KeyCorp 10-K
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, 2006
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 1-11302
(Exact name of Registrant as
specified in its charter)
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Ohio
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34-6542451
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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127 Public Square, Cleveland,
Ohio
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44114-1306
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(Address of principal executive
offices)
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(Zip
Code)
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(216) 689-6300
(Registrants telephone
number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Common Shares, $1 par value Rights to Purchase Common Shares
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of each class)
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(Title of class)
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New York Stock Exchange
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(Name of each exchange on which
registered)
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
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 such filing requirements for the past 90 days.
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 registrants 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. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
The aggregate market value of voting stock held by nonaffiliates
of the registrant was approximately $14,328,361,640 at
June 30, 2006. (The aggregate market value has been
computed using the closing market price of the stock as reported
by the New York Stock Exchange on June 30, 2006.)
395,895,222 Shares
(Number of KeyCorp Common Shares
outstanding as of February 26, 2007)
Certain specifically designated portions of KeyCorps 2006
Annual Report to Shareholders are incorporated by reference into
Parts I, II and IV of this
Form 10-K.
Certain specifically designated portions of KeyCorps
definitive Proxy Statement for its 2007 Annual Meeting of
Shareholders are incorporated by reference into Part III of
this
Form 10-K.
KeyCorp
2006
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
PART I
Overview
KeyCorp, organized in 1958 under the laws of the State of Ohio,
is headquartered in Cleveland, Ohio. It has elected to be a bank
holding company and a financial holding company under the Bank
Holding Company Act of 1956, as amended (BHCA). At
December 31, 2006, KeyCorp was one of the nations
largest bank-based financial services companies with
consolidated total assets of $92.3 billion. Its
subsidiaries provide a wide range of retail and commercial
banking, commercial leasing, investment management, consumer
finance and investment banking products and services to
individual, corporate and institutional clients through two
major business groups: Community Banking and National Banking.
As of December 31, 2006, these services were provided
across much of the country through subsidiaries operating 950
full-service retail banking branches (KeyCenters), a
telephone banking call center services group and 2,050 ATMs, in
sixteen states. Additional information pertaining to the two
business groups is included in the Line of Business
Results section beginning on page 25 and in
Note 4 (Line of Business Results) beginning on
page 76 of the Financial Review section of KeyCorps
2006 Annual Report to Shareholders (Exhibit 13 hereto) and
is incorporated herein by reference. KeyCorp and its
subsidiaries had an average of 20,006 full-time equivalent
employees during 2006.
In addition to the customary banking services of accepting
deposits and making loans, KeyCorps bank and trust company
subsidiaries offer personal and corporate trust services,
personal financial services, access to mutual funds, cash
management services, investment banking and capital markets
products, and international banking services. Through its
subsidiary bank, trust company and registered investment adviser
subsidiaries, KeyCorp provides investment management services to
clients that include large corporate and public retirement
plans, foundations and endowments, high net worth individuals
and Taft-Hartley plans (i.e., multiemployer trust funds
established for providing pension, vacation or other benefits to
employees).
KeyCorp provides other financial services both inside and
outside of its primary banking markets through its nonbank
subsidiaries. These services include accident, health, and
credit-life insurance on loans made by its subsidiary bank,
principal investing, community development financing, securities
underwriting and brokerage, merchant services, and other
financial services. KeyCorp is an equity participant in a joint
venture by Key Merchant Services, LLC, which provides merchant
services to businesses.
KeyCorp is a legal entity separate and distinct from its bank
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 KeyCorps bank
and other subsidiaries is subject to the prior claims of the
respective creditors of such bank and other subsidiaries, except
to the extent that KeyCorps claims in its capacity as
creditor of such bank and other subsidiaries may be recognized.
1
The following financial data is included in the Financial Review
section of KeyCorps 2006 Annual Report to Shareholders
(Exhibit 13 hereto) and is incorporated herein by reference
as indicated below:
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Description of Financial Data
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Page
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Selected Financial Data
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24
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Average Balance Sheets, Net
Interest Income and Yields/Rates From Continuing Operations
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30
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Components of Net Interest Income
Changes
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32
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Composition of Loans
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37
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Remaining Final Maturities and
Sensitivity of Certain Loans to Changes in Interest Rates
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41
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Securities Available for Sale
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41
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Investment Securities
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42
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Maturity Distribution of Time
Deposits of $100,000 or More
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43
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Allocation of the Allowance for
Loan Losses
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51
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Summary of Loan Loss Experience
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52
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Summary of Nonperforming Assets
and Past Due Loans
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53
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Nonperforming Assets and Past Due
Loans
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85
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Short-Term Borrowings
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86
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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.
Acquisitions
and Divestitures
The information presented in Note 3 (Acquisitions and
Divestitures) on page 75 of the Financial Review
section of KeyCorps 2006 Annual Report to Shareholders
(Exhibit 13 hereto) is incorporated herein by reference.
Competition
The market for banking and related financial services is highly
competitive. KeyCorp and its subsidiaries (Key)
compete with other providers of financial services, such as bank
holding companies, commercial banks, savings associations,
credit unions, mortgage banking companies, finance companies,
mutual funds, insurance companies, investment management firms,
investment banking firms, broker-dealers and other local,
regional and national institutions which offer financial
services. Key competes by offering quality products and
innovative services at competitive prices.
In recent years, mergers and acquisitions have led to greater
concentration in the banking industry and placed added
competitive pressure on Keys core banking products and
services. In addition, competition has intensified as a
consequence of the financial modernization laws that were
enacted in November 1999 to permit qualifying financial
institutions to expand into other activities. For example,
commercial banks are permitted to have affiliates that
underwrite and deal in securities, underwrite insurance and make
merchant banking investments under certain conditions. See
Financial Modernization Legislation on page 8
of this report.
Supervision
and Regulation
The following discussion addresses certain material elements of
the regulatory framework applicable to bank holding companies
and their subsidiaries and provides certain specific information
regarding Key. The regulatory framework is intended primarily
to protect customers and depositors, the Deposit Insurance Fund
(DIF) of the Federal Deposit Insurance Corporation
(FDIC) and the banking system as a whole, and
generally is not intended to protect security holders.
Set forth below is a brief discussion of selected laws,
regulations and regulatory agency policies applicable to Key.
This discussion is not intended to be comprehensive and is
qualified in its entirety by reference to the full text of the
statutes, regulations and regulatory agency policies to which
the discussion refers. Changes in applicable laws,
2
regulations and regulatory agency policies cannot necessarily be
predicted by management, yet such changes may have a material
effect on Keys business, financial condition or results of
operations.
General
As a bank holding company, KeyCorp is subject to regulation,
supervision and examination by the Board of Governors of the
Federal Reserve System (the Federal Reserve Board)
under 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 bank, without the prior approval of
the Federal Reserve Board. In addition, bank holding companies
are generally prohibited from engaging in commercial or
industrial activities. KeyCorps bank subsidiaries are
also subject to extensive regulation, supervision and
examination by applicable federal banking agencies. KeyCorp
operates one full-service, FDIC-insured national bank
subsidiary, KeyBank National Association (KBNA), and
one national bank subsidiary whose activities are limited to
those of a fiduciary. Both of KeyCorps national bank
subsidiaries, and their subsidiaries, are subject to regulation,
supervision and examination by the Office of the Comptroller of
the Currency (the OCC). Because the domestic
deposits in KBNA are insured (up to applicable limits) by the
FDIC, the FDIC also has certain regulatory and supervisory
authority over KBNA.
KeyCorp 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 and self-regulatory organizations.
For example, KeyCorps brokerage and asset management
subsidiaries are subject to supervision and regulation by the
Securities and Exchange Commission (the SEC), the
National Association of Securities Dealers, Inc., the New York
Stock Exchange
and/or state
securities regulators, and KeyCorps insurance subsidiaries
are subject to regulation by the insurance regulatory
authorities of the various states. Other nonbank subsidiaries of
KeyCorp are subject to 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 KeyCorp, including cash
flow to pay dividends on its common shares and interest on its
indebtedness, is dividends from its subsidiaries. Various
statutory and regulatory provisions limit the amount of
dividends that may be paid by KeyCorps bank 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 banks net income for the current year plus
(ii) the retained net income (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 of its undivided profits. KeyCorps
national bank subsidiaries are subject to these restrictions.
If, in the opinion of a 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 that such
institution cease and desist from such practice. The OCC and the
FDIC have indicated that paying dividends that would deplete a
depository institutions capital base to an inadequate
level would be an unsafe and unsound practice. Moreover, under
the Federal Deposit Insurance Act (the FDIA), an
insured depository institution may not pay any dividend
(i) if payment would cause it to become less than
adequately capitalized, or (ii) while it is in
default in the payment of an assessment due to the FDIC. See
Regulatory Capital Standards and Related
Matters Prompt Corrective Action on
page 6 of this report. Also, the federal banking agencies
have issued policy statements that provide that FDIC-insured
depository institutions and their holding companies should
generally pay dividends only out of their current operating
earnings.
Holding
Company Structure
Bank Transactions With Affiliates. Federal
banking law and regulation impose qualitative standards and
quantitative limitations upon certain transactions by a bank
with its affiliates. Transactions covered by these provisions,
which include bank loans and other extensions of credit to
affiliates, bank purchases of assets from affiliates, and
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bank sales of assets to affiliates, must be on arms length
terms, cannot exceed certain amounts which are determined with
reference to the banks regulatory capital, and if a loan
or other extension of credit, must be secured by collateral in
an amount and quality expressly prescribed by statute. For these
purposes, a bank includes certain of its subsidiaries and other
companies it is deemed to control, while an affiliate includes
the banks parent bank holding company, certain of its
nonbank subsidiaries and other companies it is deemed to
control, and certain other companies. As a result, these
provisions materially restrict the ability of KBNA, as a bank,
to fund its affiliates including KeyCorp, McDonald Investments
Inc., any of the Victory mutual funds, and KeyCorps
nonbanking subsidiaries engaged in making merchant banking
investments.
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 at a time when KeyCorp may not have the
resources to provide it or would choose not 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, federal
law provides that in the event of its 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 FDIA provides that,
in the event of the liquidation or other resolution
of an insured depository institution, the claims of its
depositors (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 FDIA, 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 the commonly
controlled institution, or any assistance provided by the FDIC
to the 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.
Commercial Real Estate Lending
Concentrations. In December 2006, the banking
agencies jointly issued final guidance on sound risk management
practices for institutions having concentrations in commercial
real estate (CRE) loans. Institutions actively
involved in CRE lending should perform ongoing risk assessments
to identify CRE concentrations. Institutions having such
concentrations should have risk management practices that are
commensurate with the level and nature of their concentration
risk. Key elements in establishing a risk management framework
that effectively identifies, monitors, and controls CRE
concentration risk include board and management oversight,
portfolio management, management information systems, market
analysis, credit underwriting standards, portfolio stress
testing and sensitivity analysis, and credit risk review.
Institutions having such concentrations also should have
regulatory capital that is commensurate with the level and
nature of their concentration risk. In assessing capital
adequacy, the agencies will consider the level and nature of
inherent risk in the CRE portfolio as well as management
expertise, historical performance, underwriting standards, risk
management practices, market conditions, and any loan loss
reserves allocated for CRE concentration risk. Institutions
potentially exposed to significant CRE concentration risk may be
identified for further supervisory analysis of the level and
nature of CRE concentration risk. Such institutions include
those that have experienced rapid growth in CRE lending, have
notable exposure to a specific type of CRE, or are approaching
or have exceeded specific quantitative supervisory criteria.
Elevated Risk Complex Structured Finance
Transactions. In January 2007, the banking
agencies and the SEC published an interagency statement on sound
practices concerning elevated risk complex structured finance
transactions (CSFTs) to describe the types of risk
management principles they believe may help a financial
institution identify CSFTs that may pose heightened levels of
legal or reputational risk to the institution as well as
evaluate, manage and address such risks within the
institutions internal control framework. The statement
focuses
4
on the maintenance of policies and procedures designed to allow
the institution to identify, evaluate, assess, document, and
control the full range of market, credit, operational, legal,
and reputational risks associated with elevated risk CSFTs. The
statement also provides illustrative examples of both structured
finance transactions that are not considered to be elevated risk
CSFTs as well structured finance transactions that may be
elevated risk CSFTs.
Regulatory
Capital Standards and Related Matters
Risk-Based and Leverage Regulatory
Capital. Federal law and regulation define and
prescribe minimum levels of regulatory capital for bank holding
companies and their bank subsidiaries. Adequacy of regulatory
capital is assessed periodically by the federal banking agencies
in the examination and supervision process, and in the
evaluation of applications in connection with specific
transactions and activities, including acquisitions, expansion
of existing activities, and commencement of new activities.
Bank holding companies are subject to risk-based capital
guidelines adopted by the Federal Reserve Board. These
guidelines establish minimum ratios of qualifying capital to
risk-weighted assets. Qualifying capital includes Tier 1
capital and Tier 2 capital. Risk-weighted assets are
calculated by assigning varying risk-weights to broad categories
of assets and off-balance-sheet exposures, based primarily on
counterparty credit risk. The required minimum Tier 1
risk-based capital ratio, calculated by dividing Tier 1
capital by risk-weighted assets, is currently 4.00%. The
required minimum total risk-based capital ratio is currently
8.00%. It is calculated by dividing the sum of Tier 1
capital and Tier 2 capital (which cannot exceed the amount
of Tier 1 capital), after deducting for investments in
certain subsidiaries and associated companies and for reciprocal
holdings of capital instruments, by risk-weighted assets.
Tier 1 capital includes common equity, qualifying perpetual
preferred equity, and minority interests in the equity accounts
of consolidated subsidiaries less certain intangible assets
(including goodwill) and certain other assets. Tier 2
capital includes qualifying hybrid capital instruments,
perpetual debt, mandatory convertible debt securities, perpetual
preferred equity not includable in Tier 1 capital, and
limited amounts of term subordinated debt, medium-term preferred
equity, certain unrealized holding gains on certain equity
securities, and the allowance for loan and lease losses.
Bank holding companies, such as KeyCorp, whose securities and
commodities trading activities exceed specified levels also are
required to maintain capital for market risk. Market risk
includes changes in the market value of trading account, foreign
exchange, and commodity positions, whether resulting from broad
market movements (such as changes in the general level of
interest rates, equity prices, foreign exchange rates, or
commodity prices) or from position specific factors (such as
idiosyncratic variation, event risk, and default risk). The
banking agencies have developed and published for comment a
proposed rule that would modify the existing market risk capital
requirements. The proposed rule would enhance modeling
requirements consistent with advances in risk management,
enhance sensitivity to risks not adequately captured in the
current methodologies of the existing requirements, and modify
the definition of covered position to better capture positions
for which the market risk capital requirements are appropriate.
It would also impose an explicit capital requirement for
incremental default risk to capture default risk over a time
horizon of one year taking into account the impact of liquidity,
concentrations, hedging, and optionality. In general, the
proposed rule would become effective in January 2008. At
December 31, 2006, Keys Tier 1 and total capital
to risk-weighted assets ratios were 8.24% and 12.43%,
respectively, which include required adjustments for market risk.
In addition to the risk-based standard, bank holding companies
are subject to the Federal Reserve Boards leverage ratio
guidelines. These guidelines establish minimum ratios of
Tier 1 capital to total assets. The minimum leverage ratio,
calculated by dividing Tier 1 capital by average total
consolidated assets, is 3.00% for bank holding companies that
either have the highest supervisory rating or have implemented
the Federal Reserve Boards risk-based capital measure for
market risk. All other bank holding companies must maintain a
minimum leverage ratio of at least 4.00%. Neither KeyCorp nor
any of its bank subsidiaries has been advised by its primary
federal banking regulator of any specific leverage ratio
applicable to it. At December 31, 2006, Keys
Tier 1 capital leverage ratio was 8.98%.
5
KeyCorps national bank subsidiaries are also subject to
risk-based and leverage capital requirements adopted by the OCC,
which are substantially similar to those imposed by the Federal
Reserve Board on bank holding companies. At December 31,
2006, each of KeyCorps national bank subsidiaries had
regulatory capital in excess of all minimum risk-based and
leverage capital requirements.
In addition to establishing regulatory minimum ratios of capital
to assets for all bank holding companies and their bank
subsidiaries, the risk-based and leverage capital guidelines
also identify various organization-specific factors and risks
that are not taken into account in the computation of the
capital ratios but that affect the overall supervisory
evaluation of a banking organizations regulatory capital
adequacy and can result in the imposition of higher minimum
regulatory capital ratio requirements upon the particular
organization. Neither the Federal Reserve Board nor the OCC has
advised KeyCorp or any of its national bank subsidiaries of any
specific minimum risk-based or leverage capital ratio applicable
to KeyCorp or such national bank subsidiary. Additional
information regarding regulatory capital levels is included in
the Capital section beginning on page 43 of the
Financial Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto).
Recourse Obligations, Direct Credit Substitutes, and Residual
Interests. Specialized regulatory capital
treatment is prescribed for on-balance sheet assets and
off-balance sheet exposures consisting of recourse obligations,
direct credit substitutes, and residual interests that expose
banking organizations primarily to credit risk. This treatment
includes a concentration limit Tier 1 capital charge and a
dollar-for-dollar
capital charge for certain types of residual interests and the
use of credit rating and certain alternative approaches to match
regulatory capital requirements more closely to a banking
organizations relative risk of loss for certain positions
in asset securitizations.
Equity Investments in Nonfinancial
Companies. Specialized regulatory capital
treatment is prescribed for certain equity investments made by
banking organizations in companies engaged in nonfinancial
activities. This treatment imposes marginal capital charges
(applied by making deductions from Tier 1 capital) that
increase as the banking organizations aggregate carrying
amount of its covered equity investments increase in relation to
its Tier 1 capital. Such capital charges range from 8% to
25% as such aggregate carrying amount increases from 15% to 25%
of the banking organizations Tier 1 capital.
Prompt Corrective Action. The prompt
corrective action provisions of the FDIA create a
statutory framework that applies a system of both discretionary
and mandatory supervisory actions indexed to the capital level
of FDIC-insured depository institutions. These provisions impose
progressively more restrictive constraints on operations,
management, and capital distributions of an institution as its
regulatory capital decreases, or in some cases, based on
supervisory information other than the institutions
capital level. This framework and the authority it confers on
the federal banking agencies supplements other existing
authority vested in such agencies to initiate supervisory
actions to address capital deficiencies. Moreover, other
provisions of law and regulation employ regulatory capital level
designations the same as or similar to those established by the
prompt corrective action provisions both in imposing certain
restrictions and limitations and in conferring certain economic
and other benefits upon institutions. These include restrictions
on brokered deposits, FDIC deposit insurance limits on
pass-through deposits, limits on exposure to interbank
liabilities, risk-based FDIC deposit insurance premium
assessments, and expedited action upon regulatory applications.
FDIC-insured depository institutions are grouped into one of
five prompt corrective action capital categories
well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically
undercapitalized using the Tier 1 risk-based,
total risk-based, and Tier 1 leverage capital ratios as the
relevant capital measures. An institution is considered well
capitalized if it has a total risk-based capital ratio of at
least 10.00%, a Tier 1 risk-based capital ratio of at least
6.00% and a Tier 1 leverage capital ratio of at least 5.00%
and is not subject to any written agreement, order or capital
directive to meet and maintain a specific capital level for any
capital measure. An adequately capitalized institution must have
a total risk-based capital ratio of at least 8.00%, a
Tier 1 risk-based capital ratio of at least 4.00% and a
Tier 1 leverage capital ratio of at least 4.00% (3.00% if
it has achieved the highest composite rating in its most recent
examination). At December 31, 2006, KBNA, KeyCorps
only FDIC-insured depository institution subsidiary, met the
requirements for the well capitalized capital
category. An institutions prompt corrective action capital
category, however, may not constitute an accurate representation
of the overall financial condition or prospects of KeyCorp or
its bank subsidiaries, and should be considered in conjunction
with other available information regarding Keys financial
condition and results of operations.
6
Basel Accords. The current minimum risk-based
capital requirements adopted by the U.S. federal banking
agencies are based on a 1988 international accord (Basel
I) that was developed by the international Basel Committee
on Banking Supervision. In 2004, the Basel Committee published
its new capital framework document (Basel II)
governing the capital adequacy of large, internationally active
banking organizations that generally rely on sophisticated risk
management and measurement systems. Basel II is designed
to create incentives for these organizations to improve their
risk measurement and management processes and to better align
minimum capital requirements with the risks underlying
activities conducted by these organizations.
Basel II adopts a three-pillar framework for addressing
capital adequacy minimum capital requirements,
supervisory review, and market discipline. The minimum capital
requirement pillar includes capital charges for credit,
operational, and market risk exposures of a banking
organization. The supervisory review pillar addresses the need
for a banking organization to assess its capital adequacy
position relative to its overall risk, rather than only with
respect to its minimum capital requirement, as well as the need
for a banking organization supervisory authority to review and
respond to the banking organizations capital adequacy
assessment. The market discipline pillar imposes public
disclosure requirements on a banking organization that are
intended to allow market participants to assess key information
about the organizations risk profile and its associated
level of capital.
The agencies have developed and published for comment a proposed
rule for implementing Basel II in the U.S. The
proposed rule would apply to certain organizations on a
mandatory basis, as well as to those that elect voluntarily to
do so. Organizations that are required or have elected to apply
the proposed rule are subject to a transitional implementation
timeline of at least 4 years. During the transition
period, limits are imposed upon the amount by which minimum
required capital may decrease. January 2008 is the earliest
start date for the transition period. The proposed rule would
apply to determine the risk-based capital requirement for
wholesale, retail, equity, and securitization exposures, and
imposes an explicit capital charge for operational risk. The
Basel II proposed rule does not effect any change in the
existing prompt corrective action and leverage capital
requirements, and explicitly reserves the agencies
authority to require organizations to hold additional capital
where appropriate.
The agencies also have developed and published for comment a
proposed rule to update their existing Basel I risk-based
capital standards (Basel IA) in order to enhance the
risk-sensitivity of the capital charges, to reflect changes in
accounting standards and financial markets, and to address
competitive equity questions that may be raised by
U.S. implementation of Basel II. The Basel IA proposed rule
would be available to organizations not covered by the
Basel II proposed rule. It would be optional in that such
an organization could elect to adopt the Basel IA proposed rule
in its entirety or remain under the existing Basel I risk-based
capital rules. The Basel IA proposed rule would increase the
number of risk-weight categories, allow greater use of external
credit ratings, expand the range of recognized collateral and
eligible guarantors, use
loan-to-value
ratios to risk-weight residential mortgages, increase the credit
conversion factor for certain short-term commitments, assess a
capital charge for early amortizations in securitizations of
revolving retail exposures, and remove the 50% limit on the
risk-weight for certain derivative transactions. The Basel IA
proposed rule does not effect any change in the existing prompt
corrective action and leverage capital requirements, and
explicitly reserves the agencies authority to require
organizations to compute the risk-based capital requirement
under the existing Basel I risk-based capital rules.
FDIC Deposit Insurance
Because substantially all of KBNAs domestic deposits are
insured up to applicable limits by the FDIC, KBNA is subject to
deposit insurance premium assessments by the FDIC. Comprehensive
deposit insurance reform legislation was enacted in 2006.
Pursuant to this legislation, the former Bank Insurance Fund and
Savings Association Insurance Fund were merged into the DIF,
deposit insurance for certain retirement accounts has increased
from $100,000 to $250,000, and deposit insurance limits for
accounts are subject to an indexing mechanism for future
increases in coverage limits. The legislation also requires the
FDIC to maintain the DIF reserve ratio within a range of
1.15%-1.50% of estimated insured deposits, with a DIF
restoration plan being required upon the FDICs
determination that the DIF reserve ratio has fallen or will
within six months fall below 1.15% of estimated insured
deposits. Other changes made by this legislation have permitted
the FDIC to change its previous risk-related deposit insurance
assessment framework. Under the new assessment framework,
premiums ranging tentatively from $.05 to $.43 in 2007 (compared
with zero to $.27 throughout 2006) for each $100 of
domestic deposits will be assessed based upon an
institutions capitalization, financial ratios (or, for
certain large
7
institutions, long-term debt issuer ratings), and federal
supervisory evaluation. This new legislation and the FDICs
new assessment framework implementing it also authorizes certain
premium assessment credits (including a one-time assessment
credit for KBNA of approximately $59.4 million) and, under
certain circumstances, requires certain dividends from the DIF.
Financial
Modernization Legislation
The Gramm-Leach-Bliley Act of 1999 (the GLBA)
authorized new activities for qualifying financial
institutions. The GLBA repealed significant provisions of the
Glass-Steagall
Act to permit commercial banks to, among other things, have
affiliates that underwrite and deal in securities and make
merchant banking investments. The GLBA modified the BHCA to
permit bank holding companies that meet certain specified
standards (known as financial holding companies) to
engage in a broader range of financial activities than
previously permitted under the BHCA, and allowed subsidiaries of
commercial banks that meet certain specified standards (known as
financial subsidiaries) to engage in a wide range of
financial activities that are prohibited to such banks
themselves. In 2000, KeyCorp elected to become a financial
holding company. Under the authority conferred by the GLBA, Key
has been able to expand the nature and scope of its equity
investments in nonfinancial companies, operate its McDonald
Investments Inc. subsidiary with fewer operating restrictions,
and acquire financial subsidiaries to engage in real estate
leasing and insurance agency activities without geographic
restriction.
The GLBA also established new privacy protections for customers
of financial institutions. Under federal law, a financial
institution must provide notice to customers about its privacy
policies and practices, describe the conditions under which the
financial institution may disclose nonpublic personal
information about consumers to non-affiliated third parties, and
provide an opt-out method for consumers to prevent
the financial institution from disclosing that information to
non-affiliated third parties.
The GLBA repealed the blanket exception for banks and savings
associations from the definitions of broker and
dealer under the Securities Exchange Act of 1934
(the Exchange Act), and replaced this full exception
with functional exceptions. Under the statute, institutions that
engage in securities activities either must conduct those
activities through a registered broker-dealer or conform their
securities activities to those which qualify for functional
exceptions. While the requirements relating to dealer
registration have become effective, the effective date of the
requirements relating to broker registration has been delayed
until July 2007.
USA
PATRIOT Act
The Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001
(the USA PATRIOT Act) and the federal regulations
issued pursuant to it substantially broaden previously existing
anti-money laundering law and regulation, increase compliance,
due diligence and reporting obligations for financial
institutions, create new crimes and penalties, and require the
federal banking agencies, in reviewing merger and other
acquisition transactions, to consider the effectiveness of the
parties in combating money laundering activities.
In October 2005, KBNA consented to the issuance of a consent
order (Order) from the OCC pursuant to which KBNA is
required to improve its compliance and operations infrastructure
designed, pursuant to the Bank Secrecy Act (BSA), to
detect and prevent money laundering. As part of the Order, KBNA
has agreed to strengthen its BSA internal controls, including
the development and implementation of enhanced policies and
procedures for BSA compliance; to enhance its programs and
controls for Suspicious Activity Reporting; to enhance its BSA
audit functions and its independent audit program; and to
improve employee training relating to the detection and
prevention of money laundering. At the same time, KeyCorp
entered into a Memorandum of Understanding (MOU)
with the Federal Reserve Bank of Cleveland (FRB)
covering compliance with the BSA and other related matters.
Neither the OCC nor the FRB imposed a fine or civil money
penalty in connection with these actions.
KeyCorp and KBNA have taken significant steps to strengthen the
organizations compliance policies and procedures, and
operations infrastructure in areas related to those specified in
the Order and the MOU, as well as in other respects. Management
is committed to ensuring that all of the requirements of these
regulatory actions are met.
8
Fair and
Accurate Credit Transactions Act of 2003
The Fair and Accurate Credit Transactions Act of 2003
(FACT Act) imposes new requirements on financial
institutions regarding identity theft and reporting to credit
bureaus. The FACT Act also allows customers to choose to opt out
of having certain information shared across a financial
institutions affiliates for market solicitation purposes.
Compliance with the FACT Act requires Key to modify numerous
computer systems and to make operational changes in several
business areas. Key believes that the changes that it has
already made or will implement in 2007 will satisfy the material
requirements of the FACT Act and the current regulations
implementing it. Although additional FACT Act implementing
regulations are still pending that may mandate additional
disclosures or impose system or process changes, Key believes
that it will be able to implement any new regulatory
requirements within the time frames provided.
Entry
Into Certain Covenants
In 2006, KeyCorp entered into two transactions involving the
issuance of trust preferred securities
(Trust Preferred Securities) by Delaware
statutory trusts formed by KeyCorp (the Trusts), as
further described below. Simultaneously with the closing of each
of those transactions, KeyCorp entered into a replacement
capital covenant (each, a Replacement Capital
Covenant and collectively, the Replacement Capital
Covenants) for the benefit of persons that buy, hold or
sell a specified series of long-term indebtedness of KeyCorp or
its then largest depository institution, currently KBNA (the
Covered Debt). Each of the Replacement Capital
Covenants provide that neither KeyCorp nor any of its
subsidiaries (including any of the Trusts) will redeem or
purchase all or any part of the Trust Preferred Securities
or certain junior subordinated debentures issued by KeyCorp and
held by the Trust (the Junior Subordinated
Debentures), as applicable, on or before the date
specified in the applicable Replacement Capital Covenant, with
certain limited exceptions, except to the extent that, during
the 180 days prior to the date of that redemption or
purchase, KeyCorp has received proceeds from the sale of
qualifying securities that (i) have equity-like
characteristics that are the same as, or more equity-like than,
the applicable characteristics of the Trust Preferred
Securities or the Junior Subordinated Debentures, as applicable,
at the time of redemption or purchase, and (ii) KeyCorp has
obtained the prior approval of the Federal Reserve Board, if
such approval is then required by the Federal Reserve Board.
KeyCorp will provide a copy of the Replacement Capital Covenants
to respective holders of Covered Debt upon request made in
writing to KeyCorp, Investor Relations, at 127 Public
Square (Mail Code OH-01-27-1113), Cleveland, OH 44114-1306.
The following table identifies the (i) closing date for
each transaction, (ii) issuer, (iii) series of
Trust Preferred Securities issued, (iv) Junior
Subordinated Debentures, and (v) applicable Covered Debt as
of the date this annual report was filed with the SEC.
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Trust Preferred
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Junior Subordinated
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Closing Date
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Issuer
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Securities
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Debentures
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Covered Debt
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6/20/06
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KeyCorp
Capital VIII and KeyCorp
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$250,000,000 principal amount of
7% Enhanced Trust Preferred Securities
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KeyCorps 7% junior
subordinated debentures due June 15, 2066
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KeyCorps 5.70% junior
subordinated debentures due 2035, underlying the 5.70% trust
preferred securities of KeyCorp Capital VII (CUSIP No.
49327LAA4011)
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11/21/06
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KeyCorp
Capital IX and KeyCorp
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$500,000,000 principal amount of
6.750% Enhanced Trust Preferred Securities
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KeyCorps 6.750% junior
subordinated debentures due December 15, 2066
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KeyCorps 5.70% junior
subordinated debentures due 2035, underlying the 5.70% trust
preferred securities of KeyCorp Capital VII (CUSIP No.
49327LAA4011)
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An investment in our common shares is subject to risks inherent
to our business. The material risks and uncertainties that
management believes affect us are described below. Before making
an investment decision, you should carefully consider the risks
and uncertainties described below together with all of the other
information included or
9
incorporated by reference in this report. The risks and
uncertainties described below are not the only ones we face.
Although we have significant risk management policies,
procedures and verification processes in place, additional risks
and uncertainties that management is not aware of or focused on
or that management currently deems immaterial may also impair
our business operations. This report is qualified in its
entirety by these risk factors.
If any of the following risks actually occur, our financial
condition and results of operations could be materially and
adversely affected. If this were to happen, the value of our
common shares could decline, perhaps significantly, and you
could lose all or part of your investment.
Risks
Related To Our Business
We Are
Subject To Interest Rate Risk
Our earnings and cash flows are largely dependent upon our net
interest income. Net interest income is the difference between
interest income earned on interest-earning assets such as loans
and securities and interest expense paid on interest-bearing
liabilities such as deposits and borrowed funds. Interest rates
are highly sensitive to many factors that are beyond our
control, including general economic conditions, the competitive
environment within our markets, consumer preferences for
specific loan and deposit products and policies of various
governmental and regulatory agencies and, in particular, the
Federal Reserve Board. Changes in monetary policy, including
changes in interest rates, could influence not only the amount
of interest we receive on loans and securities and the amount of
interest we pay on deposits and borrowings, but such changes
could also affect our ability to originate loans and obtain
deposits as well as the fair value of our financial assets and
liabilities. If the interest we pay on deposits and other
borrowings increases at a faster rate than the interest we
receive on loans and other investments, our net interest income,
and therefore earnings, could be adversely affected. Earnings
could also be adversely affected if the interest we receive on
loans and other investments falls more quickly than the interest
we pay on deposits and other borrowings.
Although management believes it has implemented effective asset
and liability management strategies, including the use of
derivatives as hedging instruments, to reduce the potential
effects of changes in interest rates on our results of
operations, any substantial, unexpected
and/or
prolonged change in market interest rates could have a material
adverse effect on our financial condition and results of
operations. Additional information regarding interest rate risk
is included in the section captioned Risk
Management Market risk
management Interest rate risk management
beginning on page 47 of the Financial Review section of
KeyCorps 2006 Annual Report to Shareholders
(Exhibit 13 hereto).
We Are
Subject To Other Market Risk In Addition To Interest Rate
Risk
The values of some financial instruments vary not only with
changes in market interest rates, but also with changes in
foreign exchange rates, factors influencing valuations in the
equity securities markets and other market-driven rates or
prices. For example, the value of a fixed-rate bond will decline
if market interest rates increase. Similarly, the value of the
U.S. dollar regularly fluctuates in relation to other
currencies. When the value of an instrument is tied to such
external factors, the holder faces market risk.
Although management believes it has implemented effective
strategies to reduce the potential effects of changes in
interest rates, foreign exchange rates, equity prices and credit
spreads on the fair value of our trading portfolio, any
substantial, unexpected
and/or
prolonged change in those factors could have a material adverse
effect on our financial condition and results of operations.
Additional information regarding market risk is included in the
section captioned Risk Management Market risk
management Trading portfolio risk management
beginning on page 49 of the Financial Review section of
KeyCorps 2006 Annual Report to Shareholders
(Exhibit 13 hereto).
We Are
Subject To Credit Risk
There are inherent risks associated with our lending and trading
activities. These risks include, among other things, the impact
of changes in interest rates and changes in the economic
conditions in the markets where we operate. Increases in
interest rates
and/or
weakening economic conditions could adversely impact the ability
of borrowers to repay outstanding loans or the value of the
collateral securing these loans. We also are subject to various
laws and regulations that affect our lending activities. Failure
to comply with applicable laws and regulations could subject us
to regulatory enforcement action that could result in the
assessment against us of civil money or other penalties.
10
As of December 31, 2006, approximately 73.4% of our loan
portfolio consisted of commercial, financial and agricultural
loans, commercial real estate loans, including commercial
mortgage and construction loans, and commercial leases. These
types of loans (and leases) are generally viewed as potentially
having more risk of default than residential real estate loans
or consumer loans. These types of loans are also typically
larger than residential real estate loans and consumer loans.
Although we closely monitor and manage risk concentrations and
utilize various portfolio management practices to limit
excessive concentrations when it is feasible to do so, our loan
portfolio still does contain a number of commercial loans with
relatively large balances. The deterioration of one or a few of
these loans could cause a significant increase in non-performing
loans, and an increase in non-performing loans could result in a
net loss of earnings from these loans, an increase in the
provision for possible loan losses and an increase in loan
charge-offs, all of which could have a material adverse effect
on our financial condition and results of operations. Additional
information regarding credit risk is included in the section
captioned Risk Management Credit risk
management beginning on page 49 of the Financial
Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto).
Various
Factors May Cause Our Allowance For Possible Loan Losses To
Increase
We maintain an allowance for possible loan losses, which is a
reserve established through a provision for possible loan losses
charged to expense, that represents managements estimate
of probable losses within the existing portfolio of loans. The
allowance, in the judgment of management, is necessary to
reserve for estimated loan losses and risks inherent in the loan
portfolio. The level of the allowance reflects managements
continuing evaluation of industry concentrations; specific
credit risks; loan loss experience; current loan portfolio
quality; present economic, political and regulatory conditions;
and unexpected losses inherent in the current loan portfolio.
The determination of the appropriate level of the allowance for
possible loan losses inherently involves a degree of
subjectivity and requires that we make significant estimates of
current credit risks and future trends, all of which may undergo
material changes. Changes in economic conditions affecting
borrowers, new information regarding existing loans,
identification of additional problem loans and other factors,
both within and outside of our control, may require an increase
in the allowance for possible loan losses. In addition, bank
regulatory agencies and our independent auditors periodically
review our allowance for loan losses and may require an increase
in the provision for possible loan losses or the recognition of
further loan charge-offs, based on judgments that can differ
somewhat from those of our own management. In addition, if
charge-offs in future periods exceed the allowance for possible
loan losses, we will need additional provisions to increase the
allowance for possible loan losses. Additional provisions to
increase the allowance for possible loan losses, should they
become necessary, would result in a decrease in net income and
capital, and may have a material adverse effect on our financial
condition and results of operations. Additional information
regarding the allowance for loan losses is included in the
section captioned Risk Management Credit risk
management Allowance for loan losses beginning
on page 50 of the Financial Review section of
KeyCorps 2006 Annual Report to Shareholders
(Exhibit 13 hereto).
We Are
Subject To Liquidity Risk
Market conditions or other events could negatively affect the
level or cost of liquidity, affecting our ongoing ability to
accommodate liability maturities and deposit withdrawals, meet
contractual obligations, and fund asset growth and new business
transactions at a reasonable cost, in a timely manner and
without adverse consequences. Although management has
implemented strategies to maintain sufficient and diverse
sources of funding to accommodate planned as well as
unanticipated changes in assets and liabilities under both
normal and adverse conditions, any substantial, unexpected
and/or
prolonged change in the level or cost of liquidity could have a
material adverse effect on our financial condition and results
of operations. Additional information regarding liquidity risk
is included in the section captioned Risk
Management Liquidity risk management beginning
on page 54 of the Financial Review section of
KeyCorps 2006 Annual Report to Shareholders
(Exhibit 13 hereto).
We Are
Subject To Operational Risk
We, like all businesses, are subject to operational risk, which
represents the risk of loss resulting from human error,
inadequate or failed internal processes and systems, and
external events. Operational risk also encompasses compliance
(legal) risk, which is the risk of loss from violations of, or
noncompliance with, laws, rules, regulations, prescribed
practices or ethical standards. Although we seek to mitigate
operational risk through a system of internal controls,
resulting losses from operational risk could take the form of
explicit charges, increased operational costs,
11
harm to our reputation or foregone opportunities, any and all of
which could have a material adverse effect on our financial
condition and results of operations. Additional information
regarding operational risk is included in the section captioned
Risk Management Operational risk
management beginning on page 57 of the Financial
Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto).
Our
Profitability Depends Significantly On Economic Conditions In
The Geographic Regions In Which We Operate
Our success depends primarily on the general economic conditions
of the markets in which we operate. Although we are somewhat
geographically diversified, assisted in part in this respect by
our out of footprint commercial real estate and
equipment leasing lines of business, we still do have
concentrations of loans and other business activities in
geographic areas where our KeyCenters are principally
located the Midwest, the Northeast and the Pacific
Northwest. The regional economic conditions in these areas have
an impact on the demand for our products and services as well as
the ability of our customers to repay loans, the value of the
collateral securing loans and the stability of our deposit
funding sources. A significant decline in general economic
conditions, caused by inflation, recession, acts of terrorism,
outbreak of hostilities or other international or domestic
occurrences, unemployment, changes in securities markets or
other factors could also impact these regional economies and, in
turn, have a material adverse effect on our financial condition
and results of operations.
We
Operate In A Highly Competitive Industry And Market
Areas
We face substantial competition in all areas of our operations
from a variety of different competitors, many of which are
larger and may have more financial resources. Such competitors
primarily include national and super-regional banks as well as
smaller community banks within the various markets in which we
operate. However, we also face competition from many other types
of financial institutions, including, without limitation,
savings associations, credit unions, mortgage banking companies,
finance companies, mutual funds, insurance companies, investment
management firms, investment banking firms, broker-dealers and
other local, regional and national financial services firms. The
financial services industry could become even more competitive
as a result of legislative, regulatory and technological changes
and continued consolidation. Also, technology has lowered
barriers to entry and made it possible for non-banks to offer
products and services traditionally provided by banks.
Our ability to compete successfully depends on a number of
factors, including, among other things:
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Our ability to develop and execute strategic plans and
initiatives.
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Our ability to develop, maintain and build upon long-term
customer relationships based on quality service, high ethical
standards and safe, sound assets.
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Our ability to expand our market position.
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The scope, relevance and pricing of products and services
offered to meet customer needs and demands.
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The rate at which we introduce new products and services
relative to our competitors.
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Industry and general economic trends.
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Failure to perform in any of these areas could significantly
weaken our competitive position, which could adversely affect
our growth and profitability, which, in turn, could have a
material adverse effect on our financial condition and results
of operations.
We Are
Subject To Extensive Government Regulation And
Supervision
We, primarily through KBNA and certain of its non-bank
subsidiaries, are subject to extensive federal and state
regulation and supervision. Banking regulations are primarily
intended to protect depositors funds, federal deposit
insurance funds and the banking system as a whole, not
shareholders. These regulations affect our lending practices,
capital structure, investment practices, dividend policy and
growth, among other things. Congress and federal regulatory
agencies continually review banking laws, regulations and
policies for possible changes. Changes to statutes, regulations
or regulatory policies; changes in the interpretation or
implementation of statutes, regulations or policies;
and/or
continuing to become subject to heightened regulatory practices,
requirements or
12
expectations, could affect us in substantial and unpredictable
ways. Such changes could subject us to additional costs, limit
the types of financial services and products that we may offer
and/or
increase the ability of non-banks to offer competing financial
services and products, among other things. Failure to
appropriately comply with laws, regulations or policies
(including internal policies and procedures designed to prevent
such violations) could result in sanctions by regulatory
agencies, civil money penalties
and/or
reputation damage, which could have a material adverse effect on
our business, financial condition and results of operations.
Additional information regarding supervision and regulation is
included in the section captioned Supervision and
Regulation in Item 1. Business, beginning on
page 2 of this report.
Our
Controls And Procedures May Fail Or Be
Circumvented
Management regularly reviews and updates our internal controls,
disclosure controls and procedures, and corporate governance
policies and procedures. Any system of controls, however well
designed and operated, is based in part on certain assumptions
and can provide only reasonable, not absolute, assurances that
the objectives of the system are met. Any failure or
circumvention of our controls and procedures or failure to
comply with regulations related to controls and procedures could
have a material adverse effect on our business, results of
operations and financial condition.
We
Rely On Dividends From Our Subsidiaries For Most Of Our
Revenue
KeyCorp is a legal entity separate and distinct from its
subsidiaries. It receives substantially all of its revenue from
dividends from its subsidiaries. These dividends are the
principal source of funds to pay dividends on our common shares
and interest and principal on our debt. Various laws and
regulations limit the amount of dividends that KBNA and certain
non-bank subsidiaries may pay to KeyCorp. Also, KeyCorps
right to participate in a distribution of assets upon a
subsidiarys liquidation or reorganization is subject to
the prior claims of the subsidiarys creditors. In the
event KBNA is unable to pay dividends to KeyCorp, we may not be
able to service debt, pay obligations or pay dividends on our
common shares. The inability to receive dividends from KBNA
could have a material adverse effect on our business, financial
condition and results of operations. Additional information
regarding dividend restrictions is included in the section
captioned Supervision and Regulation in Item 1.
Business, beginning on page 2 of this report.
Potential
Acquisitions May Disrupt Our Business And Dilute Shareholder
Value
Acquiring other banks, businesses, or branches involves various
risks commonly associated with acquisitions, including, among
other things:
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Potential exposure to unknown or contingent liabilities of the
target company.
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Exposure to potential asset quality issues of the target company.
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Difficulty and expense of integrating the operations and
personnel of the target company.
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Potential disruption to our business.
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Potential diversion of our managements time and attention.
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The possible loss of key employees and customers of the target
company.
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Difficulty in estimating the value (including goodwill) of the
target company.
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Difficulty in estimating the fair value of acquired assets,
liabilities and derivatives of the target company.
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Potential changes in banking or tax laws or regulations that may
affect the target company.
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We regularly evaluate merger and acquisition opportunities and
conduct due diligence activities related to possible
transactions with other financial institutions and financial
services companies. As a result, merger or acquisition
discussions and, in some cases, negotiations may take place and
future mergers or acquisitions involving cash, debt or equity
securities may occur at any time. Acquisitions typically
involve the payment of a premium over book and market values,
and, therefore, some dilution of our tangible book value and net
income per common share may
13
occur in connection with any future transaction. Furthermore,
failure to realize the expected revenue increases, cost savings,
increases in geographic or product presence,
and/or other
projected benefits from an acquisition could have a material
adverse effect on our financial condition and results of
operations.
We May
Not Be Able To Attract And Retain Skilled People
Our success depends, in large part, on our ability to attract
and retain key people. Competition for the best people in most
activities in which we are engaged can be intense and we may not
be able to hire or retain the people we want
and/or need.
Although we maintain employment agreements with certain key
employees, and have incentive compensation plans aimed, in part,
at long-term employee retention, the unexpected loss of services
of one or more of our key personnel could still occur, and such
events may have a material adverse impact on our business
because of the loss of the employees skills, knowledge of
our market, years of industry experience and the difficulty of
promptly finding qualified replacement personnel.
Our
Information Systems May Experience An Interruption Or Breach In
Security
We rely heavily on communications and information systems to
conduct our business. Any failure, interruption or breach in
security of these systems could result in failures or
disruptions in our customer relationship management, general
ledger, deposit, loan and other systems. While we have policies
and procedures designed to prevent or limit the effect of the
possible failure, interruption or security breach of our
information systems, there can be no assurance that any such
failures, interruptions or security breaches will not occur or,
if they do occur, that they will be adequately addressed. The
occurrence of any failures, interruptions or security breaches
of our information systems could damage our reputation, result
in a loss of customer business, subject us to additional
regulatory scrutiny, or expose us to civil litigation and
possible financial liability, any of which could have a material
adverse effect on our financial condition and results of
operations.
We
Continually Encounter Technological Change
The financial services industry is continually undergoing rapid
technological change with frequent introductions of new
technology-driven products and services. The effective use of
technology increases efficiency and enables financial
institutions to better serve customers and to reduce costs. Our
future success depends, in part, upon our ability to address the
needs of our customers by using technology to provide products
and services that will satisfy customer demands, as well as to
create additional efficiencies in our operations. Our largest
competitors have substantially greater resources to invest in
technological improvements. We may not be able to effectively
implement new technology-driven products and services or be
successful in marketing these products and services to our
customers. Failure to successfully keep pace with technological
change affecting the financial services industry could have a
material adverse impact on our business and, in turn, our
financial condition and results of operations.
We Are
Subject To Claims And Litigation
From time to time, customers
and/or
vendors may make claims and take legal action against us.
Whether these claims and legal action are founded or unfounded,
if such claims and legal actions are not resolved in our favor
they may result in significant financial liability
and/or
adversely affect how the market perceives us and our products
and services as well as impact customer demand for those
products and services. Any financial liability or reputation
damage could have a material adverse effect on our business,
which, in turn, could have a material adverse effect on our
financial condition and results of operations.
Our
Earnings May Be Affected By Changes In Accounting Principles And
In Tax Laws
Changes in U.S. generally accepted accounting principles
could have a significant adverse effect on Keys reported
financial results. Although these changes may not have an
economic impact on our business, they could affect our ability
to attain targeted levels for certain performance measures.
We, like all businesses, are subject to tax laws, rules and
regulations. Changes to tax laws, rules and regulations,
including changes in the interpretation or implementation of tax
laws, rules and regulations by the Internal Revenue
14
Service or other governmental bodies, could affect us in
substantial and unpredictable ways. Such changes could subject
us to additional costs, among other things. Failure to
appropriately comply with tax laws, rules and regulations could
result in sanctions by regulatory agencies, civil money
penalties
and/or
reputation damage, which could have a material adverse effect on
our business, financial condition and results of operations.
Severe
Weather, Natural Disasters, Acts Of War Or Terrorism And Other
External Events Could
Significantly Impact Our Business
Severe weather, natural disasters, acts of war or terrorism and
other adverse external events could have a significant impact on
our ability to conduct business. Such events could affect the
stability of our deposit base, impair the ability of borrowers
to repay outstanding loans, impair the value of collateral
securing loans, cause significant property damage, result in
loss of revenue
and/or cause
us to incur additional expenses. Although management has
established disaster recovery plans and procedures, the
occurrence of any such event could have a material adverse
effect on our business, which, in turn, could have a material
adverse effect on our financial condition and results of
operations.
Risks
Associated With Our Common Shares
Our
Share Price Can Be Volatile
Share price volatility may make it more difficult for you to
resell your common stock when you want and at prices you find
attractive. Our share price can fluctuate significantly in
response to a variety of factors including, among other things:
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Actual or anticipated variations in quarterly results of
operations.
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Recommendations by securities analysts.
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Operating and stock price performance of other companies that
investors deem comparable to our business.
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News reports relating to trends, concerns and other issues in
the financial services industry.
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Perceptions of us
and/or our
competitors in the marketplace.
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New technology used, or services offered, by competitors.
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Significant acquisitions or business combinations, strategic
partnerships, joint ventures or capital commitments entered into
by us or our competitors.
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Failure to integrate acquisitions or realize anticipated
benefits from acquisitions.
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Changes in government regulations.
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Geopolitical conditions such as acts or threats of terrorism or
military conflicts.
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General market fluctuations, industry factors and general
economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes or credit loss
trends, could also cause our share price to decrease regardless
of operating results.
An
Investment In Our Common Shares Is Not An Insured
Deposit
Our common stock is not a bank deposit and, therefore, is not
insured against loss by the FDIC, any other deposit insurance
fund or by any other public or private entity. Investment in
our common stock is inherently risky for the reasons described
in this Risk Factors section and elsewhere in this
report and is subject to the same market forces that affect the
price of common stock in any company. As a result, if you
acquire our common shares, you may lose some or all of your
investment.
Our
Articles Of Incorporation, Regulations And Shareholders
Rights Plan As Well As Certain Banking Laws May Have An
Anti-Takeover Effect
Provisions of our articles of incorporation and regulations,
federal banking laws, including regulatory approval
requirements, and our stock purchase rights plan could make it
more difficult for a third party to acquire us, even if doing so
would be perceived to be beneficial to our shareholders. The
combination of these provisions may inhibit a
15
non-negotiated merger or other business combination, which, in
turn, could adversely affect the market price of our common
shares.
Risks
Associated With Our Industry
The
Earnings Of Financial Services Companies Are Significantly
Affected By General Business And
Economic Conditions
Our operations and profitability are impacted by general
business and economic conditions in the United States and
abroad. These conditions include short-term and long-term
interest rates, inflation, money supply, political issues,
legislative and regulatory changes, fluctuations in both debt
and equity capital markets, broad trends in industry and
finance, and the strength of the U.S. economy and the local
economies in which we operate, all of which are beyond our
control. A deterioration in economic conditions could result in
an increase in loan delinquencies and non-performing assets,
decreases in loan collateral values and a decrease in demand for
our products and services, among other things, any of which
could have a material adverse impact on our financial condition
and results of operations.
Financial
Services Companies Depend On The Accuracy And Completeness Of
Information About
Customers And Counterparties
In deciding whether to extend credit or enter into other
transactions, we may rely on information furnished by or on
behalf of customers and counterparties, including financial
statements, credit reports and other financial information. We
may also rely on representations of those customers,
counterparties or other third parties, such as independent
auditors, as to the accuracy and completeness of that
information. Reliance on inaccurate or misleading financial
statements, credit reports or other financial information could
have a material adverse impact on our business and, in turn, our
financial condition and results of operations.
Consumers
May Decide Not To Use Banks To Complete Their Financial
Transactions
Technology and other changes are allowing parties to complete
through alternative methods financial transactions that
historically have involved banks. For example, consumers can now
maintain funds in brokerage accounts or mutual funds that would
have historically been held as bank deposits. Consumers can also
complete transactions such as paying bills
and/or
transferring funds directly without the assistance of banks. The
process of eliminating banks as intermediaries, known as
disintermediation, could result in the loss of fee
income, as well as the loss of customer deposits and the related
income generated from those deposits. The loss of these revenue
streams and the lower cost deposits as a source of funds could
have a material adverse effect on our financial condition and
results of operations.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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There are no unresolved SEC staff comments.
The headquarters of KeyCorp and KBNA are located in Key Tower at
127 Public Square, Cleveland, Ohio
44114-1306.
At December 31, 2006, Key leased approximately
695,000 square feet of the complex, encompassing the first
twenty-three floors, the 28th floor and the
54th through 56th floors of the 57-story Key Tower. As
of the same date, KBNA owned 527 and leased 423 retail banking
branches. The lease terms for applicable retail banking
branches are not individually material, with terms ranging from
month-to-month
to 99 years from inception.
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ITEM 3.
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LEGAL
PROCEEDINGS
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The information in the Legal Proceedings section of Note 18
(Commitments, Contingent Liabilities and
Guarantees), beginning on page 97 of the Financial
Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto) is incorporated herein by
reference.
16
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ITEM 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the fourth quarter of the fiscal year covered by this
report, no matter was submitted to a vote of security holders of
KeyCorp.
PART II
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ITEM 5.
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MARKET
FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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The dividend restrictions discussion on page 3 of this
report and the following disclosures included in the Financial
Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto) are incorporated herein by
reference:
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Page
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Discussion of common shares,
shareholder information and repurchase activities in the
Capital section
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43
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Presentation of quarterly market
price and cash dividends per common share
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58
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Discussion of dividend
restrictions in the Liquidity risk management
Liquidity for KeyCorp section and in Note 5
(Restrictions on Cash, Dividends and Lending
Activities)
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55, 80
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KeyCorp common share price
performance graph
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43
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ITEM 6.
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SELECTED
FINANCIAL DATA
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The Selected Financial Data presented on page 24 of the
Financial Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto) is incorporated herein by
reference.
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ITEM 7.
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MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
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The information included under Managements
Discussion and Analysis of Financial Condition and Results of
Operations on pages 18 through 59 of the Financial
Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto) is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information included under the caption Risk
Management Market risk management on
pages 47 through 49 of the Financial Review section of
KeyCorps 2006 Annual Report to Shareholders
(Exhibit 13 hereto) is incorporated herein by reference.
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ITEM 8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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The Selected Quarterly Financial Data and the financial
statements and the notes thereto, presented on page 58 and
on pages 63 through 104, respectively, of the Financial
Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto) are incorporated herein by
reference.
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ITEM 9.
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
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Not applicable.
ITEM 9A. CONTROLS
AND PROCEDURES
As of the end of the period covered by this report, KeyCorp
carried out an evaluation, under the supervision and with the
participation of KeyCorps management, including our Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of KeyCorps
disclosure controls and procedures (as defined in
17
Rule 13a-15(e)
under the Exchange Act). Based upon that evaluation,
KeyCorps Chief Executive Officer and Chief Financial
Officer concluded that the design and operation of these
disclosure controls and procedures were effective, in all
material respects, as of the end of the period covered by this
report. No changes were made to KeyCorps internal control
over financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) during the last fiscal quarter that
materially affected, or are reasonably likely to materially
affect, KeyCorps internal control over financial reporting.
Managements Annual Report on Internal Control Over
Financial Reporting and the Report of Independent Registered
Public Accounting Firm on Internal Control Over Financial
Reporting on page 60 and on page 61, respectively, of
the Financial Review section of KeyCorps 2006 Annual
Report to Shareholders (Exhibit 13 hereto) are incorporated
herein by reference.
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ITEM 9B.
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OTHER
INFORMATION
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Not applicable.
PART III
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ITEM 10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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The information required by this item is set forth in the
sections captioned Issue One ELECTION OF
DIRECTORS, EXECUTIVE OFFICERS, and
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE contained in KeyCorps definitive Proxy
Statement for the 2007 Annual Meeting of Shareholders to be held
May 10, 2007 and is incorporated herein by reference.
KeyCorp expects to file its final proxy statement on or before
March 21, 2007.
KeyCorp has a separately designated standing audit committee
established in accordance with Section 3(a)(58)(A) of the
Exchange Act. Edward P. Campbell, H. James Dallas, Lauralee E.
Martin and Peter G. Ten Eyck, II are members of the Audit
Committee. The Board of Directors has determined that
Mr. Campbell and Ms. Martin each qualify as an
audit committee financial expert, as defined in
Item 407(d)(5) of
Regulation S-K,
and that each member of the Audit Committee is
independent as that term is defined in
Section 303A.02 of the New York Stock Exchanges
listing standards.
KeyCorp has adopted a code of ethics that applies to all of its
employees, including its Chief Executive Officer, Chief
Financial Officer, Chief Accounting Officer and any persons
performing similar functions. The Code of Ethics is located on
KeyCorps website (www.key.com). Any amendment to, or
waiver from a provision of, the Code of Ethics that applies to
its Chief Executive Officer, Chief Financial Officer and Chief
Accounting Officer will be promptly disclosed on its website as
required by laws, rules and regulations of the SEC. Shareholders
may obtain a copy of the Code of Ethics free of charge by
writing KeyCorp Investor Relations, at 127 Public Square (Mail
Code OH-01-27-1113), Cleveland, OH
44114-1306.
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ITEM 11.
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EXECUTIVE
COMPENSATION
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The information required by this item is set forth in the
sections captioned COMPENSATION OF EXECUTIVE OFFICERS AND
DIRECTORS, COMPENSATION DISCUSSION AND
ANALYSIS and COMPENSATION AND ORGANIZATION COMMITTEE
REPORT contained in KeyCorps definitive Proxy
Statement for the 2007 Annual Meeting of Shareholders to be held
May 10, 2007 and is incorporated herein by reference.
18
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ITEM 12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this item is set forth in the
sections captioned EQUITY COMPENSATION PLAN
INFORMATION and SHARE OWNERSHIP AND OTHER PHANTOM
STOCK UNITS contained in KeyCorps definitive Proxy
Statement for the 2007 Annual Meeting of Shareholders to be held
May 10, 2007 and is incorporated herein by reference.
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ITEM 13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
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The information required by this item is set forth in the
section captioned DIRECTOR INDEPENDENCE contained in
KeyCorps definitive Proxy Statement for the 2007 Annual
Meeting of Shareholders to be held May 10, 2007 and is
incorporated herein by reference.
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ITEM 14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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The information required by this item is set forth in the
sections captioned AUDIT FEES, AUDIT-RELATED
FEES, TAX FEES and ALL OTHER FEES
contained in KeyCorps definitive Proxy Statement for the
2007 Annual Meeting of Shareholders to be held May 10, 2007
and is incorporated herein by reference.
19
PART IV
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ITEM 15.
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EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
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(a) (1) Financial
Statements
The following financial statements of KeyCorp and its
subsidiaries, and the auditors report thereon, are
incorporated herein by reference to the pages indicated in the
Financial Review section of KeyCorps 2006 Annual Report to
Shareholders (Exhibit 13 hereto):
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Page
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Consolidated Financial Statements:
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Report of Independent Registered
Public Accounting Firm
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62
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Consolidated Balance Sheets at
December 31, 2006 and 2005
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63
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Consolidated Statements of Income
for the Years Ended December 31, 2006, 2005 and 2004
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64
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Consolidated Statements of Changes
in Shareholders Equity for the Years Ended
December 31, 2006, 2005 and 2004
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65
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Consolidated Statements of Cash
Flow for the Years Ended December 31, 2006, 2005 and 2004
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66
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Notes to Consolidated Financial
Statements
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67
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(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*
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3
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.1
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Amended and Restated Articles of
Incorporation of KeyCorp, filed as Exhibit 3 to
Form 10-Q
for the quarter ended September 30, 1998, and incorporated
herein by reference.
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3
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.2
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Amended and Restated Regulations
of KeyCorp, effective May 23, 2002, filed as
Exhibit 3.2 to
Form 10-Q
for the quarter ended June 30, 2002, and incorporated
herein by reference.
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4
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.1
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Restated Rights Agreement, dated
as of May 15, 1997, between KeyCorp and KeyBank National
Association, as Rights Agent, filed on June 19, 1997, as
Exhibit 1 to
Form 8-A,
and incorporated herein by reference.
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10
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.1
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Form of Premium Priced Option
Grant between KeyCorp and Henry L. Meyer III, dated
January 13, 1999, filed as Exhibit 10.3 to
Form 10-Q
for the quarter ended March 31, 1999, and incorporated
herein by reference.
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10
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.2
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Form of Option Grant between
KeyCorp and Henry L. Meyer III, dated November 15,
2000, filed as Exhibit 10.6 to
Form 10-K
for the year ended December 31, 2000, and incorporated
herein by reference.
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10
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.3
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Form of Award of Restricted Stock
(2003-2005),
filed as Exhibit 10.1 to
Form 10-Q
for the quarter ended March 31, 2003, and incorporated
herein by reference.
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10
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.4
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Form of Award of Executive Officer
Grants
(2004-2006),
filed as Exhibit 10.1 to
Form 10-Q
for quarter ended June 30, 2004, and incorporated herein by
reference.
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10
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.5
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Form of Award of Executive Officer
Grants
(2005-2007),
filed as Exhibit 10.2 to
Form 8-K
filed February 16, 2005, and incorporated herein by
reference.
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10
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.6
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Form of Award of Officer Grants
(2005-2007),
filed as Exhibit 10.3 to
Form 8-K
filed February 16, 2005, and incorporated herein by
reference.
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10
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.7
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Award of Phantom Stock to Henry L.
Meyer III
(2003-2005),
filed as Exhibit 10.2 to
Form 10-Q
for the quarter ended March 31, 2003, and incorporated
herein by reference.
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10
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.8
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|
Amended Employment Agreement
between KeyCorp and Henry L. Meyer III, as of
January 1, 2007, filed as Exhibit 10.1 to
Form 8-K
filed December 1, 2006, and incorporated herein by
reference.
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20
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10
|
.9
|
|
KeyCorp Annual Incentive Plan as
amended and restated on January 17, 2001, filed as
Exhibit 10.3 to
Form 10-Q
for the quarter ended March 31, 2001, and incorporated
herein by reference.
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10
|
.10
|
|
KeyCorp Annual Performance Plan,
filed as Exhibit 10.1 to
Form 8-K
filed January 24, 2005, and incorporated herein by
reference.
|
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10
|
.11
|
|
KeyCorp Amended and Restated 1991
Equity Compensation Plan (amended as of March 13, 2003),
filed as Exhibit 10.3 to
Form 10-Q
for the quarter ended March 31, 2003, and incorporated
herein by reference.
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10
|
.12
|
|
KeyCorp 2004 Equity Compensation
Plan, filed as Exhibit 10.13 to
Form 10-K
for the year ended December 31, 2004, and incorporated
herein by reference.
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10
|
.13
|
|
McDonald & Company
Investments, Inc. Stock Option Plan, filed as Exhibit 10.39
to
Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference.
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10
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.14
|
|
McDonald & Company
Investments, Inc. 1995 Key Employees Stock Option Plan, filed as
Exhibit 10.40 to
Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference.
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10
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.15
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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.
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10
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.16
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KeyCorp 1997 Stock Option Plan for
Directors as amended and restated on March 14, 2001, filed
as Exhibit 10.1 to
Form 10-Q
for the quarter ended March 31, 2001, and incorporated
herein by reference.
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10
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.17
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KeyCorp Umbrella Trust for
Directors between KeyCorp and National Bank of Detroit, dated
July 1, 1990, filed as Exhibit 10.28 to
Form 10-K
for the year ended December 31, 1996, and incorporated
herein by reference.
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10
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.18
|
|
Amended and Restated Director
Deferred Compensation Plan (May 18, 2000 Amendment and
Restatement), filed as Exhibit 10 to
Form 10-Q
for the quarter ended June 30, 2000, and incorporated
herein by reference.
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10
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.19
|
|
Amendment to the Director Deferred
Compensation Plan, effective December 28, 2004, filed as
Exhibit 10.20 to
Form 10-K
for the year ended December 31, 2004, and incorporated
herein by reference.
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10
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.20
|
|
KeyCorp Second Director Deferred
Compensation Plan, effective as of January 1, 2005, filed
as Exhibit 10.6 to
Form 8-K
filed December 22, 2005, and incorporated herein by
reference.
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10
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.21
|
|
KeyCorp Directors Deferred
Share Plan, filed as Exhibit 10.22 to
Form 10-K
for the year ended December 31, 2003, and incorporated
herein by reference.
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10
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.22
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KeyCorp Directors Survivor
Benefit Plan, effective September 1, 1990, filed as
Exhibit 10.25 to
Form 10-K
for the year ended December 31, 1996, and incorporated
herein by reference.
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10
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.23
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|
KeyCorp Excess Cash Balance
Pension Plan (Amended and Restated as of January 1, 1998),
filed as Exhibit 10.34 to
Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference.
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10
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.24
|
|
First Amendment to KeyCorp Excess
Cash Balance Pension Plan, effective July 1, 1999, filed as
Exhibit 10.4 to
Form 10-Q
for the quarter ended September 30, 1999, and incorporated
herein by reference.
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10
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.25
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|
Second Amendment to KeyCorp Excess
Cash Balance Pension Plan, effective January 1, 2003, filed
as Exhibit 10.4 to
Form 10-Q
for the quarter ended March 31, 2003, and incorporated
herein by reference.
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10
|
.26
|
|
Restated Amendment to KeyCorp
Excess Cash Balance Pension Plan, effective December 31,
2004, filed as Exhibit 10.4 to
Form 8-K
filed January 24, 2005, and incorporated herein by
reference.
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10
|
.27
|
|
KeyCorp Second Excess Cash Balance
Pension Plan, effective as of January 1, 2005, filed as
Exhibit 10.8 to
Form 8-K
filed December 22, 2005, and incorporated herein by
reference.
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10
|
.28
|
|
KeyCorp Automatic Deferral Plan,
effective as of January 1, 2005, filed as Exhibit 10.2
to
Form 8-K
filed December 22, 2005, and incorporated herein by
reference.
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10
|
.29
|
|
McDonald Financial Group Deferral
Plan, effective as of January 1, 2005, filed as
Exhibit 10.5 to
Form 8-K
filed December 22, 2005, and incorporated herein by
reference.
|
|
10
|
.30
|
|
KeyCorp Deferred Bonus Plan,
effective as of January 1, 2005, filed as Exhibit 10.4
to
Form 8-K
filed December 22, 2005, and incorporated herein by
reference.
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21
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|
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10
|
.31
|
|
Key Asset Management Long Term
Incentive Plan, filed as Exhibit 10.34 to
Form 10-K
for the year ended December 31, 2002, and incorporated
herein by reference.
|
|
10
|
.32
|
|
KeyCorp Commissioned Deferred
Compensation Plan, effective as of January 1, 2005, filed
as Exhibit 10.3 to
Form 8-K
filed December 22, 2005, and incorporated herein by
reference.
|
|
10
|
.33
|
|
Trust Agreement for certain
amounts that may become payable to certain executives and
directors of KeyCorp, dated April 1, 1997, and amended as
of August 25, 2003, filed as Exhibit 10.1 to
Form 10-Q
for the quarter ended September 30, 2003, and incorporated
herein by reference.
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10
|
.34
|
|
Trust Agreement (Executive
Benefits Rabbi Trust), dated November 3, 1988, filed as
Exhibit 10.20 to
Form 10-K
for the year ended December 31, 1995, and incorporated
herein by reference.
|
|
10
|
.35
|
|
KeyCorp Umbrella Trust for
Executives between KeyCorp and National Bank of Detroit, dated
July 1, 1990, filed as Exhibit 10.27 to
Form 10-K
for the year ended December 31, 1996, and incorporated
herein by reference.
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10
|
.36
|
|
KeyCorp Supplemental Retirement
Benefit Plan, effective January 1, 1981, restated
August 16, 1990, amended January 1, 1995 and
August 1, 1996, filed as Exhibit 10.26 to
Form 10-K
for the year ended December 31, 1998, and incorporated
herein by reference.
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10
|
.37
|
|
First Amendment to KeyCorp
Supplemental Retirement Benefit Plan, effective January 1,
1995, filed as Exhibit 10.46 to
Form 10-K
for the year ended December 31, 2003, and incorporated
herein by reference.
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|
10
|
.38
|
|
Second Amendment to KeyCorp
Supplemental Retirement Benefit Plan, effective August 1,
1996, filed as Exhibit 10.47 to
Form 10-K
for the year ended December 31, 2003, and incorporated
herein by reference.
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|
10
|
.39
|
|
Third Amendment to KeyCorp
Supplemental Retirement Benefit Plan, effective July 1,
1999, filed as Exhibit 10.6 to
Form 10-Q
for the quarter ended September 30, 1999, and incorporated
herein by reference.
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|
10
|
.40
|
|
KeyCorp Second Executive
Supplemental Pension Plan, effective December 31, 2006.
|
|
10
|
.41
|
|
KeyCorp Supplemental Retirement
Benefit Plan for Key Executives, effective July 1, 1990,
restated August 16, 1990, filed as Exhibit 10.26 to
Form 10-K
for the year ended December 31, 1996, and incorporated
herein by reference.
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10
|
.42
|
|
Amendment to KeyCorp Supplemental
Retirement Benefit Plan for Key Executives, effective
January 1, 1995, filed as Exhibit 10.54 to
Form 10-K
for the year ended December 31, 2003, and incorporated
herein by reference.
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10
|
.43
|
|
Second Amendment to KeyCorp
Supplemental Retirement Benefit Plan for Key Executives,
effective August 1, 1996, filed as Exhibit 10.55 to
Form 10-K
for the year ended December 31, 2003, and incorporated
herein by reference.
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10
|
.44
|
|
Third Amendment to KeyCorp
Supplemental Retirement Benefit Plan for Key Executives,
effective July 1, 1999, filed as Exhibit 10.7 to
Form 10-Q
for the quarter ended September 30, 1999, and incorporated
herein by reference.
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10
|
.45
|
|
Fourth Amendment to KeyCorp
Supplemental Retirement Benefit Plan for Key Executives,
effective December 28, 2004, filed as Exhibit 10.70 to
Form 10-K
for the year ended December 31, 2004, and incorporated
herein by reference.
|
|
10
|
.46
|
|
KeyCorp Second Supplemental
Retirement Benefit Plan for Key Executives, filed as
Exhibit 10.71 to
Form 10-K
for the year ended December 31, 2004, and incorporated
herein by reference.
|
|
10
|
.47
|
|
KeyCorp Survivor Benefit Plan,
effective September 1, 1990, filed as Exhibit 10.17 to
Form 10-K
for the year ended December 31, 1996, and incorporated
herein by reference.
|
|
10
|
.48
|
|
KeyCorp Deferred Equity Allocation
Plan, filed as Exhibit 10.58 to
Form 10-K
for the year ended December 31, 2003, and incorporated
herein by reference.
|
|
10
|
.49
|
|
Letter Agreement between KeyCorp
and Jack L. Kopinsky dated August 9, 2005, filed as
Exhibit 10.1 to
Form 8-K
filed August 12, 2005, and incorporated herein by reference.
|
|
10
|
.50
|
|
Change of Control Agreement
between KeyCorp and Beth Mooney, effective July 21, 2006,
filed as Exhibit 10.1 to
Form 10-Q
for the quarter ended September 30, 2006, and incorporated
herein by reference.
|
|
10
|
.51
|
|
Form of Revised Tier One
Change of Control Agreement between KeyCorp and Certain
Executive Officers of KeyCorp, effective January 1, 2007.
|
22
|
|
|
|
|
|
10
|
.52
|
|
Form of Revised Tier Two
Change of Control Agreement between KeyCorp and Certain
Executive Officers of KeyCorp, effective January 1, 2007.
|
|
10
|
.53
|
|
Form of New Tier One Change
of Control Agreement between KeyCorp and Certain Executive
Officers of KeyCorp, effective January 1, 2007.
|
|
10
|
.54
|
|
Form of New Tier Two Change
of Control Agreement between KeyCorp and Certain Executive
Officers of KeyCorp, effective January 1, 2007.
|
|
10
|
.55
|
|
KeyCorp Deferred Savings Plan,
effective December 31, 2006.
|
|
10
|
.56
|
|
KeyCorp Second Supplemental
Retirement Plan, effective December 31, 2006.
|
|
10
|
.57
|
|
Amendment to Merge the KeyCorp
Excess 401(k) Savings Plan into the KeyCorp Deferred Savings
Plan, effective December 31, 2006.
|
|
10
|
.58
|
|
Amendment to Merge the KeyCorp
Second Excess 401(k) Savings Plan into the KeyCorp Deferred
Savings Plan, effective December 31, 2006.
|
|
10
|
.59
|
|
Amendment to Merge the KeyCorp
Deferred Compensation Plan into the KeyCorp Deferred Savings
Plan, effective December 31, 2006.
|
|
10
|
.60
|
|
Amendment to Merge the KeyCorp
Second Deferred Compensation Plan into the KeyCorp Deferred
Savings Plan, effective December 31, 2006.
|
|
10
|
.61
|
|
Amendment to Merge the KeyCorp
Supplemental Retirement Plan into the KeyCorp Second
Supplemental Retirement Plan, effective December 31, 2006.
|
|
10
|
.62
|
|
Amendment to Merge the KeyCorp
Executive Supplemental Pension Plan into the KeyCorp Second
Executive Supplemental Pension Plan, effective December 31,
2006.
|
|
12
|
|
|
Statement regarding Computation of
Ratios.
|
|
13
|
|
|
Financial Review section of
KeyCorp 2006 Annual Report to Shareholders.
|
|
21
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Subsidiaries of the Registrant.
|
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23
|
|
|
Consent of Independent Registered
Public Accounting Firm.
|
|
24
|
|
|
Power of Attorney.
|
|
31
|
.1
|
|
Certification of Chief Executive
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
|
31
|
.2
|
|
Certification of Chief Financial
Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
|
|
32
|
.1
|
|
Certification of Chief Executive
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
32
|
.2
|
|
Certification of Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
KeyCorp hereby agrees to furnish the SEC upon request, copies of
instruments, including indentures, which define the rights of
long-term debt security holders.
All documents listed as Exhibits 10.1 through 10.62
constitute management contracts or compensatory plans or
arrangements.
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|
* |
Copies of these Exhibits have been filed with the SEC.
Shareholders may obtain a copy of any exhibit, upon payment of
reproduction costs, by writing KeyCorp Investor Relations, at
127 Public Square (Mail
Code OH-01-27-1113),
Cleveland,
OH 44114-1306.
|
Information
Available on Website
KeyCorp makes available free of charge on its website,
www.key.com, its annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to these reports as soon as reasonably
practicable after KeyCorp electronically files such material
with, or furnishes it to, the SEC. In addition, KeyCorp makes
available on its website its corporate governance guidelines and
the charters of its committees. Shareholders may obtain a copy
of any of these corporate governance documents free of charge by
writing KeyCorp Investor Relations, at 127 Public Square (Mail
Code OH-01-27-1113), Cleveland, OH
44114-1306.
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the date indicated.
KEYCORP
Thomas C. Stevens
Vice Chairman and Chief Administrative Officer
February 28, 2007
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.
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Signature
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Title
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Chairman, Chief Executive Officer,
and President
(Principal Executive Officer), and Director
|
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Chief Financial Officer
(Principal Financial Officer)
|
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Chief Accounting Officer
(Principal Accounting Officer)
|
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Director
|
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Director
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Director
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*
Dr. Carol A.
Cartwright
|
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Director
|
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Director
|
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Director
|
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Director
|
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Director
|
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Director
|
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Director
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Director
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Director
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*
|
By Paul N. Harris,
attorney-in-fact
|
February 28, 2007
24