise with the completion of three bank acquisitions during the first
quarter of 1995. The acquisitions included Casco Northern Bank, National
Association located in Portland, Maine; BANKVERMONT Corporation (and its
subsidiary, Bank of Vermont) based in Burlington, Vermont; and OMNIBANCORP (and
its five subsidiary banks) based in Denver, Colorado. The acquisitions were
accounted for as purchases and, accordingly, the results of operations of these
companies have been included from the respective dates of acquisition.
Additional information pertaining to these transactions and to those referred
to in the preceding paragraph is presented in Note 2, "Mergers, Acquisitions
and Divestitures," beginning on page 70.
KeyCorp's 1995 consolidated financial results were impacted by actions taken
during the first quarter to reconfigure the balance sheet in order to reduce
exposure to future changes in interest rates. These actions completed a program
begun for that purpose in the fourth quarter of 1994, and included the sales of
securities at losses. Other major programs or transactions were undertaken in
1995 in connection with an overall balance sheet re-engineering effort intended
to improve returns to shareholders, improve liquidity and enhance capital
flexibility. These included the transfer of substantially all debt securities
(other than those issued by states and political subdivisions) from the
investment securities portfolio to the securities available-for-sale portfolio;
the securitization and sale of $1.0 billion of student loans; the
securitization and sale of $395 million of indirect auto loans; and the sale of
approximately $1.0 billion of residential mortgage loans. The Corporation's
policy is to securitize student loans prior to their entering repayment status.
The latter two transactions were completed to remove lower spread assets from
the balance sheet.
The Corporation continued to manage its capital base proactively to optimize
returns to shareholders. During 1995, approximately 24 million KeyCorp Common
Shares were repurchased, of which 17 million were reissued to acquire AFG,
OMNIBANCORP and Spears Benzak and to administer various employee benefit
programs of the Corporation. To provide added flexibility, in January 1996
KeyCorp's Board of Directors approved a share repurchase program authorizing
the repurchase of up to an additional 12 million shares, representing
approximately 5% of the total Common Shares outstanding at December 31, 1995.
This new repurchase program authorization expires at the end of 1996.
Management continues to evaluate various initiatives to leverage further the
capabilities of the franchise through the reallocation of resources and the
targeting of selected customer segments. For example, in October 1995 plans
were announced to combine the KeyCorp affiliate banks in the Great Lakes
Region. The first step in this reorganization was completed in January 1996
with the merger of the Indiana and Michigan affiliate banks. The final stage of
the Great Lakes reorganization is expected to be completed in 1996 with the
merger of the Indiana/Michigan bank with and into Society National Bank,
KeyCorp's principal bank subsidiary located in Ohio. The resulting bank will be
renamed KeyBank National Association.
The above items are discussed in greater detail in the remainder of this
discussion and in the notes to the consolidated financial statements.
PERFORMANCE OVERVIEW
In 1995, KeyCorp recorded net income of $825.0 million, or $3.45 per Common
Share. This compared with $853.5 million, or $3.45 per Common Share, in 1994
and $709.9 million, or $2.89 per Common Share, in 1993. The return on average
common equity for 1995 was 17.35%, compared to 18.87% and 17.27% in 1994 and
1993, respectively. The return on average total assets was 1.24% in 1995, 1.36%
in 1994 and 1.24% in 1993. Figure 1 presents the primary income and expense
components for each of the three years in the period ended December 31, 1995,
expressed on a per Common Share basis. The selected financial data set forth in
Figure 2 presents certain information highlighting the financial performance of
the Corporation for each of the last six years.
29
<PAGE> 4
KEYCORP AND SUBSIDARIES
- - - ------------------------------------------------
Figure 1 Components of Earnings Per Common Share
- - - ------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, Change
1995 vs. 1994
---------------
1995 1994 1993 Amount Percent
- - - ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $21.81 $18.47 $17.57 $3.34 18.1%
Interest expense 10.58 7.39 6.40 3.19 43.2
- - - ---------------------------------------------------------------------
Net interest income 11.23 11.08 11.17 .15 1.4
Provision for loan losses .43 .51 .88 (.08) (15.7)
- - - ---------------------------------------------------------------------
Net interest income
after provision for
loan losses 10.80 10.57 10.29 .23 2.2
Noninterest income 3.97 3.63 4.18 .34 9.4
Noninterest expense 9.84 8.92 9.95 .92 10.3
- - - ---------------------------------------------------------------------
Income before
income taxes 4.93 5.28 4.52 (.35) (6.6)
Income taxes 1.56 1.77 1.56 (.21) (11.9)
Extraordinary net gain .15 -- -- .15 N/M
Preferred dividends .07 .06 .07 .01 16.7
- - - ---------------------------------------------------------------------
Earnings per
Common Share $ 3.45 $ 3.45 $ 2.89 -- --
====== ====== ======
- - - ---------------------------------------------------------------------
</TABLE>
N/M = Not Meaningful
In many respects, 1995 was a transition year for KeyCorp as management
continued to focus its efforts on implementing the strategic plan initiated in
1994 and reconfiguring the Corporation's balance sheet to align with its
operating strategies for the future. Significant investments, amounting to more
than $41 million, were made in connection with strategic initiatives designed
to position the Corporation to take advantage of technological advances within
the industry and to strengthen its marketing efforts, in particular those
geared toward developing national recognition of the KeyBank brand name. While
the costs associated with these efforts contributed to identical per share
earnings in comparison with the prior year, these strategic investments are
expected to generate higher returns in the Corporation's core businesses in
1996 and beyond. The balance sheet reconfiguration plans are described in
greater detail in the Asset and Liability Management section, beginning on page
39.
In comparison with the prior year, KeyCorp's 1995 earnings reflected a $24.7
million, or 20%, decrease in the provision for loan losses; a $50.4 million, or
6%, increase in noninterest income; a $61.6 million, or 14%, decrease in income
tax expense and an extraordinary net gain of $35.8 million after tax. These
positive factors were more than offset by a $58.1 million, or 2%, decrease in
taxable-equivalent net interest income; and a $144.4 million, or 7%, increase
in noninterest expense. The efficiency ratio, which provides a measure of the
extent to which recurring revenues are used to pay operating expenses, was
63.03% in 1995, compared with 59.39% in 1994 and 60.50% in 1993. In addition to
the impact of the acquisitions and divestitures described in Note 2, Mergers,
Acquisitions and Divestitures, starting on page 70, and the 1995 expenditures
for strategic initiatives, comparative results were affected by the special
items discussed below.
In 1995, results included an extraordinary net gain of $61.1 million ($35.8
million after tax, $.15 per Common Share) recorded in connection with the sales
of certain subsidiaries. This net gain included a gain of $72.3 million ($41.6
million after tax, $.17 per Common Share) from the sale of the Corporation's
residential mortgage loan servicing business and a loss of $11.2 million ($5.8
million after tax, $.02 per Common Share) incurred in connection with the sale
of Schaenen Wood & Associates, Inc., an asset management subsidiary. In
addition, the previously mentioned balance sheet reconfiguration resulted in
net losses of $49.3 million ($30.9 million after tax, $.13 per Common Share)
from the sales of securities. Other special items in 1995 included a one-time
tax benefit of $16.0 million, or $.07 per Common Share, which related to
acquisitions completed in prior years; a $25.4 million ($14.8 million after
tax, $.06 per Common Share) write-off of obsolete software, and a $12.5 million
($8.1 million after tax, $.03 per Common Share) positive adjustment resulting
from better-than-expected performance of student loan securitizations completed
in prior periods. In the aggregate, these items increased 1995 earnings by
$14.2 million, or $.06 per Common Share.
Earnings in 1994 and 1993 were also affected by special items. Steps taken in
the fourth quarter of 1994 to reconfigure the balance sheet in order to reduce
the Corporation's exposure to further increases in interest rates included the
sales of certain securities during the fourth quarter of 1994. These sales
resulted in losses of $23.7 million ($14.3 million after tax, $.06 per Common
Share). 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 KeyCorp-Society merger.
These merger and integration charges are described in greater detail in Note
12, Merger and Integration Charges, on page 80.
LINE OF BUSINESS RESULTS
The Corporation's strategic plan, initiated in 1994, resulted in the
identification of four primary lines of business: Corporate Banking, National
Consumer Finance, Community Banking and Key PrivateBank. A summary of the 1995
financial results and key performance measures for each primary line of
business is presented in Figure 3. This information was derived from the
internal profitability reporting system used by management to monitor and
manage the financial performance of the Corporation.
The financial results and key performance measures reported are based on
internal management accounting policies which have been developed to ensure
that results are compiled on a consistent basis and reflect the underlying
economics of the businesses. These policies address the methodologies applied
in connection with funds transfer pricing as well as the allocation of certain
costs and capital. Funds transfer pricing was used in the determination of net
interest income by assigning a standard cost for funds used (or a standard
credit for funds provided) to
30
<PAGE> 5
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------------------------------------------------------------
Figure 2 Selected Finanical Data
- - - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Compound
Annual Rate
of Change
dollars in millions, except per share amounts 1995 1994 1993 1992 1991 1990 (1990-1995)
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Interest income $5,121.0 $4,490.1 $4,213.9 $4,198.8 $4,652.4 $4,528.8 2.5%
Interest expense 2,484.3 1,796.8 1,534.9 1,750.1 2,519.4 2,667.7 (1.4)
Net interest income 2,636.7 2,693.3 2,679.0 2,448.7 2,133.0 1,861.1 7.2
Provision for loan losses 100.5 125.2 211.7 338.4 466.2 517.2 (27.9)
Noninterest income 933.0 882.6 1,001.7 925.2 849.3 744.2 4.6
Noninterest expense 2,311.6 2,167.2 2,385.1 2,170.4 2,065.7 1,819.5 4.9
Income before income taxes
and extraordinary item 1,157.6 1,283.5 1,083.9 865.1 450.4 268.6 33.9
Income before extraordinary item 789.2 853.5 709.9 592.1 313.7 256.1 25.2
Net income 825.0 853.5 709.9 592.1 313.7 256.1 26.4
Net income applicable to Common Shares 809.0 837.5 691.8 568.1 297.5 249.0 26.6
- - - ------------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Income before extraordinary item $ 3.30 $ 3.45 $ 2.89 $ 2.42 $ 1.31 $ 1.13 23.9%
Net income 3.45 3.45 2.89 2.42 1.31 1.13 25.0
Cash dividends 1.44 1.28 1.12 .98 .92 .88 10.4
Book value at year-end 21.36 18.88 17.53 15.64 14.10 13.48 9.6
Market price at year-end 36.25 25.00 29.75 32.13 24.75 16.13 17.6
Dividend payout ratio 41.74% 37.10% 38.75% 40.50% 70.23% 77.88% N/A
Weighted average Common Shares (000) 234,787.4 243,067.5 239,775.2 235,004.8 227,116.2 220,078.6 1.3
- - - ------------------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31,
Loans $47,691.7 $46,224.7 $40,071.3 $36,021.8 $35,534.3 $34,193.7 6.9%
Earning assets 58,762.3 60,046.5 54,352.7 49,380.8 48,207.9 44,668.2 5.6
Total assets 66,339.1 66,801.2 59,634.3 55,068.4 53,600.9 49,953.4 5.8
Deposits 47,281.9 48,564.2 46,499.1 43,433.1 42,835.0 40,935.3 2.9
Long-term debt 4,003.6 3,569.8 1,763.9 1,790.1 1,224.5 1,145.2 28.4
Common shareholders' equity 4,992.5 4,530.4 4,225.5 3,683.3 3,272.4 2,941.7 11.2
Total shareholders' equity 5,152.5 4,690.4 4,385.5 3,927.3 3,516.4 3,025.7 11.2
Full-time equivalent employees 29,563 29,211 29,983 29,117 29,509 28,741 .6
- - - ------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.24% 1.36% 1.24% 1.13% .60% .54% N/A
Return on average common equity 17.35 18.87 17.27 16.33 9.29 8.39 N/A
Return on average total equity 17.10 18.56 16.95 15.91 9.31 8.41 N/A
Efficiency 63.03 59.39 60.50 60.96 65.27 66.92 N/A
Overhead 49.66 46.14 46.85 47.21 52.63 54.58 N/A
Net interest margin 4.47 4.83 5.31 5.31 4.71 4.53 N/A
- - - ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS AT DECEMBER 31,
Equity to assets 7.77% 7.03% 7.37% 7.13% 6.56% 6.06% N/A
Tangible equity to tangible assets 6.25 6.19 6.51 6.11 5.45 4.79 N/A
Tier I risk-adjusted capital 7.53 8.48 8.73 8.56 7.67 6.75 N/A
Total risk-adjusted capital 10.85 11.62 12.22 11.73 9.80 9.17 N/A
Leverage 6.20 6.63 6.72 6.56 5.97 5.23 N/A
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 beginning on page 70.
N/A = Not Applicable
31
<PAGE> 6
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------
assets and liabilities based on their maturity and/or repricing
characteristics. Indirect expenses were allocated based on actual volume
measurements and other criteria, as appropriate. The allocation of the
provision for loan losses was derived by applying the normalized net charge-off
ratio for each line of business over a full business cycle (approximately five
years) to its average loans for 1995. The negative provision under "Treasury
and Other" represents the difference between the consolidated provision and the
amounts allocated to the primary lines of business, and reflects the
significantly lower level of net charge-offs in 1995 relative to prior years in
the business cycle. The level of the consolidated provision for loan losses was
based upon the application of methodologies designed by management to assess
the adequacy of the consolidated allowance by focusing on a number of specific
factors. These factors are more fully discussed in the Asset Quality section
beginning on page 51. Income taxes were allocated based on the Corporation's
1995 effective tax rate and capital was assigned to each line of business based
on management's assessment of inherent risk. The development and application of
these methodologies is a dynamic process. Accordingly, financial results may be
revised periodically to reflect management accounting enhancements, changes in
risk profile or changes in the organization's structure. Further, unlike
financial accounting, there is no authoritative guidance for management
accounting similar to generally accepted accounting principles. Consequently,
reported results are not necessarily comparable with those presented by other
companies.
A description of each of the Corporation's primary lines of business is
presented below.
CORPORATE BANKING
As one of the largest providers of corporate financial services in the nation,
KeyCorp offers a complete range of financing and advisory services to
corporations, governments, institutions and other businesses through its
Corporate Banking units. It also operates the fourth largest bank-affiliated
equipment leasing company in the United States. Corporate Banking's three
primary customer segments are middle market, community middle market and large
corporate clients. Its business units include specialty finance activities such
as media, healthcare, commercial real estate, structured finance, and
agricultural lending. In addition, this line of business provides a number of
specialized services, including international banking, corporate finance,
capital markets, institutional asset services and corporate wealth transfer,
and is among the top cash management providers in the country.
<TABLE>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 3 Line of Business Results
- - - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
National Treasury
Corporate Consumer Community Key and KeyCorp
dollars in millions Banking Finance Banking PrivateBank Other Consolidated
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Net interest income (TE) $887.8 $395.9 $1,203.4 $ 74.5 $ 132.4 $2,694.0
Provision for loan losses 110.3 73.1 58.9 3.6 (145.4) 100.5
Noninterest income 240.8 184.3 299.5 117.6 90.8 933.0
Noninterest expense 498.8 232.7 1,190.1 115.5 274.5 2,311.6
- - - ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes
and extraordinary item (TE) 519.5 274.4 253.9 73.0 94.1 1,214.9
Allocated income taxes and TE adjustment 182.1 96.2 89.0 25.6 32.8 425.7
Extraordinary net gain - - - - 35.8 35.8
- - - ----------------------------------------------------------------------------------------------------------------------------------
Net income $337.4 $178.2 $ 164.9 $ 47.4 $ 97.1 $ 825.0
====== ====== ======= ====== ======= ========
Percent of consolidated net income 41% 22% 20% 6% 11% 100%
- - - ----------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCES
Loans $18,798.2 $10,073.5 $ 9,330.4 $1,929.7 $ 7,628.8 $47,760.6
Earning assets 19,326.3 10,365.8 9,413.5 1,971.5 19,125.9 60,203.0
Deposits 5,336.4 741.1 37,768.0 807.9 2,912.2 47,565.6
Allocated equity1 1,381.0 759.6 1,090.4 155.1 1,437.5 4,823.6
- - - ------------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average allocated equity1 24.43% 23.47% 15.12% 30.60% N/M 17.10%
Efficiency ratio 44.20 40.10 79.19 60.10 N/M 63.03
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)Preferred equity is included in Treasury and Other.
TE = Taxable Equivalent
N/M = Not Meaningful
32
<PAGE> 7
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------
In 1995, Corporate Banking contributed approximately 41% of KeyCorp's
consolidated earnings with net income of $337.4 million and a return on average
allocated equity of 24.43%. This strong performance was driven by loan growth
of approximately 17% since the end of the prior year, combined with the ongoing
development of noncredit revenues from cash management services and foreign
exchange and derivative activities conducted for the benefit of customers.
Other accomplishments in 1995 included the enhancement of advanced client
service workstations and the redefining of the Corporate Banking delivery
system to differentiate the delivery of products and services among various
market segments. The new workstations provide client service representatives
with automated, real time access to account information, thereby allowing them
to respond to more than 80% of client telephone inquiries while the client is
still on the line.
With the goal of significantly increasing Corporate Banking's net income growth
rate, 1996 efforts will center on refining the relationship management approach
to serving customers and expanding product capabilities by implementing the
following primary initiatives:
- - - - The corporate banking relationship management process will be
re-engineered to streamline the credit administration process and to
support relationship managers in their advisory roles,
- - - - The structured finance business unit will be expanded to provide
financing, collateral management and structuring expertise to companies
which may not have met the Corporation's traditional credit standards,
- - - - The wealth transfer business, established in late 1995, will expand its
advisory services to owners of privately held businesses who require
assistance in ownership transition,
- - - - In response to growth in the real estate market, the commercial real
estate capital markets function will be expanded to provide more options
to clients seeking permanent capital for real estate projects,
- - - - Capital markets capabilities will be enhanced by providing new products
and improvements in the areas of foreign exchange, derivatives, merger and
acquisition advisory services, private placements, underwriting and
distributing qualifying municipal debt issues, and institutional sales and
trading, and
- - - - The packaging and delivery of PRISM, the Corporation's daily 401(k)
valuation product, will be enhanced through improvements made in
transaction processing, the addition of a value-added participant
education program and by offering a new product designed exclusively to
serve the needs of smaller businesses.
NATIONAL CONSUMER FINANCE
National Consumer Finance is responsible for administering the Corporation's
indirect, non-branch based consumer loan and deposit products across the entire
franchise, as distinct from direct branch-based consumer business conducted by
the Community Banking group. Its specific business units specialize in credit
cards, auto loans and leases, marine and recreational vehicle loans,
educational loans and branchless deposit generating activities. These
activities were formally grouped together in 1995 so as to market and operate
the Corporation's indirect consumer loan and credit card businesses under a
single management and operating structure. The National Consumer Finance line
of business was characterized by the following key volume statistics as of
December 31, 1995:
- - - - Indirect auto loans and leases of more than $4 billion outstanding with
1995 originations of $2.4 billion generated through a network of
approximately 4,000 auto loan dealers,
- - - - Student loans of approximately $2.1 billion outstanding with 1995
originations of more than $1 billion,
- - - - A $1.6 billion credit card portfolio and more than 1.4 million customer
accounts, and
- - - - A $1.7 billion indirect marine and recreational vehicle loan portfolio,
with 1995 originations exceeding $650 million.
In 1995, National Consumer Finance generated net income of $178.2 million, or
approximately 22% of KeyCorp's consolidated earnings, and a return on average
allocated equity of 23.47%. This was achieved even while the 1995 profitability
of the indirect auto loan business was negatively impacted by narrower interest
rate spreads on business generated in 1994 during an intensely rate-competitive
period. The credit card portfolio was a strong contributor to 1995 earnings,
and continued a lower than industry average net loan charge-off ratio of 2.68%.
In the first quarter of 1995, National Consumer Finance completed the sale of
KeyCorp's residential mortgage loan servicing operation, KeyCorp Mortgage,
Inc., and in the third quarter acquired AFG (a Chicago-based automobile finance
company operating in 28 states and specializing in the subprime automobile
financing market). The sale of the mortgage loan servicing business was the
result of a strategic decision by management to focus on other businesses with
more promising growth potential. KeyCorp does, however, continue to originate
residential mortgage loans for sale through a newly formed mortgage subsidiary.
For reporting purposes, the extraordinary net gain resulting from the sale of
the mortgage loan servicing business is included under the "Treasury and Other"
category in Figure 3. Other significant 1995 transactions in National Consumer
Finance were the securitization and sale of $395 million of indirect auto loans
(including $96 million of AFG loans) and $1 billion of student loans.
33
<PAGE> 8
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------
In 1996, National Consumer Finance will focus on intensifying national
marketing efforts, enhancing customer service capabilities and refining the
product base by implementing the following primary initiatives:
- - - - Further investments will be made in national product and marketing
strategies designed to increase the credit card portfolio,
- - - - The indirect marine and recreational vehicle loan portfolios will be
increased by developing a broader national focus, entering new geographic
markets and expanding the manufacturing relationship base. In addition, a
standard product set and credit process for these portfolios will be
developed and refined to better meet customer needs and improve overall
operating efficiency,
- - - - The combination of auto loan products offered by KeyBank USA and AFG will
be introduced to new markets and dealerships across the KeyCorp franchise,
and
- - - - The products and technology related to mortgage origination activities
will be enhanced to provide better customer service and to maximize
origination capability.
COMMUNITY BANKING
The Community Banking line of business is responsible for delivering a complete
line of branch-based retail financial products and services to consumers and
small businesses. The delivery of these products and services is accomplished
through KeyCorp's banking subsidiaries operating approximately 1,300
full-service banking offices in 14 states, a 24-hour telephone banking call
center services group and nearly 1,500 ATMs that access 13 different networks.
Community Banking currently serves approximately 3.3 million consumer
households and 500,000 small businesses, resulting in a year-end loan portfolio
exceeding $9.3 billion and deposits of almost $38 billion. It is the second
largest small business lender in the nation. To promote customer convenience
and satisfaction, and to ensure that their specific needs are being met,
Community Banking has identified four primary customer segments, each of which
has unique behavioral and demographic characteristics:
Small Business - Served by certified small business relationship managers, this
segment is comprised of customers with annual sales and credit needs of less
than $3 million and $300,000, respectively.
Emerging Affluent - Through the retail private banking program, these customers
pay a membership fee which entitles them to a broad array of specialized
credit, deposit and investment products. In particular, a combination of
proprietary and non-proprietary investment opportunities are emphasized.
Mature Market - This segment is comprised of individuals who are typically over
50 years of age, and are generally associated with the occurrence of major life
events such as retirement, the start of a second career, the transition to new
housing, the death of a spouse and entering the Social Security and Medicare
System.
Mass Market - Served by branch-based mass market specialists, this is the
largest of the four customer segments and is comprised of individuals typically
under 50 years of age who generate a modest annual household income.
In 1995, net income for Community Banking totaled $164.9 million, or
approximately 20% of KeyCorp's consolidated earnings, and the return on average
allocated equity was 15.12%. 1995 revenue was driven by brisk consumer and
small business loan demand. However, the cost of deposits continued to rise,
reflecting pressures to meet funding needs created by that loan demand amid
stiff industry competition. Operating results also reflected actions taken in
1995 to generate additional deposit-related fees by revising products and
related processes.
A team of professionals was assembled within KeyCorp in 1995 to spearhead
significant changes in KeyCorp's retail delivery system. The initial efforts of
this group were focused on developing and implementing the Community Banking
strategy and tailoring products and services to cost-effectively satisfy
customer demands for increased value and convenience. One result of these
efforts was the introduction of a dual ATM and point-of-sale debit card.
In 1996, further efforts will be made by this team to transform the retail
delivery network into one that is organized to more profitably and effectively
address the four customer segments previously described by implementing the
following primary initiatives:
- - - - Telephone banking will be heavily promoted to satisfy customer demand for
convenience,
- - - - Customers will be encouraged to use the call centers for routine service,
in an effort to free branch personnel to increase their focus on sales,
- - - - ATM functionality will be enhanced to allow customers to more completely
access their total KeyCorp relationship. In addition, the capability to
pay telephone bills, cash checks to the penny and eliminate the need for
deposit envelopes will be introduced, and
- - - - Home banking via personal computer will be field tested. Customers will be
able to access information on their current accounts and services, obtain
value-added financial information, open new accounts, apply for loans and
conduct routine transactions.
KEY PRIVATEBANK
The Key PrivateBank line of business addresses the more complex, diverse needs
of the affluent customer segment by offering a full, integrated range of
transaction, credit, asset management, estate planning and trust products and
services. The delivery system is segmented into two different programs which
address customer's needs as they increase in complexity. Each of these
programs, which are briefly described, focuses on five key strategic elements:
relationship management, client segmentation, technological support, product
innovation and service quality.
34
<PAGE> 9
KEYCORP AND SUBSIDIARIES
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
Private Banking and Investing - This program focuses on the more complex
investment and estate planning needs of individuals having annual income of at
least $100,000 or net worth of at least $250,000. Customers participating in
this program are served by a team of financial experts including a credit
representative, a trust professional, a broker, and often, a certified
financial planner.
Wealth Management - Wealth Management provides sophisticated financial
solutions and an extraordinary level of service for wealthy individuals and
families with investable assets of at least $5 million. Primary services
provided include asset management, estate planning, business succession
planning, tax and financial planning and extensive fiduciary services. Other
nontraditional investment capabilities being developed in 1996 include venture
capital investment and private placement services, hedge funds, customized
derivatives and real estate limited partnerships.
In 1995, Key PrivateBank generated net income of $47.4 million, or
approximately 6% of KeyCorp's consolidated earnings, and a return on average
allocated equity of 30.60%. Operating results reflected an increase in trust
and asset management income resulting from the strong performance of both the
stock and bond markets in 1995. In addition, 1995 performance was positively
affected by an increased array of product offerings. Although 1995 results were
moderated by additional costs incurred in conjunction with continued
investments in expanding the relationship management infrastructure and
improving training programs, these investments are expected to enhance future
profitability by improving servicing capabilities.
In 1996, a number of initiatives will be undertaken to strengthen this line of
business by increasing its penetration of the affluent market segment:
- - - - A sales management process with financial planning at its core will be
designed and implemented,
- - - - The growth of Private Banking and Investing will be emphasized through a
national rollout of strategies which focuses on relationship management,
targeted sales and innovative product solutions, and
- - - - Alternative delivery channels will be designed and implemented.
TREASURY AND OTHER
The "Treasury and Other" category includes activities that are not directly
attributable to one of the four major lines of business. Included in this
category are income from the securities and residential mortgage loan
portfolios (other than mortgage loans originated for sale); the net effect of
transfer pricing; certain nonbanking affiliates involved in, among other
things, information technology and asset management; eliminations of
intercompany transactions and extraordinary items.
Also included in the "Treasury and Other" category are the portions of certain
assets, capital and support functions which were not specifically allocated to
the four primary lines of business. These support functions include 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, marketing and strategic
planning.
In 1995, the items classified as extraordinary included a gain of $72.3 million
($41.6 million after tax, $.17 per Common Share) from the sale of the
residential mortgage loan servicing business, partially offset by a loss of
$11.2 million ($5.8 million after tax, $.02 per Common Share) incurred in
connection with the sale of Schaenen Wood & Associates, Inc., an asset
management subsidiary.
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 source of earnings for KeyCorp. 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.
Various components of the balance sheet and their respective yields and rates
which affect interest income and expense are illustrated in Figure 4. The
information presented in Figure 8 provides a summary of the effect on net
interest income of changes in the Corporation's yields/rates and average
balances in 1995 and 1994. A more in-depth discussion of changes in earning
assets and funding sources is presented in the Financial Condition section
beginning on page 47.
Net interest income was $2.7 billion in 1995, down $58.1 million, or 2%, from
the prior year. This followed an increase of $10.0 million in 1994 relative to
the comparable 1993 period. In 1995, the decrease in net interest income
resulted from a 36 basis point decline in the net interest margin to 4.47%,
which more than offset the impact of a $3.3 billion, or 6%, increase in average
earning assets. The $10.0 million increase in net interest income in 1994 was
attributable to earning asset growth.
As shown in Figures 4 and 5, the net interest margin was 4.47% for 1995, down
from 4.83% in 1994 and 5.31% in 1993. The reduction in the net interest margin
in 1995 was attributable to several factors, including the growth in earning
assets (principally new loan originations) at reduced spreads, increased
reliance on market-priced funding alternatives with relatively higher interest
rates, and actions taken by management during the 1994 fourth quarter and the
1995 first quarter to reduce the Corporation's exposure to changes in interest
rates by reconfiguring the balance sheet. These actions, including the sales of
certain securities and the execution of fixed-pay swaps, are more fully
described in the following Asset
35
<PAGE> 10
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 4 Average Balance Sheets, Net Interest Income and Yields/Rates
- - - -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
<CAPTION>
1995 1994 1993
------------------------- ------------------------- --------------------------
Average Yield/ Average Yield/ Average Yield/
dollars in millions Balance Interest Rate Balance Interest Rate Balance Interest Rate
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans1,2
Commercial, financial and
agricultural $11,180.7 $1,023.0 9.15% $ 9,687.7 $ 851.9 8.79% $ 9,049.3 $ 729.6 8.06%
Real estate 22,083.5 1,962.9 8.89 19,932.7 1,619.1 8.12 17,611.7 1,478.3 8.39
Consumer 9,846.8 988.9 10.04 9,567.8 904.7 9.46 8,993.1 926.2 10.30
Student loans held for sale 2,119.8 185.8 8.77 1,553.4 109.1 7.02 1,195.9 77.1 6.45
Lease financing 2,458.2 169.1 6.88 1,930.2 131.5 6.81 1,386.6 109.4 7.89
Foreign 71.6 3.7 5.11 73.7 3.6 4.91 71.0 4.5 6.37
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total loans 47,760.6 4,333.4 9.07 42,745.5 3,619.9 8.47 38,307.6 3,325.1 8.68
Mortgage loans held for sale 251.1 15.4 6.12 717.6 51.1 7.13 1,054.6 74.0 7.02
Taxable investment securities 7,807.3 520.9 6.67 7,664.0 507.0 6.61 7,769.5 556.4 7.16
Tax-exempt investment securities1 1,482.1 125.5 8.47 1,579.2 136.2 8.63 1,786.6 158.5 8.87
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 9,289.4 646.4 6.96 9,243.2 643.2 6.96 9,556.1 714.9 7.48
Securities available for sale1,3 2,102.9 135.8 6.40 4,066.1 228.2 5.50 2,070.0 141.5 6.84
Interest-bearing deposits with banks 137.7 8.1 5.86 33.6 1.5 4.47 427.0 14.9 3.49
Federal funds sold and securities
purchased under resale agreements 532.8 31.5 5.91 70.8 2.9 4.18 166.4 6.0 3.61
Trading account assets 128.5 7.7 6.00 39.4 2.1 5.23 16.8 .6 3.37
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total short-term investments 799.0 47.3 5.91 143.8 6.5 4.53 610.2 21.5 3.52
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 60,203.0 5,178.3 8.60 56,916.2 4,548.9 7.99 51,598.5 4,277.0 8.29
Allowance for loan losses (868.0) (821.2) (803.9)
Other assets 7,307.0 6,466.2 6,256.6
- - - ----------------------------------------------------------------------------------------------------------------------------------
$66,642.0 $62,561.2 $57,051.2
========= ========= =========
LIABILITIES AND SHAREHOLDERS EQUITY
Money market deposit accounts $ 7,160.8 260.3 3.64 $ 7,196.6 196.8 2.74 $ 7,306.8 189.6 2.59
Savings deposits 6,505.6 174.0 2.68 7,697.2 204.8 2.66 7,382.9 214.1 2.90
NOW accounts 5,444.4 110.2 2.02 5,558.6 105.9 1.91 5,314.7 109.6 2.06
Certificates of deposit ($100,000 or more) 3,677.3 221.8 6.03 2,992.6 146.2 4.88 3,088.7 138.0 4.47
Other time deposits 14,466.2 783.2 5.41 12,338.3 543.9 4.41 12,443.2 550.5 4.42
Deposits in foreign offices 2,182.1 155.3 7.12 3,014.7 127.0 4.21 1,018.9 31.5 3.09
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 39,436.4 1,704.8 4.32 38,798.0 1,324.6 3.41 36,555.2 1,233.3 3.37
Federal funds purchased and
securities sold under
repurchase agreements 5,622.5 314.6 5.60 5,850.4 243.5 4.16 4,378.2 130.2 2.97
Other short-term borrowings 3,361.8 203.5 6.05 1,929.6 90.9 4.71 1,196.2 44.5 3.72
Long-term debt4 3,895.5 261.4 6.84 2,233.9 137.8 6.35 1,895.4 126.9 6.96
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 52,316.2 2,484.3 4.75 48,811.9 1,796.8 3.69 44,025.0 1,534.9 3.49
Noninterest-bearing deposits 8,129.2 8,046.2 7,785.9
Other liabilities 1,373.0 1,103.9 1,051.2
Preferred stock 160.0 160.0 183.8
Common shareholders' equity 4,663.6 4,439.2 4,005.3
- - - -----------------------------------------------------------------------------------------------------------------------------------
$66,642.0 $62,561.2 $57,051.2
========= ========= =========
Interest rate spread 3.85 4.30 4.80
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (TE) and net
interest margin (TE) $2,694.0 4.47% $2,752.1 4.83% $2,742.1 5.31%
======== ==== ======== ==== ======== ====
Taxable-equivalent adjustment1 $57.3 $58.8 $63.1
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) Interest 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 1995, 1994 and 1993 and 34% for all other years presented.
(2) For purposes of these computations, nonaccrual loans are included in the
average loan balances.
(3) Yield is calculated on the basis of amortized cost.
(4) Rate calculation excludes ESOP debt.
N/M = Not Meaningful
TE = Taxable Equivalent
36
<PAGE> 11
<TABLE>
- - - -----------------------------------------------------------------------------------------------------------------------------------
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Compound Annual
Rate of Change
1992 1991 1990 (1990-1995)
-------------------------------- ------------------------------- ----------------------------- ------------------------
Average Yield/ Average Yield/ Average Yield/ Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate Balance Interest
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10,820.8 $ 914.7 8.45% $11,753.3 $1,150.2 9.79% $13,165.0 $1,433.8 10.89% (3.2)% (6.5)%
13,315.3 1,164.7 8.75 12,969.7 1,301.7 10.04 10,248.1 1,098.4 10.72 16.6 12.3
10,059.7 1,100.1 10.94 9,519.5 1,144.6 12.02 8,425.9 1,052.4 12.49 3.2 (1.2)
- - - - - - - - - N/M N/M
1,006.3 84.3 8.38 822.9 76.6 9.31 714.1 74.2 10.39 28.0 17.9
105.3 6.2 5.89 84.9 5.9 6.88 79.7 6.9 8.66 (2.1) (11.7)
- - - -----------------------------------------------------------------------------------------------------------------------------------
35,307.4 3,270.0 9.26 35,150.3 3,679.0 10.47 32,632.8 3,665.7 11.23 7.9 3.4
717.1 59.4 8.28 498.8 47.0 9.42 312.7 27.7 8.86 (4.3) (11.1)
7,985.3 676.9 8.48 7,441.3 678.2 9.11 6,433.3 582.6 9.06 3.9 (2.2)
1,881.1 176.1 9.36 1,855.5 185.0 9.97 1,928.7 196.9 10.21 (5.1) (15.9)
- - - -----------------------------------------------------------------------------------------------------------------------------------
9,866.4 853.0 8.65 9,296.8 863.2 9.28 8,362.0 779.5 9.32 2.1 (5.0)
801.0 57.2 7.14 750.5 59.6 7.94 10.4 .9 8.88 189.2 172.5
477.4 20.1 4.21 592.0 41.2 6.96 1,040.0 92.1 8.86 (33.3) (38.5)
268.9 10.3 3.83 726.3 40.6 5.59 589.0 47.4 8.05 (2.0) (7.8)
22.4 1.0 4.46 51.5 3.5 6.91 79.9 5.6 7.06 10.0 6.6
- - - -----------------------------------------------------------------------------------------------------------------------------------
768.7 31.4 4.08 1,369.8 85.3 6.23 1,708.9 145.1 8.49 (14.1) (20.1)
- - - -----------------------------------------------------------------------------------------------------------------------------------
47,460.6 4,271.0 9.00 47,066.2 4,734.1 10.06 43,026.8 4,618.9 10.73 6.9 2.1
(805.9) (704.4) (550.3) 9.5
5,698.2 5,634.2 4,965.0 8.0
- - - -----------------------------------------------------------------------------------------------------------------------------------
$52,352.9 $51,996.0 $47,441.5 7.0
========= ========= =========
$ 7,648.2 248.3 3.25 $ 6,733.5 342.1 5.08 $ 5,513.1 324.0 5.88 5.4 (4.3)
5,320.5 181.3 3.41 3,989.4 184.5 4.62 3,682.8 180.3 4.90 12.1 (.7)
4,429.1 120.8 2.73 3,759.6 163.1 4.34 3,368.2 160.2 4.76 10.1 (7.2)
3,573.3 187.7 5.25 4,911.9 337.0 6.86 5,556.9 453.6 8.16 (7.9) (13.3)
13,382.3 717.2 5.36 15,478.5 1,085.2 7.01 13,132.8 1,050.8 8.00 2.0 (5.7)
367.9 13.7 3.72 367.4 23.8 6.48 756.2 61.9 8.19 23.6 20.2
- - - -----------------------------------------------------------------------------------------------------------------------------------
34,721.3 1,469.0 4.23 35,240.3 2,135.7 6.06 32,010.0 2,230.8 6.97 4.3 (5.2)
4,061.9 142.9 3.52 3,807.4 213.7 5.61 3,505.3 272.3 7.77 9.9 2.9
721.8 31.1 4.31 1,188.2 74.5 6.27 812.9 67.5 8.30 32.8 24.7
1,462.6 107.1 7.70 1,220.0 95.5 8.32 1,164.3 97.1 8.89 27.3 21.9
- - - -----------------------------------------------------------------------------------------------------------------------------------
40,967.6 1,750.1 4.28 41,455.9 2,519.4 6.09 37,492.5 2,667.7 7.13 6.9 (1.4)
6,661.4 6,228.5 6,059.0 6.1
1,001.4 942.7 845.5 10.2
244.0 166.3 74.6 16.5
3,478.5 3,202.6 2,969.9 9.4
- - - -----------------------------------------------------------------------------------------------------------------------------------
$52,352.9 $51,996.0 $47,441.5 7.0%
========= ========= =========
4.72 3.97 3.60
- - - -----------------------------------------------------------------------------------------------------------------------------------
$2,520.9 5.31% $2,214.7 4.71% $1,951.2 4.53% 6.3%
======== ==== ======== ==== ======== ==== ===
$72.2 $81.7 $90.1 (8.7)%
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 12
KEYCORP AND SUBSIDIARIES
- - - ---------------------------------------------
Figure 5 Net Interest Margin
- - - ---------------------------------------------
Net interest Yield on Cost of
margin earning assets funds
1991 4.71% 10.06% 5.35%
- - - -------------------------------------------------------
1992 5.31 9.00 3.69
- - - -------------------------------------------------------
1993 5.31 8.29 2.98
- - - -------------------------------------------------------
1994 4.83 7.99 3.16
- - - -------------------------------------------------------
1995 4.47 8.53 4.06
- - - -------------------------------------------------------
and Liability Management section. After completing these actions, the net
interest margin stabilized in the first quarter of 1995 and rose 15 basis
points over the remaining three quarters of the year. This improvement
reflected the impact of wider loan spreads, the securitization and sale of
loans with lower spreads, the sale of lower-yielding investment securities, and
the reinvestment of funds from maturing securities into higher-yielding loans.
The 48 basis point reduction in the net interest margin in 1994 was
attributable to growth in earning assets at reduced spreads, increased reliance
on market-priced funding and a liability-sensitive position in a rapidly rising
interest rate environment.
Average earning assets in 1995 totaled $60.2 billion, which was $3.3 billion,
or 6%, higher than the prior year. This increase was primarily due to a higher
level of average loans, which rose $5.0 billion, or 12%, reflecting the impact
of acquisitions as well as internal loan growth. As illustrated in Figure 4,
the largest increases in loans relative to the prior year occurred in the real
estate and commercial, financial and agricultural categories. The growth in
real estate loans reflected increases in the commercial mortgage and
construction portfolios as residential real estate loans declined by $1.4
billion. The increase in the loan portfolio was partially offset, however, by a
$1.9 billion, or 14%, decline in securities (including both investment
securities and securities available for sale), due in large part to sales
associated with the balance sheet reconfiguration. In 1994, the growth in
average earning assets resulted from higher levels of both loans and
securities, which rose $4.4 billion and $1.7 billion, respectively. The strong
growth in loans during 1994 was spread among all major loan categories and
reflected the impact of acquisitions as well as internal loan growth. Average
earning assets comprised 90% of average total assets during 1995 and 91% during
1994.
The Corporation uses portfolio interest rate swaps (as defined in Note 17,
Financial Instruments with Off-Balance Sheet Risk, beginning on page 84) in the
management of its interest rate sensitivity position. The notional amount of
such swaps increased to $11.1 billion at December 31, 1995, from $10.5 billion
at year-end 1994. For 1995, interest rate swaps, including the impact of both
the spread on the swap portfolio and the amortization of deferred gains and
losses resulting from terminated swaps, reduced net interest income and the net
interest margin by $29.2 million and 5 basis points, respectively. In 1994,
interest rate swaps contributed $98.6 million to net interest income and added
17 basis points to the net interest margin compared with contributions of
$140.3 million and 27 basis points, respectively, in 1993. These changes should
not be viewed in isolation, however; the swap portfolio is used in the
Corporation's overall program of asset and liability management as described in
the following Asset and Liability Management section, and changes in the
profitability of the swap portfolio are substantially offset by changes in the
profitability of the assets or liabilities whose characteristics the swaps are
intended to alter.
- - - -----------------------------------------
Figure 6 1995 Average Earning
Assets Mix
- - - ----------------------------------------
Total loans 79.8%
Short-term investments 18.9%
Securities 1.3%
- - - ----------------------------------------
Figure 7 1995 Mix of Funding
for Average Earning Assets
- - - ----------------------------------------
Long-term debt 6.4%
Short-term borrowings 14.9%
Noninterest-bearing deposits 13.4%
Interest-bearing deposits 65.3%
38
<PAGE> 13
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 8 Components of Net Interest Income Changes
- - - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
1995 vs. 1994 1994 vs. 1993
-------------------------------------- -----------------------------------------------
Average Yield/ Net Average Yield/ Net
in millions Volume Rate Change Volume Rate Change
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 443.6 $ 269.9 $713.5 $377.5 $ (82.7) $294.8
Mortgage loans held for sale (29.4) (6.3) (35.7) (24.0) 1.1 (22.9)
Taxable investment securities 9.5 4.4 13.9 (7.4) (42.0) (49.4)
Tax-exempt investment securities (8.3) (2.4) (10.7) (18.0) (4.3) (22.3)
Securities available for sale (122.9) 30.5 (92.4) 115.8 (29.2) 86.6
Short-term investments 38.3 2.5 40.8 (19.9) 5.0 (14.9)
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest income (TE) 330.8 298.6 629.4 424.0 (152.1) 271.9
INTEREST EXPENSE
Money market deposit accounts (1.0) 64.5 63.5 (2.9) 10.1 7.2
Savings deposits (31.9) 1.1 (30.8) 8.9 (18.2) (9.3)
NOW accounts (2.2) 6.5 4.3 4.8 (8.5) (3.7)
Certificates of deposit ($100,000 or more) 37.3 38.3 75.6 (4.4) 12.6 8.2
Other time deposits 103.1 136.2 239.3 (4.6) (2.0) (6.6)
Deposits in foreign offices (42.0) 70.3 28.3 80.6 14.9 95.5
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 63.3 316.9 380.2 82.4 8.9 91.3
Federal funds purchased and securities
sold under repurchase agreements (9.8) 80.9 71.1 51.8 61.5 113.3
Other short-term borrowings 81.4 31.2 112.6 32.3 14.1 46.4
Long-term debt 110.5 13.1 123.6 21.4 (10.5) 10.9
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest expense 245.4 442.1 687.5 187.9 74.0 261.9
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (TE) $ 85.4 $(143.5) $ (58.1) $236.1 $(226.1) $ 10.0
======= ======== ======== ====== ======= ======
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
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
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 Corporatioin's Asset/Liability
Management Committee ("ALCO"). The ALCO has the responsibility for approving
the asset/liability management policies of the Corporation, formulating and
implementing strategies to improve balance sheet 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.
SHORT-TERM INTEREST RATE EXPOSURE
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
various pro forma 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, but the complexity of the simulation modeling process results in a
sophisticated estimate, not a precise calculation of exposure. For example,
estimates of future cash flows must be made for instruments without contractual
repayment schedules.
The 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 a 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
Management Actions
39
<PAGE> 14
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------
- - - -----------------------------------------------------------------------------
section, the Corporation has maintained a slightly liability-sensitive
position, well within these guidelines, largely as a result of actions taken
during the fourth quarter of 1994 and the first quarter of 1995.
Short-term interest rate exposure analysis is supplemented with an interest
rate sensitivity gap ("gap") model. This model 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, 1995. 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,
1995, the cumulative adjusted interest rate sensitivity gap within the one-year
time frame indicated the Corporation was asset sensitive versus slight
liability sensitivity demonstrated by the more sophisticated simulation model.
LONG-TERM INTEREST RATE EXPOSURE
Short-term interest rate exposure analysis is complemented by a
duration/economic value of equity model. This model provides the added benefit
of measuring the exposure to interest rate changes outside the one- to two-year
time frame not measured by the simulation model. By calculating the net present
value of future balance sheet and interest cash flows based on the implied
forward yield curve, the effective duration (in years) of assets, liabilities,
and off-balance sheet positions are modeled to determine the net duration of
the Corporation's equity. A positive equity duration indicates the Corporation
is liability sensitive, while a negative duration indicates asset sensitivity.
The longer the duration of equity, the more sensitive the Corporation is to
longer-term interest rate changes. Duration analysis has several limitations as
it involves assumptions about events that span an even longer time frame than
that used in the simulation model. Calculated present values of future cash
flows often differ from actual market values, and the future structure of the
balance sheet derived from ongoing loan and deposit activity by the
Corporation's core businesses is not factored into present value calculations.
The Corporation is naturally asset-sensitive, generating more fixed rate
liabilities than fixed rate assets in response to customer demand. The duration
analysis as of December 31, 1995, shown in Figure 10 demonstrates the natural
asset sensitivity of the Corporation's core businesses as the duration of
liabilities exceeded the duration of assets by .9 years. The assets and
liabilities shown under the Risk Management Portfolio heading in Figure 10 are
used to manage interest rate exposure, enhance liquidity and improve
profitability. Adjusting for this portfolio, the Corporation's duration of
equity is slightly liability-sensitive at 1.8 years.
MANAGEMENT ACTIONS
During the first quarter of 1995, management completed the reconfiguration of
the Corporation's balance sheet in accordance with plans initially announced in
December 1994. The objective of this reconfiguration was to reduce
significantly the Corporation's exposure to changes in interest rates. At the
time the plans were announced, the Corporation's liability-sensitive position
was moderately in excess of the ALCO guidelines.
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 received a variable
rate and paid 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. While these actions reduced the
Corporation's exposure to changes in short-term interest rates, net interest
income and the net interest margin were negatively impacted due to increased
reliance on fixed-rate market priced funding at higher interest rates.
During the latter half of 1995, a number of additional actions were taken in
connection with the execution of asset/liability management strategies designed
to improve liquidity, reduce longer-term interest rate exposure and enhance
capital management flexibility. In the third quarter of 1995, the Corporation
completed its first securitization and sale of indirect auto loans (in the
amount of $299.0 million) and sold approximately $500.0 million of residential
mortgage loans. In the following quarter, the Corporation sold an additional
$510.0 million of residential mortgage loans, entered into a commitment to sell
$500.0 million of residential mortgage loans in the first quarter of 1996,
reclassified approximately $8.0 billion of securities from the investment
securities to the securities available-for-sale portfolio in connection with a
one-time opportunity (described in Note 3, Securities Available for Sale,
starting on page 71) provided by the Financial Accounting Standards Board
("FASB"), sold $1.3 billion of securities and executed $1.0 billion of indexed
amortizing receive fixed swaps and $1.0 billion of pay fixed swaps. The
Corporation will continue to evaluate strategies to securitize and/or sell
loans, taking into account the impact on liquidity, capital and earnings.
INTEREST RATE SWAP CONTRACTS
The Corporation's core lending and deposit-gathering businesses tend to
generate significantly more fixed-rate deposits than fixed-rate
40
<PAGE> 15
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------------------------------------------------------------
Figure 9 Interest Rate Gap Analysis
- - - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995
1 to 90 91 to 180 181 to 365 1 to 5 Over 5
dollars in millions Days Days Days Years Years Total
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (including mortgage
loans held for sale) $22,935.5 $ 3,146.3 $5,895.8 $13,538.7 $2,815.9 $48,332.2
Investment securities 313.1 170.9 317.8 545.8 340.1 1,687.7
Securities available for sale 617.1 489.4 1,106.0 3,916.3 1,931.2 8,060.0
Short-term investments 682.4 - - - - 682.4
Other assets 1,601.7 485.7 589.6 1,799.1 3,100.7 7,576.8
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total assets 26,149.8 4,292.3 7,909.2 19,799.9 8,187.9 66,339.1
- - - -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Noninterest-bearing deposits 900.3 - - 8,380.7 - 9,281.0
Interest-bearing deposits 11,769.0 4,125.6 3,845.8 18,008.4 252.1 38,000.9
Borrowed funds 8,750.6 974.2 756.3 788.6 1,158.3 12,428.0
Other liabilities 102.9 159.0 137.4 601.7 475.7 1,476.7
Shareholders' equity - - - - 5,152.5 5,152.5
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity 21,522.8 5,258.8 4,739.5 27,779.4 7,038.6 66,339.1
- - - -----------------------------------------------------------------------------------------------------------------------------------
Interest rate swap contracts (4,365.0) (1,036.3) (556.4) 3,701.9 2,255.8 -
- - - -----------------------------------------------------------------------------------------------------------------------------------
Rate sensitivity gap $ 262.0 $(2,002.8) $2,613.3 $ (4,277.6) $3,405.1 -
Cumulative gap $ 262.0 $(1,740.8) $ 872.5 $ (3,405.1) - -
- - - -----------------------------------------------------------------------------------------------------------------------------------
Cumulative gap as a % of earning assets .45% (2.96)% 1.49% (5.80)% - -
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- - - ------------------------------------------------------------------------------------------------------------------------------------
Figure 10 Duration Analysis
- - - ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1995 Risk Management
Core Businesses Portfolio Total
--------------------- --------------------- -------------------------
Duration Duration Duration
dollars in millions Balance (years) Balance (years) Balance (years)
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (including mortgage loans held for sale) $48,332.2 1.1 - - $48,332.2 1.1
Investment securities - - $ 1,687.7 2.6 1,687.7 2.6
Securities available for sale - - 8,060.0 3.2 8,060.0 3.2
Short-term investments - - 682.4 - 682.4 -
Other assets 7,576.8 2.6 - - 7,576.8 2.6
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total assets 55,909.0 1.3 10,430.1 2.9 66,339.1 1.5
- - - -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits 9,281.0 3.1 - - 9,281.0 3.1
Interest-bearing deposits 38,000.9 1.9 - - 38,000.9 1.9
Borrowed funds - - 12,428.0 .8 12,428.0 .8
Other liabilities 1,476.7 3.0 - - 1,476.7 3.0
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 48,758.6 2.2 12,428.0 .8 61,186.6 1.9
- - - -----------------------------------------------------------------------------------------------------------------------------------
Interest rate swap contracts:
Receive-fixed - - 8,697.2 2.8 8,697.2 2.8
Pay-fixed - - 2,411.5 .9 2,411.5 .9
- - - -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity - - - - 5,152.5 1.8
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE> 16
KEYCORP AND SUBSIDIARIES
<TABLE>
- - - ------------------------------------------------------------------------------------------------------------------------------------
Figure 11 Interest Rate Swap Portfolio
- - - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 December 31, 1994
------------------------------------------------------- ---------------------
Weighted Average Rate
Notional Fair Maturity(1) -------------------- Notional Fair
dollars in millions Amount Value (years) Receive Pay Amount Value
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay variable-indexed amortizing $ 6,200.0 $ 70.0 2.3 6.76% 5.79% $ 5,786.6 $(341.7)
Receive fixed/pay variable-conventional 2,497.2 104.3 6.7 6.65 5.81 3,010.2 (199.6)
Pay fixed/receive variable-conventional 2,411.5 (21.1) 1.0 5.66 6.50 1,456.5 11.5
Basis swaps - - - - - 200.0 .1
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps 11,108.7 153.2 3.0 6.50 5.95 10,453.3 (529.7)
Customer swaps 2,844.0 11.0 4.2 6.50 6.52 1,248.3 2.0
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total interest rate swaps $13,952.7 $164.2 3.3 6.50 6.07 $11,701.6 $(527.7)
========= ====== ========= =======
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1)Maturity is based upon expected average lives rather than contractual terms.
interest-earning assets. Left unaddressed, this tendency results in an
asset-sensitive position and 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 interest rate swaps to manage interest rate
risk by modifying the repricing or maturity characteristics of specified
on-balance sheet assets and liabilities. Interest rate swaps used for this
purpose are designated as portfolio swaps. The decision to use portfolio
interest rate swaps versus 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 11, the Corporation's portfolio
swaps totaled $11.1 billion at December 31, 1995, 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 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.
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 mitigates the interest rate risk of customer
swaps by entering into offsetting positions with third parties. Adjustments to
fair values of customer swaps and offsetting positions are included in other
income on the income statement. The $2.8 billion notional amount of customer
swaps presented in Figure 11 includes $1.4 billion of interest rate swaps that
receive a fixed rate and pay a variable rate and $1.4 billion 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
$14.0 billion and $11.7 billion at December 31, 1995 and 1994, respectively.
The weighted average rates presented in Figure 11 are those in effect at
December 31, 1995. Portfolio interest rate swaps reduced net interest income
and the net interest margin by $29.2 million and 5 basis points, respectively,
during 1995. These reductions reflected the amortization of net deferred
losses from swap terminations, which more than offset the impact of a positive
spread on the 1995 swap portfolio. As of December 31, 1995, the spread on
portfolio interest rate swaps, which excludes the
<TABLE>
- - - ----------------------------------------------------------------------------------------------------------------------------------
Figure 12 Portfolio Swap Activity
- - - ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31, 1995
Receive Fixed
----------------------------
Total
Indexed Pay Fixed- Basis Portfolio
in millions Amortizing Conventional Conventional Swaps Swaps
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $5,786.6 $3,010.2 $1,456.5 $200.0 $10,453.3
Additions 2,010.0 217.0 2,030.0 - 4,257.0
Maturities - 605.0 1,075.0 200.0 1,880.0
Terminations 1,300.0 125.0 - - 1,425.0
Amortization 296.6 - - - 296.6
- - - -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $6,200.0 $2,497.2 $2,411.5 - $11,108.7
======== ======== ======== =========
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 17
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 13 Portfolio Swaps By Interest Rate Management Strategy
- - - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
1995 1994
---------------------------- ----------------------------
Notional Fair Notional Fair
in millions Amount Value Amount Value
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convert variable rate loans to fixed $ 7,566.7 $113.2 $ 7,146.6 $(470.6)
Convert variable rate deposits and
short-term borrowings to fixed 2,275.0 (18.2) 1,275.0 11.9
Convert variable rate long-term debt to fixed 136.5 (2.8) 181.5 (.4)
Convert fixed rate long-term debt to variable 1,130.5 61.0 1,650.2 (70.7)
Other - - 200.0 .1
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps $11,108.7 $153.2 $10,453.3 $(529.7)
========= ====== ========= =======
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
amortization of net deferred swap losses, provided a positive impact on net
interest income (since the weighted average rate received exceeded the weighted
average rate paid by 55 basis points). The portfolio had an aggregate fair
value of $153.2 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. As shown in Figure 11,
the estimated fair value of the Corporation's total interest rate swap
portfolio improved substantially during 1995 from a negative fair value of
$(527.7) million at December 31, 1994. The improvement in fair value over the
year reflected the financial markets' expectations, as measured by the forward
yield curve, for a decline in future interest rates. In addition, since the end
of 1994, swaps with an aggregate notional amount of $1.4 billion were
terminated prior to their maturities, resulting in net deferred losses of $49.2
million. Such losses are amortized, generally, over the projected remaining
life of the related swap contract at its termination. A summary of the
Corporation's deferred swap gains and losses at December 31, 1995, is presented
in Note 17, Financial Instruments with Off-Balance Sheet Risk, beginning on
page 84. 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. These terminations as well as other portfolio swap
activity for the year ended December 31, 1995, are summarized in Figure 12.
A summary of the notional and fair values of portfolio swaps by interest rate
management strategy at December 31, 1995, is presented in Figure 13. The fair
value at any given date represents the estimated income (if positive) or cost
(if negative) which would be recognized if the portfolio were to be liquidated
at that date. However, 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. Rather, interest from these swaps is recognized on an
accrual basis as an adjustment of the interest income or expense generated by
the asset or liability being managed.
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 an appropriate credit committee. Based upon detailed
credit reviews of the counterparties, limits on the total credit exposure the
Corporation may have with each counterparty, and whether collateral is
required, are determined.
<TABLE>
- - - ----------------------------------------------------------------------------------------------------------------------------------
Figure 14 Expected Average Maturities Of Portfolio Swaps
- - - ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 Receive Fixed
--------------------------- Total
Indexed Pay Fixed- Portfolio
in millions Amortizing Conventional Conventional Swaps
- - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $1,247.3 $ 2.4 $1,231.5 $ 2,481.2
Due after one though five years 4,937.7 214.8 1,180.0 6,332.5
Due after five through ten years 15.0 2,280.0 - 2,295.0
- - - ----------------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps $6,200.0 $2,497.2 $2,411.5 $11,108.7
======== ======== ======== =========
- - - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE> 18
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - ----------------------------------------------------------------------------------------------------------------------------------
Figure 15 Maturities and Sensitivity of Certain Changes in Interest Rates
- - - ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995
Within 1-5 Over
in millions 1 Year Years 5 Years Total
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 7,355.3 $2,895.7 $ 1,283.6 $11,534.6
Real estate-construction 910.6 506.4 102.9 1,519.9
Real estate-commercial and residential mortgage 2,900.8 6,298.0 10,231.7 19,430.5
Foreign 63.9 6.1 50.8 120.8
- - - -----------------------------------------------------------------------------------------------------------------------------------
$11,230.6 $9,706.2 $11,669.0 $32,605.8
========= ======== ========= =========
Loans with floating or adjustable rates $4,377.7 $ 6,402.3
Loans with predetermined interest rates 5,328.5 5,266.7
- - - -----------------------------------------------------------------------------------------------------------------------------------
$9,706.2 $11,669.0
======== =========
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, the Corporation had 14 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
$159.7 million to 12, with the largest credit exposure to an individual
counterparty amounting to $40.9 million. 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, 1995, all counterparties
were expected to meet their obligations. The expected average maturities of the
portfolio swaps at December 31, 1995, are summarized in Figure 14.
The maturities and sensitivity of certain loans to changes in interest rates
are summarized in Figure 15. As shown in the figure, at December 31, 1995,
approximately one-third of these loans were scheduled to mature within one year
and loans with maturities greater than one year were evenly split between those
with floating or adjustable rates and those with predetermined rates.
NONINTEREST INCOME
As shown in Figure 17, noninterest income totaled $933.0 million in 1995, up
$50.4 million, or 6%, from the prior year. Excluding, for comparative purposes,
noncore items consisting of net securities transactions, special asset
management fees and a positive 1995 accounting adjustment of $12.5 million from
better-than-expected performance of student loan securitizations completed in
prior years, noninterest income for 1995 was $955.1 million, up $75.1 million,
or 9%, from the previous year. Core noninterest income in 1994 decreased $18.0
million, or 2%, relative to the prior year, after similarly adjusting for net
securities transactions, special asset management fees and a $29.4 million gain
on the 1993 sale of Ameritrust Texas Corporation ("ATC"). The net securities
losses for both 1995 and 1994 were primarily the result of the balance sheet
reconfiguration, previously discussed in the Asset and Liability Management
section beginning on page 39. The reduction in special asset management fees
reflected an expected decrease in the level of activity associated with loan
collection and asset disposition work performed under contracts with the
Federal Deposit Insurance Corporation ("FDIC"). As collection and disposition
work progressed, the pool of assets on which fees could be earned declined.
These contracts expired during the third quarter of 1995. Nine acquisitions
completed since the 1993 year end also had a positive impact on 1995 and 1994
noninterest income in comparison with the respective prior year periods.
Primary factors contributing to the 1995 improvement in core noninterest income
were increases in loan securitization income ($49.6 million), service charges
on deposit accounts ($14.8 million), trust and asset management income ($12.6
million) and miscellaneous other income ($37.4 million). These increases were
partially offset by a $46.8 million decrease in mortgage banking income.
Loan securitization income became a major component of the Corporation's core
noninterest income in 1995. Loan sales and securitizations provide increased
liquidity and capital flexibility, while contributing to improved profitability
through the disposal of lower spread assets. As such, they are important
vehicles in implementing the Corporation's balance sheet management strategies.
Excluding the $12.5 million adjustment related to prior periods, loan
securitization income was $53.1 million in 1995, with the largest contribution
<TABLE>
- - - ---------------------------------------------------------------------
Figure 16 Loan Securitizations
- - - ---------------------------------------------------------------------
<CAPTION>
in millions 1995 1994 1993
- - - ---------------------------------------------------------------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31,
Servicing fees $ 3.0 - -
Gains on sales of securitized loans 49.2 $ 3.5 $ .5
Miscellaneous income 13.4(1) - -
- - - ---------------------------------------------------------------------
Total loan securitization income $ 65.6 $ 3.5 $ .5
====== ===== ====
- - - ---------------------------------------------------------------------
AT DECEMBER 31,
Student loans securitized $1,604.5 $694.6 $200.4
Auto loans securitized 414.4 - -
- - - ---------------------------------------------------------------------
Total student and auto loans
securitized $2,018.9 $694.6 $200.4
======== ====== ======
- - - ---------------------------------------------------------------------
</TABLE>
[FN]
(1) Includes a $12.5 million adjustment for better-than-expected performance of
student loan securitizations, with $9.6 million and $2.9 million related to
securitizations completed in 1994 and 1993, respectively.
44
<PAGE> 19
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------------------------------------------------------------
Figure 17 Noninterest Income
- - - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
Change 1995 vs 1994
---------------------
dollars in millions 1995 1994 1993 Amount Percent
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts $278.0 $263.2 $ 252.5 $ 14.8 5.6%
Trust and asset management income 232.4 219.8 244.6 12.6 5.7
Loan securitization income 65.6 3.5 .5 62.1 N/M
Credit card fees 84.4 76.2 73.5 8.2 10.8
Insurance and brokerage income 60.5 58.6 65.7 1.9 3.2
Mortgage banking income 41.2 88.0 127.9 (46.8) (53.2)
Net securities gains (losses) (40.6) (14.7) 28.3 (25.9) (176.2)
Gains on certain asset sales - - 29.4 - -
Other income:
Letter of credit fees 14.6 12.1 11.1 2.5 20.7
Special asset management fees 6.0 17.3 46.0 (11.3) (65.3)
Venture capital gains 11.5 16.6 (.8) (5.1) (30.7)
Miscellaneous 179.4 142.0 123.0 37.4 26.3
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total other income 211.5 188.0 179.3 23.5 12.5
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total noninterest income $933.0 $882.6 $1,001.7 $ 50.4 5.7%
====== ====== ======== ====== ===
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M = Not Meaningful
coming from gains totaling $49.2 million on sales of securitized loans.
Additional detail pertaining to the composition of loan securitization income
and the types of loans securitized is presented in Figure 16. These loans are
administered or serviced by the Corporation and are not recorded on its balance
sheet.
In 1995, the growth in service charges on deposit accounts reflected the
repricing of fees by certain affiliate banks, a modestly larger deposit base,
increased collection efforts and the introduction of certain services into new
markets. The 1994 increase also reflected the repricing of certain fees.
Trust and asset management income, including fees associated with investment
advisory services, continued to be a major source of noninterest income. In
1995, the increase in trust and asset management income was due, in large part,
to the acquisition of Spears Benzak, a New York-based investment management
firm. Other factors contributing to the growth of this category were the strong
performance of both the stock and bond markets, and an increased array of
products. After giving effect to the sale of ATC, which contributed
approximately $33.6 million in 1993, trust and asset management income for 1994
was up $8.8 million, or 4%, from the prior year. This sale reduced
discretionary trust assets by approximately $4.0 billion. At December 31, 1995,
the Corporation, through its bank and trust company subsidiaries and its
registered investment advisory subsidiaries, had discretionary assets
(excluding corporate trust assets) of more than $47.0 billion, compared with
approximately $33.0 billion at the end of 1994. Fees from investment advisory
services accounted for approximately 24% and 20% of the Corporation's total
trust and asset management income in 1995 and 1994, respectively. Additional
detail pertaining to trust income and assets is presented in Figure 18.
The increase in miscellaneous other income resulted from a $6.5 million gain
from the sale of the Corporation's bond services business, increases of $8.4
million and $7.0 million in income from dealer swap activities and corporate
owned life insurance, respectively, $5.0
<TABLE>
- - - ----------------------------------------------------------------------
Figure 18 Trust and Asset Management
- - - ----------------------------------------------------------------------
<CAPTION> Change
1995 vs 1994
------------------
1995 1994 1993 Amount Percent
- - - ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
(dollars in millions)
Personal asset
management and
custody fees $136.4 $123.5 $137.1 $12.9 10.4%
Institutional asset
management and
custody fees 68.5 72.8 78.9 (4.3) (5.9)
Bond services 8.5 9.1 11.6 (.6) (6.6)
All other fees 19.0 14.4 17.0 4.6 31.9
- - - ----------------------------------------------------------------------
Total trust and
asset management
income $232.4 $219.8 $244.6 $12.6 5.7%
====== ====== ====== ===== ====
- - - ----------------------------------------------------------------------
AT DECEMBER 31,
(dollars in billions)
Discretionary $47.4 $32.5 NA $14.9 45.8%
Non-discretionary 33.9 32.6 NA 1.3 4.0
- - - ----------------------------------------------------------------------
Total trust assets $81.3 $65.1 NA $16.2 24.9%
====== ====== =====
- - - ----------------------------------------------------------------------
</TABLE>
NA = Not Available
45
<PAGE> 20
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------------------------------------------------------------
Figure 19 Noninterest expense
- - - ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
Change 1995 vs 1994
--------------------
dollars in millions 1995 1994 1993 Amount Percent
- - - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Personnel $1,114.8 $1,059.9 $1,071.4 $ 54.9 5.2%
Net occupancy 218.1 216.9 204.2 1.2 .6
Equipment 155.9 158.0 161.3 (2.1) (1.3)
FDIC insurance assessments 58.4 98.7 98.7 (40.3) (40.8)
Amortization of intangibles 77.4 58.5 58.1 18.9 32.3
Professional fees 73.1 50.0 53.3 23.1 46.2
Marketing 70.9 58.6 60.4 12.3 21.0
Merger and integration charges - - 118.7 - -
Other expense:
OREO expense (net of income of $5.6, $5.3, $14.4) (1.2) 2.5 43.1 (3.7) N/M
Miscellaneous 544.2 464.1 515.9 80.1 17.3
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total other expense 543.0 466.6 559.0 76.4 16.4
- - - ---------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense $2,311.6 $2,167.2 $2,385.1 $144.4 6.7%
======== ======== ======== ======
Full-time equivalent employees 29,563 29,211 29,983
Efficiency ratio 63.03% 59.39% 60.50%
Overhead ratio 49.66 46.14 46.85
- - - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M = Not Meaningful
million of interest recorded in 1995 on Federal income tax refunds and
increases in a number of other categories of operating income.
The positive impact of the above items was partially offset by a $46.8 million
decrease in mortgage banking income, resulting from the March 1995 sale of the
Corporation's residential mortgage loan servicing business. This transaction, as
well as the Spears Benzak and ATC transactions previously referred to, are more
fully disclosed in Note 2, Mergers, Acquisitions and Divestitures, beginning on
page 70.
NONINTEREST EXPENSE
Noninterest expense, as shown in Figure 19, totaled $2.3 billion in 1995, up
$144.4 million, or 7%, from the 1994 level. Excluding, for comparative
purposes, a $25.4 million write-off of obsolete software in 1995, noninterest
expense for 1995 was up $119.0 million, or 5%, from the prior year. Similarly
adjusting for the merger and integration charges and certain other nonrecurring
charges ($34.4 million) in 1993, core noninterest expense in 1994 was down
$64.8 million, or 3%, from 1993. The other nonrecurring charges in 1993 were
primarily three items: $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 higher level of core noninterest expense in 1995 was primarily due to
increases in personnel expense ($54.9 million), professional fees ($23.1
million), amortization of intangibles ($18.9 million), marketing expense ($12.3
million) and miscellaneous other expense ($54.7 million). These increases were
partially offset by a $40.3 million decrease in FDIC insurance assessments
discussed in more detail on page 47. In general, the increases previously
summarized reflected the impact of nine acquisitions completed since the 1993
year end and approximately $41.3 million of additional expenses recorded during
1995 in connection with the implementation of several strategic initiatives.
Partially offsetting these factors was the overall reduction in costs
(primarily personnel) resulting from the 1995 sale of both KeyCorp Mortgage
Inc., and Schaenen Wood & Associates, Inc. The acquisitions and sales referred
to above are more fully disclosed in Note 2, Mergers, Acquisitions and
Divestitures, beginning on page 70.
In 1995, the increase in personnel expense, the largest category of noninterest
expense, was due, in large part, to normal salary increases, higher employee
benefits costs, and the impact of acquisitions, including the resulting
increase in the number of full-time equivalent employees. The $11.5 million
decrease in 1994 was the result of a 3% decline in the number of full-time
equivalent employees, the sale of ATC, the integration of certain old KeyCorp
and Society operations and lower costs associated with contracted or temporary
personnel. At December 31, 1995, the number of full-time equivalent employees
was 29,563, compared with 29,211 and 29,983 at the end of 1994 and 1993,
respectively.
The increase in professional fees in 1995 included approximately $24.0 million
of the $41.3 million of incremental strategic spending noted above. In 1994,
the $3.3 million decrease from the prior year reflected lower costs for legal
and consulting services.
The growth in marketing expense in 1995 was largely due to additional costs
related to strategic efforts aimed at strengthening the KeyBank brand name,
while the higher level of amortization associated with intangibles in 1995 was
a direct result of the amortization
46
<PAGE> 21
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------
of goodwill recorded in connection with acquisitions consummated over the past
two years. Excluding the noncore items referred to in the first paragraph of
this section, the increase in miscellaneous other expense of $54.7 million in
1995 reflected the impact of acquisitions on various expense components and
higher loan servicing fees due to the sale of the residential mortgage loan
servicing business.
The increases in the 1995 noninterest expense categories previously discussed
were significantly offset by the effect of a reduction in the Bank Insurance
Fund ("BIF") assessment rate for well-capitalized banks from $.23 per $100 of
insured deposits to $.04 per $100 for the period June through December 1995.
The rate has been further reduced to zero effective January 1, 1996. At
December 31, 1995, $41.7 billion, or 88%, of the Corporation's deposits were
BIF insured. At the same date, the Corporation had $4.4 billion of deposits
insured by the Savings Association Insurance Fund ("SAIF"). The SAIF assessment
rate was maintained at $.23 per $100 of insured deposits throughout 1995 and
into 1996. Potential reduction of this assessment rate has been linked in a
Congressional proposal to a one-time special assessment of institutions whose
deposits are SAIF-insured. The special assessment would be for the purpose of
replenishing the SAIF, and has been proposed in the range of $.80-$.85 per $100
of SAIF-insured deposits. 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 SAIF assessment rate of $.23 per $100 of insured deposits. Accordingly, no
liability for the special assessment has been recorded.
Merger and integration charges of $118.7 million ($80.6 million after tax, $.33
per Common Share) were recorded in 1993. These charges established a reserve
for expenses, directly related to the KeyCorp-Society merger, primarily
consisting of investment banking and other professional fees ($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). There was no remaining accrued liability for merger and integration
reserves at December 31, 1995, compared with a liability of $33.5 million at
December 31, 1994.
INCOME TAXES
The provision for income taxes (before the extraordinary net gain) for 1995 was
$368.5 million, compared with $430.0 million in 1994 and $374.0 million in
1993. The effective tax rate (provision for income taxes as a percentage of
income before income taxes) was 31.8% in 1995, 33.5% in 1994 and 34.5% in 1993.
The decrease in the 1995 tax provision and the reduction of the 1995 effective
tax rate resulted primarily from the recognition during the first quarter of
1995 of one-time tax benefits totaling $16.0 million related to acquisitions
made in years prior to 1992 and an increase in tax-advantaged assets and
credits associated with investments in low-income housing projects. The lower
1994 effective tax rate in comparison to 1993 reflected the relatively high
level of non-deductible expenses and merger and integration charges incurred in
1993 in relation to the 1994 KeyCorp-Society merger.
FINANCIAL CONDITION
LOANS
As shown in Figure 20, at December 31, 1995, total loans outstanding were $47.7
billion, up from $46.2 billion at December 31, 1994, and $40.1 billion at
December 31, 1993. The $1.5 billion, or 3%, increase from the year-end 1994
level reflected increases of $1.3 billion in commercial loans, $711.5 million
in commercial real estate (of which $478.8 million pertained to commercial
mortgages), $264.7 million in student loans held for sale and $579.8 million in
lease financing. These increases resulted from internal loan growth as well as
the impact of acquisitions which were completed by the Corporation during 1995.
The change in the mix of the loan portfolio reflected the impact of the
internal loan growth. Acquisitions included OMNIBANCORP in the Rocky Mountain
Region, Casco Northern Bank, National Association and BANKVERMONT Corporation
in the Northeast Region and AFG, which is included in Financial Services in
Figure 21. Excluding the $1.5 billion impact of the acquisitions, loans
decreased by $55.1 million since the prior year end. Internal loan growth of
$3.0 billion was offset by the transfer of approximately $1.5 billion of
residential mortgage loans to the held for sale portfolio and the
securitization and sale of $1.4 billion in student and auto loans.
As shown in Figure 21, loan growth, excluding mortgage loans transferred to the
held for sale portfolio, was achieved in several of KeyCorp's geographic
regions. The large increase in Financial Services resulted from the acquisition
of AFG and the transfer of affiliate bank credit card portfolios, aggregating
$1.4 billion, to KeyBank USA in 1995. The distribution of loans by geographic
region as of December 31, 1995, is evidence of the significant credit risk
diversification possible because of the Corporation's unique 14-state,
four-region profile.
Commercial loans outstanding at December 31, 1995, were $11.5 billion, up 13%
from the December 31, 1994, level of $10.2 billion, following an increase of
$1.2 billion, or 14%, in 1994. Factors contributing to the growth in 1995
included the general strength of the economy as well as the impact of
acquisitions.
Loans secured by real estate totaled $21.0 billion at December 31, 1995,
compared with $21.6 billion at December 31, 1994, and $18.4 billion at December
31, 1993. These loans consist of construction loans, commercial mortgage loans
and one-to-four family residential loans (including home equity loans). The
$678.8 million, or 3%, decrease from 1994 was attributable to the transfer of
47
<PAGE> 22
KEYCORP AND SUBSIDIARIES
<TABLE>
- - - --------------------------------------------------------------------------------------------------------------------
Figure 20 Composition of Loans
- - - --------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
1995 1994 1993
------------------ ------------------- -------------------
dollars in millions Amount % of Total Amount % of Total Amount % of Total
- - - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $11,534.6 24.2% $10,190.6 22.0% $ 8,965.5 22.4%
Real estate-construction 1,519.9 3.2 1,287.2 2.8 1,160.5 2.9
Real estate-commercial mortgage 7,253.7 15.2 6,774.9 14.7 6,228.2 15.5
- - - --------------------------------------------------------------------------------------------------------------------
Total commercial real estate 8,773.6 18.4 8,062.1 17.5 7,388.7 18.4
Real estate-residential mortgage 12,176.8 25.5 13,567.1 29.3 11,026.3 27.5
- - - --------------------------------------------------------------------------------------------------------------------
Total real estate 20,950.4 43.9 21,629.2 46.8 18,415.0 45.9
Credit cards 1,563.9 3.3 1,419.1 3.1 1,429.3 3.6
Other consumer 8,553.8 17.9 8,764.7 19.0 7,847.1 19.5
- - - --------------------------------------------------------------------------------------------------------------------
Total consumer 10,117.7 21.2 10,183.8 22.1 9,276.4 23.1
Student loans held for sale 2,081.2 4.3 1,816.5 3.9 1,648.6 4.1
Lease financing 2,887.0 6.1 2,307.2 5.0 1,702.5 4.3
Foreign 120.8 .3 97.4 .2 63.3 .2
- - - --------------------------------------------------------------------------------------------------------------------
Total $47,691.7 100.0% $46,224.7 100.0% $40,071.3 100.0%
========= ====== ========= ===== ========= =====
- - - --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992 1991
------------------ -----------------
Amount % of Total Amount % of Total
- - - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $ 8,869.0 24.6% $ 9,183.9 25.9%
Real estate-construction 1,448.0 4.0 1,577.3 4.4
Real estate-commercial mortgage 5,937.0 16.5 6,258.5 17.6
- - - -------------------------------------------------------------------------------------------
Total commercial real estate 7,385.0 20.5 7,835.8 22.0
Real estate-residential mortgage 8,289.4 23.0 7,240.7 20.4
- - - -------------------------------------------------------------------------------------------
Total real estate 15,674.4 43.5 15,076.5 42.4
Credit cards 1,448.2 4.0 1,459.8 4.1
Other consumer 7,633.5 21.2 8,790.7 24.7
- - - -------------------------------------------------------------------------------------------
Total consumer 9,081.7 25.2 10,250.5 28.8
Student loans held for sale 1,070.1 3.0 - -
Lease financing 1,225.2 3.4 946.5 2.7
Foreign 101.4 .3 76.9 .2
- - - -------------------------------------------------------------------------------------------
Total $36,021.8 100.0% $35,534.3 100.0%
========= ======= ========= ======
- - - -------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- - - -------------------------------------------------------------------------------------------------------------------------
Figure 21 Period-End Loan Growth By Region
- - - -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, Other December 31, Percent
dollars in millions 1994 Acquired Sold(1) Activity 1995 Change
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Northeast Region $12,621.6 $1,162.2 $ 97.2 $ 30.8 $13,717.4 8.7%
Great Lakes Region 20,909.0 - 2,178.1 480.4 19,211.3 (8.1)
Rocky Mountain Region 3,317.3 215.3 510.7 795.1 3,817.0 15.1
Northwest Region 9,270.2 - 213.4 (49.0) 9,007.8 (2.8)
Financial Services 106.6 144.6 96.0 1,783.0 1,938.2 N/M
- - - ------------------------------------------------------------------------------------------------------------------------
Total $46,224.7 $1,522.1 $3,095.4 $3,040.3 $47,691.7 3.2%
========= ======== ======== ======== =========
- - - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1)Includes mortgage loans transferred to the held for sale portfolio.
N/M = Not Meaningful
48
<PAGE> 23
KEYCORP AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
approximately $1.5 billion in residential mortgages to the held for sale
portfolio. Excluding these transfers, loans secured by real estate were up
$821.2 million, or 4%, in 1995.
Construction loans increased to $1.5 billion at December 31, 1995, up from $1.3
billion at December 31, 1994, and $1.2 billion at December 31, 1993. At
December 31, 1995, 13% of the construction loan portfolio was secured by
properties in the Northeast Region, 46% in the Great Lakes Region, 17% in the
Rocky Mountain Region, 23% in the Northwest Region and 1% in Financial
Services.
The commercial mortgage loan portfolio totaled $7.3 billion at December 31,
1995, compared with $6.8 billion at December 31, 1994, and $6.2 billion at
December 31, 1993. 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
22 shows the portions of the construction and commercial mortgage loan
portfolios at December 31, 1995, which are collateralized by nonowner-occupied
(by industry concentration) and owner-occupied properties. At December 31,
1995, 53% of the construction loan portfolio and 38% of the commercial mortgage
loan portfolio were 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
$12.2 billion at December 31, 1995, compared with $13.6 billion at December 31,
1994, and $11.0 billion at December 31, 1993. Home equity loans increased to
$2.4 billion at December 31, 1995, up from $2.2 billion and $2.1 billion at
December 31, 1994 and 1993, respectively. During 1995, the Corporation adopted
a
- - - ----------------------------------------------------------------
Figure 22 Construction and Commerical Mortgage Loans
- - - ----------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995
Commercial
in millions Construction Mortgage Total
- - - ------------------------------------------------------------------
<S> <C> <C> <C>
Nonowner-occupied:
Retail $ 237.9 $ 939.1 $1,177.0
Multi-family properties 187.4 916.7 1,104.1
Office buildings 47.0 1,058.5 1,105.5
Hotels/Motels 1.7 333.9 335.6
Health facilities 5.5 21.1 26.6
Manufacturing facilities 4.4 84.4 88.8
Warehouses 24.8 274.7 299.5
Other 203.4 837.8 1,041.2
- - - ------------------------------------------------------------------
712.1 4,466.2 5,178.3
Owner-occupied 807.8 2,787.5 3,595.3
- - - ------------------------------------------------------------------
Total $1,519.9 $7,253.7 $8,773.6
======== ======== ========
- - - ------------------------------------------------------------------
</TABLE>
strategy of selling residential mortgage loans with lower spreads. These loans
are classified outside of the loan portfolio as mortgage loans held for sale.
Furthermore, new residential mortgage loans originated to secondary market
standards are sold. During 1995, $1.5 billion of seasoned 15- and 30-year
residential mortgages were transferred to the mortgage loans held for sale
portfolio. Of the loans transferred, $1.0 billion were sold in the secondary
market in 1995 and the remaining $500.0 million were sold in the first quarter
of 1996. The net effect of the residential mortgage strategies was a 1995
reduction of $1.6 billion in residential mortgage loans other than home equity
loans.
Consumer loans (including credit cards) totaled $10.1 billion at December 31,
1995, compared with $10.2 billion at December 31, 1994, and $9.3 billion at
December 31, 1993. Credit cards totaled $1.6 billion at December 31, 1995,
compared with $1.4 billion at December 31, 1994 and 1993. Other consumer loans,
which include approximately $4.0 billion of direct and indirect auto loans and
approximately $1.7 billion of indirect marine and recreational vehicle loans,
totaled $8.6 billion at December 31, 1995, compared with $8.8 billion at
December 31, 1994, and $7.8 billion at December 31, 1993. The decrease in other
consumer loans since the 1994 year end primarily reflected the securitization
and sale of $395 million of auto loans during 1995. The remainder of the
decrease can be attributed to normal portfolio amortization in excess of new
originations as the Corporation adhered to a strict pricing discipline in a
very competitive market.
Student loans held for sale increased to $2.1 billion at December 31, 1995, up
from $1.8 billion at December 31, 1994, and $1.6 billion at December 31, 1993.
The higher level of outstandings in 1995 reflected the Corporation's role as a
primary provider of education loans to law school students. The Corporation
continues a policy of securitizing and selling student loans prior to their
entering repayment status, with securitizations of this portfolio totaling $1.0
billion and $547.7 million in 1995 and 1994, respectively.
The lease financing portfolio totaled $2.9 billion at December 31, 1995,
compared with $2.3 billion at December 31, 1994, and $1.7 billion at December
31, 1993. This growth reflected expanded services and market coverage as well
as the general strength of the economy.
SECURITIES
At December 31, 1995, the securities portfolio totaled $9.7 billion, consisting
of $8.0 billion of securities available for sale and $1.7 billion of investment
securities. This compares to a total portfolio of $12.8 billion, comprised of
$2.5 billion of securities available for sale and $10.3 billion of investment
securities, at December 31, 1994. Certain information pertaining to the
composition, yields and maturities of the securities available for sale and
investment securities portfolios is presented in Figure 23 and Figure 24,
respectively.
The decrease and change in the mix of the overall portfolio were primarily the
result of two events. During the first quarter of
49
<PAGE> 24
KEYCORP AND SUBSIDIARIES
<TABLE>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 23 Securities Available for Sale
- - - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S. Treasury, States and Mortgage- Weighted
Agencies and Political Backed Other Average
dollars in millions Corporations Subdivisions Securities(1) Securities Total Yield2
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995:
Maturity: One year or less $ 227.2 $ 2.8 $ 393.9 $120.8 $ 744.7 6.73%
Maturity: After one through five years 576.3 11.5 3,792.7 39.7 4,420.2 6.59
Maturity: After five through ten years 198.8 8.2 2,465.4 18.7 2,691.1 7.28
Maturity: After ten years 199.0 3.0 -- 2.0 204.0 6.76
- - - -----------------------------------------------------------------------------------------------------------------------------------
Fair value $1,201.3 $25.5 $6,652.0 $181.2 $8,060.0 -
Amortized cost 1,175.8 24.6 6,617.1 176.1 7,993.6 6.86%
Weighted average yield 6.71% 8.10% 6.86% 7.51% 6.86% -
Weighted average maturity 8.9 years 6.1 years 4.5 years 1.5 years 4.8 years -
- - - -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994:
Fair value $1,052.5 $25.9 $1,228.3 $214.3 $2,521.0 -
Amortized cost 1,067.7 28.9 1,334.1 223.3 2,654.0 6.40%
- - - -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1993:
Fair value $1,497.9 - $273.0 $23.9 $1,794.8 -
Amortized cost 1,434.0 - 269.7 23.1 1,726.8 6.80%
===================================================================================================================================
</TABLE>
[FN]
(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 all years presented.
(3)Includes equity securities with no stated maturity.
<TABLE>
- - - ---------------------------------------------------------------------------------------------------------------------------------
Figure 24 Investment Securities
- - - ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
U.S. Treasury, States and Mortgage Weighted
Agencies and Political Backed Other Average
dollars in millions Corporations Subdivisions Securities 1 Securities Total Yield 2
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1995:
Maturity: One year or less $1.8 $ 629.0 - $ 79.8 $ 710.6 6.91%
Maturity: After one through five years 2.3 508.0 - 138.2 648.5 8.96
Maturity: After five through ten years .6 224.9 - 30.9 256.4 10.23
Maturity: After ten years .2 62.2 - 9.8 72.2 10.06
- - - --------------------------------------------------------------------------------------------------------------------------------
Amortized cost $4.9 $1,424.1 - $258.7 $1,687.7 8.34%
Fair value 5.0 1,474.4 - 258.7 1,738.1 -
Weighted average yield 10.69% 8.34% - 8.28% 8.34% -
Weighted average maturity 1.6 years 2.9 years - 4.9 years 2.9 years -
- - - --------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1994:
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 -
- - - --------------------------------------------------------------------------------------------------------------------------------
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 -
================================================================================================================================
</TABLE>
[FN]
(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 all years presented.
50
<PAGE> 25
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------
1995, the Corporation sold $1.2 billion of securities as one of a number of
actions taken during 1994 and 1995 to reduce its interest rate sensitivity.
These sales resulted in pre-tax losses of $48.6 million. This interest rate
sensitivity reduction strategy is more fully discussed in the Asset and
Liability Management section beginning on page 39.
The second event occurred during the fourth quarter of 1995 when the FASB
granted companies a one-time opportunity to reassess and, if appropriate,
reclassify their securities from the held-to-maturity category to the
available-for-sale category without calling into question the intent to hold
other debt securities remaining in the investment securities category to
maturity in the future. This FASB development is discussed in more detail in
Note 3, Securities Available for Sale, beginning on page 71. In response, the
Corporation reclassified substantially all held-to-maturity debt securities,
except securities of states and political subdivisions, to the
available-for-sale category. The reclassified securities totaled approximately
$8.0 billion.
At December 31, 1995, the Corporation had $6.7 billion invested in
collateralized mortgage obligations ("CMO") and other mortgage-backed
securities within the securities available-for-sale portfolio, compared with
$9.1 billion within the investment securities and securities available-for-sale
portfolios 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.
Other mortgage-backed securities depend on the underlying pool of mortgage
loans to provide a cash flow "pass-through" of principal and interest, without
prioritization in classes. The Corporation had $2.8 billion invested in CMO
securities at December 31, 1995. 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. The Corporation had $3.9 billion invested in other
mortgage-backed securities at December 31, 1995. At December 31, 1995,
substantially all of the mortgage-backed 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 credit-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.
The allocation of the Corporation's Allowance by loan type at December 31 is
shown in Figure 25. Management has developed methodologies designed to assess
the adequacy of the Allowance. The Allowance allocation methodologies applied
at KeyCorp focus on changes in the size and character of the loan portfolio,
changes in the levels of impaired and other nonperforming and past due loans,
the risk inherent in specific loans, concentrations of loans to specific
borrowers or industries, existing and prospective economic conditions and
historical losses on a portfolio basis. In addition, indirect risk in the form
of off-balance sheet exposure for unfunded commitments 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 in 1995 were $99.2 million, down 9%
from $109.2 million in 1994 due to higher recoveries. Net loan charge-offs were
$212.8 million in 1993. The 1995 improvement came from the commercial,
financial and agricultural; real estate-construction; and real estate-mortgage
portfolios. These reductions were partially offset by higher net charge-offs
in the consumer and lease financing portfolios. Consistent with the decline in
the level of net loan charge-offs, the provision for loan losses in 1995 was
$100.5 million compared with $125.2 million in 1994 and $211.7 million in 1993.
The Allowance at December 31, 1995, was $876.0 million, or 1.84% of loans,
compared with $830.3 million, or 1.80% of loans, at December 31, 1994. Included
in the 1995 Allowance was $40.2 million specifically allocated for impaired
loans. For a further discussion of impaired loans see Note 6, Nonperforming
Assets, beginning on page 74. At December 31, 1995, the Allowance was 263.15%
of nonperforming loans, compared with 324.27% at December 31, 1994. Although
this percentage is not the primary factor used by management in determining the
adequacy of the Allowance, it has general short to medium-term relevance. As
indicated in Figure 25, the unallocated portion of the Allowance decreased
slightly in 1995, primarily as a result of an increase in nonperforming loans
from 1994 levels. Approximately 49% of the Allowance remained unallocated to
any specific loan category, a conservative position appropriate in light of the
difficulty inherent in predicting the level or category of future charge-offs,
and the strong loan growth experienced in the Corporate Banking sector in 1995.
The composition of nonperforming assets is shown in Figure 28. These assets
totaled $378.6 million at December 31, 1995, and represented .79% of loans,
OREO and other nonperforming assets compared with $339.8 million, or .73% at
December 31, 1994. A $76.9 million increase in nonperforming loans in 1995
reflected the $20.2 million impact of acquisitions and the transfer of $19.9
million from OREO, as a result of the adoption of SFAS No. 114
51
<PAGE> 26
<TABLE>
- - - -------------------------------------------------------------------------------------------------------------------------------
Figure 25 Allocation of the Allowance for Loan Losses
- - - ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 1994 1993
--------------------- ----------------------- -------------------
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
- - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $205.4 25.3% $119.3 23.0% $177.6 23.4%
Real estate-construction 20.5 3.3 17.5 2.9 22.1 3.0
Real estate-commercial and residential mortgage 113.7 42.7 95.7 45.8 90.6 44.9
Consumer 79.9 22.2 95.3 22.9 113.4 24.1
Lease financing 23.2 6.3 24.3 5.2 14.1 4.4
Foreign - .2 - .2 - .2
Unallocated 433.3 - 478.2 - 384.9 -
- - - ------------------------------------------------------------------------------------------------------------------------------
Total $876.0 100.0% $830.3 100.0% $802.7 100.0%
====== ====== ====== ====== ====== ======
- - - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992 1991
--------------------- --------------------
Percent of Percent of
Loan Type to Loan Type to
Amount Total Loans Amount Total Loans
- - - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural $205.1 25.4% $224.4 25.9%
Real estate-construction 27.3 4.1 30.1 4.4
Real estate-commercial and residential mortgage 113.3 40.7 126.1 38.0
Consumer 147.2 26.0 149.7 28.8
Lease financing 4.8 3.5 3.4 2.7
Foreign 1.6 .3 20.2 .2
Unallocated 283.3 - 239.6 -
- - - -----------------------------------------------------------------------------------------------------
Total $782.6 100.0% $793.5 100.0%
======= ====== ====== ======
- - - -----------------------------------------------------------------------------------------------------
</TABLE>
[FN]
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.
Figure 26 Nonperforming Assets
<TABLE>
<CAPTION>
Other nonperforming Restructured Other real Nonaccrual
assets loans estate owned loans
<S> <C> <C> <C> <C>
1991 $11.7 $9.9 $330.7 $719.6
- - - -------------------------------------------------------------------------------------------
1992 14.9 2.4 332.4 550.5
- - - -------------------------------------------------------------------------------------------
1993 13.4 6.5 150.4 329.8
- - - -------------------------------------------------------------------------------------------
1994 4.8 1.5 79.0 254.5
- - - -------------------------------------------------------------------------------------------
1995 3.4 2.5 42.3 330.4
- - - -------------------------------------------------------------------------------------------
</TABLE>
(discussed below). OREO (net of the allowance for OREO losses) declined by
$36.7 million, with a net $16.8 million of the decline resulting from normal
workout activity and the remainder due to the adoption of SFAS No. 114.
Additional information pertaining to changes in nonaccrual loans and OREO and
the percentage of nonperforming loans to period-end loans by type within the
banking regions is presented in Figures 29 and 30, respectively.
Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114
prescribes the methodology under which certain loans are to be measured for
impairment and provides that loans are to be classified in OREO only when the
creditor has actually taken possession of the collateral. All loans (other than
smaller-balance homogeneous loans) with payments over 90 days past due and on
nonaccrual status are considered impaired. SFAS No. 118 amends SFAS No. 114 by
eliminating certain income recognition provisions and by expanding disclosure
requirements. Adoption of these standards did not have a material effect on the
Corporation's financial condition or results of operations and is more fully
discussed in Note 6, Nonperforming Assets, beginning on page 74.
52
<PAGE> 27
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------------------------------------------------------
Figure 27 Summary of Loan Loss Experience
- - - -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended December 31,
dollars in millions 1995 1994 1993 1992 1991
- - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding during the year $47,760.6 $42,745.5 $38,307.6 $35,307.4 $35,150.3
- - - ------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at beginning of year $830.3 $802.7 $782.6 $793.5 $677.3
Loans charged off:
Commercial, financial and agricultural 41.5 60.7 102.6 144.8 173.9
Real estate-construction 1.7 6.6 25.5 25.1 40.9
Real estate-commercial and residential mortgage 35.4 35.0 56.8 100.2 70.4
Consumer 124.5 103.3 115.2 160.3 174.1
Lease financing 4.8 3.2 3.1 10.0 5.7
Foreign - - - - .8
- - - ------------------------------------------------------------------------------------------------------------------------------
207.9 208.8 303.2 440.4 465.8
Recoveries:
Commercial, financial and agricultural 52.6 48.0 33.4 25.7 28.7
Real estate-construction 2.8 1.4 6.0 1.3 1.9
Real estate-commercial and residential mortgage 14.4 11.3 9.8 9.0 3.1
Consumer 37.0 36.8 39.5 39.0 38.9
Lease financing 1.9 2.1 1.6 4.9 1.2
Foreign - - .1 - .2
- - - ------------------------------------------------------------------------------------------------------------------------------
108.7 99.6 90.4 79.9 74.0
- - - ------------------------------------------------------------------------------------------------------------------------------
Net loans charged off (99.2) (109.2) (212.8) (360.5) (391.8)
Provision for loan losses 100.5 125.2 211.7 338.4 466.2
Allowance acquired/sold, net 43.9 11.6 21.2 11.2 41.8
Transfer from OREO allowance .5 - - - -
- - - ------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of year $876.0 $830.3 $802.7 $782.6 $793.5
====== ====== ====== ====== ======
- - - ------------------------------------------------------------------------------------------------------------------------------
Net loan charge-offs to average loans .21% .26% .56% 1.02% 1.11%
Allowance for loan losses to year-end loans 1.84 1.80 2.00 2.17 2.23
Allowance for loan losses to nonperforming loans 263.15 324.27 238.69 141.54 108.79
- - - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- - - ------------------------------------------------------------------------------------------------------------------------------
Figure 28 Summary of Nonperforming Assets and Past Due Loans
- - - ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31,
dollars in millions 1995 1994 1993 1992 1991
- - - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Impaired loans 1 $205.0 - - - -
Other nonaccrual loans 125.4 $254.5 $329.8 $550.5 $ 719.6
Restructured loans 2.5 1.5 6.5 2.4 9.9
- - - ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 332.9 256.0 336.3 552.9 729.5
Other real estate owned 56.4 100.3 186.1 350.3 349.9
Allowance for OREO losses (14.1) (21.3) (35.7) (17.9) (19.2)
- - - ----------------------------------------------------------------------------------------------------------------------------
Other real estate owned, net of allowance 42.3 79.0 150.4 332.4 330.7
Other nonperforming assets 3.4 4.8 13.4 14.9 11.7
- - - ----------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $378.6 $339.8 $500.1 $900.2 $1,071.9
====== ====== ====== ====== ========
- - - ----------------------------------------------------------------------------------------------------------------------------
Accruing loans past due 90 days or more $96.7 $50.2 $51.8 $70.3 $94.1
- - - ----------------------------------------------------------------------------------------------------------------------------
Nonperforming loans to year-end loans .70% .55% .84% 1.53% 2.05%
Nonperforming assets to year-end loans
plus other real estate owned and other
nonperforming assets .79 .73 1.24 2.47 2.99
- - - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1)Effective January 1, 1995, the Corporation adopted SFAS No. 114, which
requires separate disclosure of impaired loans. Prior to January 1, 1995,
impaired loans were included in "Other nonaccrual loans."
53
<PAGE> 28
<TABLE>
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------------------------------------------------------------
Figure 29 Summary of Changes in Nonaccrual Loans and OREO
- - - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
SUMMARY OF CHANGES IN NONACCRUAL LOANS
1995 Quarters
-----------------------------------------------
in millions Full Year Fourth Third Second First
- - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $254.5 $309.6 $310.3 $302.8 $254.5
Loans placed on nonaccrual 324.7 96.7 66.3 100.9 60.8
Charge-offs 1 (60.9) (11.3) (17.2) (18.5) (13.9)
Payments (138.8) (39.8) (28.8) (51.5) (18.7)
Transfers to OREO (21.3) (2.8) (7.2) (5.6) (5.7)
Loans returned to accrual status (67.9) (22.0) (13.8) (17.8) (14.3)
Acquisitions 20.2 - - - 20.2
Transfers from OREO 2 19.9 - - - 19.9
- - - ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $330.4 $330.4 $309.6 $310.3 $302.8
====== ====== ====== ====== ======
SUMMARY OF CHANGES IN OREO(3) 1995 Quarters
------------------------------------------------
in millions Full Year Fourth Third Second First
- - - ------------------------------------------------------------------------------------------------------------------------------
Balance at beginning of year $ 79.0 $ 49.2 $50.2 $ 54.1 $ 79.0
Additions 41.2 9.1 5.7 18.0 8.4
Sales (49.2) (15.1) (7.6) (12.6) (13.9)
Charge-offs and write-downs (13.9) (1.1) (5.4) (3.4) (4.0)
Transfers to loans 2 (19.9) - - - (19.9)
Acquisitions 1.0 - - - 1.0
Other 4.1 .2 6.3 (5.9) 3.5
- - - ------------------------------------------------------------------------------------------------------------------------------
Balance at end of year $ 42.3 $ 42.3 $49.2 $ 50.2 $ 54.1
====== ====== ===== ====== ======
- - - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(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)Represents transfers related to the adoption of SFAS No. 114.
(3)Net of allowance for OREO losses.
<TABLE>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 30 Percentage of Nonperforming Loans to Period-End Loans by Loan Type
- - - -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995
Commercial, Real Estate- Real Estate-
Financial and Real Estate- Commercial Residential
Agricultural Construction Mortgage Mortgage Consumer Total
- - - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Northeast Region 1.29% 1.72% 1.75% 1.13% .16% 1.06%
Great Lakes Region .81 .44 .90 .36 .14 .57
Rocky Mountain Region 1.38 .34 .49 .18 .38 .69
Northwest Region .41 .68 .89 .43 .22 .48
Financial Services - - - .78 .03 .37
- - - -----------------------------------------------------------------------------------------------------------------------
Total .99% .64% 1.14% .64% .15% .70%
- - - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
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
1995, these deposits averaged $41.1 billion and represented 68% of the
Corporation's funds supporting earning assets compared with $40.8 billion and
72%, respectively, in 1994 and $40.2 billion and 78%, respectively, in 1993.
The slight growth in the amount of average core deposits during 1995 and 1994
reflected the impact of acquisitions, offset in part by the pursuit of other
alternatives by consumers. As shown in Figure 4, there was a moderate shift in
1995 from highly liquid money market deposit accounts and savings deposits to
higher-yielding certificates of deposit of $100,000 or more and to the "Other
time deposits" category which consists primarily of fixed-rate certificates of
deposit of less than $100,000.
Purchased funds, which are comprised of large certificates of deposit, deposits
in foreign offices and short-term borrowings,
54
<PAGE> 29
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------
averaged $15.4 billion for 1995, up $1.6 billion, or 12%, from the prior year.
These instruments were more heavily relied upon in 1995 as the growth in
earning assets exceeded the increase in core deposits previously discussed. As
illustrated in Figure 4, the increase was attributable to growth in large
certificates of deposit and other short-term borrowings, principally short-term
notes.
- - - --------------------------------------------------------------------
Figure 31 Maturity Distribution of
Time Deposits of $100,000 or More
- - - ---------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1995
Domestic Foreign
in millions Offices Offices Total
- - - -------------------------------------------------------------------
<S> <C> <C> <C>
Time remaining to maturity:
Three months or less $1,939.7 $1,236.5 $3,176.2
Over three through six months 595.5 .5 596.0
Over six through twelve months 511.5 - 511.5
Over twelve months 729.8 - 729.8
- - - -------------------------------------------------------------------
Total $3,776.5 $1,237.0 $5,013.5
======== ======== ========
- - - -------------------------------------------------------------------
</TABLE>
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, the maturity structure of
their loan portfolios and the ability to securitize and package loans for sale.
Liquidity is also enhanced by a sizable concentration of core deposits,
previously discussed, which are generated by approximately 1,300 banking
offices in 14 states. The affiliate banks individually monitor deposit flows
and evaluate alternative 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 (such as borrowings from the
Federal Reserve system) for short-term liquidity requirements should the need
arise.
During the third quarter of 1995, KeyCorp established a new Commercial
Paper/Note Program which provides for the availability of up to $500.0 million
of short-term funding. The proceeds from this program may be used for general
corporate purposes, including future acquisitions, and were used in 1995 to
fund AFG's lending activities in anticipation of quarterly securitizations of
AFG's loans. The parent company also entered into a four-year, $500.0 million
revolving credit agreement with several banks under which the banks have agreed
to lend collectively up to $500.0 million to KeyCorp. The line of credit will
be used primarily as a backup source of liquidity for the Commercial Paper/Note
Program. There were no borrowings outstanding under either of these facilities
at December 31, 1995.
In the first quarter of 1995, the Corporation's $5.0 billion Bank Note Program
which involved four affiliate banks was expanded to allow issuances of up to
$6.6 billion, covering eleven affiliate banks. The $2.3 billion in notes issued
under this program during 1995 have maturities of one year or less and are
included in other short-term borrowings. In addition to these short-term
borrowings, Society National Bank, KeyCorp's lead bank, issued $200.0 million
in long-term 7.25% subordinated notes during 1995. On January 12, 1996, the
Bank Note Program was further expanded to allow issuances of up to $12.3
billion, covering twelve affiliate banks. As of that date, the program had an
unused capacity of $12.2 billion.
In April 1995, KeyCorp updated its universal self registration statement on
file with the Securities and Exchange Commission, which provides for the
possible issuance of a broad range of debt and equity securities by the parent
company. The updated filing registered an additional $845.0 million of
securities (up to $750.0 million of which were reserved for future issuance as
Medium-Term Notes). Medium-Term notes issued under the registration statement
totaled $413.5 million and $395.0 million in 1995 and 1994, respectively, and
have original maturities of more than one year. At the end of the year, unused
capacity under this shelf registration totaled $611.5 million. The proceeds
from the Bank Note Program discussed above and the shelf registration may be
used for general corporate purposes, including future acquisitions.
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, 1995,
$317.7 million was available in the affiliate banks for the payment of
dividends to the parent company without prior regulatory approval. Excess funds
are maintained in short-term investments. The parent company has ready access
to the capital markets as a result of its favorable debt ratings which, at
December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Senior Subordinated
Commercial Long-Term Long-Term
Paper Debt Debt
---------- --------- ------------
<S> <C> <C> <C>
Duff & Phelp's D-1 A+ A
Standard & Poor's A-2 A- BBB+
Moody's P-1 A1 A2
</TABLE>
Further information pertaining to the Corporation's sources and uses of cash
for the years ended December 31, 1995, 1994 and 1993 is presented in the
Consolidated Statements of Cash Flow on page 66.
55
<PAGE> 30
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------
CAPITAL AND DIVIDENDS
Total shareholders' equity at December 31, 1995, was $5.2 billion, up $462.1
million, or 10%, from the balance at the end of 1994. This followed an increase
of $304.9 million, or 7%, from the balance at the end of 1993. In both years
the increase was principally due to the retention of net income after dividends
paid to shareholders. Other factors contributing to the change in shareholders'
equity during 1995 are shown in the Statement of Changes in Shareholders'
Equity presented on page 65. Included in these changes are a $231.0 million
increase in Treasury Stock, resulting from the share repurchase programs
discussed below, and 1995 net unrealized gains of $163.0 million on securities,
resulting in net unrealized gains of $47.7 million as of December 31, 1995.
These net unrealized gains were recorded in connection with SFAS No. 115,
"Accounting for Investments in Certain Debt and Equity Securities."
In January 1995, the Board of Directors approved a 12,000,000 Common Share
repurchase program, representing an addition to previously existing programs
which had authorized the repurchase of up to 8,000,000 Common Shares. In
addition, later during the first quarter of 1995, the Board of Directors
authorized the repurchase of approximately 13,200,000 shares in connection with
the acquisitions of AFG and Spears Benzak. During 1995, the Corporation
repurchased 23,975,450 shares at a total cost of $723.6 million (an average of
$30.18 per share). Additionally, Treasury Shares totaling 15,507,562 were
reissued in 1995 in connection with the acquisitions of AFG, OMNIBANCORP and
Spears Benzak and 1,808,592 shares were reissued for employee benefit plans.
The 12,241,569 Treasury Shares at December 31, 1995, are expected to be issued
over time in connection with employee benefit programs, dividend reinvestment
plans and other corporate purposes. The repurchase of Common Shares in 1995
reflected the additional capital flexibility achieved, in large part, through
the securitizations and sales of loans. As of December 31, 1995, all share
repurchase authorizations had been fully utilized.
Similar to the 1995 action, in January 1996 the Board of Directors approved a
new share repurchase program which authorizes the repurchase of up to an
additional 12,000,000 Common Shares in 1996. Under the new program, shares will
be repurchased from time to time in the open market or through negotiated
transactions and will be available to be reissued in connection with employee
stock purchase, 401(k), stock option, and dividend reinvestment plans and for
other corporate purposes.
Capital adequacy is an important indicator of financial stability and
performance. Overall, the Corporation's capital position remains strong with a
ratio of total shareholders' equity to total assets of 7.77% at December 31,
1995, up from 7.03% at December 31, 1994, and 7.37% at December 31, 1993.
Banking industry regulators define minimum capital ratios for bank holding
companies and their banking and savings association subsidiaries. Based on the
risk-adjusted 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, 1995, were 7.53% and 10.85%, respectively. As indicated
in Figure 32, these compare favorably with the minimum 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, 1995, KeyCorp's leverage ratio was
6.20%, substantially higher than the minimum requirement. Figure 33 presents
the details of KeyCorp's regulatory capital position at December 31, 1995 and
1994. The decline in capital ratios from those reported in the prior year
reflected the impact of KeyCorp's Common Share repurchase programs and
additional goodwill recorded in connection with acquisitions.
Failure to meet applicable capital guidelines could result in enforcement
remedies available to the banking industry regulators, including a limitation
on the ability to pay dividends, the issuance of a directive to increase
capital, the termination of deposit insurance by the FDIC, and (in severe
cases) the appointment of a conservator or receiver. Management believes that
as of December 31, 1995, the parent company and its banking and savings
association subsidiaries meet all capital adequacy guidelines to which they are
subject.
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,"
- - - ------------------------------------------------------------------------------
Figure 32 Capital Ratios
- - - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Leverage Tier 1 risk-adjusted Total risk-adjusted
ratio capital ratio capital ratio
<S> <C> <C> <C>
1994 6.63% 8.48% 11.62%
- - - ------------------------------------------------------------------------------
1995 6.20 7.53 10.85
- - - ------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 31
KEYCORP AND SUBSIDIARIES
- - - --------------------------------------------------------------------
Figure 33 Capital Components
and Risk-Adjusted Assets
- - - --------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
dollars in millions 1995 1994
- - - ---------------------------------------------------------------------
<S> <C> <C>
TIER I CAPITAL
Common shareholders' equity(1) $4,944.9 $4,640.0
Qualifying preferred stock 160.0 160.0
Less: Goodwill (899.3) (418.5)
Other intangible assets(2) (143.0) (140.0)
- - - ---------------------------------------------------------------------
Total Tier I capital 4,062.6 4,241.5
- - - ---------------------------------------------------------------------
TIER II CAPITAL
Allowance for loan losses 3 676.7 628.7
Qualifying long-term debt 1,114.8 943.2
- - - ---------------------------------------------------------------------
Total Tier II capital 1,791.5 1,571.9
- - - ---------------------------------------------------------------------
Total capital $5,854.1 $5,813.4
======== ========
RISK-ADJUSTED ASSETS
Risk-adjusted assets on balance sheet $49,555.5 $46,370.0
Risk-adjusted off-balance sheet exposure 5,619.3 4,483.3
Less: Goodwill (899.3) (418.5)
Less: Other intangible assets(2) (143.0) (140.0)
- - - ---------------------------------------------------------------------
Gross risk-adjusted assets 54,132.5 50,294.8
Less: Excess allowance for loan losses(3) (199.3) (201.6)
- - - ---------------------------------------------------------------------
Net risk-adjusted assets $53,933.2 $50,093.2
========= =========
AVERAGE QUARTERLY TOTAL ASSETS $66,542.7 $64,613.3
========= =========
CAPITAL RATIOS
Tier I capital to net risk-adjusted assets 7.53% 8.48%
Total capital to net risk-adjusted assets 10.85 11.62
Leverage 6.20 6.63
- - - ---------------------------------------------------------------------
</TABLE>
[FN]
(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.
"significantly undercapitalized" and "critically undercapitalized." All of
KeyCorp's affiliate banks qualified as "well-capitalized" at December 31, 1995,
as they exceeded the well-capitalized thresholds of 10%, 6% and 5% for the
total, Tier I and leverage ratios, respectively. 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, 1995. The FDIC-defined capital categories may not constitute an
accurate representation of the overall financial condition or prospects of
KeyCorp or its affiliate banks.
At December 31, 1995, book value per Common Share was $21.36 based on
233,702,821 shares outstanding, compared with $18.88 based on 240,362,117
shares outstanding at December 31, 1994. 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 1995, the closing
sales price on the New York Stock Exchange was $36.25 per share. This price was
170% of year-end book value per share, and reflected a then current dividend
yield of 3.97% (based upon the 1995 dividend rate of $1.44). On January 18,
1996, the quarterly dividend on Common Shares was increased by 5.6% to $.38 per
Common Share. There were 52,713 holders of record of KeyCorp Common Shares at
December 31, 1995.
FOURTH QUARTER RESULTS
As shown in Figure 34, net income for the fourth quarter of 1995 was $206.7
million, or $.86 per Common Share, compared with $193.8 million, or $.79 per
Common Share, for the same period in 1994. The 1995 period included a positive
accounting adjustment of $17.9 million ($11.6 million after-tax, $.05 per
Common Share) resulting from better-than-expected performance of student loan
securitizations completed in prior periods and a write-off of $25.4 million
($14.8 million after-tax, $.06 per Common Share) of obsolete software. 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
discussed in the Asset and Liability Management section beginning on page 39.
The increase in earnings from the prior year resulted from an increase of $98.8
million, or 48%, in noninterest income, partially offset by increases of $66.3
million, or 12%, in noninterest expense, $8.0 million, or 31%, in the provision
for loan losses and $6.9 million, or 7%, in tax expense. Taxable-equivalent net
interest income was $674.2 million for the fourth quarter of 1995, down less
than one percent from the comparable 1994 period. On an annualized basis, the
return on average total assets for the fourth quarter of 1995 was 1.23%
compared with 1.19% for the fourth quarter of 1994. The annualized return on
average common equity for the fourth quarters of 1995 and 1994 were 16.31% and
16.61%, respectively.
The increase in noninterest income in the fourth quarter of 1995 as compared
with the fourth quarter of 1994, exclusive of the 1995 adjustment for prior
student loan securitizations and the 1994 losses on securities, reflected
increases of $38.4 million in loan securitization income, $8.7 million in trust
and asset management income, $6.9 million in service charges on deposit
accounts and a $12.5 million increase in miscellaneous income. The positive
impact of these items was partially offset by a $14.4 million decrease in
mortgage banking income, resulting from the March 1995 sale of the residential
mortgage loan servicing business. The growth in noninterest expense, after
excluding the write-off of obsolete software, reflected increases of $18.1
million in personnel expense, $9.9 million in professional fees and $21.7
million in miscellaneous other expense. Contributing to these increases was the
impact of acquisitions and additional costs incurred in connection with the
implementation of strategic initiatives. These increases were partially offset
by a $17.8 million decrease in FDIC insurance assessments resulting from a
reduction in the assessment rate which took effect on June 1, 1995.
57
<PAGE> 32
KEYCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 34 Selected Quarterly Financial Data
- - - -----------------------------------------------------------------------------------------------------------------------------------
1995 1994
---------------------------------------- ----------------------------------------
dollars in millions, except per share amounts Fourth Third Second First Fourth Third Second First
- - - ----------------------------------------------------------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE QUARTER
Interest income $1,278.0 $1,298.8 $1,298.8 $1,245.4 $1,191.8 $1,150.7 $1,102.6 $1,045.0
Interest expense 617.4 632.8 632.5 601.6 526.5 471.1 422.3 376.9
Net interest income 660.6 666.0 666.3 643.8 665.3 679.6 680.3 668.1
Provision for loan losses 34.2 27.5 20.3 18.5 26.2 27.2 35.0 36.8
Noninterest income before
net securities gains (losses) 302.5 234.8 220.4 215.9 229.0 221.3 226.8 220.2
Net securities gains (losses) 1.6 .2 2.5 (44.9) (23.7) 2.0 .6 6.4
Noninterest expense 621.9 560.3 568.6 560.8 555.6 530.1 538.7 542.8
Income before income taxes
and extraordinary item 308.6 313.2 300.3 235.5 288.8 345.6 334.0 315.1
Income before extraordinary item 206.7 209.6 199.0 173.9 193.8 229.3 221.8 208.6
Net income 206.7 209.6 199.0 209.7 193.8 229.3 221.8 208.6
Net income applicable to Common Shares 202.7 205.6 195.0 205.7 189.8 225.3 217.8 204.6
- - - -----------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Income before extraordinary item $ .86 $ .90 $ .83 $ .71 $ .79 $ .92 $ .89 $ .85
Net income .86 .90 .83 .86 .79 .92 .89 .85
Cash dividends .36 .36 .36 .36 .32 .32 .32 .32
Book value at period-end 21.36 20.74 19.71 19.57 18.88 18.65 18.17 17.88
Market price:
High 37.25 35.13 32.13 29.50 30.88 33.50 33.75 33.00
Low 33.25 30.38 26.00 24.50 23.63 30.13 29.50 28.88
Close 36.25 34.25 31.38 28.25 25.00 30.50 31.88 30.00
Weighted average Common Shares (millions) 235.8 228.2 235.3 240.0 241.4 244.1 244.8 241.9
- - - ----------------------------------------------------------------------------------------------------------------------------------
AT PERIOD-END
Loans $47,691.7 $48,409.7 $48,093.2 $48,020.8 $46,224.7 $44,608.8 $43,157.6 $41,379.8
Earning assets 58,762.3 60,847.4 60,945.7 61,167.1 60,046.5 58,638.1 57,347.0 55,913.5
Total assets 66,339.1 67,967.1 67,481.2 67,709.0 66,801.2 64,503.4 63,359.7 61,479.0
Deposits 47,281.9 47,905.0 48,672.2 48,812.3 48,564.2 47,816.5 47,796.2 46,880.6
Long-term debt 4,003.6 4,047.9 4,019.6 3,725.2 3,569.8 2,177.8 2,123.6 1,744.5
Common shareholders' equity 4,992.5 4,923.4 4,514.4 4,657.5 4,530.4 4,533.9 4,430.7 4,368.3
Total shareholders' equity 5,152.5 5,083.4 4,674.4 4,817.5 4,690.4 4,693.9 4,590.7 4,528.3
- - - ----------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.23% 1.25% 1.19% 1.28% 1.19% 1.43% 1.43% 1.41%
Return on average common equity 16.31 18.07 16.86 18.26 16.61 19.95 19.77 19.20
Return on average total equity 16.11 17.79 16.63 17.99 16.38 19.60 19.43 18.88
Efficiency 63.67 61.27 63.05 64.12 61.10 57.90 58.43 60.13
Overhead 47.36 47.89 51.10 52.36 48.01 44.48 44.87 47.27
Net interest margin 4.53 4.50 4.49 4.38 4.60 4.79 4.92 5.03
- - - -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS AT PERIOD-END
Equity to assets 7.77% 7.48% 6.93% 7.12% 7.03% 7.29% 7.26% 7.38%
Tangible equity to tangible assets 6.25 5.98 5.75 6.02 6.19 6.45 6.42 6.55
Tier I risk-adjusted capital 7.53 7.55 7.45 7.96 8.48 8.86 8.77 8.91
Total risk-adjusted capital 10.85 10.84 10.82 11.05 11.62 12.07 12.03 12.34
Leverage 6.20 6.19 5.88 6.24 6.63 6.79 6.76 6.85
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
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 beginning on page 70.
58
<PAGE> 33
<TABLE>
<CAPTION> KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 35 Banking Services Data By Region
- - - -----------------------------------------------------------------------------------------------------------------------------------
Northeast Region Great Lakes Region
--------------------------------- ----------------------------------
dollars in millions 1995 1994 1995 1994
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SIGNIFICANT RATIOS
Return on average total assets 1.24% 1.35% 1.67% 1.57%
Net interest margin 4.52 4.94 4.29 4.54
Nonperforming loans to year-end loans 1.06 .74 .57 .47
Allowance for loan losses to year-end loans 1.42 1.34 2.32 2.32
Net loan charge-offs to average loans .34 .46 .04 .16
Efficiency ratio 55.11 50.68 54.12 55.35
AVERAGE BALANCES
Loans $13,943 $12,254 $19,875 $19,163
Earning assets 18,006 16,570 25,498 26,412
Total assets 19,425 17,710 28,189 28,767
Deposits 14,680 13,928 18,682 20,364
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Rocky Mountain Region Northwest Region
--------------------------------- ----------------------------------
1995 1994 1995 1994
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SIGNIFICANT RATIOS
Return on average total assets 1.35% 1.41% 1.15% 1.15%
Net interest margin 5.46 5.25 4.88 4.80
Nonperforming loans to year-end loans .69 .58 .48 .47
Allowance for loan losses to year-end loans 1.29 1.38 1.35 1.28
Net loan charge-offs to average loans .32 .28 .15 .13
Efficiency ratio 59.85 56.49 62.58 60.26
AVERAGE BALANCES
Loans $3,661 $3,026 $ 8,982 $ 9,214
Earning assets 4,663 3,956 10,398 11,042
Total assets 5,098 4,298 11,387 12,023
Deposits 3,950 3,446 8,865 9,472
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE> 34
KEYCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 36 Six-Year Consolidated Balance Sheets
- - - -----------------------------------------------------------------------------------------------------------------------------------
December 31, Compound
Annual Rate
of Change
dollars in millions 1995 1994 1993 1992 1991 1990 (1990-1995)
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 3,443.8 $ 3,511.4 $ 2,777.4 $ 3,079.7 $ 3,150.5 $ 3,061.3 2.4%
Short-term investments 682.4 670.0 107.2 985.5 1,693.4 1,167.1 (10.2)
Mortgage loans held for sale 640.5 355.2 1,325.3 938.5 691.9 389.9 10.4
Securities available for sale 8,060.0 2,521.0 1,726.8 2,458.7 -- 101.8 139.7
Investment securities 1,687.7 10,275.6 11,122.1 8,976.3 10,288.3 8,815.7 (28.2)
Loans 47,691.7 46,224.7 40,071.3 36,021.8 35,534.3 34,193.7 6.9
Less: Allowance for loan losses 876.0 830.3 802.7 782.6 793.5 677.3 5.3
- - - -----------------------------------------------------------------------------------------------------------------------------------
Net loans 46,815.7 45,394.4 39,268.6 35,239.2 34,740.8 33,516.4 6.9
Premises and equipment 1,029.8 987.2 912.9 843.3 719.9 676.8 8.8
Other real estate owned, net of allowance 42.3 79.0 150.4 332.4 330.7 211.5 (27.5)
Intangible assets 1,070.3 598.9 549.3 601.6 629.5 662.2 10.1
Other assets 2,866.6 2,408.5 1,694.3 1,613.2 1,355.9 1,350.7 16.2
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total assets $66,339.1 $66,801.2 $59,634.3 $55,068.4 $53,600.9 $49,953.4 5.8%
========= ========= ========== =========== ========= ==========
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 9,281.0 $ 9,135.7 $ 8,826.3 $ 8,291.4 $ 7,085.5 $ 6,906.1 6.1%
Interest-bearing 36,763.9 36,003.4 35,658.3 34,026.5 35,448.4 33,534.2 1.9
Deposits in foreign offices--interest-bearing 1,237.0 3,425.1 2,014.5 1,115.2 301.1 495.0 20.1
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total deposits 47,281.9 48,564.2 46,499.1 43,433.1 42,835.0 40,935.3 2.9
Federal funds purchased and securities
sold under repurchase agreements 5,544.1 5,499.1 4,120.3 4,207.5 4,254.1 3,395.7 10.3
Other short-term borrowings 2,880.3 3,277.6 1,776.2 874.9 833.4 594.2 37.1
Other liabilities 1,476.7 1,200.1 1,089.3 835.5 937.5 857.3 11.5
Long-term debt 4,003.6 3,569.8 1,763.9 1,790.1 1,224.5 1,145.2 28.4
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 61,186.6 62,110.8 55,248.8 51,141.1 50,084.5 46,927.7 5.4
SHAREHOLDERS' EQUITY
Preferred stock 160.0 160.0 160.0 244.0 244.0 84.0 13.8
Common Shares 245.9 245.9 242.8 237.4 179.1 166.3 8.1
Capital surplus 1,500.5 1,454.2 1,433.9 1,336.5 1,487.4 1,270.1 3.4
Retained earnings 3,632.6 3,161.3 2,633.4 2,206.1 1,848.7 1,758.1 15.6
Loans to ESOP trustee (51.4) (63.9) (63.9) (65.5) (65.4) (67.2) (5.2)
Net unrealized gains (losses) on securities,
net of taxes 47.7 (115.3) -- -- -- -- N/M
Treasury stock at cost (382.8) (151.8) (20.7) (31.2) (177.4) (185.6) 15.6
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,152.5 4,690.4 4,385.5 3,927.3 3,516.4 3,025.7 11.2
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $66,339.1 $66,801.2 $59,634.3 $55,068.4 $53,600.9 $49,953.4 5.8%
========= ========= ========= ========= ========= =========
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
N/M = Not Meaningful
60
<PAGE> 35
KEYCORP AND SUBSIDIARIES
<TABLE>
<CAPTION> KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------------------------------------------------------------
Figure 37 Six-Year Consolidated Statements of Income
- - - -----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, Compound
Annual Rate
of Change
dollars in millions, except per share amounts 1995 1994 1993 1992 1991 1990 (1990-1995)
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $4,319.6 $3,608.5 $3,313.7 $3,254.1 $3,655.9 $3,637.6 3.5%
Mortgage loans held for sale 15.4 51.1 74.0 59.4 47.0 27.7 (11.1)
Taxable investment securities 520.9 507.0 556.4 676.9 678.2 582.6 (2.2)
Tax-exempt investment securities 82.6 89.6 107.4 119.8 126.3 134.9 (9.3)
Securities available for sale 135.3 227.4 140.9 57.2 59.6 .9 N/M
Short-term investments 47.2 6.5 21.5 31.4 85.4 145.1 (20.1)
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 5,121.0 4,490.1 4,213.9 4,198.8 4,652.4 4,528.8 2.5
INTEREST EXPENSE
Deposits 1,704.8 1,324.6 1,233.3 1,469.0 2,135.7 2,230.8 (5.2)
Federal funds purchased and securities
sold under repurchase agreements 314.6 243.5 130.2 142.9 213.7 272.3 2.9
Other short-term borrowings 203.5 90.9 44.5 31.1 74.5 67.5 24.7
Long-term debt 261.4 137.8 126.9 107.1 95.5 97.1 21.9
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,484.3 1,796.8 1,534.9 1,750.1 2,519.4 2,667.7 (1.4)
- - - ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 2,636.7 2,693.3 2,679.0 2,448.7 2,133.0 1,861.1 7.2
Provision for loan losses 100.5 125.2 211.7 338.4 466.2 517.2 (27.9)
- - - ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 2,536.2 2,568.1 2,467.3 2,110.3 1,666.8 1,343.9 13.5
NONINTEREST INCOME
Service charges on deposit accounts 278.0 263.2 252.5 236.6 217.4 191.9 7.7
Trust and asset management income 232.4 219.8 244.6 250.8 235.8 217.3 1.4
Loan securitization income 65.6 3.5 .5 -- -- -- N/M
Credit card fees 84.4 76.2 73.5 80.9 71.4 62.3 6.3
Mortgage banking income 41.2 88.0 127.9 97.6 74.3 31.9 5.3
Net securities gains (losses) (40.6) (14.7) 28.3 14.6 18.9 11.5 N/M
Gains on certain asset sales -- -- 29.4 22.9 24.0 4.8 N/M
Other income 272.0 246.6 245.0 221.8 207.5 224.5 3.9
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 933.0 882.6 1,001.7 925.2 849.3 744.2 4.6
NONINTEREST EXPENSE
Personnel 1,114.8 1,059.9 1,100.7 1,013.6 925.3 853.5 5.5
Net occupancy 218.1 216.9 204.2 189.7 184.8 160.6 6.3
Equipment 155.9 158.0 161.3 151.6 134.1 127.4 4.1
FDIC insurance assessments 58.4 98.7 98.7 96.2 84.7 42.4 6.6
Merger and integration charges -- -- 118.7 92.7 93.8 26.9 N/M
Other expense 764.4 633.7 701.5 626.6 643.0 608.7 4.7
- - - ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,311.6 2,167.2 2,385.1 2,170.4 2,065.7 1,819.5 4.9
INCOME BEFORE INCOME TAXES, CUMULATIVE EFFECT
OF ACCOUNTING CHANGE AND EXTRAORDINARY ITEM 1,157.6 1,283.5 1,083.9 865.1 450.4 268.6 33.9
Income taxes 368.4 430.0 374.0 279.6 136.7 15.2 89.2
- - - ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE AND EXTRAORDINARY ITEM 789.2 853.5 709.9 585.5 313.7 253.4 25.5
Cumulative effect of accounting change -- -- -- 6.6 -- 2.7 N/M
Extraordinary net gain 35.8 -- -- -- -- -- N/M
- - - ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 825.0 $ 853.5 $ 709.9 $ 592.1 $ 313.7 $ 256.1 26.4%
======== ======== ======== ======== ======== ========
Net income applicable to Common Shares $809.0 $837.5 $691.8 $568.1 $297.5 $249.0 26.6%
Net income per Common Share:
Before cumulative effect of accounting change
and extraordinary net gain $3.30 $3.45 $2.89 $2.39 $1.31 $1.13 23.9%
After cumulative effect of accounting change
and extraordinary net gain 3.45 3.45 2.89 2.42 1.31 1.13 25.0
Weighted average Common Shares
outstanding (000) 234,787.4 243,067.5 239,775.2 235,004.8 227,116.2 220,078.6 1.3%
Taxable-equivalent adjustment $57.3 $58.8 $63.1 $72.2 $81.7 $90.1 (8.7)%
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
N/M = Not Meaningful
61
<PAGE> 36
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 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, 1995.
/s/ Robert W. Gillespie
Robert W. Gillespie
President and Chief Executive Officer
/s/ Lee Irving
Lee Irving
Executive Vice President and Chief Accounting 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 16, 1996
62
<PAGE> 37
<TABLE>
<CAPTION> KEYCORP AND SUBSIDIARIES
- - - ----------------------------------------------------------------------------------------------------------------
Consolidated Balance Sheets
- - - ----------------------------------------------------------------------------------------------------------------
December 31,
dollars in thousands 1995 1994
- - - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,443,820 $ 3,511,368
Short-term investments 682,341 670,010
Mortgage loans held for sale 640,535 355,198
Securities available for sale 8,059,952 2,521,049
Investment securities (fair value: $1,738,095 and $9,757,032) 1,687,752 10,275,638
Loans 47,691,700 46,224,644
Less: Allowance for loan losses 876,036 830,298
- - - ---------------------------------------------------------------------------------------------------------------
Net loans 46,815,664 45,394,346
Premises and equipment 1,029,830 987,231
Intangible assets 1,070,326 598,887
Corporate owned life insurance 1,087,979 507,638
Other assets 1,820,886 1,979,874
- - - ---------------------------------------------------------------------------------------------------------------
Total assets $66,339,085 $66,801,239
=========== ===========
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 9,281,016 $ 9,135,760
Interest-bearing 36,763,870 36,003,352
Deposits in foreign offices--interest-bearing 1,237,039 3,425,125
- - - ---------------------------------------------------------------------------------------------------------------
Total deposits 47,281,925 48,564,237
Federal funds purchased and securities sold under repurchase agreements 5,544,080 5,499,117
Other short-term borrowings 2,880,289 3,277,611
Other liabilities 1,476,682 1,200,052
Long-term debt 4,003,565 3,569,794
- - - ---------------------------------------------------------------------------------------------------------------
Total liabilities 61,186,541 62,110,811
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value; authorized 25,000,000 shares, none issued -- --
10% Cumulative Preferred Stock Class A, $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;
issued 245,944,390 shares 245,944 245,944
Capital surplus 1,500,510 1,454,177
Retained earnings 3,632,658 3,161,293
Loans to ESOP trustee (51,409) (63,909)
Net unrealized gains (losses) on securities, net of taxes 47,670 (115,280)
Treasury stock, at cost (12,241,569 and 5,582,273 shares) (382,829) (151,797)
- - - ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 5,152,544 4,690,428
- - - ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $66,339,085 $66,801,239
=========== ===========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
63
<PAGE> 38
KEYCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - - -------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Income
- - - -------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
dollars in thousands, except per share amounts 1995 1994 1993
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $4,319,610 $3,608,488 $3,313,689
Mortgage loans held for sale 15,372 51,133 74,062
Taxable investment securities 520,908 506,971 556,381
Tax-exempt investment securities 82,586 89,548 107,363
Securities available for sale 135,266 227,414 140,895
Short-term investments 47,254 6,516 21,484
- - - -------------------------------------------------------------------------------------------------------------------------
Total interest income 5,120,996 4,490,070 4,213,874
INTEREST EXPENSE
Deposits 1,704,775 1,324,576 1,233,331
Federal funds purchased and securities
sold under repurchase agreements 314,657 243,532 130,213
Other short-term borrowings 203,500 90,924 44,451
Long-term debt 261,363 137,794 126,902
- - - -------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,484,295 1,796,826 1,534,897
- - - -------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 2,636,701 2,693,244 2,678,977
Provision for loan losses 100,507 125,157 211,662
- - - -------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 2,536,194 2,568,087 2,467,315
NONINTEREST INCOME
Service charges on deposit accounts 278,030 263,192 252,537
Trust and asset management income 232,375 219,804 244,646
Loan securitization income 65,644 3,490 498
Credit card fees 84,422 76,220 73,466
Insurance and brokerage income 60,492 58,619 65,685
Mortgage banking income 41,255 87,971 127,869
Net securities gains (losses) (40,643) (14,673) 28,319
Gains on certain asset sales -- -- 29,410
Other income 211,452 187,999 179,276
- - - -------------------------------------------------------------------------------------------------------------------------
Total noninterest income 933,027 882,622 1,001,706
NONINTEREST EXPENSE
Personnel 1,114,822 1,059,859 1,071,444
Net occupancy 218,076 216,946 204,205
Equipment 155,921 158,074 161,281
FDIC insurance assessments 58,418 98,678 98,707
Amortization of intangibles 77,387 58,518 58,050
Professional fees 73,048 50,020 53,274
Marketing 70,859 58,583 60,400
Merger and integration charges -- -- 118,718
Other expense 543,033 466,560 559,044
- - - -------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 2,311,564 2,167,238 2,385,123
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 1,157,657 1,283,471 1,083,898
Income taxes 368,465 429,981 373,972
- - - -------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEM 789,192 853,490 709,926
Extraordinary net gain from the sales of
subsidiaries, net of income taxes of $25,351 35,790 -- --
- - - -------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 824,982 $ 853,490 $ 709,926
========== ========== ==========
Net income applicable to Common Shares $808,982 $837,490 $691,829
Per Common Share:
Income before extraordinary item $3.30 $3.45 $2.89
Net Income 3.45 3.45 2.89
Weighted average Common Shares outstanding 234,787,423 243,067,487 239,775,188
- - - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
64
<PAGE> 39
<TABLE>
<CAPTION>
KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Changes in Shareholder's Equity
- - - ------------------------------------------------------------------------------------------------------------------------------------
Loans to Net Unrealized Treasury
Preferred Common Capital Retained ESOP Gains (Losses) Stock
dollars in thousands, except per share amounts Stock Shares Surplus Earnings Trustee on Securities at Cost
- - - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $243,970 $237,364 $1,336,556 $2,206,051 $(65,478) $ (31,175)
Adjustment related to change in accounting
for contributions (8,022)
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 payment from ESOP trustee 1,569
- - - ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 160,000 242,828 1,433,861 2,633,428 (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 secur-
ities, 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 3,161,293 (63,909) (115,280) (151,797)
Net income 824,982
Cash dividends:
Common Shares ($1.44 per share) (338,747)
Cumulative Preferred Stock ($12.50 per share) (16,000)
Issuance of Common Shares:
Acquisitions--15,507,562 shares 54,616 441,743
Dividend reinvestment, stock option
and purchase plans--1,808,592 net shares (8,283) 50,828
Repurchase of Common Shares--23,975,450 shares (723,603)
Change in net unrealized gains (losses) on secur-
ities, net of deferred tax expense of $85,453 162,950
Tax benefits attributable to ESOP dividends 1,130
Loan payment from ESOP trustee 12,500
- - - ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995 $160,000 $245,944 $1,500,510 $3,632,658 $(51,409) $ 47,670 $(382,829)
======== ======== ========== ========== ======== ======== =========
- - - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
65
<PAGE> 40
<TABLE>
<CAPTION>
KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------------------------------------------------------
Consolidated Statements of Cash Flow
- - - -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
in thousands 1995 1994 1993
- - - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 824,982 $ 853,490 $ 709,926
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 100,507 125,157 211,662
Depreciation expense 137,990 121,912 110,852
Amortization of intangibles 77,387 58,518 58,050
Amortization of purchased mortgage servicing rights 7,372 37,271 56,566
Net gain from sales of subsidiaries (61,141) -- --
Gains on certain asset sales -- -- (29,410)
Net securities (gains) losses 40,643 14,673 (28,319)
Gains on sales of mortgage servicing rights -- (3,045) (25,494)
(Gains) losses on sales of other real estate owned 11,580 (2,094) 748
Deferred income taxes 168,707 170,334 49,431
Net (increase) decrease in mortgage loans held for sale 225,789 996,682 (386,797)
Net (increase) decrease in trading account assets 92,832 (90,099) (32,428)
Other operating activities, net 790,721 (415,374) 279,799
- - - -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,417,369 1,867,425 974,586
INVESTING ACTIVITIES
Net increase in loans (3,042,532) (5,869,912) (2,007,283)
Loans sold 1,586,563 547,700 200,000
Purchases of investment securities (1,413,016) (4,444,870) (5,441,846)
Proceeds from sales of investment securities 14,544 23,043 142,092
Proceeds from prepayments and maturities of investment securities 2,117,899 2,544,315 3,709,134
Purchases of securities available for sale (697,002) (898,848) (280,634)
Proceeds from sales of securities available for sale 2,927,309 2,232,569 630,761
Proceeds from prepayments and maturities of securities available for sale 659,605 517,398 445,559
Net (increase) decrease in short-term investments 63,289 (138,278) 1,072,817
Purchases of premises and equipment (178,759) (204,513) (172,157)
Proceeds from sales of premises and equipment 13,745 25,333 24,492
Proceeds from sales of other real estate owned 53,646 73,805 189,571
Purchases of mortgage servicing rights -- (43,437) (77,312)
Purchases of corporate owned life insurance (544,757) (240,000) (135,000)
Proceeds from sales of subsidiaries 357,114 -- 153,254
Net cash provided by (used in) acquisitions, net of cash acquired (193,118) 40,167 (37,427)
- - - -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,724,530 (5,835,528) (1,583,979)
FINANCING ACTIVITIES
Net increase (decrease) in deposits (3,001,259) 599,907 (57,506)
Net increase (decrease) in short-term borrowings (539,233) 2,858,177 695,185
Net proceeds from issuance of long-term debt 646,135 1,954,060 556,439
Payments on long-term debt (285,526) (154,325) (568,529)
Loan payment received from ESOP trustee 12,500 -- 1,569
Redemption of preferred stock -- -- (85,770)
Purchases of treasury shares (723,603) (215,598) --
Proceeds from issuance of common stock pursuant to employee
stock purchase, stock option and dividend reinvestment plans 36,286 18,623 28,238
Cash dividends (354,747) (358,811) (262,532)
- - - -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,209,447) 4,702,033 307,094
- - - -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (67,548) 733,930 (302,299)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 3,511,368 2,777,438 3,079,737
- - - -----------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 3,443,820 $ 3,511,368 $ 2,777,438
- - - -----------------------------------------------------------------------------------------------------------------------------
Additional disclosures relative to cash flow:
Interest paid $2,467,923 $1,753,894 $1,529,058
Income taxes paid 254,622 263,378 306,489
Net amount (paid) received on portfolio swaps (78,081) 79,314 148,818
Noncash items:
Net transfer of loans to other real estate owned $21,216 $52,664 $88,709
Net transfer of securities from investment to available-for-sale portfolio 8,016,324 2,723,143 --
Transfers of loans to mortgage loans held for sale 1,508,874 -- --
- - - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
See Notes to Consolidated Financial Statements.
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- - - -------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - - -------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
- - - -------------------------------------------------------------------------
ORGANIZATION
KeyCorp is an Ohio corporation and a bank holding company headquartered in
Cleveland, Ohio, engaged primarily in the business of commercial and retail
banking. It 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. 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.
In addition to the customary banking services of accepting deposits and making
loans, KeyCorp'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.
KeyCorp provides other financial services both in and outside of its primary
banking markets through its nonbank subsidiaries. These services include
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.
KeyCorp is also an equity participant in a joint venture with a number of other
unaffiliated bank holding companies in Electronic Payment Services, Inc.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
judgments in determining the amounts presented in the consolidated financial
statements and related notes thereto. Accordingly, future results could be
impacted by differences in such estimates.
The accounting policies of KeyCorp and its subsidiaries (the "Corporation")
conform with generally accepted accounting principles and prevailing practices
within the financial services industry. Following is a summary of the
Corporation's significant accounting and reporting policies.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of KeyCorp and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been made to prior
year amounts to conform with the current year presentation.
During the first quarter of 1995, the Corporation adopted Statement of
Financial Accounting Standards ("SFAS") No. 116, "Accounting for Contributions
Received and Contributions Made." This new accounting standard requires, among
other things, that unconditional multi-year commitments to make charitable
contributions be recognized as expense in the period in which the commitment is
made, as opposed to the period in which the payment takes place. SFAS No. 116
was adopted by restating all periods presented with the cumulative effect of
$8.0 million recorded as an adjustment to January 1, 1993, retained earnings.
The effect of adopting SFAS No. 116 on subsequent periods was not material, and
therefore, the results of operations for those periods were not restated.
BUSINESS COMBINATIONS
In business combinations accounted for as poolings of interests (mergers), 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, when material.
In business combinations accounted for as purchases, the results of operations
of the acquired companies are included from the respective dates of
acquisition. Net assets of the companies acquired are recorded at their fair
value at the date of acquisition. 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 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 or 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
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KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- - - -----------------------------------------------------------------------------
investments on the balance sheet. Realized and unrealized gains and losses are
reported in other income on the income statement.
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 and losses from sales of securities available for sale are computed using
the specific identification method and included in net securities gains
(losses) on the income statement.
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. When commitments to sell exist, market value is assumed to be the
contracted sales price.
LOANS
Loans are carried at the principal amount outstanding, net of unearned income,
including net deferred loan fees and costs. 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 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.
IMPAIRED AND OTHER NONACCRUAL LOANS
The accrual of interest on loans is generally discontinued when payment is over
90 days past due, unless the loan is well secured and in the process of
collection. When accrual of interest is discontinued on a loan, the interest
accrued but not collected is charged against the allowance for loan losses.
Thereafter, payments received are generally applied to principal. However,
based on management's assessment of the ultimate collectibility of a nonaccrual
loan, interest income may be recognized on a cash basis.
Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures." In accordance
with SFAS No. 114, the Corporation excludes smaller-balance, homogeneous loans
from its impairment evaluation. All other loans with payments over 90 days past
due and on nonaccrual status are considered impaired. Impaired loans and other
nonaccrual loans (smaller-balance, homogeneous 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.
Impaired loans are evaluated individually. Where collateral exists, the extent
of impairment is determined based on the estimated fair value of the underlying
collateral. If collateral does not exist, or is insufficient to support the
carrying value of the loan, management looks to other means of collection.
Where the estimated fair value of the collateral and the present value of the
estimated future cash flows from other means of collection do not support the
carrying value of the loan, management charges off that portion of the loan
balance which it believes will not ultimately be collected. In instances where
collateral or other sources of repayment are sufficient, yet uncertainty exists
regarding the ultimate repayment, an allowance is specifically allocated for in
the allowance for loan losses.
For all other nonaccrual loans (smaller-balance, homogeneous loans) management
applies historical loss experience rates, adjusted based on management's
assessment of emerging credit trends and other factors. The resulting loss
estimates are specifically allocated for by loan type in the allowance for loan
losses. In general, such loans are charged off when payment is 120-180 days
past due.
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.
DERIVATIVES USED FOR ASSET AND LIABILITY
MANAGEMENT PURPOSES
The Corporation uses interest rate swaps, forwards and purchased options in the
management of its interest rate risk. These instruments are used to modify the
repricing or maturity characteristics of specified assets or liabilities, are
linked to the related assets or liabilities being managed (at inception and
throughout the derivative contract) and are not included in the financial
statements. The net interest income or expense associated with such derivatives
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 such contracts is recorded in other assets or other
liabilities on the balance sheet. Realized gains and losses resulting from the
early termination of such contracts are deferred as an adjustment to the
carrying value of the asset or liability. The deferred gain or loss is
amortized using the straight-line method over the shorter of the projected
remaining life of the related contract at its termination or that of the
underlying asset or liability.
DERIVATIVES USED FOR TRADING PURPOSES
Derivatives that are not used for asset and liability management purposes are
considered to be used for trading purposes. Such derivatives are entered into
for the purpose of making a market for customers and for proprietary trading
purposes. They typically include financial futures, foreign exchange forward
and spot contracts, written and purchased options (including currency options),
68
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KEYCORP AND SUBSIDIARIES
- - - -----------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- - - -----------------------------------------------------------------------------
and interest rate caps, floors and swaps. All derivatives used for trading
purposes are recorded at fair value and changes in fair value (including
applicable payments and receipts) are recorded in other income on the income
statement. The determination of fair value considers the remaining cost to
service the derivative and the credit risk associated with the counterparty to
the derivative. These derivatives are included in other assets on the balance
sheet, if the derivative's fair value is positive, or in other liabilities if
the fair value is negative. Positions are not netted unless the right of offset
exists and certain other criteria are met.
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.
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, 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 5 to 15 years. Other intangibles
are generally being amortized using the straight-line method over periods
ranging from 4 to 15 years. The Corporation periodically reviews its intangible
assets for possible impairment.
OTHER REAL ESTATE OWNED
Other real estate owned includes real estate acquired through foreclosure or a
similar conveyance of title. This asset is carried at the lower of its recorded
amount (net of allowance) or fair value, less estimated cost of disposal and is
included in other assets on the balance sheet. Write-downs of the assets at, or
prior to, the dates of acquisition are charged to the allowance for loan
losses. Subsequent write-downs, income and expenses incurred in connection
with holding such assets and gains and losses resulting from the sales of such
assets are included in other expense on the income statement.
EMPLOYEE STOCK OPTIONS
The terms of employee stock options granted under incentive compensation plans
require that the exercise price of the options be equal to or greater than the
fair market value of KeyCorp's Common Shares at the date the options are
granted. The Corporation accounts for these options in accordance with
Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to Employees," and, accordingly, no compensation expense related to
these option grants is recognized.
SECURITIZATION INCOME
As part of its ongoing business, the Corporation securitizes and sells certain
loans. The securitizations involve the transfer of a pool of loans with similar
characteristics to a trust (unaffiliated with the Corporation), wherein
securities (representing undivided interests in or obligations of the trust)
are purchased by investors. The Corporation continues to administer or service
the sold loans, and earns loan securitization income by providing these
services at rates stipulated in agreements with the various securitization
trusts.
Loan securitization income also includes gains recorded upon the securitization
and sale of loans. Gains are recorded at the net cash proceeds, adjusted for
the recognition of an excess servicing asset. The excess servicing asset is
estimated as the present value of the loan's future cash flows (net of the
securities' obligations), in excess of income realized from the administration
or servicing of the loans. The cash flow related to this asset is expected to
accrue to the Corporation during the life of the securitization trust. The fair
value of the excess servicing asset is recorded in other assets on the balance
sheet upon the securitization and sale of loans.
MARKETING COSTS
The Corporation expenses all marketing related costs, including advertising
costs, as incurred.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
SFASNo. 109, "Accounting for Income Taxes." 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.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued SFASNo. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," SFASNo. 122, "Accounting for Mortgage Servicing Rights --
an Amendment of SFAS No. 65," and SFAS No. 123, "Accounting for Stock-Based
Compensation." None of these new accounting standards had been adopted by the
Corporation as of December 31, 1995. The standards apply to financial
statements for periods beginning after December 15, 1995. These standards,
which were adopted as of January 1, 1996, did not have a material effect on the
Corporation's financial condition or results of operations. With respect to the
adoption of SFAS No. 123, the Corporation will continue to account for stock
options issued to employees under APBO No. 25, "Accounting for Stock Issued to
Employees."
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- - - ----------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- - - ----------------------------------------------------------------------------
2. Mergers, Acquisitions and Divestitures
- - - ----------------------------------------------------------------------------
COMPLETED TRANSACTIONS
AUTOFINANCE GROUP, INC.
On September 27, 1995, KeyCorp acquired AutoFinance Group, Inc. ("AFG"), a
Chicago-based automobile finance company operating in 28 states, in a tax-free
exchange of stock. Under the terms of the merger agreement, 9,554,003 KeyCorp
Common Shares, with a value of approximately $325 million, were exchanged for
all of the outstanding shares of AFG common stock (based on an exchange ratio
of .5 shares for each share of AFG). In addition, immediately prior to the
closing, AFG completed a spin-off to its shareholders of 95.01% of its common
stock interest in Patlex Corporation, a wholly owned patent exploitation and
enforcement subsidiary. In connection with the acquisition of AFG, which was
accounted for as a purchase, KeyCorp recorded goodwill of approximately $270
million, which is being amortized using the straight-line method over a period
of 25 years.
SCHAENEN WOOD & ASSOCIATES, INC.
On April 21, 1995, KeyCorp Asset Management Holdings, Inc., an indirect wholly
owned subsidiary of KeyCorp, sold Schaenen Wood & Associates, Inc., an asset
management subsidiary. An $11.2 million loss was realized in connection with
the sale ($5.8 million after tax, $.02 per Common Share) and recorded as an
extraordinary item in the first quarter.
KEYCORP MORTGAGE INC.
On March 31, 1995, KeyCorp sold the residential mortgage servicing operations
of KeyCorp Mortgage Inc. ("KMI"), an indirect wholly owned subsidiary of
KeyCorp. KMI serviced approximately $25 billion of residential mortgage loans.
KeyCorp continues to service commercial mortgages, to originate residential
mortgage loans through its banking franchise and to sell the rights to service
residential mortgages through Key Mortgage Services, Inc., an indirect newly
formed subsidiary. A $72.3 million gain was realized on the KMI sale ($41.6
million after tax, $.17 per Common Share) and recorded as an extraordinary
item.
KEYCORP-SOCIETY MERGER
On March 1, 1994, KeyCorp, a New York corporation ("old KeyCorp"), merged into
and with Society Corporation, an Ohio corporation ("Society"), which was the
surviving corporation under the name KeyCorp. Under the terms of the merger
agreement, 124,351,183 KeyCorp Common Shares were exchanged for
<TABLE>
<CAPTION>
Mergers and acquisitions completed by KeyCorp during the three years ended
December 31, 1995, along with the related accounting treatment, are as follows:
Common
dollars in millions Location Date Assets Shares Issued Cash Paid
- - - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
POOLINGS OF INTERESTS
The Bank of Greeley1 Colorado December 1994 $ 60 259,697 --
Commercial Bancorporation of Colorado1 Colorado March 1994 409 2,900,389 --
KeyCorp-Society2 New York/Ohio March 1994 See note 2 124,351,183 --
Jackson County Federal Bank1 Oregon December 1993 338 1,430,813 --
Home Federal Savings Bank1 Colorado June 1993 230 590,485 --
National Savings Bank of Albany1 New York February 1993 671 2,111,638 --
Puget Sound Bancorp2 Washington January 1993 4,700 31,391,544 --
PURCHASES
AutoFinance Group, Inc.2 Illinois September 1995 181 9,554,003 --
Spears, Benzak, Salomon & Farrell, Inc. New York April 1995 See note 3 1,910,000 --
OMNIBANCORP Colorado February 1995 500 4,043,559 --
Casco Northern Bank, National Association Maine February 1995 945 -- $205
BANKVERMONT Corporation Vermont January 1995 661 -- 90
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
- - - ----------------------------------------------------------------------------------------------------------------------------------
<FN>
1 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.
2 See text for more information regarding these transactions.
3 Spears, Benzak, Salomon & Farrell, Inc. is an investment management firm that had approximately $3.2 billion in assets under
management on the date of acquisition.
</TABLE>
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- - - ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- - - ------------------------------------------------------------------------------
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. 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.
A $29.4 million gain was realized on the sale ($12.2 million after tax, $.05
per Common Share) and included in gains on certain asset sales on the income
statement in 1993.
PUGET SOUND BANCORP
On January 15, 1993, Puget Sound Bancorp ("PSB"), a bank holding company
headquartered in Tacoma, Washington, 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.
TRANSACTION PENDING AS OF DECEMBER 31, 1995
SOCIETY FIRST FEDERAL SAVINGS BANK
On November 20, 1995, KeyCorp entered into a definitive agreement for the sale
of Society First Federal Savings Bank, its Florida savings association
subsidiary. The transaction is expected to close in the second quarter of 1996,
pending necessary regulatory approvals. Following consummation of the sale, and
subject to regulatory approval, KeyCorp expects to continue to provide certain
banking services in Florida through its trust company subsidiary in Naples,
Florida.
- - - ------------------------------------------------------------------------------
3. Securities Available for Sale
- - - ------------------------------------------------------------------------------
The amortized cost, unrealized gains and losses and approximate fair values of
securities available for sale were as follows:
<TABLE>
<CAPTION>
December 31, 1995 Gross Gross
Amortized Unrealized Unrealized Fair
in thousands Cost Gains Losses Value
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury, agencies and corporations $1,175,841 $ 25,611 $ 125 $1,201,327
States and political subdivisions 24,574 985 95 25,464
Collateralized mortgage obligations 2,766,873 7,713 23,964 2,750,622
Other mortgage-backed securities 3,850,237 72,549 21,409 3,901,377
Other securities 176,144 5,330 312 181,162
- - - ----------------------------------------------------------------------------------------------------------------
Total $7,993,669 $112,188 $45,905 $8,059,952
========== ======== ======= ==========
- - - ----------------------------------------------------------------------------------------------------------------
December 31, 1994 Gross Gross
Amortized Unrealized Unrealized Fair
in thousands 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
Collateralized mortgage obligations 10,127 -- 131 9,996
Other mortgage-backed securities 1,324,005 211 105,858 1,218,358
Other securities 223,299 47 9,028 214,318
- - - ----------------------------------------------------------------------------------------------------------------
Total $2,654,028 $1,567 $134,546 $2,521,049
========== ====== ======== ==========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
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- - - ------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- - - ------------------------------------------------------------------------------
Upon adoption of SFAS No. 115, effective January 1, 1994, 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 fourth quarter of 1995, the FASB granted companies a one-time
opportunity to reassess and, if appropriate, reclassify their securities from
the held-to-maturity category to the available-for-sale category without
calling into question the company's intent to hold other debt securities to
maturity in the future. This opportunity appears to have been granted in
response to appeals by the banking industry following a clarification of the
position of the bank regulatory authorities on related securities accounting
matters, a position which if known prior to the effective date of SFAS No. 115
would have caused the Corporation to classify significantly more securities as
available for sale upon adoption of SFAS No. 115. As a result, during the
fourth quarter the Corporation reclassified substantially all held-to-maturity
debt securities, except securities of states and political subdivisions, to the
available-for-sale category. The reclassified securities totaled approximately
$8.0 billion and had an amortized cost which approximated fair value.
At December 31, 1995, approximately $8.1 billion of securities were classified
as available for sale and shareholders' equity was increased by $47.7 million,
representing the net unrealized gain on these securities, net of deferred
income taxes.
Securities available for sale by remaining contractual maturity were as
follows, with collateralized mortgage obligations and other mortgage-backed
securities included in the maturity schedule based on their expected average
lives.
<TABLE>
<CAPTION>
December 31, 1995 Amortized Fair
in thousands Cost Value
- - - ---------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 736,915 $ 744,732
Due after one through five years 4,394,705 4,420,219
Due after five through ten years 2,677,319 2,691,040
Due after ten years 184,730 203,961
- - - ---------------------------------------------------------------------------------
Total $7,993,669 $8,059,952
========== ==========
- - - ---------------------------------------------------------------------------------
</TABLE>
Other securities consist primarily of corporate floating-rate notes and equity
securities.
Proceeds from the sales of securities available for sale were $2.9 billion,
$2.2 billion and $630.8 million during 1995, 1994 and 1993, respectively. Gross
realized gains and losses related to those securities were $15.4 million and
$56.0 million, respectively, in 1995; $14.9 million and $29.6 million,
respectively, in 1994; and $35.3 million and $.02 million, respectively, in
1993.
<TABLE>
- - - -------------------------------------------------------------------------------------------------
4. Investment Securities
- - - -------------------------------------------------------------------------------------------------
The amortized cost, unrealized gains and losses and approximate fair values of
investment securities were as follows:
<CAPTION>
December 31, 1995 Gross Gross
Amortized Unrealized Unrealized Fair
in thousands Cost Gains Losses Value
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury, agencies and corporations $ 4,911 $ 102 -- $ 5,013
States and political subdivisions 1,424,116 51,059 $763 1,474,412
Other securities 258,725 -- 55 258,670
- - - ----------------------------------------------------------------------------------------------------------------
Total $1,687,752 $51,161 $818 $1,738,095
========== ======= ==== ==========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Fair
in thousands Cost Gains Losses Value
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
Collateralized mortgage obligations 3,777,520 247 256,397 3,521,370
Other mortgage-backed securities 4,056,649 9,776 225,029 3,841,396
Other securities 400,316 875 41,086 360,105
- - - ----------------------------------------------------------------------------------------------------------------
Total $10,275,638 $44,507 $563,113 $9,757,032
=========== ======= ======== ==========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
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- - - -------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - -------------------------------------------------------------------------------
Investment securities by remaining contractual maturity were as follows:
December 31, 1995
<TABLE>
<CAPTION>
Amortized Fair
in thousands Cost Value
- - - --------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 710,544 $ 711,277
Due after one through five years 648,477 669,363
Due after five through ten years 256,494 280,119
Due after ten years 72,237 77,336
- - - --------------------------------------------------------------------------------
Total $1,687,752 $1,738,095
========== ==========
- - - --------------------------------------------------------------------------------
</TABLE>
Other securities in 1995 consisted primarily of those collateralized by Federal
Reserve Bank stock, corporate floating-rate notes and venture capital
investments. In 1994, other securities included the above securities as well as
those secured by credit card and automobile installment loan receivables.
Proceeds from the sales of investment securities were $14.5 million, $23.0
million and $142.1 million during 1995, 1994 and 1993, respectively. In 1995
and 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.
At December 31, 1995, investment securities and available-for-sale securities
with an aggregate amortized cost of approximately $7.4 billion were pledged to
secure public and trust deposits, securities sold under repurchase agreements
and for other purposes required or permitted by law.
- - - --------------------------------------------------------------------------------
5. Loans
- - - --------------------------------------------------------------------------------
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- - - -------------------------------------------------------------------
<S> <C> <C>
Commercial, financial and agricultural $11,534,650 $10,190,582
Real estate--construction 1,519,881 1,287,195
Real estate--commercial mortgage 7,253,671 6,774,860
Real estate--residential mortgage 12,176,834 13,567,077
Consumer 10,117,649 10,183,798
Student loans held for sale 2,081,185 1,816,524
Lease financing 2,887,040 2,307,212
Foreign 120,790 97,396
- - - -------------------------------------------------------------------
Total $47,691,700 $46,224,644
=========== ===========
- - - -------------------------------------------------------------------
</TABLE>
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 830,298 $ 802,712 $ 782,649
Charge-offs (207,982) (208,791) (303,160)
Recoveries 108,800 99,640 90,385
- - - ----------------------------------------------------------------------------------------------------------------
Net charge-offs (99,182) (109,151) (212,775)
Provision for loan losses 100,507 125,157 211,662
Allowance acquired/sold, net 43,865 11,580 21,176
Transfer from OREO allowance 548 -- --
- - - ----------------------------------------------------------------------------------------------------------------
Balance at end of year $ 876,036 $ 830,298 $ 802,712
========= ========= =========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
73
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KEYCORP AND SUBSIDIARIES
- - - ----------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - ----------------------------------------------------------------------------
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 "related party" loans, in
management's opinion, did not present more than the normal risk of
collectibility or incorporate other unfavorable features at their origination
dates. The aggregate amount of loans outstanding to qualifying related parties
at January 1, 1995, was $193.3 million. During 1995, activity with respect to
these loans included new loans of $81.7 million, repayments of $81.4 million
and a net decrease of $16.1 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, 1995, was $177.5
million.
Portfolio interest rate swaps are used to manage interest rate risk by
modifying the repricing and maturity characteristics of certain loans.
Additional information pertaining to the notional amount, fair value and
weighted average rate of such swaps as of December 31, 1995, is presented in
Note 17, Financial Instruments with Off-Balance Sheet Risk, beginning on page
84.
- - - ----------------------------------------------------------------------------
6. Nonperforming Assets
- - - ----------------------------------------------------------------------------
Effective January 1, 1995, the Corporation adopted SFASNo. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures." SFAS No. 114
requires loans to be measured for impairment when it is probable that all
amounts, including principal and interest, will not be collected in accordance
with the contractual terms of the loan agreement. SFAS No. 114 applies to all
loans, except for large groups of smaller-balance, homogeneous loans that are
collectively evaluated for impairment, loans that are measured at fair value or
at the lower of cost or fair value, leases, and debt securities. SFAS No. 118
amends SFASNo. 114 by eliminating certain income recognition provisions and by
expanding disclosure requirements. Adoption of these standards did not have a
material impact on the Corporation's financial condition or results of
operations.
The Corporation considers all nonaccrual loans to be impaired loans, except for
smaller-balance, homogeneous loans excluded by the requirements of SFAS No.
114. A loan is not deemed impaired during a period of delay in payment of 90
days or less if the Corporation expects to collect all amounts due, including
interest accrued at the contractual interest rate, for the period of delay.
The Corporation excludes smaller-balance, homogeneous nonaccrual loans from its
impairment evaluation. Generally these include loans to finance residential
mortgages, automobiles, recreational vehicles, boats and mobile homes. The
Corporation applies historical loss experience rates to these loans, adjusted
based on management's assessment of emerging credit trends and other factors.
The resulting loss estimates are specifically allocated for by loan type in the
allowance for loan losses. In general, such loans are charged off when payment
is 120-180 days past due.
In accordance with SFAS No. 114, loans are to be classified in other real
estate owned ("OREO") only when the creditor has taken possession of the
collateral. Accordingly, $19.9 million of loans previously classified as
in-substance foreclosures, but for which the Corporation had not taken
possession of the collateral, were reclassified to loans during the first
quarter of 1995. Similarly, any allowance for OREO losses related to these
assets was reclassified to the allowance for loan losses.
At December 31, 1995, the recorded investment in impaired loans was $204.9
million. Included in this amount is $126.1 million of impaired loans for which
the specifically allocated allowance for loan losses was $40.2 million, and
$78.8 million of impaired loans which are carried at their estimated fair value
and, therefore, did not have a specifically allocated allowance for loan
losses. The average recorded investment in impaired loans for 1995 was $187.1
million.
74
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KEYCORP AND SUBSIDIARIES
- - - ------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - ------------------------------------------------------------------------------
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- - - -------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans1 $204,948 --
Other nonaccrual loans 125,410 $254,499
Restructured loans 2,549 1,550
- - - -------------------------------------------------------------------------------
Total nonperforming loans 332,907 256,049
Other real estate owned 56,388 100,265
Allowance for OREO losses (14,112) (21,258)
- - - -------------------------------------------------------------------------------
Other real estate owned,
net of allowance 42,276 79,007
Other nonperforming assets 3,420 4,777
- - - -------------------------------------------------------------------------------
Total nonperforming assets $378,603 $339,833
======== ========
- - - -------------------------------------------------------------------------------
</TABLE>
[FN]
1 Effective January 1, 1995, the Corporation adopted SFASNo. 114, which requires
the separate disclosure of impaired loans. Prior to January 1, 1995, impaired
loans were included in "Other nonaccrual loans."
The effect on interest income of loans classified as nonperforming at December
31 was as follows:
<TABLE>
<CAPTION>
in thousands 1995 1994 1993
- - - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income which would have
been recorded if assets had been
current under original terms $ 31,384 $ 20,484 $ 30,037
Less: Interest income recorded
during the period (11,102) (5,132) (7,900)
- - - --------------------------------------------------------------------------------
Net reduction to reported
interest income $ 20,282 $ 15,352 $ 22,137
======== ======== ========
- - - --------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, there were no significant commitments to lend additional
funds to borrowers with restructured loans or loans on nonaccrual status.
Changes in the allowance for OREO losses are summarized as follows:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 21,258 $ 35,690 $ 17,915
Net charge-offs (16,281) (21,808) (21,697)
Provision for losses on other real estate owned 12,670 7,162 39,132
Allowance acquired/sold, net (2,987) 214 340
Transfer to allowance for loan losses (548) -- --
- - - -----------------------------------------------------------------------------------------------------------------
Balance at end of year $ 14,112 $ 21,258 $ 35,690
======== ======== ========
- - - -----------------------------------------------------------------------------------------------------------------
</TABLE>
- - - -------------------------------------------------------------------------------
7. Premises and Equipment
- - - -------------------------------------------------------------------------------
Premises and equipment were as follows:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- - - -------------------------------------------------------------------------------
<S> <C> <C>
Land $ 127,366 $ 122,034
Buildings and leasehold improvements 840,697 821,003
Furniture and equipment 871,261 762,757
- - - -------------------------------------------------------------------------------
1,839,324 1,705,794
Accumulated depreciation and
amortization (809,494) (718,563)
- - - -------------------------------------------------------------------------------
Total $1,029,830 $ 987,231
========== ==========
- - - -------------------------------------------------------------------------------
</TABLE>
Depreciation and amortization expense related to premises and equipment totaled
$138.0 million, $121.9 million, and $110.9 million in 1995, 1994, and 1993,
respectively.
At December 31, 1995, 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
$116.9 million in 1995, $124.2 million in 1994 and $123.7 million in 1993.
Minimum future rental payments under noncancelable leases at December 31, 1995,
were as follows: 1996 -- $97.4 million; 1997 -- $86.4 million; 1998 -- $76.6
million; 1999 -- $71.6 million; 2000 -- $67.3 million; and subsequent years --
$534.4 million.
75
<PAGE> 50
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:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- - - ---------------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 899,294 $ 418,462
Core deposit intangibles 142,313 154,146
Credit card intangibles 16,252 19,518
Other 12,467 6,761
- - - ---------------------------------------------------------------------------------
Total(1) $1,070,326 $ 598,887
========== ==========
- - - ---------------------------------------------------------------------------------
Purchased mortgage servicing rights $564 $194,757
- - - ---------------------------------------------------------------------------------
<FN>
(1) Includes accumulated amortization of $220.8 million and $167.7 million at
December 31, 1995 and 1994, respectively.
</TABLE>
The amortization expense for purchased mortgage servicing rights, which are
included in other assets on the balance sheet, totaled $7.4 million, $37.3
million and $56.6 million in 1995, 1994 and 1993, respectively. Substantially
all of the purchased mortgage servicing rights were sold in connection with the
sale of the residential mortgage loan servicing operations of KMI, previously
described in Note 2, Mergers, Acquisitions and Divestitures beginning on page
70.
The amortization expense for intangible assets was as follows:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - -------------------------------------------------------
<S> <C> <C> <C>
Goodwill $45,435 $25,722 $24,210
Core deposit intangibles 25,674 25,428 22,436
Credit card intangibles 3,266 3,196 4,460
Other 3,012 4,172 6,944
- - - -------------------------------------------------------
Total $77,387 $58,518 $58,050
======= ======= =======
- - - -------------------------------------------------------
</TABLE>
<TABLE>
- - - -----------------------------------------------------------------------------------------------------------------------------------
9. Short-Term Borrowings
- - - -----------------------------------------------------------------------------------------------------------------------------------
The details of short-term borrowings were as follows:
<CAPTION>
dollars in thousands 1995 1994 1993
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FEDERAL FUNDS PURCHASED
Balance at year-end $2,983,313 $3,055,369 $1,932,211
Average during the year 3,149,272 3,063,429 1,828,606
Maximum month-end balance 4,186,996 3,322,299 3,127,134
Weighted average rate during the year 5.91% 4.37% 3.06%
Weighted average rate at December 31 5.80 4.91 3.13
- - - -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS
Balance at year-end $2,560,767 $2,443,748 $2,188,047
Average during the year 2,473,261 2,786,957 2,549,582
Maximum month-end balance 2,679,014 2,990,963 3,163,603
Weighted average rate during the year 5.19% 3.94% 2.91%
Weighted average rate at December 31 4.88 4.43 2.84
- - - -----------------------------------------------------------------------------------------------------------------------------------
OTHER SHORT-TERM BORROWINGS
Balance at year-end $2,880,289 $3,277,611 $1,776,192
Average during the year 3,361,704 1,929,631 1,196,188
Maximum month-end balance 4,383,058 3,383,102 1,776,192
Weighted average rate during the year 6.05% 4.71% 3.72%
Weighted average rate at December 31 6.11 5.08 3.16
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 the first quarter of 1995, the Corporation expanded its $5.0 billion
Bank Note Program, which involved four affiliate banks, to allow the issuance
of up to $6.6 billion covering eleven affiliate banks. At December 31, 1995 and
1994, $3.7 billion in debt securities was outstanding under these programs,
with $2.3 billion having original maturities of one year or less. On January
12, 1996, the Bank
76
<PAGE> 51
KEYCORP AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Note Program was further expanded to allow the issuance of up to $12.3 billion
covering twelve affiliate banks.
In the third quarter of 1995, the Corporation's parent company established a
new Commercial Paper/Note Program which provides for the availability of up to
$500.0 million of additional short-term funding. The parent company also
entered into a four-year, $500.0 million revolving credit agreement with
several banks under which the banks have agreed to lend collectively up to
$500.0 million to KeyCorp. The line of credit will be used as a backup source
of liquidity for the Corporation's Commercial Paper/Note Program. There were no
borrowings outstanding under either of these facilities as of December 31,
1995.
Portfolio interest rate swaps are used to manage interest rate risk by
modifying the repricing and maturity characteristics of certain short-term
borrowings. Additional information pertaining to the notional amount, fair
value and weighted average rate of such swaps as of December 31, 1995, is
presented in Note 17, Financial Instruments with Off-Balance Sheet, Risk
beginning on page 84.
<TABLE>
- - - ----------------------------------------------------------------------------------------------------------------
10. Long-Term Debt
- - - ----------------------------------------------------------------------------------------------------------------
The components of long-term debt, presented net of unamortized discount where
applicable, were as follows:
<CAPTION>
December 31,
dollars in thousands 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Senior Medium-Term Notes due through 2005 $ 994,950 $ 705,200
Subordinated Medium-Term Notes due through 2005 182,500 165,000
8.125% Subordinated Notes due 2002 198,395 198,148
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 74,950 74,829
11.125% Notes due 1995 -- 49,992
8.404% Notes due 1997 through 2001 48,864 48,864
8.255% Notes due 1996 22,794 22,794
All other long-term debt 364 374
- - - ----------------------------------------------------------------------------------------------------------------
Total parent company 1,722,817 1,465,201
Senior Medium-Term Bank Notes due through 1997 1,399,213 1,398,245
7.25% Subordinated Notes due 2005 200,000 --
7.85% Subordinated Notes due 2002 199,863 199,843
6.75% Subordinated Notes due 2003 199,011 198,886
Federal Home Loan Bank Advances 267,533 252,328
10.00% Notes due 1995 -- 36,735
Industrial revenue bonds 10,112 10,144
All other long-term debt 5,016 8,412
- - - ----------------------------------------------------------------------------------------------------------------
Total subsidiaries 2,280,748 2,104,593
- - - ----------------------------------------------------------------------------------------------------------------
Total $4,003,565 $3,569,794
========== ==========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Scheduled principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
in thousands Parent Subsidiaries Total
- - - ------------------------------------------------------
<S> <C> <C> <C>
1996 $604,516 $1,146,881 $1,751,397
1997 98,005 428,598 526,603
1998 132,665 29,327 161,992
1999 107,330 51,189 158,519
2000 287,245 756 288,001
- - - ------------------------------------------------------
</TABLE>
In April 1995, KeyCorp updated its universal shelf registration statement on
file with the Securities and Exchange Commission, which provides for the
possible issuance of a broad range of debt and equity securities by the parent
company. The updated filing registered an additional $845.0 million of
securities (up to $750.0 million of which were reserved for future issuance as
Medium-Term Notes). Medium-Term notes issued under the registration statement
totaled $413.5 million and $395.0 million in 1995 and 1994, respectively. The
proceeds from the issuances of these notes, which have original maturities of
more than one year, were used to fund acquisitions and for general corporate
purposes.
77
<PAGE> 52
KEYCORP AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
At December 31, 1995 and 1994, the parent company's Senior Medium-Term Notes,
as presented in the table, had weighted average interest rates of 6.62% and
6.48%, respectively, and the Subordinated Medium-Term Notes had a weighted
average interest rate of 6.88%. Both the Senior and Subordinated Notes had
varying maturities through 2005.
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"). The interest on these notes totaled $6.0
million in each of the years 1995, 1994 and 1993. 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 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 $4.8 million in 1995, $4.4 million in 1994
and $3.9 million in 1993. 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, Society National Bank ("SNB") issued $1.4 billion of Senior
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, 1995 and 1994, SNB's Senior Medium-Term Bank Notes,
as presented in the table, had a weighted average interest rate of 6.71% and
6.72%, respectively, and mature in 1996 and 1997.
Long-term advances from the Federal Home Loan Bank ("FHLB") are at adjustable
and fixed rates ranging from 4.33% to 12.125% at December 31, 1995, and mature
at various dates through 2014. Real estate loans and securities of $353.5
million and $271.3 million at December 31, 1995, and 1994, respectively,
collateralize FHLB advances.
The 7.25% Subordinated Notes, 7.85% Subordinated Notes and 6.75% Subordinated
Notes are obligations of SNB and may not 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% at
December 31, 1995 and 1994.
Other long-term debt at December 31, 1995 and 1994, consisted of capital lease
obligations and various secured and unsecured obligations of corporate
subsidiaries and had weighted average interest rates of 10.36% and 9.64%,
respectively.
Long-term debt qualifying as supplemental capital for purposes of calculating
Tier II capital under Federal Reserve Board Guidelines amounted to $1.1 billion
and $943.2 million at December 31, 1995, and 1994, respectively.
Portfolio interest rate swaps are used to manage interest rate risk by
modifying the repricing and maturity characteristics of certain long-term debt.
Additional information pertaining to the notional amount, fair value and
weighted average rate of such swaps as of December 31, 1995, is presented in
Note 17, Financial Instruments with Off-Balance Sheet Risk, beginning on page
84.
- - - --------------------------------------------------------------------------------
11. Shareholders' Equity
- - - --------------------------------------------------------------------------------
COMMON SHARES AND PREFERRED STOCK
In connection with the KeyCorp-Society merger, shareholders approved an
increase in the number of authorized 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, 1995, 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. The shares of 10% Cumulative Preferred
Stock are redeemable at the option of KeyCorp, in whole or in part, on and
after June 30, 1996, at $125 per share
78
<PAGE> 53
KEYCORP AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
(equivalent to $25 per Depositary Share) plus accrued and unpaid dividends to
the redemption date.
In January 1995, KeyCorp's Board of Directors approved a 12,000,000 Common
Share repurchase program, representing an addition to previously existing
programs. The repurchase of approximately 13,200,000 shares was also
authorized during the first quarter in connection with the acquisitions of AFG
and Spears, Benzak, Salomon & Farrell, Inc. ("Spears Benzak") which are more
fully described in Note 2, Mergers, Acquisitions and Divestitures, beginning on
page 70. During 1995, the Corporation repurchased 23,975,450 shares at a total
cost of $723.6 million (an average of $30.18 per share). Additionally, Treasury
Shares totaling 15,507,562 were reissued in 1995 in connection with the
acquisitions of AFG, OMNIBANCORP and Spears Benzak and 1,808,592 shares were
reissued for employee benefit plans. The 12,241,569 Treasury Shares at December
31, 1995, are expected to be reissued over time in connection with employee
benefit programs, dividend reinvestment plans and other corporate purposes. As
of December 31, 1995, all share repurchase authorizations had been fully
utilized.
Similar to the 1995 action, in January 1996 the Board of Directors approved a
new share repurchase program which authorizes the repurchase of up to an
additional 12,000,000 Common Shares in 1996. Under the new program, shares will
be repurchased from time to time in the open market or through negotiated
transactions and will be available to be reissued in connection with employee
stock purchase, 401(k), stock option, and dividend reinvestment plans and for
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. 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 as to confirm that the KeyCorp-Society merger would not activate the
provisions of the Rights.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
KeyCorp maintains 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 from the date of grant. At December 31, 1995 and 1994, options
for Common Shares available for future grant totaled 4,674,056 and 4,385,377,
respectively.
The following table presents a summary of pertinent information with respect to
KeyCorp's stock options and stock appreciation rights.
<TABLE>
<CAPTION>
Stock Options 1995 1994
--------------------------- -------------------------
Shares Option Price Shares Option Price
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 12,102,036 $ 4.79-- 38.18 9,609,915 $ 4.79-- 38.18
Granted 2,370,690 26.13-- 36.25 3,960,983 25.00-- 35.69
Assumed in acquisition 396,649 .50-- 32.44 327,975 6.46-- 29.15
Exercised 2,134,612 8.41-- 34.65 1,460,899 4.79-- 30.61
Lapsed or cancelled 649,237 10.64-- 38.18 335,938 10.52-- 38.18
- - - ----------------------------------------------------------------------------------------------------------------
Outstanding at end of year 12,085,526 $ .50-- 38.18 12,102,036 $ 4.79-- 38.18
- - - ----------------------------------------------------------------------------------------------------------------
Exercisable at end of year 8,079,108 $ .50-- 38.18 7,833,731 $ 4.79-- 38.18
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Stock Appreciation Rights 1995 1994
-------------------------- -------------------------
Shares Option Price Shares Option Price
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 42,000 $11.69 44,000 $11.69
Exercised or surrendered 30,000 11.69 -- --
Lapsed or cancelled 12,000 11.69 2,000 11.69
- - - ----------------------------------------------------------------------------------------------------------------
Outstanding at end of year -- -- 42,000 $11.69
- - - ----------------------------------------------------------------------------------------------------------------
Exercisable at end of year -- -- 42,000 $11.69
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
79
<PAGE> 54
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) were recorded in 1993 in connection with the March 1, 1994,
merger of old KeyCorp into and with Society. The merger and integration charges
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. There was no remaining accrued liability at December 31,
1995, compared with a liability of $33.5 million at December 31, 1994. The
above merger is described in greater detail in Note 2, Mergers, Acquisitions
and Divestitures beginning on page 70.
- - - --------------------------------------------------------------------------------
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 the adoption of the Cash Balance Plan, a
bookkeeping account was established for each participant and each account was
credited with an opening balance equal to the actuarial present value of
benefits earned under the applicable predecessor plan. The participant's
account is then credited based on qualifying compensation and with interest
determined at a specified rate.
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
below, as of the applicable measurement dates in 1995 and 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 and did not have a material impact on net pension cost.
In 1995, the Corporation changed from a December 31 to a September 30
measurement date for the valuation of its pension and other postretirement
benefit plans' assets and actuarially determined obligations. The change in
measurement date had no effect on 1995 or prior years' net pension and other
postretirement benefits costs.
The Corporation's funding policy is to contribute an amount to the Cash Balance
Plan that meets the minimum funding 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 7.50% and 4.19%,
respectively, at September 30, 1995, and 8.50% and 4.24%, respectively, at
December 31, 1994. The weighted average expected long-term rate of return on
pension assets used in determining net pension cost was 9.50% for both 1995 and
1994, and 9.91% for 1993.
The following table reconciles the funded status of the Cash Balance Plan at
the applicable measurement dates with the amounts recognized in the
consolidated balance sheets at December 31, 1995, and 1994:
<TABLE>
<CAPTION>
in thousands 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $550,295 and $497,653 $570,726 $517,206
- - - ----------------------------------------------------------------------------------------------------------------
Fair value of plan assets, primarily listed stock and fixed income securities1 653,488 573,509
Projected benefit obligation 589,304 527,266
- - - ----------------------------------------------------------------------------------------------------------------
Excess of fair value of plan assets over projected benefit obligation 64,184 46,243
Unrecognized net loss 85,498 116,377
Unrecognized prior service benefit (2,604) (1,890)
Unrecognized net transition asset (28,259) (33,369)
Fourth quarter contribution 3,447 --
- - - ----------------------------------------------------------------------------------------------------------------
Prepaid pension cost (included in other assets) $122,266 $127,361
======== ========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1)Includes 947,242 KeyCorp Common Shares valued at $32.4
million and $23.7 million at September 30, 1995, and December 31, 1994,
respectively. Dividends paid on these shares totaled $1.0 million and $1.2
million for the nine-month period ended September 30, 1995 and the year ended
December 31, 1994, respectively.
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- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The Corporation also maintains several unfunded, non-qualified, supplemental
executive retirement programs that provide additional defined pension benefits
for certain officers. The following table reconciles the status of the unfunded
plans at the applicable measurement dates with the amounts recognized in the
consolidated balance sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
in thousands 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $78,747 and $64,440 $ 78,981 $ 68,619
- - - ----------------------------------------------------------------------------------------------------------------
Projected benefit obligation 90,241 77,013
Benefits paid during fourth quarter (1,115) --
Unrecognized prior service cost (9,446) (13,499)
Unrecognized transition obligation (2,885) (3,367)
Unrecognized net loss (23,642) (14,836)
Adjustment to recognize minimum liability 25,109 25,785
- - - ----------------------------------------------------------------------------------------------------------------
Accrued pension cost (included in other liabilities) $ 78,262 $ 71,096
======== ========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
Net pension cost for all funded and unfunded plans included the following
components:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 27,559 $ 23,253 $ 22,506
Interest cost on projected benefit obligation 49,945 42,484 39,098
Actual (return) loss on plan assets (109,588) 3,214 (44,619)
Net amortization and deferral 53,194 (60,474) (14,229)
- - - ----------------------------------------------------------------------------------------------------------------
Net pension cost $ 21,110 $ 8,477 $ 2,756
========= ======== ========
- - - -----------------------------------------------------------------------------------------------------------------
</TABLE>
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.
Net postretirement benefits cost included the following components:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost of benefits earned $ 1,920 $ 2,769 $ 2,873
Interest cost on accumulated postretirement
benefit obligation 7,682 9,204 8,713
Actual return on plan assets (25) (26) (22)
Amortization of transition obligation
over 20 years 5,186 5,350 5,372
Net other amortization and deferral (754) 498 (10)
- - - ------------------------------------------------------------------------------
Net postretirement benefits cost $14,009 $17,795 $16,926
======= ======= =======
- - - ------------------------------------------------------------------------------
</TABLE>
The following table reconciles the plans' combined funded status at the
applicable measurement dates with the amounts recognized in the consolidated
balance sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
in thousands 1995 1994
- - - ---------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 65,437 $ 97,705
Fully eligible plan participants 11,218 9,199
Other active plan participants 25,617 23,896
- - - ---------------------------------------------------------------------------
102,272 130,800
Fair value of plan assets 313 418
- - - ---------------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan assets 101,959 130,382
Amount contributed to life insurance
plan during fourth quarter (200) --
Health care benefits paid during
fourth quarter (2,289) --
Unrecognized transition obligation (88,165) (95,475)
Unrecognized net gain (loss) 14,962 (14,236)
- - - ---------------------------------------------------------------------------
Accrued postretirement benefits cost
(included in other liabilities) $ 26,267 $ 20,671
======== ========
- - - ---------------------------------------------------------------------------
</TABLE>
81
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- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
The assumed 1996 health care cost trend rate was 9.0% 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 1995, the assumed rate was 9.5% for both Medicare-eligible
retirees and non-Medicare-eligible retirees. Increasing or decreasing 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 benefits limitations in the related postretirement
plans. The weighted average discount rate used in determining the accumulated
postretirement benefit obligations was 7.5% at September 30, 1995, and 8.5% at
December 31, 1994.
EMPLOYEE 401(k) SAVINGS PLAN
Substantially all of the Corporation's employees are covered under a savings
plan that is qualified under Section 401(k) of the Internal Revenue Code. Under
provisions of this plan, employees may contribute 1% to 10% 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. The plan also permits a discretionary profit sharing
component to be distributed by the Corporation. Total expense associated with
the plan was $32.8 million, $28.0 million and $40.4 million in 1995, 1994 and
1993, respectively.
- - - --------------------------------------------------------------------------------
14. Income Taxes
- - - --------------------------------------------------------------------------------
Income taxes included in the consolidated statements of income, other than
those related to the extraordinary item, are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $212,119 $237,229 $289,987
State (12,361) 22,418 34,554
- - - ----------------------------------------------------------------------------------------------------------------
199,758 259,647 324,541
Deferred:
Federal 136,910 152,326 55,043
State 31,797 18,008 (5,612)
- - - ----------------------------------------------------------------------------------------------------------------
168,707 170,334 49,431
- - - ----------------------------------------------------------------------------------------------------------------
Total income tax expense $368,465 $429,981 $373,972
======== ======== ========
- - - ----------------------------------------------------------------------------------------------------------------
<FN>
Income tax expense (benefit) on securities transactions totaled $(15.6) million, $(6.3) million and $9.9 million
in 1995, 1994 and 1993, respectively.
</TABLE>
The differences between income tax expense and the amount computed by
applying the statutory Federal tax rate to income before income taxes and
extraordinary item are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes and extraordinary item
times 35% statutory Federal tax rate $405,180 $449,215 $379,364
State income tax, net of Federal tax benefit 12,634 26,277 18,295
Amortization of non-deductible intangibles 12,802 9,589 10,349
Tax-exempt interest income (34,631) (34,777) (40,610)
Corporate owned life insurance income (12,012) (7,006) (2,013)
Tax credits (7,105) (4,325) (4,184)
Other (8,403) (8,992) 12,771
- - - ----------------------------------------------------------------------------------------------------------------
Total income tax expense $368,465 $429,981 $373,972
======== ======== ========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
82
<PAGE> 57
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- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
Significant components of KeyCorp's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- - - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Provision for loan losses $301,055 $290,589
Net unrealized securities losses -- 66,488
Merger and integration charges -- 32,414
Write-down of other real estate owned 14,120 20,932
Other 30,623 39,871
- - - -----------------------------------------------------------------------------------------------
Total deferred tax assets 345,798 450,294
Leasing income reported using the operating method for tax purposes 700,478 527,947
Net unrealized securities gains 18,965 --
Depreciation 32,569 34,963
Other 53,470 88,038
- - - -----------------------------------------------------------------------------------------------
Total deferred tax liabilities 805,482 650,948
- - - -----------------------------------------------------------------------------------------------
Net deferred tax liability $459,684 $200,654
======== ========
- - - -----------------------------------------------------------------------------------------------
</TABLE>
- - - --------------------------------------------------------------------------------
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 1995 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 its 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, 1995, such subsidiaries could
have declared dividends estimated to be $317.7 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.
- - - --------------------------------------------------------------------------------
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
such information. 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.
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
83
<PAGE> 58
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- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
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.
Interest rate swaps, caps and floors were valued based on
discounted cash flow models and had an aggregate fair value of $164.0 million
at December 31, 1995. At December 31, 1994, interest rate swaps had an
aggregate negative fair value of $528.3 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 which approximated book value
at December 31, 1995 and fair value of $3.7 million at December 31, 1994.
Off-balance sheet financial instruments, including their fair values, are
discussed in greater detail in Note 17, Financial Instruments with Off-Balance
Sheet Risk, below.
<TABLE>
<CAPTION>
December 31, 1995 1994
-------------------------- -------------------------
Carrying Fair Carrying Fair
in thousands Amount Value Amount Value
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks1 $ 3,443,820 $ 3,443,820 $ 3,511,368 $ 3,511,368
Short-term investments1 682,341 682,341 670,010 670,010
Mortgage loans held for sale1 640,535 640,535 355,198 355,198
Securities available for sale2 8,059,952 8,059,952 2,521,049 2,521,049
Investment securities2 1,687,752 1,738,095 10,275,638 9,757,032
Loans, net of allowance3 46,815,664 47,693,850 45,394,346 44,610,441
LIABILITIES
Deposits4 $47,281,925 $47,284,188 $48,564,237 $48,191,660
Federal funds purchased and securities sold
under repurchase agreements1 5,544,080 5,544,080 5,499,117 5,499,117
Other short-term borrowings1 2,880,289 2,880,289 3,277,611 3,277,611
Long-term debt5 4,003,565 4,167,201 3,569,794 3,485,803
- - - ----------------------------------------------------------------------------------------------------------------
<FN>
Valuation Methods and Assumptions
- - - ---------------------------------
(1) Fair value equals or approximates carrying amount.
(2) Fair values of securities available for sale and investment securities generally were based on quoted market
prices. Where quoted market prices were not available, fair values were based on quoted market prices of
similar instruments.
(3) 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.
</TABLE>
- - - --------------------------------------------------------------------------------
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. The primary financial instruments used include commitments to
extend credit, standby and commercial letters of credit, interest rate swaps,
caps and floors, futures and foreign exchange forward contracts. All of the
interest rate swaps, caps and floors, and foreign exchange forward contracts
held are over-the-counter instruments. These financial instruments may be used
for lending-related, asset and liability management and trading purposes, as
discussed in the remainder of this note. In addition to market risks inherent
in the use of these financial instruments, each contains an element of credit
risk. Credit risk is the possibility that the Corporation will incur a loss
due to a counterparty's failure to perform its contractual obligations.
84
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- - - --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
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 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 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.
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.
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loan commitments:
Credit card lines $ 6,996,336 $ 5,482,566
Home equity 3,981,472 3,243,618
Commercial real estate and construction 1,554,294 1,503,707
Commercial and other 9,883,270 7,356,564
- - - ----------------------------------------------------------------------------------------------------------------
Total loan commitments 22,415,372 17,586,455
Other commitments:
Standby letters of credit 1,108,267 1,003,275
Commercial letters of credit 143,824 205,434
Loans sold with recourse 33,817 231,048
- - - ----------------------------------------------------------------------------------------------------------------
Total loan and other commitments $23,701,280 $19,026,212
=========== ===========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
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 KeyCorp and its affiliate banks are interest rate swap
contracts. 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. Credit risk is measured as the cost of replacing, at current
market rates, contracts in an unrealized gain position. The Corporation deals
exclusively with counterparties with high credit ratings, enters into bilateral
collateral netting arrangements and 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.
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, 1995, all counterparties were expected to meet their obligations.
At December 31, 1995, the Corporation had credit exposure of an aggregate
$159.7 million to 12 counterparties, with the largest credit exposure to an
individual counterparty amounting to $40.9 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 its contractual maturity.
Otherwise, the characteristics of these swaps are similar to those of
conventional swap contracts. At December 31, 1995, the Corporation was party to
$2.5 billion and $3.4 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. Under basis swap
contracts, interest payments based on different floating indices are exchanged.
85
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KEYCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - - -----------------------------------------------------------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - -----------------------------------------------------------------------------------------------------------------------------------
The following table summarizes the notional amount, fair value, maturity and weighted average rate received and paid for the
various types of portfolio interest rate swaps used by the Corporation.
December 31, 1995 December 31, 1994
-------------------------------------------------------------------- --------------------
Weighted Average Rate
Notional Fair Maturity(1) --------------------- Notional Fair
dollars in millions Amount Value (years) Receive Pay Amount Value
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed/pay variable--indexed amortizing $6,200,000 $ 69,967 2.3 6.76% 5.79% $ 5,786,597 $(341,654)
Receive fixed/pay variable--conventional 2,497,220 104,283 6.7 6.65 5.81 3,010,171 (199,648)
Pay fixed/receive variable--conventional 2,411,500 (21,036) 1.0 5.66 6.50 1,456,500 11,541
Basis swaps -- -- -- -- -- 200,000 132
- - - -----------------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps $11,108,720 $153,214 3.0 6.50% 5.95% $10,453,268 $(529,629)
=========== ======== =========== =========
- - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) Maturity is based upon expected average lives rather than contractual terms.
<TABLE>
The following table summarizes the notional amounts, fair values and weighted average rates of portfolio swaps by interest rate
management strategy.
<CAPTION>
December 31, 1995 December 31, 1994
--------------------------------------------------- ----------------------------
Weighted Average Rate
Notional Fair --------------------- Notional Fair
dollars in thousands Amount Value Receive Pay Amount Value
- - - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Convert variable rate loans to fixed $ 7,566,720 $113,184 6.71% 5.80% $ 7,146,597 $(470,614)
Convert variable rate deposits and
short-term borrowings to fixed 2,275,000 (18,212) 5.65 6.38 1,275,000 11,938
Convert variable rate long-term debt to fixed 136,500 (2,824) 5.88 8.27 181,500 (397)
Convert fixed rate long-term debt to variable 1,130,500 61,066 6.86 5.77 1,650,171 (70,688)
Other -- -- -- -- 200,000 132
- - - --------------------------------------------------------------------------------------------------------------------------------
Total portfolio swaps $11,108,720 $153,214 6.50% 5.95% $10,453,268 $(529,629)
=========== ======== =========== =========
</TABLE>
Based on the weighted average rates in effect at December 31, 1995, the spread
on portfolio interest rate swaps, excluding the amortization of net deferred
losses on terminated swaps, provided a positive impact on net interest income
(since the weighted average rate received exceeded the weighted average rate
paid by 55 basis points). The aggregate fair value of $153.2 million at the
same date 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 income that would be recognized if the portfolio
were to be liquidated at that date. The swaps have an expected average maturity
of 3.0 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. 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. Gains
and losses realized upon the termination of interest rate swaps prior to
maturity are deferred and amortized, generally using the straight-line method
over the projected remaining life of the related swap contract at its
termination. Including the impact of both the spread on the swap portfolio and
the amortization of the deferred gains and losses resulting from terminated
swaps, portfolio interest rate swaps reduced net interest income for 1995 by
$29.2 million, and added $98.6 million to net interest income in 1994. During
1995, swaps with a notional amount of $1.4 billion were terminated, resulting
in net deferred losses of $49.2 million. The Corporation recognized $38.0
million of swap losses during the first quarter of 1995 in connection with the
sale of the residential mortgage loan servicing business. These recognized
losses, which were direct costs of disposing the business, were included in the
determination of the net gain from the sale. The losses included $15.3 million
of the $49.2 million of deferred swap losses referred to above and $22.7
million of deferred swap losses recorded prior to 1995.
86
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- - - -------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- - - -------------------------------------------------------------------------------
A summary of the Corporation's deferred swap gains and (losses) is as follows:
<TABLE>
<CAPTION>
December 31, 1995
dollars in thousands
- - - -------------------------------------------------------
Weighted Average
Remaining
Deferred Amortization
Asset/Liability Managed Gains (Losses) (Years)
- - - ------------------------------------------------------
<S> <C> <C>
Loans $(10,857) .5
Debt 19,396 7.3
Deposits 779 .1
- - - -------------------------------------------------------
Total $ 9,318
========
- - - -------------------------------------------------------
</TABLE>
The Corporation also uses futures contracts to manage the risk associated with
the potential impact of adverse movements in interest rates. These contracts
are commitments to either purchase or sell designated financial instruments at
future dates for specified prices. The Corporation had no futures contracts
outstanding at December 31, 1995.
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 mitigates the interest rate risk of customer swaps, interest rate
caps and floors by entering into offsetting positions with third parties. The
customer swap, cap or floor position and any offsetting position with a third
party are recorded at their estimated fair values, and adjustments to fair
value are included in other income on the income statement.
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 other income on the income statement.
A summary of the notional amount and the respective fair value of derivative
financial instruments held or issued for trading purposes at December 31, 1995,
and on average for the year then ended, is presented below. The positive fair
values represent assets to the Corporation and are recorded in other assets,
while the negative fair values represent liabilities and are recorded in other
liabilities on the balance sheet.
At December 31, 1995, 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 of good standing 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 $10.4 million and $11.1 million, respectively, in 1995 and
$2.3 million and $7.6 million, respectively, in 1994.
<TABLE>
<CAPTION>
December 31, 1995 Year ended December 31, 1995
--------------------------- --------------------------------
Notional Fair Average Average
in thousands Amount Value Notional Amount Fair Value
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps:
Assets $1,390,697 $ 32,154 $939,639 $ 20,515
Liabilities 1,453,252 (21,136) 962,855 (16,023)
Caps and floors purchased 907,099 1,722 755,195 2,568
Caps and floors written 1,041,188 (1,906) 904,940 (2,786)
Foreign exchange forward contracts:1
Assets 400,194 6,477 538,498 29,210
Liabilities 399,660 (6,478) 542,032 (26,586)
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
(1) Excludes the effect of foreign spot contracts.
87
<PAGE> 62
KEYCORP AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
18. Condensed Financial Information of Parent Company
- - - --------------------------------------------------------------------------------
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 350 $ 565
Interest-bearing deposits with bank affiliates 329,484 528,793
Securities purchased from bank affiliates under resale agreements 2,848 1,597
Investment securities 24,932 48,218
Securities available for sale 3,389 88,991
Loans and advances to subsidiaries:
Banks and bank holding companies 164,242 188,890
Nonbank subsidiaries 204,239 278,636
- - - ----------------------------------------------------------------------------------------------------------------
368,481 467,526
Investment in subsidiaries:
Banks and bank holding companies 5,230,878 4,956,683
Nonbank subsidiaries 662,384 238,311
- - - ----------------------------------------------------------------------------------------------------------------
5,893,262 5,194,994
Other assets 411,560 363,747
- - - ----------------------------------------------------------------------------------------------------------------
Total assets $7,034,306 $6,694,431
========== ==========
LIABILITIES
Short-term borrowings -- $ 175,000
Accrued interest and other liabilities $ 158,945 363,802
Long-term debt 1,722,817 1,465,201
- - - ----------------------------------------------------------------------------------------------------------------
Total liabilities 1,881,762 2,004,003
SHAREHOLDERS' EQUITY1 5,152,544 4,690,428
- - - ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $7,034,306 $6,694,431
========== ==========
- - - ----------------------------------------------------------------------------------------------------------------
<FN>
(1) See page 65 for the parent company's Statement of Changes in Shareholders' Equity.
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries:
Banks and bank holding companies $1,060,854 $402,543 $664,981
Nonbank subsidiaries 55,100 2,218 3,843
Management fees and interest income from subsidiaries 44,680 245,776 113,684
Other income 13,569 10,378 34,549
- - - ----------------------------------------------------------------------------------------------------------------
1,174,203 660,915 817,057
EXPENSES
Interest on borrowed funds 125,338 74,208 97,584
Merger and integration charges -- -- 118,718
Personnel and other expenses 48,944 263,632 198,136
- - - ----------------------------------------------------------------------------------------------------------------
174,282 337,840 414,438
Income before income tax benefit and equity in
net income less dividends from subsidiaries 999,921 323,075 402,619
Income tax benefit 39,350 27,165 81,710
- - - ----------------------------------------------------------------------------------------------------------------
1,039,271 350,240 484,329
Equity in net income less dividends from subsidiaries (214,289) 503,250 225,597
- - - ----------------------------------------------------------------------------------------------------------------
NET INCOME $ 824,982 $853,490 $709,926
========== ======== ========
- - - ----------------------------------------------------------------------------------------------------------------
</TABLE>
88
<PAGE> 63
KEYCORP AND SUBSIDIARIES
- - - --------------------------------------------------------------------------------
Notes To Consolidated Financial Statements
- - - --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- - - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 824,982 $ 853,490 $ 709,926
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangibles 8,371 8,353 8,754
Gain on sale of subsidiary -- -- (29,410)
Net securities gains (5,003) (2,653) --
Deferred income taxes 4,217 13,706 (15,315)
Equity in net income less dividends from subsidiaries 214,289 (503,250) (225,597)
Net (increase) decrease in other assets 88,915 (130,087) (38,037)
Net increase (decrease) in other liabilities (172,370) 100,501 72,688
Net increase (decrease) in accrued merger and integration charges (50,185) (76,231) 78,261
Other operating activities, net (137,867) 24,910 4,492
- - - -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 775,349 288,739 565,762
INVESTING ACTIVITIES
Purchases of investment securities (4,506) (134,939) (5,929)
Proceeds from prepayments and maturities of investment securities 23,534 130,384 8,523
Purchases of securities available for sale (100,443) (124,208) --
Proceeds from prepayments and maturities of securities available for sale 208,768 32,130 --
Net (increase) decrease in interest-bearing deposits 199,309 (47,793) (137,000)
Net (increase) decrease in security resale agreements (1,250) 3,869 (4,863)
Net decrease in loans and advances to subsidiaries 92,558 12,736 116,676
Purchases of premises and equipment (226) (3,165) (10,895)
Proceeds from sale of subsidiary -- -- 148,054
Net cash used in acquisitions, net of cash acquired (296,268) -- (137,431)
(Increase) decrease in investments in subsidiaries 56,089 (71,577) (6,460)
- - - -------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 177,565 (202,563) (29,325)
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings (175,750) 147,365 (92,400)
Net proceeds from issuance of long-term debt 412,685 394,696 305,100
Payments on long-term debt (160,500) (72,890) (430,465)
Loan payment received from ESOP trustee 12,500 -- 1,569
Redemption of preferred stock -- -- (85,770)
Purchases of treasury shares (723,603) (215,598) --
Proceeds from issuance of common stock pursuant to employee
stock purchase, stock option and dividend reinvestment plans 36,286 18,623 28,238
Cash dividends (354,747) (358,811) (262,532)
- - - -------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (953,129) (86,615) (536,260)
- - - -------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS (215) (439) 177
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 565 1,004 827
- - - -------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF YEAR $ 350 $ 565 $ 1,004
========= ========= =========
- - - -------------------------------------------------------------------------------------------------------------------------
</TABLE>
[FN]
For the years ended December 31, 1995, 1994 and 1993, the parent company paid
interest on borrowed funds of $134.8 million, $60.1 million and $98.1 million,
respectively.
89
<PAGE> 1
<TABLE>
EXHIBIT 21
KEYCORP
SUBSIDIARIES OF THE REGISTRANT AT FEBRUARY 29, 1996
<CAPTION>
JURISDICTION
OF INCORPORATION PARENT
OR ORGANIZATION COMPANY(1)
---------------- -----------
<S> <C> <C>
HOLDING COMPANY SUBSIDIARIES
Key Bancshares of Alaska, Inc. (KBsAK) Alaska KeyC
Key Bancshares of Maine, Inc. (KBsME) Maine KeyC
Key Bancshares of New York Inc. (KBsNY) New York KeyC
Key Bancshares of Vermont, Inc. (KBsVT) Vermont KeyC
Key Bancshares of Washington, Inc. (KBsWA) Washington KeyC
Society Bancorp of Michigan, Inc. (SBMI) Michigan KeyC
Key Bank of the Rocky Mountains, Inc. (KBRM) Colorado KeyC
BANK SUBSIDIARIES
Key Bank of Colorado (KBCO) Colorado KBRM
Key Bank of Alaska (KBAK) Alaska KBsAK
Key Bank of Idaho (KBID) Idaho KBRM
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, National Association (KBUSA) United States KeyC
Key Bank of Utah (KBUT) Utah KBRM
Key Bank of Vermont (KBVT) Vermont KBsVT
Key Bank of Washington (KBWA) Washington KBsWA
Key Bank of Wyoming (KBWY) Wyoming KBRM
Key Savings Bank (KSB) Washington KeyC
Society First Federal Savings Bank (SFF) United States KeyC
KeyBank National Association (KBNA) (2) United States KeyC, SBMI
Society National Bank (SNB) United States KeyC
OTHER SUBSIDIARIES
A.T.-Sentinel, Inc. Delaware SNB
American Advisers, Inc. Ohio SAM
AutoFinance Group, Inc. (AFG) Ohio KeyC
AFG Receivables Corporation California AFG
Bar T Bar Fiduciary Holding Company Arizona SNB
Beechnut Development Company Washington KeyC
Black & Warr Insurance Agency, Inc. Idaho Gem State
Boris Development Corp. Maine KBME
Boulevard, Inc. Idaho KBID
Bozat Development Corp. Maine KBME
Commercial Agency, Inc. Colorado KBCO
Commercial Building Corporation Utah KBUT
Gem State Properties Corporation (Gem State) Idaho KBID
Goldome Mortgage Investment Corp. Delaware KBNY
INDORE Corp. Indiana KBNA
Investco Wyoming KBRM
KBID Leasing Corporation Idaho KBID
KBNY Leasing, Inc. New York KBNY
</TABLE>
17
<PAGE> 2
<TABLE>
KEYCORP
SUBSIDIARIES OF THE REGISTRANT AT FEBRUARY 29, 1996 (CONTINUED)
<CAPTION>
JURISDICTION
OF INCORPORATION PARENT
OR ORGANIZATION COMPANY(1)
---------------- -----------
<S> <C> <C>
OTHER SUBSIDIARIES (CONTINUED)
KBVLIHTC, Corp. Vermont KBVT
KBWA Leasing Corporation Washington KBWA
KBWA Services, Inc. Washington KBWA
Key Agricultural Credit Corporation Wyoming KBWY
Key Bank Life Insurance, Ltd. Arizona KeyC
Key Capital Corporation Ohio KeyC
Key Capital Markets, Inc. 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 KBNY
Key Trade Services Corporation (KTSC) Ohio SNB
Key Trade Services, Ltd. Hong Kong KTSC, SNB
Key Trust Company New York KBNY
Key Trust Company of the West Wyoming KBRM
Key Trust Company of Alaska Alaska KBAK
Key Trust Company of Maine Maine KBME
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 KBNA
Key Trust Company of Florida, National Association United States KeyC
KeyCorp Asset Management Holdings, Inc. (KAMHI) Ohio SNB
KeyCorp A&L Inc. New York KAMHI
KeyCorp Aviation Company Delaware KeyC
KeyCorp Finance Inc. Ohio KeyC
KeyCorp Insurance Agency (Idaho), Inc. Idaho KBWA
KeyCorp Insurance Agency (Maine), Inc. Maine KBWA
KeyCorp Insurance Agency (Wyoming), Inc. Wyoming KBWA
KeyCorp Insurance Agency, Inc. New York KBWA
KeyCorp Insurance Company Ltd. Bermuda KeyC
KeyCorp Leasing Ltd. Delaware KBNY
KeyCorp Management Company Ohio KeyC
KeyCorp Mutual Fund Advisers, Inc. Ohio KAMHI
KeyCorp Network Holdings, Inc. Oregon KeyC
KeyCorp Real Estate Capital Markets, Inc. Ohio SNB
KeyCorp Shareholder Services, Inc. Delaware SNB
KLIHTC, Corp. New York KBNY
Mansfield Development Corp. Vermont KBVT
Michigan Shared Properties Company Ohio SNB
Midwest Power Company Ohio KeyC
Millennium Asset Holding Corporation New York KBNY
M.L.O., Inc. Colorado KBCO
</TABLE>
18
<PAGE> 3
<TABLE>
KEYCORP
SUBSIDIARIES OF THE REGISTRANT AT FEBRUARY 29, 1996 (CONTINUED)
<CAPTION>
JURISDICTION
OF INCORPORATION PARENT
OR ORGANIZATION COMPANY(1)
---------------- -----------
<S> <C> <C>
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. New York KBNY
OREO Corp. Ohio SNB
P.B. Participation Oregon KeyC
P.S.M. Financial Management Corp. Washington KBWA
PacWest Building Corp. Oregon KeyC
Puget Sound Plaza, Inc. (PSP) Washington KBWA
Royal Skies Development Co. (RSD) Washington KBWA
Second Street Community Urban Redevelopment
Corporation 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
Spears, Benzak, Salomon & Farrell, Inc. New York KAMHI
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
</TABLE>
- - - ---------------------------------------------------------------------------
[FN]
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.
(2) Society Bancorp of Michigan, Inc. owns 23.40% and KeyCorp owns 76.60%.
19
<PAGE> 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 16, 1996, included in the 1995 Annual
Report to Shareholders of KeyCorp.
We also consent to the incorporation by reference in the following Registration
Statements of KeyCorp and in the related Prospectuses of our report dated
January 16, 1996, with respect to the consolidated financial statements
incorporated herein by reference in this Annual Report (Form 10-K) for the year
ended December 31, 1995:
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. 33-58405
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-4 No. 33-61539
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. 33-56879
Form S-8 No. 33-56881
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 22, 1996
20
<PAGE> 1
POWER OF ATTORNEY Exhibit 24
-----------------
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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Cecil D. Andrus
-------------------
Typed Name: Cecil D. Andrus
-------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ William G. Bares
--------------------
Typed Name: William G. Bares
--------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ A. C. Bersticker
--------------------
Typed Name: A. C. Bersticker
--------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ T. A. Commes
----------------
Typed Name: T. A. Commes
----------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Kenneth M. Curtis
---------------------
Typed Name: Kenneth M. Curtis
---------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ John C. Dimmer
------------------
Typed Name: John C. Dimmer
------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Peter G. Ten Eyck, II
--------------------------
Typed Name: Peter G. Ten Eyck, II
--------------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 and as of March
14, 1996.
/s/ Lucie J. Fjeldstad
----------------------
Typed Name: Lucie J. Fjeldstad
----------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 and as of March
14, 1996.
/s/ Stephen R. Hardis
---------------------
Typed Name: Stephen R. Hardis
---------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Henry S. Hemingway
----------------------
Typed Name: Henry S. Hemingway
----------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Charles R. Hogan
--------------------
Typed Name: Charles R. Hogan
--------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Douglas J. McGregor
-----------------------
Typed Name: Douglas J. McGregor
-----------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Steven A. Minter
--------------------
Typed Name: Steven A. Minter
--------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ M. Thomas Moore
-------------------
Typed Name: M. Thomas Moore
-------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ John C. Morley
------------------
Typed Name: John C. Morley
------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Richard W. Pogue
--------------------
Typed Name: Richard W. Pogue
--------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Victor J. Riley, Jr.
------------------------
Typed Name: Victor J. Riley, Jr.
------------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Robert A. Schumacher
------------------------
Typed Name: Robert A. Schumacher
------------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Ronald B. Stafford
----------------------
Typed Name: Ronald B. Stafford
----------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Dennis W. Sullivan
----------------------
Typed Name: Dennis W. Sullivan
----------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ K. Brent Somers
-------------------
Typed Name: K. Brent Somers
-------------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Lee G. Irving
-----------------
Typed Name: Lee G. Irving
-----------------
<PAGE> 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, 1995 (the "Annual Report"), hereby constitutes and
appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Robert W. Gillespie
-----------------------
Typed Name: Robert W. Gillespie
-----------------------
<PAGE> 24
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, 1995 (the "Annual Report"), hereby
constitutes and appoints John H. Mancuso, Roger Noall, and K. Brent Somers 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 14, 1996.
/s/ Nancy B. Veeder
-------------------
Typed Name: Nancy B. Veeder
-------------------
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EXHIBIT 13
- - - - ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,443,820
<INT-BEARING-DEPOSITS> 45,085
<FED-FUNDS-SOLD> 604,528
<TRADING-ASSETS> 32,728
<INVESTMENTS-HELD-FOR-SALE> 8,059,952
<INVESTMENTS-CARRYING> 1,687,752
<INVESTMENTS-MARKET> 1,738,095
<LOANS> 47,691,700
<ALLOWANCE> 876,036
<TOTAL-ASSETS> 66,339,085
<DEPOSITS> 47,281,925
<SHORT-TERM> 8,424,369
<LIABILITIES-OTHER> 1,476,682
<LONG-TERM> 4,003,565
0
160,000
<COMMON> 245,944
<OTHER-SE> 4,746,600
<TOTAL-LIABILITIES-AND-EQUITY> 66,339,085
<INTEREST-LOAN> 4,319,610
<INTEREST-INVEST> 738,760
<INTEREST-OTHER> 62,626
<INTEREST-TOTAL> 5,120,996
<INTEREST-DEPOSIT> 1,704,775
<INTEREST-EXPENSE> 2,484,295
<INTEREST-INCOME-NET> 2,636,701
<LOAN-LOSSES> 100,507
<SECURITIES-GAINS> (40,643)
<EXPENSE-OTHER> 2,311,564
<INCOME-PRETAX> 1,157,657
<INCOME-PRE-EXTRAORDINARY> 789,192
<EXTRAORDINARY> 35,790
<CHANGES> 0
<NET-INCOME> 824,982
<EPS-PRIMARY> 3.41
<EPS-DILUTED> 3.39
<YIELD-ACTUAL> 4.47
<LOANS-NON> 330,358
<LOANS-PAST> 96,664
<LOANS-TROUBLED> 2,549
<LOANS-PROBLEM> 118,907
<ALLOWANCE-OPEN> 830,298
<CHARGE-OFFS> 207,982
<RECOVERIES> 108,800
<ALLOWANCE-CLOSE> 876,036
<ALLOWANCE-DOMESTIC> 442,736
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 433,300
</TABLE>
