Edgar Filing: KEYCORP /NEW/

10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2013

Commission file number: 1-11302

LOGO

Exact name of Registrant as specified in its charter:


Ohio		34-6542451
State or other jurisdiction of incorporation or organization:		IRS Employer Identification Number:
127 Public Square, Cleveland, Ohio		44114-1306
Address of Principal Executive Offices:		Zip Code:


		(216) 689-3000
		Registrant’s Telephone Number, including area code:

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Title of each class		Name of each exchange on which registered
Common Shares, $1 par value		New York Stock Exchange
7.750% Non-Cumulative Perpetual Convertible Preferred Stock, Series A		New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ü No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No ü

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. Yes ü No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ü No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ü

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ü	Accelerated filer	Non-accelerated filer	Smaller reporting company
	(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ü

The aggregate market value of voting stock held by nonaffiliates of the Registrant was $10,078,228,828 (based on the June 28, 2013, closing price of KeyCorp common shares of $11.04 as reported on the New York Stock Exchange). As of February 24, 2014, there were 889,398,493 common shares outstanding.

Certain specifically designated portions of KeyCorp’s definitive Proxy Statement for its 2014 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K.

Forward-looking Statements

From time to time, we have made or will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements do not relate strictly to historical or current facts. Forward-looking statements usually can be identified by the use of words such as “goal,” “objective,” “plan,” “expect,” “anticipate,” “intend,” “project,” “believe,” “estimate,” or other words of similar meaning. Forward-looking statements provide our current expectations or forecasts of future events, circumstances, results or aspirations. Our disclosures in this report contain forward-looking statements. We may also make forward-looking statements in other documents filed with or furnished to the Securities and Exchange Commission (the “SEC”). In addition, we may make forward-looking statements orally to analysts, investors, representatives of the media and others.

Forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause actual results to differ from those described in forward-looking statements include, but are not limited to:

deterioration of commercial real estate market fundamentals;

defaults by our loan counterparties or clients;

adverse changes in credit quality trends;

declining asset prices;

changes in local, regional and international business, economic or political conditions;

the extensive and increasing regulation of the U.S. financial services industry;

changes in accounting policies, rules and interpretations;

increasing capital and liquidity standards under applicable regulatory rules;

unanticipated changes in our liquidity position, including but not limited to, changes in the cost of liquidity, our ability to enter the financial markets and to secure alternative funding sources;

our ability to receive dividends from our subsidiary, KeyBank;

downgrades in our credit ratings or those of KeyBank;

breaches of security or failures of our technology systems due to technological or other factors and cybersecurity threats;

operational or risk management failures by us or critical third-parties;

adverse judicial proceedings;

the occurrence of natural or man-made disasters or conflicts or terrorist attacks;

a reversal of the U.S. economic recovery due to financial, political or other shocks;

our ability to anticipate interest rate changes and manage interest rate risk;

deterioration of economic conditions in the geographic regions where we operate;

the soundness of other financial institutions;

our ability to attract and retain talented executives and employees and to manage our reputational risks;

our ability to timely and effectively implement our strategic initiatives;

increased competitive pressure due to industry consolidation;

unanticipated adverse effects of acquisitions and dispositions of assets or businesses; and

our ability to develop and effectively use the quantitative models we rely upon in our business planning.

Any forward-looking statements made by us or on our behalf speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement to reflect the impact of subsequent events or circumstances. Before making an investment decision, you should carefully consider all risks and uncertainties disclosed in our SEC filings, including this report on Form 10-K and our subsequent reports on Forms 10-Q and 8-K and our registration statements under the Securities Act of 1933, as amended, all of which are or will upon filing be accessible on the SEC’s website at www.sec.gov and on our website at www.key.com/ir.

KEYCORP

2013 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS


Item Number		Page Number

	PART I
1	Business		4
1A	Risk Factors		18
1B	Unresolved Staff Comments		28
2	Properties		29
3	Legal Proceedings		29
4	Mine Safety Disclosures		29

	PART II
5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		30
6	Selected Financial Data		31
7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
7A	Quantitative and Qualitative Disclosures About Market Risk		105
8	Financial Statements and Supplementary Data		106
	Management’s Annual Report on Internal Control over Financial Reporting		107
	Reports of Independent Registered Public Accounting Firm		108
	Consolidated Financial Statements and Related Notes		110
	Consolidated Balance Sheets		110
	Consolidated Statements of Income		111
	Consolidated Statements of Comprehensive Income		112
	Consolidated Statements of Changes in Equity		113
	Consolidated Statements of Cash Flows		114
	Notes to Consolidated Financial Statements		115
9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		215
9A	Controls and Procedures		215
9B	Other Information		215

	PART III
10	Directors, Executive Officers and Corporate Governance		216
11	Executive Compensation		216
12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		216
13	Certain Relationships and Related Transactions, and Director Independence		216
14	Principal Accountant Fees and Services		216

	PART IV
15	Exhibits and Financial Statement Schedules		217
	(a) (1) Financial Statements – See listing in Item 8 above
	(a) (2) Financial Statement Schedules – None required
	(a) (3) Exhibits
	Signatures		220

	Exhibits

PART I

ITEM 1. BUSINESS

Overview

KeyCorp, organized in 1958 under the laws of the State of Ohio, is headquartered in Cleveland, Ohio. We are a bank holding company under the Bank Holding Company Act of 1956, as amended (“BHCA”), and are one of the nation’s largest bank-based financial services companies, with consolidated total assets of approximately $92.9 billion at December 31, 2013. KeyCorp is the parent holding company for KeyBank National Association (“KeyBank”), its principal subsidiary, through which most of our banking services are provided. Through KeyBank and certain other subsidiaries, we provide a wide range of retail and commercial banking, commercial leasing, investment management, consumer finance, commercial mortgage servicing and special servicing, and investment banking products and services to individual, corporate, and institutional clients through two major business segments: Key Community Bank and Key Corporate Bank.

As of December 31, 2013, these services were provided across the country through KeyBank’s 1,028 full-service retail banking branches and a network of 1,335 automated teller machines (“ATMs”) in 12 states, as well as additional offices, online and mobile banking capabilities, and a telephone banking call center. Additional information pertaining to our two business segments is included in the “Line of Business Results” section in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report, and in Note 23 (“Line of Business Results”) of the Notes to Consolidated Financial Statements presented in Item 8. Financial Statements and Supplementary Data, which are incorporated herein by reference. KeyCorp and its subsidiaries had an average of 14,783 full-time equivalent employees for 2013.

In addition to the customary banking services of accepting deposits and making loans, our bank and trust company subsidiaries offer personal, securities lending and custody services, personal financial services, access to mutual funds, treasury services, investment banking and capital markets products, and international banking services. Through our bank, trust companies and registered investment adviser subsidiaries, we provide investment management services to clients that include large corporate and public retirement plans, foundations and endowments, high-net-worth individuals, and multi-employer trust funds established for providing pension or other benefits to employees.

We provide other financial services — both within and outside of our primary banking markets — through various nonbank subsidiaries. These services include community development financing, securities underwriting, and brokerage. We also provide merchant services to businesses directly and through an equity participation in a joint venture.

KeyCorp is a legal entity separate and distinct from its banks and other subsidiaries. Accordingly, the right of KeyCorp, its security holders and its creditors to participate in any distribution of the assets or earnings of its banks and other subsidiaries is subject to the prior claims of the creditors of such banks and other subsidiaries, except to the extent that KeyCorp’s claims in its capacity as a creditor may be recognized.

Important Terms Used in this Report

As used in this report, references to “Key,” “we,” “our,” “us” and similar terms refer to the consolidated entity consisting of KeyCorp and its subsidiaries. KeyCorp refers solely to the parent holding company, and KeyBank refers solely to KeyCorp’s subsidiary bank, KeyBank National Association.

The acronyms and abbreviations identified in Part II, Item 8. Note 1 (“Summary of Significant Accounting Policies”) hereof are used throughout this report, particularly in the Notes to Consolidated Financial Statements as well as in Management’s Discussion and Analysis of Financial Condition and Results of Operations. You may find it helpful to refer to that section as you read this report.

Demographics

We have two major business segments: Key Community Bank and Key Corporate Bank.

Key Community Bank serves individuals and small to mid-sized businesses by offering a variety of deposit, investment, lending, credit card, and personalized wealth management products and business advisory services. These products and services are provided through our relationship managers and specialists working in our 12-state branch network, which was reorganized during 2013 into nine internally-defined geographic regions: Oregon and Alaska, Washington, Rocky Mountains, Indiana, Western Ohio and Michigan, Eastern Ohio, Eastern New York, New England, and Western New York.

The following table presents the geographic diversity of Key Community Bank’s average deposits, commercial loans, and home equity loans.


	Geographic Region
Year ended December 31, 2013 dollars in millions	Oregon & Alaska			Washington			Rocky Mountains			Indiana			West Ohio/ Michigan			East Ohio			Eastern New York			New England			Western New York			NonRegion		^(a)		Total
Average deposits	$	4,289		$	6,597		$	4,768		$	2,312		$	4,461		$	8,675		$	8,055		$	2,913		$	5,005		$	2,648			$	49,723
Percent of total		8.6	%		13.3	%		9.6	%		4.6	%		9.0	%		17.4	%		16.2	%		5.9	%		10.1	%		5.3		%		100.0	%

Average commercial loans	$	1,649		$	1,815		$	1,620		$	806		$	1,179		$	2,064		$	1,753		$	790		$	526		$	2,839			$	15,041
Percent of total		11.0	%		12.1	%		10.8	%		5.4	%		7.8	%		13.7	%		11.6	%		5.2	%		3.5	%		18.9		%		100.0	%

Average home equity loans	$	1,338		$	1,861		$	1,553		$	467		$	832		$	1,255		$	1,284		$	625		$	760		$	111			$	10,086
Percent of total		13.3	%		18.5	%		15.4	%		4.6	%		8.3	%		12.4	%		12.7	%		6.2	%		7.5	%		1.1		%		100.0	%

(a)	Represents average deposits and commercial loan and home equity loan products centrally managed outside of our nine Key Community Bank regions.

Key Corporate Bank is a full-service corporate and investment bank focused principally on serving the needs of middle market clients in six industry sectors: consumer, energy, healthcare, industrial, public sector and real estate. Key Corporate Bank delivers a broad product suite of banking and capital markets products to its clients, including syndicated finance, debt and equity capital markets, commercial payments, equipment finance, commercial mortgage banking, derivatives, foreign exchange, financial advisory, and public finance. Key Corporate Bank is also a significant servicer of commercial mortgage loans and a significant special servicer of CMBS. Key Corporate Bank delivers many of its product capabilities to clients of Key Community Bank.

Further information regarding the products and services offered by our Key Community Bank and Key Corporate Bank segments is included in this report in Note 23 (“Line of Business Results”).

Additional Information

The following financial data is included in this report in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 8. Financial Statements and Supplementary Data, and is incorporated herein by reference as indicated below:


Description of Financial Data	Page(s)

Selected Financial Data		35
Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates from Continuing Operations		45
Components of Net Interest Income Changes from Continuing Operations		47
Composition of Loans		57
Remaining Maturities and Sensitivity of Certain Loans to Changes in Interest Rates		65
Securities Available for Sale		67
Held-to-Maturity Securities		67
Maturity Distribution of Time Deposits of $100,000 or More		69
Allocation of the Allowance for Loan and Lease Losses		89
Summary of Loan and Lease Loss Experience from Continuing Operations		91
Summary of Nonperforming Assets and Past Due Loans from Continuing Operations		92
Exit Loan Portfolio from Continuing Operations		93
Summary of Changes in Nonperforming Loans from Continuing Operations		94
Short-Term Borrowings		199

Our executive offices are located at 127 Public Square, Cleveland, Ohio 44114-1306, and our telephone number is (216) 689-3000. Our website is www.key.com, and the investor relations section of our website may be reached through www.key.com/ir. We make available free of charge, on or through the investor relations section of our website, annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as proxy statements, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Also posted on our website, and available in print upon request from any shareholder to our Investor Relations Department, are the charters for our Audit Committee, Compensation and Organization Committee, Executive Committee, Nominating and Corporate Governance Committee, and Risk Committee; our Corporate Governance Guidelines; the Code of Ethics for our directors, officers and employees; our Standards for Determining Independence of Directors; our Policy for Review of Transactions Between KeyCorp and Its Directors, Executive Officers and Other Related Persons; our Limitation on Luxury Expenditures Policy; and our Statement of Political Activity. Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to the Code of Ethics and any waiver applicable to any senior executive officer or director. We also make available a summary of filings made with the SEC of statements of beneficial ownership of our equity securities filed by our directors and officers under Section 16 of the Exchange Act. The “Regulatory Disclosure” tab of the investor relations section of our website includes public disclosures concerning our annual and mid-year stress-testing activities under the Dodd-Frank Act.

Information contained on or accessible through our website or any other website referenced in this report is not part of this report.

Shareholders may obtain a copy of any of the above-referenced corporate governance documents by writing to our Investor Relations Department at Investor Relations, KeyCorp, 127 Public Square, Mailcode OH-01-27-1113, Cleveland, Ohio 44114-1306; by calling (216) 689-3000; or by sending an e-mail to investor_relations@keybank.com.

Acquisitions and Divestitures

The information presented in Note 13 (“Acquisitions and Discontinued Operations”) is incorporated herein by reference.

Competition

The market for banking and related financial services is highly competitive. Key competes 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 that offer financial services. Many of our competitors enjoy fewer regulatory constraints and some may have lower cost structures. The financial services industry is likely to become more competitive as further technology advances enable more companies to provide financial services. Technological advances may diminish the importance of depository institutions and other financial institutions. We compete by offering quality products and innovative services at competitive prices, and by maintaining our products and services offerings to keep pace with customer preferences and industry standards.

In recent years, mergers and acquisitions have led to greater concentration in the banking industry, placing added competitive pressure on Key’s core banking products and services. Consolidation continued during 2013 and led to redistribution of deposits and certain banking assets to larger financial institutions, including through the FDIC least-cost resolution process, albeit at a far slower pace than during 2012 and 2011. Financial institutions with liquidity challenges sought mergers and other resolutions, and the deposits and certain banking assets of the 167 banks that failed between 2011 and 2013, representing $52.6 billion in total assets, were redistributed through the FDIC’s least-cost resolution process.

Supervision and Regulation

The regulatory framework applicable to BHCs and banks is intended primarily to protect customers and depositors, the DIF and the banking system as a whole, rather than to protect the security holders and creditors of financial services companies. Comprehensive reform of the legislative and regulatory environment for financial services companies occurred in 2010 and remains ongoing. We cannot predict changes in applicable laws, regulations or regulatory agency policies, but such changes may materially affect our business, financial condition, results of operations, or access to liquidity or credit.

Overview

As a BHC, KeyCorp is subject to regulation, supervision, and examination by the Federal Reserve under the BHCA. Under the BHCA, BHCs generally may not directly or indirectly own or control more than 5% of the voting shares, or substantially all of the assets, of any bank, without prior approval by the Federal Reserve. In addition, BHCs are generally prohibited from engaging in commercial or industrial activities.

Under federal law, a BHC must serve as a source of financial strength to its subsidiary depository institutions by providing financial assistance to them in the event of their financial distress. This support may be required when we do not have the resources to, or would prefer not to, provide it. Certain loans by a BHC 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 bankruptcy of a BHC, any commitment by the BHC to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to priority of payment.

Federal law establishes a system of regulation under which the Federal Reserve is the umbrella regulator for BHCs, while their subsidiaries are principally regulated by prudential and functional regulators such as the OCC

for national banks and federal savings associations, the FDIC for non-member state banks and savings associations, the Federal Reserve for member state banks, the CFPB for consumer financial products or services, the SEC and FINRA for securities broker/dealer activities, the SEC and CFTC for swaps and other derivatives, and state insurance regulators for insurance activities. Certain specific activities, including traditional bank trust and fiduciary activities, may be conducted in a bank without the bank being deemed a “broker” or a “dealer” in securities for purposes of securities functional regulation. Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in certain identifiable risks.

Our national bank subsidiaries and their subsidiaries are subject to regulation, supervision and examination by the OCC. At December 31, 2013, we operated one full-service, FDIC-insured national bank subsidiary, KeyBank, and two national bank subsidiaries that are limited to fiduciary activities. The FDIC also has certain regulatory, supervisory and examination authority over KeyBank and KeyCorp under the FDIA and the Dodd-Frank Act.

We have other financial services subsidiaries that are subject to regulation, supervision and examination by the Federal Reserve, as well as other applicable state and federal regulatory agencies and self-regulatory organizations. Our securities brokerage and asset management subsidiaries are subject to supervision and regulation by the SEC, FINRA and state securities regulators, and our insurance subsidiaries are subject to regulation by the insurance regulatory authorities of the states in which they operate. Our other nonbank subsidiaries are subject to laws and regulations of both the federal government and the various states in which they are authorized to do business.

Regulatory capital and liquidity

Current regulatory capital requirements

Federal banking regulators have promulgated risk-based capital and leverage ratio requirements applicable to Key and KeyBank. The adequacy of regulatory capital is assessed periodically by federal banking agencies in their examination and supervision processes, and in the evaluation of applications in connection with certain expansion activities.

The current minimum risk-based capital requirements adopted by federal banking regulators are based on a 1988 international accord (“Basel I”) developed by the Basel Committee on Banking Supervision (the “Basel Committee”). Under current requirements, Key and KeyBank generally must maintain a minimum ratio of total capital to risk-weighted assets of 8%. At least half of the total capital must be “Tier 1 capital,” comprised of qualifying perpetual preferred stock, common shareholders’ equity (excluding AOCI other than the cumulative effect of foreign currency translation), a limited amount of qualifying trust preferred securities, and certain mandatorily convertible preferred securities. The remainder may consist of “Tier 2 capital,” including qualifying subordinated debt, certain hybrid capital instruments, perpetual debt, mandatory convertible debt instruments, qualifying perpetual preferred stock, and a limited amount of the allowance for credit losses.

BHCs and banks with securities and commodities trading activities exceeding specified levels are required to maintain capital to cover their market risk exposure in accordance with regulations adopted by federal banking regulators. Market risk includes changes in the market value of trading account, foreign exchange and commodity positions, whether resulting from broad market movements (such as movements in interest rates, equity prices, foreign exchange rates, or commodity prices) or from position specific factors (such as idiosyncratic variation, event risk, and default risk). Because Key and KeyBank each have trading assets and liabilities of at least $1 billion or 10% of total assets, Key is subject to the Federal Reserve’s rule and KeyBank is subject to the OCC’s rule on market risk regulatory capital, which became effective in January 2013. In December 2013, the Federal Reserve revised, effective April 1, 2014 (or earlier if a BHC elects to adopt it earlier), its market risk capital rule relating to the treatment of certain securitization, sovereign, and investment company exposures as well as the timing of disclosures to align the rule to the Regulatory Capital Rules

described below until they become fully effective for all BHCs. As part of the Regulatory Capital Rules described below, the OCC included in its market risk capital rule revisions relating to the treatment of the securitization and sovereign exposures addressed in the Federal Reserve’s revisions.

Federal banking regulators also have established a minimum leverage ratio requirement for banking organizations. The leverage ratio is Tier 1 capital divided by adjusted average total assets. The minimum leverage ratio is currently 3% for BHCs and national banks that are considered “strong” by the Federal Reserve or the OCC, respectively, 3% for any BHC that has implemented the Federal Reserve’s risk-based capital measure for market risk, and 4% for all other BHCs and national banks. The current minimum leverage ratio for Key and KeyBank is 3% and 4%, respectively.

BHCs and national banks may be expected to maintain ratios well above the minimum levels, depending upon their particular condition, risk profile or growth plans. At December 31, 2013, Key and KeyBank had regulatory capital in excess of all current minimum risk-based capital (including all adjustments for market risk) and leverage ratio requirements.

The FDIA requires the relevant federal banking regulator to take “prompt corrective action” with respect to a FDIC-insured depository institution that does not meet certain capital adequacy standards. Such 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. Restrictions on operations, management and capital distributions begin to apply at “adequately capitalized” status and become progressively stricter as the insured depository institution approaches “critically undercapitalized” status. 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. While the prompt corrective action requirements only apply to FDIC-insured depository institutions and not to BHCs, the mandatory prompt corrective action “capital restoration plan” required of an undercapitalized institution by its relevant regulator must be guaranteed to a limited extent by the institution’s parent BHC.

Basel III capital and liquidity frameworks

In December 2010, the Basel Committee released its final framework to strengthen international capital regulation of banks, and revised it in June 2011 (as revised, the “Basel III capital framework”). The Basel III capital framework requires higher and better-quality capital, better risk coverage, the introduction of a new leverage ratio as a backstop to the risk-based requirement, and measures to promote the buildup of capital that can be drawn down in periods of stress. The Basel III capital framework, among other things, introduces a new capital measure, “Common Equity Tier 1,” to be included in Tier 1 capital with other capital instruments meeting specified requirements.

For banks with regulators adopting Basel III capital framework in full, implementation of the Basel III capital framework commenced January 1, 2013, to be fully phased in on January 1, 2019. Beginning January 2013, such banks are required to meet the following minimum capital ratios: 3.5% Common Equity Tier 1 to risk-weighted assets; 4.5% Tier 1 capital to risk-weighted assets; and 8.0% total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets. A “capital conservation buffer,” effectively raising each of the minimum capital requirements by 2.5%, will be phased-in pro rata over a four-year period beginning January 1, 2016, reaching the full 2.5% on January 1, 2019. Accordingly, such banks subject to the fully phased-in Basel III capital framework would be required to maintain effective minimum capital ratios of: 7% Common Equity Tier 1 to risk-weighted assets, 8.5% Tier 1 capital to risk-weighted assets and 10.5% total capital to risk-weighted assets. A minimum leverage ratio of 3%, calculated as the ratio of Tier 1 capital to “total exposure” (including on- and certain off-balance sheet exposures), is also imposed on such banks beginning January 1, 2018. The Basel III capital framework also provides for a “countercyclical capital buffer,” generally to be imposed when national regulators determine that excess aggregate credit growth becomes associated with a buildup of systemic risk. The “countercyclical capital

buffer,” if imposed, would impose an additional 0% to 2.5% buffer to the “capital conservation buffer” for Common Equity Tier 1 when fully implemented. The Basel III capital framework also provides for a number of adjustments to and deductions from Tier 1 capital, which began on January 1, 2014. In January 2014, the Basel Committee’s oversight body endorsed certain revisions to the leverage ratio framework and disclosure requirements of the Basel III capital framework (the “January 2014 Basel III leverage ratio revisions”).

The Basel Committee published its international liquidity standards in 2010, and revised these standards in January 2013 (as revised, the “Basel III liquidity framework”). It established quantitative standards for liquidity by introducing a liquidity coverage ratio (“Basel III LCR”) and a net stable funding ratio (“Basel III NSFR”). The Basel III LCR, calculated as the ratio of the stock of high-quality liquid assets divided by total net cash outflows over 30 consecutive calendar days, must be at least 100%. The Basel III NSFR, calculated as the ratio of the available amount of stable funding divided by the required amount of stable funding, must also be at least 100%. The implementation of Basel III LCR begins on January 1, 2015, with minimum requirements beginning at 60%, rising in annual steps of 10% until full implementation on January 1, 2019. The Basel Committee has indicated that revisions to the Basel III NSFR will be made by mid-2016, and the net stable funding ratio will be introduced as a requirement on January 1, 2018. In January 2014, the Basel Committee’s oversight body endorsed certain final Basel III LCR disclosure standards and certain proposed Basel III NSFR revisions (the “January 2014 Basel III liquidity framework revisions”).

U.S. implementation of the Basel III capital framework

In October 2013, the federal banking regulators published the final Basel III capital framework for U.S. banking organizations (the “Regulatory Capital Rules”). The Regulatory Capital Rules generally implement the Basel III capital framework as described above in the United States, but set a minimum leverage ratio of 4% to be calculated consistently with currently applicable regulatory capital requirements (calculated as Tier 1 capital to average total consolidated assets less any amounts that were also deducted from Tier 1 capital). In addition, the Regulatory Capital Rules address two capital-related provisions of the Dodd-Frank Act: first, the provision that general risk-based and leverage capital requirements applicable to FDIC-insured deposit institutions that are not “advanced approaches” depository institutions (like KeyBank) act as a floor for the requirements applicable to all BHCs (like KeyCorp) as well as to all “advanced approaches” banking organizations; and, second, the provision that references to external credit ratings be removed from the regulators’ rules and replaced with alternative standards of creditworthiness.

The impact of the January 2014 Basel III leverage ratio revisions on U.S. banking organizations, including Key and KeyBank, will be determined by the extent to which they are implemented by the federal banking agencies. Neither the Federal Reserve nor the OCC have proposed any rule to implement these revisions.

New minimum capital requirements

Under the Regulatory Capital Rules, “standardized approach” banking organizations, like Key, will be required to meet the minimum capital and leverage ratios set forth in the table below. At December 31, 2013, Key had an estimated Common Equity Tier 1 Capital Ratio of 10.7% under Basel III. Also at December 31, 2013, based on the fully phased-in Regulatory Capital Rules, Key estimates that its capital and leverage ratios would be as set forth in the table below.

Estimated Ratios vs. Minimum Capital Ratios Calculated Under the Fully Phased-In

Regulatory Capital Rules


Ratios (including Capital conservation buffer)	Key December 31, 2013 Estimated			Minimum January 1, 2015			Phase-in Period	Minimum January 1, 2019
Common Equity Tier 1		10.7	%		4.5	%	None		4.5	%
Capital conservation buffer ^(a)					—		1/1/16 - 1/1/19		2.5
Common Equity Tier 1 + Capital conservation buffer					4.5		1/1/16 - 1/1/19		7.0
Tier 1 Capital		11.0			6.0		None		6.0
Tier 1 Capital + Capital conservation buffer					6.0		1/1/16 - 1/1/19		8.5
Total Capital		13.4			8.0		None		8.0
Total Capital + Capital conservation buffer					8.0		1/1/16 - 1/1/19		10.5
Leverage^(b)		10.3			4.0		None		4.0

(a)	Capital conservation buffer must consist of Common Equity Tier 1 capital. Key is not subject to the countercyclical capital buffer of up to 2.5% imposed under the “advanced approaches” portion of the Regulatory Capital Rules.

(b)

Key is not subject to the proposed 3% supplemental leverage ratio requirement imposed under the “advanced approaches” portion of the Regulatory Capital Rules or to the supplemental leverage buffer of at least 2% proposed for “advanced approaches” banks under an NPR published by the federal banking agencies in August 2013 (the “August 2013 NPR”).

Revised prompt corrective action standards

Under the Regulatory Capital Rules, the prompt corrective action capital category threshold ratios applicable to FDIC-insured depository institutions such as KeyBank will be revised, effective January 1, 2015. The Revised Prompt Corrective Action table, below, identifies the capital category threshold ratios for a “well capitalized” and an “adequately capitalized” institution under the current rule and the Regulatory Capital Rules.

“Well Capitalized” and “Adequately Capitalized” Capital Category Ratios under Current and

Revised Prompt Corrective Action Rules


Prompt Corrective Action	Capital Category
Prompt Corrective Action	Well Capitalized						Adequately Capitalized
Ratio	Revised			Current			Revised			Current
Common Equity Tier 1 Risk-Based		6.5	%		N/A			4.5	%		N/A
Tier 1 Risk-Based		8.0			6.0	%		6.0			4.0	%
Total Risk-Based		10.0			10.0			8.0			8.0
Tier 1 Leverage ^(a)		5.0			5.0			4.0			3.0 or 4.0

(a)	KeyBank is not subject to the enhanced supplementary leverage ratio proposed under the August 2013 NPR.

We believe that, as of December 31, 2013, KeyBank would meet all “well capitalized” capital adequacy requirements under the Regulatory Capital Rules if such requirements were currently effective. As previously indicated, the prompt corrective action requirements only apply to FDIC-insured depository institutions and not to BHCs (like KeyCorp).

U.S. implementation of the Basel III liquidity framework

In November 2013, the federal banking agencies published a joint NPR seeking comment on proposed rules that would create a minimum liquidity coverage ratio (“LCR”) for certain internationally active bank and nonbank financial companies (not including Key) and a modified version of the LCR (“Modified LCR”) for certain depository institution holding companies that are not internationally active (including Key). The LCR and Modified LCR created by the NPR are based on the Basel III liquidity framework and would be an enhanced prudential liquidity standard consistent with the Dodd-Frank Act. Comments on the NPR were due by January 31, 2014.

Under the NPR, KeyCorp would be required to maintain high-quality liquid assets of at least 100% of its total net cash outflow amount determined by prescribed assumptions in a hypothetical stress scenario over a 21-calendar day period. Implementation of the LCR and Modified LCR would begin January 1, 2015, with minimum requirements of 80% rising in equal annual steps of 10% to reach full implementation on January 1, 2017. KeyBank will not be subject to the LCR or the Modified LCR under the NPR unless the OCC determines that application to KeyBank is appropriate in light of its asset size, level of complexity, risk profile, scope of operations, affiliation with foreign or domestic covered entities, or risk to the financial system. KeyCorp is confident that it will be able to comply with the Modified LCR once the proposed rule is finalized and implemented. Notwithstanding the foregoing, there are two components of the NPR that could present some challenges for KeyCorp. If the NPR is implemented as proposed, KeyBank would likely limit the amount of collateralized deposits it accepts from states and municipalities (i.e., “preferred deposits”), further reduce the amount of interest it pays on those deposits, or eliminate the earnings credits it extends to states and municipalities. Securities issued by U.S. government-sponsored enterprises (“GSEs”) are a primary tool for liquidity management at Key and currently constitute a significant amount of our stock of high quality liquid assets. The NPR would treat these securities as Level 2A liquid assets instead of Level 1 liquid assets while the GSEs are under conservatorship, limiting our ability to rely on them as high quality liquid assets. Key continues to manage in the direction to be Modified LCR compliant by the end of 2014 through changes to the composition of our investment portfolio and by focusing on growing our client deposits that are not preferred deposits. The impact of the January 2014 Basel III liquidity framework revisions on U.S. banking organizations, including Key and KeyBank, will be determined by the extent to which they are implemented by the federal banking agencies.

Capital planning and stress testing

The Federal Reserve’s capital plan rule requires each U.S.-domiciled, top-tier BHC with total consolidated assets of at least $50 billion (like KeyCorp) to develop and maintain a written capital plan supported by a robust internal capital adequacy process. The capital plan must be submitted annually to the Federal Reserve for supervisory review in connection with its annual CCAR. The supervisory review includes an assessment of many factors, including Key’s ability to maintain capital above each minimum regulatory capital ratio and above a Tier 1 common ratio of 5% on a pro forma basis under expected and stressful conditions throughout the planning horizon. KeyCorp is also subject to the Federal Reserve capital plan rule and supervisory guidance regarding the declaration and payment of dividends and capital redemptions repurchases, including the supervisory expectation in certain circumstances for prior notification to, and consultation with, Federal Reserve supervisory staff.

The Federal Reserve’s annual CCAR is an intensive assessment of the capital adequacy of large, complex U.S. BHCs and of the policies and practices these BHCs use to assess their capital needs. Through CCAR, the Federal Reserve assesses the capital plans of these BHCs to ensure that they have both sufficient capital to continue operations throughout times of financial and economic stress and robust, forward-looking capital planning processes that account for their unique risks. The Federal Reserve expects BHCs subject to CCAR to have sufficient capital to withstand a severely adverse operating environment and to be able to continue operations, maintain ready access to funding, meet obligations to creditors and counterparties, and serve as credit intermediaries. In addition, the Federal Reserve evaluates the planned capital actions of these BHCs, including planned capital distributions such as dividend payments or stock repurchases.

KeyCorp filed its 2014 CCAR capital plan on January 6, 2014. Under the Federal Reserve’s November 2013 CCAR instructions and guidance, KeyCorp’s 2014 capital plan was required to reflect the Regulatory Capital

Rules, including their minimum regulatory capital ratios and transition arrangements, as well as Key’s Tier 1 common ratio for each quarter of the planning horizon using the definitions of Tier 1 capital and total risk-weighted assets as in effect in 2013, as well as a transition plan for full implementation of the Regulatory Capital Rules. Results from 2014 CCAR, which will include the 2014 supervisory stress test methodology and certain firm-specific results for the participating 30 covered companies (including KeyCorp), are expected to be released in March 2014.

As part of the annual CCAR, the Federal Reserve conducts an annual supervisory stress test on KeyCorp. As part of this test, the Federal Reserve projects revenue, expenses, losses, and resulting post-stress capital levels, regulatory capital ratios, and the Tier 1 common ratio under conditions that affect the U.S. economy or the financial condition of KeyCorp, including baseline, adverse, and severely adverse scenarios, that are determined annually by the Federal Reserve.

KeyCorp and KeyBank must also conduct their own company-run stress tests to assess the impact of stress scenarios on their consolidated earnings, losses, and capital over a nine-quarter planning horizon, taking into account their current condition, risks, exposures, strategies, and activities. While KeyBank must only conduct an annual stress test, KeyCorp must conduct both an annual and a mid-cycle stress test. KeyCorp and KeyBank are required to report the results of their annual stress tests to the Federal Reserve and OCC in early January of each year, and KeyCorp is required to report the results of its mid-cycle stress test to the Federal Reserve in early July of each year. Summaries of the results of these tests are disclosed, in March of each year for the annual tests and September of each year for the mid-cycle test, on the “Regulatory Disclosure” tab of Key’s Investor Relations website: http://www.key.com/ir.

Dividend restrictions

Federal banking law and regulations impose limitations on the payment of dividends by our national bank subsidiaries (like KeyBank). Historically, dividends paid by KeyBank have been an important source of cash flow for KeyCorp to pay dividends on its equity securities and interest on its debt. Dividends by our national bank subsidiaries are limited to the lesser of the amounts calculated under an earnings retention test and an undivided profits test. Under the earnings retention test, without the prior approval of the OCC, a dividend may not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year’s net income combined with the retained net income of the two preceding years. Under the undivided profits test, a dividend may not be paid in excess of a bank’s undivided profits. Moreover, under the FDIA, an insured depository institution may not pay a dividend if the payment would cause it to be in a less than “adequately capitalized” prompt corrective action capital category or if the institution is in default in the payment of an assessment due to the FDIC. For more information about the payment of dividends by KeyBank to KeyCorp, please see Note 3 (“Restrictions on Cash, Dividends and Lending Activities”) in this report.

FDIA, Resolution Authority and Financial Stability

Deposit insurance and assessments

The DIF provides insurance coverage for domestic deposits funded through assessments on insured depository institutions like KeyBank. Pursuant to the Dodd-Frank Act, the amount of deposit insurance coverage for deposits increased permanently from $100,000 to $250,000 per depository.

Under the Dodd-Frank Act, the FDIC must assess the premium based on an insured depository intuition’s assessment base, calculated as its average consolidated total assets minus its average tangible equity. KeyBank’s current annualized premium assessments can range from $.025 to $.45 for each $100 of its assessment base. The rate charged depends on KeyBank’s performance on the FDIC’s “large and highly complex institution” risk-assessment scorecard, which includes factors such as KeyBank’s regulatory rating, its ability to withstand asset and funding-related stress, and the relative magnitude of potential losses to the FDIC in the event of KeyBank’s failure.

Conservatorship and receivership of insured depository institutions

Upon the insolvency of an insured depository institution, the FDIC will be appointed as receiver or, in rare circumstances, conservator for the insolvent institution under the FDIA. In an insolvency, the FDIC may repudiate or disaffirm any contract to which the institution is a party if the FDIC determines that performance of the contract would be burdensome and that disaffirming or repudiating the contract would promote orderly administration of the institution’s affairs. If the contractual counterparty made a claim against the receivership (or conservatorship) for breach of contract, the amount paid to the counterparty would depend upon, among other factors, the receivership assets available to pay the claim and the priority of the claim relative to others. In addition, the FDIC may enforce most contracts entered into by the insolvent institution, notwithstanding any provision that would terminate, cause a default, accelerate or give other rights under the contract solely because of the insolvency, the appointment of the receiver (or conservator), or the exercise of rights or powers by the receiver (or conservator). The FDIC may also transfer any asset or liability of the insolvent institution without obtaining approval or consent from the institution’s shareholders or creditors. These provisions would apply to obligations and liabilities of Key’s insured depository institution subsidiaries, such as KeyBank, including obligations under senior or subordinated debt issued to public investors.

Receivership of certain SIFIs

The Dodd-Frank Act created a new resolution regime, as an alternative to bankruptcy, known as the “orderly liquidation authority” (“OLA”) for certain SIFIs, including BHCs and their affiliates. Under the OLA, the FDIC would generally be appointed as receiver to liquidate and wind up a failing SIFI. The determination that a SIFI should be placed into OLA receivership is made by the U.S. Treasury Secretary, who must conclude that the SIFI is in default or in danger of default and that the SIFI’s failure poses a risk to the stability of the U.S. financial system. This determination must come after supermajority recommendations by the Federal Reserve and the FDIC, and consultation between the U.S. Treasury Secretary and the President.

If the FDIC is appointed as receiver under the OLA, its powers and the rights and obligations of creditors and other relevant parties would be determined exclusively under the OLA. The powers of a receiver under the OLA are generally based on the FDIC’s powers as receiver for insured depository institutions under the FDIA. Certain provisions of the OLA were modified to reduce disparate treatment of creditors’ claims between the U.S. Bankruptcy Code and the OLA. However, substantial differences between the two regimes remain, including the FDIC’s right to disregard claim priority in some circumstances, the use of an administrative claims procedure under OLA to determine creditors’ claims (rather than a judicial procedure in bankruptcy), the FDIC’s right to transfer claims to a bridge entity, and limitations on the ability of creditors to enforce contractual cross-defaults against potentially viable affiliates of the entity in receivership. OLA liquidity would be provided through credit support from the U.S. Treasury and assessments made, first, on claimants against the receivership that received more in the OLA resolution than they would have received in ordinary liquidation (to the full extent of the excess), and second, if necessary, on SIFIs, like KeyCorp, utilizing a risk-based methodology.

In December 2013, the FDIC published a notice for comment regarding its “single point of entry” resolution strategy under the OLA. This strategy involves the appointment of the FDIC as receiver for the SIFI’s top-level U.S. holding company only, while permitting the operating subsidiaries of the failed holding company to continue operations uninterrupted. As receiver, the FDIC would establish a bridge financial company for the failed holding company and would transfer the assets and a very limited set of liabilities of the receivership estate. The claims of unsecured creditors and other claimants in the receivership would be satisfied by the exchange of their claims for the securities of one or more new holding companies emerging from the bridge company. Comments on the notice are due by February 18, 2014.

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 of its depositors that have subrogated to the FDIC) and certain claims for administrative expenses of the FDIC as receiver have priority over other general unsecured claims. If an

insured depository institution fails, insured and uninsured depositors, along with the FDIC, will be placed ahead of unsecured, nondeposit creditors, including the institution’s parent BHC and subordinated creditors, in order of priority of payment.

Resolution plans

BHCs with at least $50 billion in total consolidated assets, like KeyCorp, are required to periodically submit to the Federal Reserve and FDIC a plan discussing how the company could be rapidly and orderly resolved if the company failed or experienced material financial distress. Insured depository institutions with at least $50 billion in total consolidated assets, like KeyBank, are also required to submit a resolution plan to the FDIC. These plans are due annually by December 31 of each year. For 2013, KeyCorp and KeyBank elected to submit a joint resolution plan given Key’s organizational structure and business activities and the significance of KeyBank to Key. This resolution plan, the first required from KeyCorp and KeyBank, was submitted on December 9, 2013. In January 2014, the Federal Reserve and FDIC made available on their websites the public sections of resolution plans for the companies that submitted plans for the first time in December 2013. The public section of the joint resolution plan of KeyCorp and KeyBank is available at http://www.federalreserve.gov/bankinforeg/resolution-plans.htm.

Financial Stability Oversight Council

The Dodd-Frank Act created the FSOC, a systemic risk oversight body, to (i) identify risks to U.S. financial stability that could arise from the material financial distress or failure, or ongoing activities, of large, interconnected SIFIs, or that could arise outside the financial services marketplace, (ii) promote market discipline, by eliminating expectations that the U.S. government will shield shareholders, creditors, and counterparties from losses in the event of failure, and (iii) respond to emerging threats to the stability of the U.S. financial system. The FSOC is responsible for facilitating regulatory coordination, information collection and sharing, designating nonbank financial companies for consolidated supervision by the Federal Reserve, designating systemic financial market utilities and systemic payment, clearing, and settlement activities requiring prescribed risk management standards and heightened federal regulatory oversight, recommending stricter standards for SIFIs, and, together with the Federal Reserve, determining whether action should be taken to break up firms that pose a grave threat to U.S. financial stability.

The Bank Secrecy Act

The BSA requires all financial institutions (including banks and securities broker-dealers) to, among other things, maintain a risk-based system of internal controls reasonably designed to prevent money laundering and the financing of terrorism. It includes a variety of recordkeeping and reporting requirements (such as cash and suspicious activity reporting) as well as due diligence and know-your-customer documentation requirements. Key has established and maintains an anti-money laundering program to comply with the BSA’s requirements.

Other Regulatory Developments under the Dodd-Frank Act

Consumer Financial Protection Bureau

Title X of the Dodd-Frank Act created the CFPB, a consumer financial services regulator with supervisory authority over banks and their affiliates with assets of more than $10 billion, like Key, for compliance with federal consumer protection laws. The CFPB also regulates financial products and services sold to consumers and has rulemaking authority with respect to federal consumer financial laws. Any new regulatory requirements promulgated by the CFPB or modifications in the interpretations of existing regulations could require changes to our consumer-facing businesses. The Dodd-Frank Act also gives the CFPB broad data collecting powers for fair lending for both small business and mortgage loans, as well as extensive authority to prevent unfair, deceptive and abusive practices.

During 2013, the CFPB issued a series of final rules related to residential mortgage loan origination and servicing. In particular, in January 2013, the CFPB issued a final rule implementing the ability-to-repay rules and qualified mortgage provisions of the Truth in Lending Act, as amended by the Dodd-Frank Act. Under these rules, a lender must make a reasonable, good faith determination that a borrower is able to repay a mortgage before extending the credit, based on a number of factors and consideration of financial information about the borrower. Loans meeting the definition of “qualified mortgage” are granted a presumption that the lender satisfied the ability-to-repay requirements. The CFPB has also issued rules affecting other aspects of the residential mortgage loan process, ranging from the customer application to servicing of the loan. These changes and additions to consumer mortgage banking rules have required enhancements to our compliance programs, as well as changes to Key’s systems and loan processing practices. The ability to repay and qualified mortgage rules became effective on January 10, 2014.

Debit Card Interchange

Federal Reserve Regulation II — Debit Card Interchange Fees and Routing (the “Interchange Rule”) — limits debit card interchange fees and eliminates exclusivity arrangements between issuers and networks for debit card transactions. The relevant portions of the Interchange Rule became effective October 1, 2011.

On July 31, 2013, the U.S. District Court for the District of Columbia issued a ruling in NACS v. Board of Governors of the Federal Reserve System, vacating the Interchange Rule. Retail merchants and merchant groups challenged the Federal Reserve’s final rule, which allowed debit card issuers to recover from merchants an interchange fee of $.21 per transaction, a fee of five basis points of the value of the transaction, and an additional $.01 fraud prevention adjustment. The district court held that this fee structure, and the Interchange Rule’s requirements regarding the number of networks over which each debit card transaction can be processed, did not comply with the Durbin Amendment to the Dodd-Frank Act. On September 19, 2013, the Court of Appeals for the D.C. Circuit granted a joint motion by the parties for expedited appeal of the district court’s opinion. The parties filed briefs with the court in December 2013, and oral arguments were held in January 2014. The Interchange Rule remains in effect until resolution of the appeal by the circuit court. We continue to monitor these developments.

“Volcker Rule”

In December 2013, federal banking regulators issued a joint final rule (the “Final Rule”) implementing Section 619 of the Dodd-Frank Act, known as the “Volcker Rule.” The Final Rule prohibits “banking entities,” such as KeyCorp, KeyBank and their affiliates and subsidiaries, from owning, sponsoring, or having certain relationships with hedge funds and private equity funds (referred to as “covered funds”) and engaging in short-term proprietary trading of securities, derivatives, commodity futures and options on these instruments.

The Final Rule excepts certain transactions from the general prohibition against proprietary trading, including: transactions in government securities (e.g., U.S. Treasuries or any instruments issued by the GNMA, FNMA, FHLMC, a Federal Home Loan Bank, or any state or a political division of any state, among others); transactions in connection with underwriting or market-making activities; and, transactions as a fiduciary on behalf of customers. Banking entities may also engage in risk-mitigating hedges if the entity can demonstrate that the hedge reduces or mitigates a specific, identifiable risk or aggregate risk position of the entity. The banking entity is required to conduct an analysis supporting its hedging strategy and the effectiveness of the hedges must be monitored and, if necessary, adjusted on an ongoing basis. Banking entities with more than $50 billion in total consolidated assets and liabilities, like Key, that engage in permitted trading transactions are required to implement enhanced compliance programs, to regularly report data on trading activities to the regulators, and to provide a CEO attestation that the entity’s compliance program is reasonably designed to comply with the Final Rule.

Although the Final Rule will take effect April 1, 2014, the Federal Reserve exercised its unilateral authority to extend the compliance deadline until July 21, 2015. Key does not anticipate that the proprietary trading restrictions in the Final Rule will have a material impact on its business, but it may be required to divest certain fund investments as discussed in more detail under the heading “Other investments” in Item 7 of this report.

Derivatives

Title VII of the Dodd-Frank Act imposes a new, comprehensive regulatory regime on the U.S. derivatives markets, subjecting nearly all derivative transactions to CFTC or SEC regulation. In May 2012, the CFTC and the SEC issued joint final rules defining the terms “swap dealer” and “security-based swap dealer.” The final rules specified that, generally, a swap dealer is an entity engaging in $3 billion in notional value of non-exempt swap activity in any 12-month period commencing October 12, 2012, subject to an initial phase-in threshold of $8 billion in notional value. As a result, in November 2013, KeyBank provisionally registered as a swap dealer with the CFTC and became a member of the National Futures Association, the self-regulatory organization for participants in the U.S. derivatives industry. As a provisionally-registered swap dealer, KeyBank is required to develop and adhere to a specified compliance program.

The CFTC has also finalized regulations establishing recordkeeping requirements, swap data reporting requirements, swap dealer business conduct standards, mandatory swap clearing requirements, and swap trade execution requirements. Other regulations required by the Dodd-Frank Act, including capital and margin requirements, additional mandatory clearing designations, and position limits, have not been finalized and the timeframe for their completion remains unclear.

Enhanced prudential standards and early remediation requirements

Under the Dodd-Frank Act, the Federal Reserve must impose enhanced prudential standards and early remediation requirements upon BHCs with at least $50 billion in total consolidated assets (like KeyCorp). Prudential standards must include enhanced risk-based capital requirements and leverage limits, enhanced liquidity requirements, a single-counterparty credit limit, enhanced risk management and risk committee requirements, both supervisory and company-run stress tests and, for certain financial companies, a debt-to-equity limit. Early remediation requirements must include limits on capital distributions, acquisitions, and asset growth in early stages of financial decline and capital restoration plans, capital raising requirements, limits on transactions with affiliates, management changes, and asset sales in later stages of financial decline, which are to be triggered by forward-looking indicators including regulatory capital and liquidity measures. On February 18, 2014, the Federal Reserve issued its final rule implementing a number of enhanced prudential standards regarding liquidity, risk management, and capital. Key is currently reviewing the final rule to determine its impact.

Bank transactions with affiliates

Federal banking law and regulation imposes qualitative standards and quantitative limitations upon certain transactions by a bank with its affiliates, including the bank’s parent BHC and certain companies the parent BHC may be deemed to control for these purposes. Transactions covered by these provisions must be on arm’s-length terms, and cannot exceed certain amounts which are determined with reference to the bank’s regulatory capital. Moreover, if the transaction is a loan or other extension of credit, it must be secured by collateral in an amount and quality expressly prescribed by statute, and if the affiliate is unable to pledge sufficient collateral, the BHC may be required to provide it. These provisions materially restrict the ability of KeyBank to fund its affiliates, including KeyCorp, KeyBanc Capital Markets Inc., certain of the Victory mutual funds with which we continue to have a relationship, and KeyCorp’s nonbanking subsidiaries engaged in making merchant banking investments (and certain companies in which these subsidiaries have invested).

Provisions added by the Dodd-Frank Act expanded the scope of (i) the definition of affiliate to include any investment fund having any bank or BHC-affiliated company as an investment adviser, (ii) credit exposures subject to the prohibition on the acceptance of low-quality assets or securities issued by an affiliate as collateral, the quantitative limits, and the collateralization requirements to now include credit exposures arising out of derivative, repurchase agreement, and securities lending/borrowing transactions, and (iii) transactions subject to quantitative limits to now also include credit collateralized by affiliate-issued debt obligations that are not securities. In addition, these provisions require that a credit extension to an affiliate remain secured in accordance

with the collateral requirements at all times that it is outstanding, rather than the previous requirement of only at the inception or upon material modification of the transaction. They also raise significantly the procedural and substantive hurdles required to obtain a regulatory exemption from the affiliate transaction requirements. While these provisions became effective on July 21, 2012, the Federal Reserve has not yet issued a proposed rule to implement them.

New assessments, fees and other charges

Certain provisions of the Dodd-Frank Act require or authorize certain U.S. governmental departments, agencies and instrumentalities to collect new assessments, fees and other charges from BHCs and banks, like KeyCorp and KeyBank. The U.S. Treasury has adopted a final rule establishing an assessment schedule to collect from SIFIs, including KeyCorp, based on their average total consolidated assets semiannual assessments to pay the expenses of the OFR, including the expenses of the FSOC and certain expenses for implementing the orderly liquidation activities of the FDIC. The Federal Reserve has established an annual assessment upon SIFIs, including KeyCorp, based on their average total consolidated assets for the Federal Reserve’s examination, supervision, and regulation of such companies.

ITEM 1A.

RISK FACTORS

As a financial services organization, we are subject to a number of risks inherent in our transactions and present in the business decisions we make. Described below are the primary risks and uncertainties that if realized could have a material and adverse effect on our business, financial condition, results of operations or cash flows, and our access to liquidity. The risks and uncertainties described below are not the only risks we face.

Our ERM program incorporates risk management throughout our organization to identify, understand, and manage the risks presented by our business activities. Our ERM program identifies Key’s major risk categories as: credit risk, compliance risk, liquidity risk, operational risk, market risk, reputation risk, strategic risk, and model risk. These risk factors, and other risks we may face, are discussed in more detail in other sections of this report.

I. Credit Risk

Should the fundamentals of the commercial real estate market deteriorate, our financial condition and results of operations could be adversely affected.

The U.S. economy remains vulnerable, and any reversal in broad macro trends would threaten the nascent recovery in commercial real estate. The improvement of certain economic factors, such as unemployment and real estate asset values and rents, has continued to lag behind the overall economy. These economic factors generally affect certain industries like real estate and financial services more significantly. A significant portion of our clients are active in these industries. Furthermore, financial services companies with a substantial lending business, like ours, are dependent upon the ability of their borrowers to make debt service payments on loans.

A portion of our commercial real estate loans are construction loans. Typically these properties are not fully leased at loan origination; the borrower may require additional leasing through the life of the loan to provide cash flow to support debt service payments. If we experienced weaknesses similar to those experienced at the height of the economic downturn, then we would experience a slowing in the execution of new leases, which may also lead to existing lease turnover.

We are subject to the risk of defaults by our loan counterparties and clients.

Many of our routine transactions expose us to credit risk in the event of default of our counterparty or client. Our credit risk may be exacerbated when the collateral held cannot be realized upon or is liquidated at prices insufficient to recover the full amount of the loan or derivative exposure due to us. In deciding whether to extend

credit or enter into other transactions, we may rely on information furnished by or on behalf of counterparties and clients, including financial statements, credit reports and other information. We may also rely on representations of those counterparties, clients, or other third parties as to the accuracy and completeness of that information. The inaccuracy of that information or those representations affects our ability to accurately evaluate the default risk of a counterparty or client.

Various factors may cause our allowance for loan and lease losses to increase.

We maintain an ALLL (a reserve established through a provision for loan and lease losses charged to expense) that represents our estimate of losses based on our evaluation of risks within our existing portfolio of loans. The level of the allowance reflects our ongoing evaluation of industry concentrations, specific credit risks, loan and lease loss experience, current loan portfolio quality, present economic, political and regulatory conditions, and incurred losses inherent in the current loan portfolio. The determination of the appropriate level of the ALLL 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, the stagnation of certain economic indicators that we are more susceptible to, such as unemployment and real estate values, 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 ALLL. Bank regulatory agencies periodically review our ALLL and, based on judgments that can differ somewhat from those of our own management, may require an increase in the provision for loan and lease losses or the recognition of further loan charge-offs. In addition, if charge-offs in future periods exceed the ALLL (i.e., if the loan and lease allowance is inadequate), we will need additional loan and lease loss provisions to increase the ALLL, which would decrease our net income and capital.

Declining asset prices could adversely affect us.

During the recession from December 2007 to June 2009, the volatility and disruption that the capital and credit markets experienced reached extreme levels. The severe market disruption in 2008 led to the failure of several substantial financial institutions, causing the widespread liquidation of assets and constraining the credit markets. These asset sales, along with asset sales by other leveraged investors, including some hedge funds, rapidly drove down prices and valuations across a wide variety of traded asset classes. Asset price deterioration has a negative effect on the valuation of many of the asset categories represented on our balance sheet, and reduces our ability to sell assets at prices we deem acceptable. A further recession would likely reverse recent positive trends in asset prices.

We have heightened credit exposure in high-balance loans and loans in environmentally sensitive industries.

As of December 31, 2013, approximately 70% 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 are typically larger than residential real estate loans and consumer loans.

We also do business with environmentally sensitive industries and in connection with the development of Brownfield sites that provide appropriate business opportunities. We monitor and evaluate our borrowers for compliance with environmental-related covenants, which include covenants requiring compliance with applicable law. Should political or other changes make it difficult for certain of our customers to maintain compliance with applicable covenants, our credit quality could be adversely affected. The deterioration of a larger loan or a group of our loans could cause a significant increase in nonperforming loans, which could result in net loss of earnings from these loans, an increase in the provision for loan and lease losses, and an increase in loan charge-offs.

II. Compliance Risks

We are subject to extensive government regulation and supervision.

We are subject to extensive federal and state regulation and supervision, which has increased in recent years due to the implementation of the Dodd-Frank Act and other financial reform initiatives. Banking regulations are primarily intended to protect depositors’ funds, the DIF and the banking system as a whole, not our debtholders or shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, ability to repurchase our common shares, and growth, among other things.

Changes to statutes, regulations or regulatory policies or their interpretation or implementation, and continuing to become subject to heightened regulatory practices, requirements or expectations, could affect us in substantial and unpredictable ways. These changes may subject us to additional compliance costs and increase our litigation and regulatory costs should we fail to appropriately comply. Such changes may also limit the types of financial services and products we may offer, affect the investments we make, and change the manner in which we operate. For more information, see “Supervision and Regulation” in Item 1 of this report.

Additionally, federal banking law grants substantial enforcement powers to federal banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions against banking organizations and affiliated parties. These enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices.

The regulatory environment for the financial services industry is being significantly affected by financial regulatory reform initiatives, including the Dodd-Frank Act.

The United States and other governments have undertaken major reforms of the regulatory oversight structure of the financial services industry. We have faced increased regulation of our industry, and will continue to face such regulation into 2014, as a result of current and future initiatives intended to provide financial market stability and enhance the liquidity and solvency of financial institutions. We also faced increased regulation from efforts designed to protect consumers from financial abuse.

We expect continued intense scrutiny from our bank supervisors in the examination process and aggressive enforcement of regulations on the federal and state levels, particularly due to KeyBank’s and KeyCorp’s status as covered institutions under the enhanced prudential standards promulgated under the Dodd-Frank Act. Although many parts of the Dodd-Frank Act are now in effect, other parts will continue to be implemented over the next few years. As a result, some uncertainty remains as to the aggregate impact upon Key of the Dodd-Frank Act as fully implemented. Compliance with these new regulations and supervisory initiatives has and will continue to increase our costs, may reduce our revenue and limit our ability to pursue certain desirable business opportunities, and limit our ability to take certain types of corporate actions. For more detailed information on the regulatory environment and the laws, rules and regulations that may affect us, see “Supervision and Regulation” in Item 1 of this report.

Changes in accounting policies, rules and interpretations could materially affect how we report our financial results and condition.

The FASB, regulatory agencies, and other bodies that establish accounting standards from time to time change the financial accounting and reporting standards governing the preparation of Key’s financial statements. Additionally, those bodies that establish and interpret the accounting standards (such as the FASB, SEC, and banking regulators) may change or even reverse prior interpretations or positions on how these standards should be applied. These changes can be difficult to predict and can materially affect how Key records and reports its financial condition and results of operations. In some cases, Key could be required to apply a new or revised standard retroactively, resulting in changes to previously reported financial results.

III. Capital and Liquidity Risk

Capital and liquidity requirements imposed by the Dodd-Frank Act will require banks and BHCs to maintain more and higher quality capital than has historically been the case.

New and evolving capital standards resulting from the Dodd-Frank Act and the Regulatory Capital Rules adopted by our regulators will have a significant impact on banks and BHCs, including Key. For a detailed explanation of recently adopted capital and liquidity rules, see the section titled “Regulatory capital and liquidity” under the heading “Supervision and Regulation” in Item 1 of this report.

The full effect of the Federal Reserve’s proposed liquidity standards on Key is uncertain at this time. However, the need to maintain more and higher quality capital, together with new requirements for greater liquidity, could limit our business activities, including lending, and our ability to expand organically or through acquisitions. It could also result in our taking steps to increase our capital that may be dilutive to shareholders or limit our ability to pay dividends or otherwise return capital to shareholders. In addition, new liquidity standards could require us to increase our holdings of highly liquid short- term investments, or change our mix of funding alternatives, and may impact business relationships with certain customers. It could reduce our ability to invest in longer-term assets even if more desirable from a balance sheet management perspective.

In addition, the Federal Reserve requires bank holding companies to obtain approval before making a “capital distribution,” such as paying or increasing dividends, implementing common stock repurchase programs, or redeeming or repurchasing capital instruments. The Federal Reserve has detailed the processes that bank holding companies should maintain to ensure they hold adequate capital under severely adverse conditions and have ready access to funding before engaging in any capital activities. These rules could limit Key’s ability to make distributions, including paying out dividends or buying back shares. For more information, see “Supervision and Regulation” in Item 1 of this report.

Federal agencies may no longer support current initiatives or may not implement new initiatives to support the stability of the U.S. financial system.

Since 2008, the federal government has taken unprecedented steps to provide stability to and confidence in the financial markets. For example, the Federal Reserve maintains a variety of stimulus policy measures designed to maintain a low interest rate environment, including its monthly purchases of treasury bonds and mortgage-backed securities, to help stabilize the economy given the FOMC’s legal mandates to maximize employment, maintain stable prices, and moderate long-term interest rates. In light of recent moderate improvements in the U.S. economy, federal agencies may no longer continue to support current initiatives. The Federal Reserve announced in December 2013 it will “taper” its monthly purchases of treasury bonds and mortgage-backed securities as the economy continues to improve. The discontinuation of market-supporting government and agency initiatives, particularly a sudden discontinuation, may have a negative impact, perhaps severe, on the financial markets. These effects could include a sudden move to higher debt yields, which could have a chilling effect on borrowing. In addition, new initiatives or legislation may not be implemented to counter any negative effects of discontinuing programs or, in the event of an economic downturn, to support and stabilize a troubled economy. Even if new legislation or initiatives were necessary, it is uncertain that any legislation or initiative could be implemented in a timely fashion or at all in the current political climate. Additionally, any program implemented or legislation enacted to counter the effects of program discontinuation or a sudden economic downturn may be insufficient to support financial market stability or promote U.S. economic recovery.

We rely on dividends by our subsidiaries for most of our funds.

We are a legal entity separate and distinct from our subsidiaries. With the exception of cash that we raise from debt and equity issuances, we receive substantially all of our cash flow from dividends by our subsidiaries. These dividends are the principal source of funds to pay dividends on our equity securities and interest and principal on

our debt. Federal banking law and regulations limit the amount of dividends that KeyBank (KeyCorp’s largest subsidiary) can pay. For further information on the regulatory restrictions on the payment of dividends by KeyBank, see “Supervision and Regulation” in Item 1 of this report.

In the event KeyBank is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay dividends on our equity securities. In addition, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.

We are subject to liquidity risk, which could negatively affect our funding levels.

Market conditions or other events could negatively affect the level or cost of funding, 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 we have 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 (including by reducing our reliance on wholesale funding sources), a substantial, unexpected or prolonged change in the level or cost of liquidity could have a material adverse effect on us. Certain credit markets that we participate in and rely upon as sources of funding experienced significant disruption and volatility during the 2008 financial crisis. While these disrupted markets have shown signs of recovery, if the cost effectiveness or the availability of supply in these credit markets is reduced for a prolonged period of time, our funding needs may require us to access funding and manage liquidity by other means. These alternatives may include generating client deposits, securitizing or selling loans, extending the maturity of wholesale borrowings, purchasing deposits from other banks, borrowing under certain secured wholesale facilities, using relationships developed with a variety of fixed income investors, and further managing loan growth and investment opportunities. These alternative means of funding may not be available under stressed conditions similar to those experienced in the liquidity crisis of 2007-2009.

Our credit ratings affect our liquidity position.

Our rating agencies regularly evaluate the securities of KeyCorp and KeyBank, and their ratings of our long-term debt and other securities are based on a number of factors, including our financial strength, ability to generate earnings, and other factors. Some of these factors are not entirely within our control, such as conditions affecting the financial services industry and the economy and changes in rating methodologies as a result of the Dodd-Frank Act. There can be no assurance that we will maintain our current credit ratings. A downgrade of the securities of KeyCorp or KeyBank could adversely affect our access to liquidity and could significantly increase our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and counterparties willing to lend to us, reducing our ability to generate income.

IV. Operational Risk

Our information systems may experience an interruption or breach in security.

We rely heavily on communications, information systems (both internal and provided by third parties) and the internet to conduct our business. Our business is dependent on our ability to process and monitor large numbers of daily transactions in compliance with legal, regulatory and internal standards and specifications. In addition, a significant portion of our operations relies heavily on the secure processing, storage and transmission of personal and confidential information, such as the personal information of our customers and clients. These risks may increase in the future as we continue to increase mobile payments and other internet-based product offerings and expand our internal usage of web-based products and applications.

In the event of a failure, interruption or breach of our information systems, we may be unable to avoid impact to our customers. Other U.S. financial service institutions and companies have reported breaches in the security of

their websites or other systems and several financial institutions, including Key, experienced significant distributed denial-of-service attacks, some of which involved sophisticated and targeted attacks intended to disable or degrade service, or sabotage systems. Other potential attacks have attempted to obtain unauthorized access to confidential information or destroy data, often through the introduction of computer viruses or malware, cyberattacks and other means. To date, none of these efforts has had a material adverse effect on our business or operations. Such security attacks can originate from a wide variety of sources, including persons who are involved with organized crime or who may be linked to terrorist organizations or hostile foreign governments. Those same parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. Our security systems may not be able to protect our information systems from similar attacks due to the rapid evolution and creation of sophisticated cyberattacks. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third party could result in legal liability, remediation costs, regulatory action and reputational harm.

We rely on third parties to perform significant operational services for us.

Third parties perform significant operational services on our behalf. These third-party vendors are subject to similar risks as Key relating to cybersecurity, breakdowns or failures of their own systems or employees. One or more of our vendors may experience a cybersecurity event or operational disruption and, if any such event does occur, it may not be adequately addressed, either operationally or financially, by the third-party vendor. Certain of our vendors may have limited indemnification obligations or may not have the financial capacity to satisfy their indemnification obligations. Financial or operational difficulties of a vendor could also impair our operations if those difficulties interfere with the vendor’s ability to serve us. Additionally, some of our outsourcing arrangements are located overseas and, therefore, are subject to risks unique to the regions in which they operate. If a critical vendor is unable to meet our needs in a timely manner or if the services or products provided by such a vendor are terminated or otherwise delayed and if we are not able to develop alternative sources for these services and products quickly and cost-effectively, it could have a material adverse effect on our business. Federal banking regulators recently issued regulatory guidance on how banks select, engage and manage their outside vendors. These regulations may affect the circumstances and conditions under which we work with third parties and the cost of managing such relationships.

We are subject to claims and litigation.

From time to time, customers, vendors or other parties may make claims and take legal action against us. We maintain reserves for certain claims when deemed appropriate based upon our assessment that a loss is probable, consistent with applicable accounting guidance. At any given time we have a variety of legal actions asserted against us in various stages of litigation. Resolution of a legal action can often take years. Whether any particular claims and legal actions are founded or unfounded, if such claims and legal actions are not resolved in our favor, they may result in significant financial liability and adversely affect how the market perceives us and our products and services as well as impact customer demand for those products and services.

We are also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding our business, including, among other things, accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. The number and risk of these investigations and proceedings has increased in recent years with regard to many firms in the financial services industry due to legal changes to the consumer protection laws provided for by the Dodd-Frank Act and the creation of the CFPB.

There have also been a number of highly publicized legal claims against financial institutions involving fraud or misconduct by employees, and we run the risk that employee misconduct could occur. It is not always possible to deter or prevent employee misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases.

We are subject to operational risk.

We 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 includes the risk of fraud by employees, clerical and record-keeping errors, nonperformance by vendors, threats to cybersecurity, and computer/telecommunications malfunctions. Operational risk also encompasses compliance and legal risk, which is the risk of loss from violations of, or noncompliance with, laws, rules, regulations, prescribed practices or ethical standards, as well as the risk of our noncompliance with contractual and other obligations. We are also exposed to operational risk through our outsourcing arrangements, and the effect that changes in circumstances or capabilities of our outsourcing vendors can have on our ability to continue to perform operational functions necessary to our business, such as certain loan processing functions. For example, breakdowns or failures of our vendors’ systems or employees could be a source of operational risk to us. Resulting losses from operational risk could take the form of explicit charges, increased operational costs, harm to our reputation, inability to secure insurance, litigation, regulatory intervention or sanctions or foregone business opportunities.

Our controls and procedures may fail or be circumvented, and our methods of reducing risk exposure may not be effective.

We regularly review and update our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. We also maintain an ERM program. 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. Additionally, instruments, systems and strategies used to hedge or otherwise manage exposure to various types of market compliance, credit, liquidity, operational and business risks and enterprise-wide risk could be less effective than anticipated. As a result, we may not be able to effectively mitigate our risk exposures in particular market environments or against particular types of risk.

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 or cause us to incur additional expenses.

V. Market Risk

A reversal of the fragile U.S. economic recovery and a return to volatile or recessionary conditions in the U.S. or abroad could negatively affect our business or our access to capital markets.

The slow economic recovery, and multiple downside shocks, have presented a challenge for Key and adversely affected our business and financial performance. These economic conditions may persist for some time, and continue to have a negative impact on us. A worsening of conditions could aggravate the adverse effects of these difficult economic and market conditions on Key and others in the financial services industry. Risks related to the global economy have eased somewhat, but challenges remain.

In particular, we would face some of the following risks, and other unforeseeable risks, in connection with a downturn in the economic and market environment, whether in domestic or international markets:

A loss of confidence in the financial services industry and the equity markets by investors, placing pressure on the price of Key’s common shares or decreasing the credit or liquidity available to Key;

A decrease in consumer and business confidence levels, generally, decreasing credit usage and investment or increasing delinquencies and defaults;

A decrease in household or corporate incomes, reducing demand for Key’s products and services;

A decrease in the value of collateral securing loans to Key’s borrowers or a decrease in the quality of Key’s loan portfolio, increasing loan charge-offs and reducing Key’s net income;

A decrease in our ability to liquidate positions at market prices;

The prolonged continuation of a very low interest rate environment, increasing downward pressure to our net interest income;

A decrease in the accuracy and viability of our quantitative models;

An increase in competition and consolidation in the financial services industry;

Increased concern over and scrutiny of the capital and liquidity levels of financial institutions, generally, and those of our transaction counterparties, specifically;

A decrease in confidence in the creditworthiness of the United States or other governments whose securities we hold; and

An increase in limitations on or the regulation of financial services companies like Key.

We are subject to interest rate risk, which could adversely affect our earnings on loans and other interest-earning assets.

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. Changes in monetary policy, including changes in interest rates, could influence the amount of interest we receive on loans and securities, the amount of interest we pay on deposits and borrowings, our ability to originate loans and obtain deposits, and 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, net interest income, and therefore our 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.

Our methods for simulating and analyzing our interest rate exposure are discussed more fully under the heading “Risk Management — Management of interest risk exposure” found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Our profitability depends upon economic conditions in the geographic regions where we have significant operations and on certain market segments with which we conduct significant business.

We have concentrations of loans and other business activities in geographic regions where our bank branches are located — Oregon and Alaska; Washington; Rocky Mountains; Indiana; West Ohio/Michigan; East Ohio; Eastern New York; New England; and Western New York — and potential exposure to geographic regions outside of our branch footprint. The moderate U.S. economic recovery has been experienced unevenly in the various regions where we operate, and there can be no assurance that continued improvement in the overall U.S. economy will result in similar improvement, or any improvement at all, in the economy of any particular geographic region. Adverse conditions in a geographic region such as inflation, unemployment, recession, natural disasters, or other factors beyond our control could impact the ability of borrowers in these regions to repay their loans, decrease the value of collateral securing loans made in these regions, or affect the ability of our customers in these regions to continue conducting business with us.

Additionally, a significant portion of our business activities are concentrated with the real estate, health care and utilities market segments. The profitability of some of these market segments depends upon the health of the overall economy, seasonality, the impact of regulation, and other factors that are beyond our control and may be beyond the control of our customers in these market segments.

An economic downturn in one or more geographic regions where we conduct our business, or any significant or prolonged impact on the profitability of one or more of the market segments with which we conduct significant business activity, could adversely affect the demand for our products and services, the ability of our customers to repay loans, the value of the collateral securing loans, and the stability of our deposit funding sources.

The soundness of other financial institutions could adversely affect us.

Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. We have exposure to many different industries and counterparties in the financial services industries, and we routinely execute transactions with such counterparties, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Financial services institutions, however, are interrelated as a result of trading, clearing, counterparty or other relationships. Defaults by one or more financial services institutions have led to, and may cause, market-wide liquidity problems and losses. Many of our transactions with other financial institutions expose us to credit risk in the event of default of a counterparty or client. In addition, our credit risk may be affected when the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivatives exposure due us.

VI. Reputation Risk

Damage to our reputation could significantly harm our businesses.

Our ability to attract and retain customers, clients, investors, and highly-skilled management and employees is affected by our reputation. Public perception of the financial services industry has declined since the 2008 financial crisis. We face increased public and regulatory scrutiny resulting from the financial crisis and economic downturn. Significant harm to our reputation can also arise from other sources, including employee misconduct, actual or perceived unethical behavior, litigation or regulatory outcomes, failing to deliver minimum or required standards of service and quality, compliance failures, disclosure of confidential information, and the activities of our clients, customers and counterparties, including vendors. Actions by the financial services industry generally or by certain members or individuals in the industry can also significantly adversely affect our reputation. We could also suffer significant reputational harm if we fail to properly identify and manage potential conflicts of interest. Management of potential conflicts of interests has become increasingly complex as we expand our business activities through more numerous transactions, obligations and interests with and among our clients. The actual or perceived failure to adequately address conflicts of interest could affect the willingness of clients to deal with us, which could adversely affect our businesses.

VII. Strategic Risk

We may not realize the expected benefits of our strategic initiatives.

Our ability to compete successfully depends on a number of factors, including among others, our ability to develop and execute strategic plans and initiatives. Our strategic priorities include growing revenue, building and maintaining long-term customer relationships, maintaining financial strength, and building on our culture of efficiency. Enhancing relationships with our customers, including by “cross-selling” additional or new products to them, is very important to our business model and our ability to grow revenue and earnings. Our inability to execute on or achieve the anticipated outcomes of our strategic priorities may affect how the market perceives us and could impede our growth and profitability.

We operate in a highly competitive industry.

We face substantial competition in all areas of our operations from a variety of competitors, some of which are larger and may have more financial resources than us. Our competitors primarily include national and super-regional banks as well as smaller community banks within the various geographic regions in which we operate. 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. In addition, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks. In recent years, mergers and acquisitions have led to greater concentration in the banking industry, placing added competitive pressure on Key’s core banking products and services. We expect the competitive landscape of the financial services industry to become even more intensified as a result of legislative, regulatory, structural and technological changes.

Our ability to compete successfully depends on a number of factors, including: our ability to develop and execute strategic plans and initiatives; our ability to develop, maintain and build long-term customer relationships based on quality service and competitive prices; maintaining our high ethical standards and safe and sound assets; and industry and general economic trends. Increased competition in the financial services industry, and our failure to perform in any of these areas, could significantly weaken our competitive position, which could adversely affect our growth and profitability.

Maintaining or increasing our market share depends upon our ability to adapt our products and services to evolving industry standards and consumer preferences, while maintaining competitive prices.

The continuous, widespread adoption of new technologies, including internet services and smart phones, requires us to evaluate our product and service offerings to ensure they remain competitive. Our success depends, in part, on our ability to adapt our products and services, as well as our distribution of them, to evolving industry standards and consumer preferences. New technologies have altered consumer behavior by allowing consumers to complete transactions such as paying bills or transferring funds directly without the assistance of banks. New products allow consumers to maintain funds in brokerage accounts or mutual funds that would have historically been held as bank deposits. 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 related income generated from those deposits.

The increasing pressure from our competitors, both bank and nonbank, to keep pace and adopt new technologies and products and services requires us to incur substantial expense. We may be unsuccessful in developing or introducing new products and services, modifying our existing products and services, adapting to changing consumer preferences and spending and saving habits, achieving market acceptance or regulatory approval, sufficiently developing or maintaining a loyal customer base or offering products and services at prices lower than the prices offered by our competitors. These risks may affect our ability to achieve growth in our market share and could reduce both our revenue streams from certain products and services and our revenues from our net interest margin.

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 of our business activities can be intense, and we may not be able to retain or hire the people we want or need. To attract and retain qualified employees, we must compensate such employees at market levels. Typically, those levels have caused employee compensation to be our greatest expense.

Various restrictions on compensation of certain executive officers were imposed under the Dodd-Frank Act and other legislation and regulations. In addition, our incentive compensation structure is subject to review by the

Federal Reserve, which may identify deficiencies in the structure, causing us to make changes that may affect our ability to offer competitive compensation to these individuals. Our ability to attract and retain talented employees may be affected by these developments, or any new executive compensation limits and regulations.

Potential acquisitions may disrupt our business and dilute shareholder value.

Acquiring other banks, bank branches, or other businesses involves various risks commonly associated with acquisitions, including exposure to unknown or contingent liabilities of the target company, diversion of our management’s time and attention, and the possible loss of key employees and customers of the target company. We regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions. As a result, mergers or acquisitions involving cash, debt or equity securities may occur at any time. Acquisitions may involve the payment of a premium over book and market values. Therefore, some dilution of our tangible book value and net income per common share could occur in connection with any future transaction. Additionally, if an acquisition were to occur, we may fail to realize the expected revenue increases, cost savings, increases in geographic or product presence, or other projected benefits.

VIII. Model Risk

We rely on quantitative models to manage certain accounting, risk management and capital planning functions.

We use quantitative models to help manage certain aspects of our business and to assist with certain business decisions, including estimating probable loan losses, measuring the fair value of financial instruments when reliable market prices are unavailable, estimating the effects of changing interest rates and other market measures on our financial condition and results of operations, managing risk, and for capital planning purposes (including during the CCAR capital planning process). Our measurement methodologies rely on many assumptions, historical analyses and correlations. These assumptions may be incorrect, particularly in times of market distress, and the historical correlations on which we rely may no longer be relevant. Additionally, as businesses and markets evolve, our measurements may not accurately reflect this evolution. Even if the underlying assumptions and historical correlations used in our models are adequate, our models may be deficient due to errors in computer code, bad data, misuse of data, or the use of a model for a purpose outside the scope of the model’s design.

As a result, our models may not capture or fully express the risks we face, may suggest that we have sufficient capitalization when we do not, or may lead us to misjudge the business and economic environment in which we will operate. If our models fail to produce reliable results on an ongoing basis, we may not make appropriate risk management, capital planning, or other business or financial decisions. Furthermore, strategies that we employ to manage and govern the risks associated with our use of models may not be effective or fully reliable.

Banking regulators continue to focus on the models used by banks and bank holding companies in their businesses. The failure or inadequacy of a model may result in increased regulatory scrutiny on us or may result in an enforcement action or proceeding against us by one of our regulators.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The headquarters of KeyCorp and KeyBank are located in Key Tower at 127 Public Square, Cleveland, Ohio 44114-1306. At December 31, 2013, Key leased approximately 686,002 square feet of the complex, encompassing the first twenty-three floors and the 54th through 56th floors of the 57-story Key Tower. As of the same date, KeyBank owned 570 and leased 458 branches. The lease terms for applicable branches are not individually material, with terms ranging from month-to-month to 99 years from inception.

Branches and ATMs by Region


	Oregon & Alaska		Washington		Rocky Mountains		Indiana		West Ohio/ Michigan		East Ohio		Eastern New York		New England		Western New York		Total
Branches		101		156		134		67		104		151		154		67		94		1,028
ATMs		107		196		165		73		132		251		196		84		131		1,335

ITEM 3. LEGAL

PROCEEDINGS

As of December 31, 2013, KeyCorp and its subsidiaries and its employees, directors and officers are defendants or putative defendants in a variety of legal proceedings, in the form of regulatory/government investigations as well as private, civil litigation and arbitration proceedings. The private, civil litigations range from individual actions involving a single plaintiff to putative class action lawsuits with potentially thousands of class members. Investigations involve both formal and informal proceedings, by both government agencies and self-regulatory bodies. These legal proceedings are at varying stages of adjudication, arbitration or investigation and involve a variety of claims (including common law tort, contract claims, securities, ERISA, and consumer protection claims). At times, these legal proceedings present novel claims or legal theories.

On at least a quarterly basis, we assess our liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that we will incur a loss and the amount of the loss can be reasonably estimated, we record a liability in our consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments on a quarterly basis. Where a loss is not probable or the amount of the loss is not estimable, we have not accrued legal reserves, consistent with applicable accounting guidance. Based on information currently available to us, advice of counsel, and available insurance coverage, we believe that our established reserves are adequate and the liabilities arising from the legal proceedings will not have a material adverse effect on our consolidated financial condition. We note, however, that in light of the inherent uncertainty in legal proceedings there can be no assurance that the ultimate resolution will not exceed established reserves. As a result, the outcome of a particular matter or a combination of matters, may be material to our results of operations for a particular period, depending upon the size of the loss or our income for that particular period.

The information in the Legal Proceedings section of Note 20 (“Commitments, Contingent Liabilities and Guarantees”) of the Notes to Consolidated Financial Statements is incorporated herein by reference.

ITEM 4. MINE

SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The dividend restrictions discussion in the “Supervision and Regulation” section in Item 1. Business of this report, and the disclosures included in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in the Notes to Consolidated Financial Statements contained in Item 8 of this report, are incorporated herein by reference:


	Page(s)
Discussion of our common shares, shareholder information and repurchase activities in the section captioned “Capital — Common shares outstanding”		69
Presentation of annual and quarterly market price and cash dividends per common share and discussion of dividends in the section captioned “Capital — Dividends”		35, 69, 97
Discussion of dividend restrictions in the “Liquidity risk management — Liquidity for KeyCorp” section, Note 3 (“Restrictions on Cash, Dividends and Lending Activities”), and Note 22 (“Shareholders’ Equity”)		85, 130, 208
KeyCorp common share price performance (2009-2013) graph		70

From time to time, KeyCorp or its principal subsidiary, KeyBank, may seek to retire, repurchase or exchange outstanding debt of KeyCorp or KeyBank and capital securities or preferred stock of KeyCorp through cash purchase, privately negotiated transactions or otherwise. Such transactions, if any, depend on prevailing market conditions, our liquidity and capital requirements, contractual restrictions and other factors. The amounts involved may be material.

As authorized by our Board of Directors and pursuant to our 2013 capital plan submitted to and not objected to by the Federal Reserve, we had authority to repurchase up to $426 million of our common shares in the open market or through privately negotiated transactions. Subsequently, we received no objection from the Federal Reserve to use, and our Board approved the use of, the cash portion of the net after-tax gain from the sale of Victory (approximately $72 million) for additional common share repurchases. During the fourth quarter of 2013, we completed $99 million of common share repurchases. Common share repurchases under the remaining 2013 capital plan authorization are expected to be executed through the first quarter of 2014.


Calendar month	Total number of shares repurchased		^(a)	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs		^(b)
October 1 — 31		1,787,398		$	12.65		1,777,805		26,750,589
November 1 — 30		3,439,775			12.81		3,434,250		23,082,362
December 1 — 31		2,454,813			12.94		2,447,268		20,246,482
Total		7,681,986		$	12.82		7,659,323

(a)	Includes common shares repurchased in the open market and common shares deemed surrendered by employees in connection with Key’s stock compensation and benefit plans to satisfy tax obligations.

(b)	Calculated using the remaining general repurchase amount divided by the closing price of KeyCorp common shares on October 31, 2013, at $12.54, November 30, 2013, at $12.75, and December 31, 2013, at $13.42, plus 13,557,897 shares available under our previously existing program.

ITEM 6.

SELECTED FINANCIAL DATA

The information included under the caption “Selected Financial Data” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations beginning on page 32 is incorporated herein by reference.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (the “MD&A”)


		Page Number
Introduction		34
Terminology		34
Selected financial data		35
Economic overview		36
Long-term financial goals		37
Corporate strategy		38
Strategic developments		38

Highlights of Our 2013 Performance		39
Financial performance		39

Results of Operations		43
Net interest income		43
Noninterest income		47
Trust and investment services income		48
Investment banking and debt placement fees		49
Operating lease income and other leasing gains		49
Cards and payments income		49
Consumer mortgage income		49
Mortgage servicing fees		49
Other income		49
Noninterest expense		50
Personnel		50
Operating lease expense		51
FDIC assessment		51
Intangible asset amortization		51
Other expense		51
Income taxes		51

Line of Business Results		52
Key Community Bank summary of operations		52
Key Corporate Bank summary of operations		54
Other Segments		56

Financial Condition		57
Loans and loans held for sale		57
Commercial loan portfolio		58
*Commercial, financial and agricultural*		58
*Commercial real estate loans*		59
*Commercial lease financing*		60
Commercial loan modification and restructuring		60
*Extensions*		62
*Guarantors*		62
Consumer loan portfolio		63
Loans held for sale		63
Loan sales		64
Maturities and sensitivity of certain loans to changes in interest rates		65
Securities		65
Securities available for sale		66
Held-to-maturity securities		67
Other investments		67
Deposits and other sources of funds		68
Capital		69
CCAR and capital actions		69
Dividends		69
Common shares outstanding		69
Capital adequacy		71



Off-Balance Sheet Arrangements and Aggregate Contractual Obligations			74
Off-balance sheet arrangements			74
Variable interest entities			74
Commitments to extend credit or funding			74
Other off-balance sheet arrangements			74
Contractual obligations			75
Guarantees			75

Risk Management			76
Overview			76
Market risk management			77
Trading market risk			77
*Management of trading market risks*			77
*Covered positions*			78
*VaR and stressed VaR*			78
*Internal capital adequacy assessment*			80
Nontrading market risk			80
*Net interest income simulation analysis*			80
*Economic value of equity modeling*			82
*Management of interest rate exposure*			82
Liquidity risk management			83
Governance structure			83
Factors affecting liquidity			83
Managing liquidity risk			84
Long-term liquidity strategy			84
Sources of liquidity			85
Liquidity programs			85
Liquidity for KeyCorp			85
Our liquidity position and recent activity			86
Credit risk management			86
Credit policy, approval and evaluation			86
Allowance for loan and lease losses			87
Net loan charge-offs			90
Nonperforming assets			92
Operational risk management			94
Cybersecurity			95

Fourth Quarter Results			96
Earnings			96
Net interest income			96
Noninterest income			96
Noninterest expense			96
Provision for loan and lease losses			96
Income taxes			96

Critical Accounting Policies and Estimates			100
Allowance for loan and lease losses			100
Valuation methodologies			101
Derivatives and hedging			103
Contingent liabilities, guarantees and income taxes			103

European Sovereign and Non-Sovereign Debt Exposure			104

Throughout the Notes to Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations, we use certain acronyms and abbreviations. These terms are defined in Note 1 (“Summary of Significant Accounting Policies”), which begins on page 115.

Introduction

This section reviews the financial condition and results of operations of KeyCorp and its subsidiaries for each of the past three years. Some tables include additional periods to comply with disclosure requirements or to illustrate trends in greater depth. When you read this discussion, you should also refer to the consolidated financial statements and related notes in this report. The page locations of specific sections that we refer to are presented in the table of contents.

Terminology

Throughout this discussion, references to “Key,” “we,” “our,” “us,” and similar terms refer to the consolidated entity consisting of KeyCorp and its subsidiaries. “KeyCorp” refers solely to the parent holding company, and “KeyBank” refers to KeyCorp’s subsidiary bank, KeyBank National Association.

We want to explain some industry-specific terms at the outset so you can better understand the discussion that follows.

We use the phrase continuing operations in this document to mean all of our businesses other than the education lending business, Victory, and Austin. The education lending business and Austin have been accounted for as discontinued operations since 2009. Victory was classified as a discontinued operation in our first quarter 2013 financial reporting as a result of the sale of this business as announced on February 21, 2013, and closed on July 31, 2013.

Our exit loan portfolios are separate from our discontinued operations. These portfolios, which are in a run-off mode, stem from product lines we decided to cease because they no longer fit with our corporate strategy. These exit loan portfolios are included in Other Segments.

We engage in capital markets activities primarily through business conducted by our Key Corporate Bank segment. These activities encompass a variety of products and services. Among other things, we trade securities as a dealer, enter into derivative contracts (both to accommodate clients’ financing needs and to mitigate certain risks), and conduct transactions in foreign currencies (both to accommodate clients’ needs and to benefit from fluctuations in exchange rates).

For regulatory purposes, capital is divided into two classes. Federal regulations currently prescribe that at least one-half of a bank or BHC’s total risk-based capital must qualify as Tier 1 capital. Both total and Tier 1 capital serve as bases for several measures of capital adequacy, which is an important indicator of financial stability and condition. As described under the heading “Regulatory capital and liquidity — Capital planning and stress testing” in the section entitled “Supervision and Regulation” in Item 1. Business of this report, the regulators are required to conduct a supervisory capital assessment of all BHCs with assets of at least $50 billion, including KeyCorp. As part of this capital adequacy review, banking regulators evaluate a component of Tier 1 capital, known as Tier 1 common equity. The section entitled “Regulatory capital and liquidity” under Item 1 of this report provides more information on total capital, Tier 1 capital, and Tier 1 common equity and describes how the three measures are calculated.

Additionally, a comprehensive list of the acronyms and abbreviations used throughout this discussion is included in Note 1 (“Summary of Significant Accounting Policies”).

Figure 1. Selected Financial Data


dollars in millions, except per share amounts	2013			2012			2011			2010^(a)			2009^(a)			Compound Annual Rate of Change (2009-2013)
YEAR ENDED DECEMBER 31,
Interest income	$	2,620		$	2,705		$	2,889		$	3,408		$	3,795			(7.1	)%
Interest expense		295			441			622			897			1,415			(26.9	)
Net interest income		2,325			2,264			2,267			2,511			2,380			(.5	)
Provision (credit) for loan and lease losses		130			229			(60	)		638			3,159			(47.2	)
Noninterest income		1,766			1,856			1,688			1,954			2,035			(2.8	)
Noninterest expense		2,820			2,818			2,684			3,034			3,554			(4.5	)
Income (loss) from continuing operations before income taxes		1,141			1,073			1,331			793			(2,298	)		N/M
Income (loss) from continuing operations attributable to Key		870			835			955			577			(1,287	)		N/M
Income (loss) from discontinued operations, net of taxes^(b)		40			23			(35	)		(23	)		(48	)		N/M
Net income (loss) attributable to Key		910			858			920			554			(1,335	)		N/M
Income (loss) from continuing operations attributable to Key common shareholders		847			813			848			413			(1,581	)		N/M
Income (loss) from discontinued operations, net of taxes^(b)		40			23			(35	)		(23	)		(48	)		N/M
Net income (loss) attributable to Key common shareholders		887			836			813			390			(1,629	)		N/M

PER COMMON SHARE
Income (loss) from continuing operations attributable to Key common shareholders	$	.93		$	.87		$	.91		$	.47		$	(2.27	)		N/M
Income (loss) from discontinued operations, net of taxes^(b)		.04			.02			(.04	)		(.03	)		(.07	)		N/M
Net income (loss) attributable to Key common shareholders^(c)		.98			.89			.87			.45			(2.34	)		N/M
Income (loss) from continuing operations attributable to Key common shareholders — assuming dilution	$	.93		$	.86		$	.91		$	.47		$	(2.27	)		N/M
Income (loss) from discontinued operations, net of taxes — assuming dilution^(b)		.04			.02			(.04	)		(.03	)		(.07	)		N/M
Net income (loss) attributable to Key common shareholders — assuming dilution ^(c)		.97			.89			.87			.44			(2.34	)		N/M
Cash dividends paid		.215			.18			.10			.04			.0925			18.4	%
Book value at year end		11.25			10.78			10.09			9.52			9.04			4.5
Tangible book value at year end		10.11			9.67			9.11			8.45			7.94			5.0
Market price at year end		13.42			8.42			7.69			8.85			5.55			19.3
Dividend payout ratio		21.9	%		20.2	%		11.49	%		8.89	%		N/M			N/A
Weighted-average common shares outstanding (000)		906,524			938,941			931,934			874,748			697,155			5.4
Weighted-average common shares and potential common shares outstanding (000)		912,571			943,259			935,801			878,153			697,155			5.5

AT DECEMBER 31.
Loans	$	54,457		$	52,822		$	49,575		$	50,107		$	58,770			(1.5	)%
Earning assets		79,467			75,055			73,729			76,211			80,318			(.2	)
Total assets		92,934			89,236			88,785			91,843			93,287			(.1	)
Deposits		69,262			65,993			61,956			60,610			65,571			1.1
Long-term debt		7,650			6,847			9,520			10,592			11,558			(7.9	)
Key common shareholders’ equity		10,012			9,980			9,614			8,380			7,942			4.7
Key shareholders’ equity		10,303			10,271			9,905			11,117			10,663			(.7	)

PERFORMANCE RATIOS — FROM CONTINUING OPERATIONS
Return on average total assets		1.03	%		1.03	%		1.16	%		.66	%		(1.35	)%		N/A
Return on average common equity		8.48			8.25			9.17			5.06			(19.00	)		N/A
Return on average tangible common equity^(d)		9.45			9.16			10.20			5.73			(23.8	)		N/A
Net interest margin (TE)		3.12			3.21			3.16			3.26			2.83			N/A
Cash efficiency ratio^(d)		67.5			67.4			67.3			67.3			73.5			N/A

PERFORMANCE RATIOS — FROM CONSOLIDATED OPERATIONS
Return on average total assets		1.02	%		.99	%		1.04	%		.59	%		(1.34	)%		N/A
Return on average common equity		8.88			8.48			8.79			4.78			(19.62	)		N/A
Return on average tangible common equity^(d)		9.90			9.42			9.78			5.41			(24.5	)		N/A
Net interest margin (TE)		3.02			3.13			3.09			3.16			2.81			N/A
Loan to deposit^(e)		83.8			85.8			87.0			90.3			97.3			N/A

CAPITAL RATIOS AT DECEMBER 31,
Key shareholders’ equity to assets		11.09	%		11.51	%		11.16	%		12.10	%		11.43	%		N/A
Key common shareholders’ equity to assets		10.78			11.18			10.83			9.12			8.51			N/A
Tangible common equity to tangible assets^(d)		9.80			10.15			9.88			8.19			7.56			N/A
Tier 1 common equity^(d)		11.22			11.36			11.26			9.34			7.50			N/A
Tier 1 risk-based capital		11.96			12.15			12.99			15.16			12.75			N/A
Total risk-based capital		14.33			15.13			16.51			19.12			16.95			N/A
Leverage		11.11			11.41			11.79			13.02			11.72			N/A

TRUST AND BROKERAGE ASSETS
Assets under management	$	36,905		$	34,744		$	51,732		$	59,815		$	66,939			N/A
Nonmanaged and brokerage assets		47,418			35,550			30,639			28,069			19,631			N/A

OTHER DATA
Average full-time-equivalent employees		14,783			15,589			15,381			15,610			16,698			(2.4	)%
Branches		1,028			1,088			1,058			1,033			1,007			.4

(a)	Financial data was not adjusted to reflect the treatment of Victory as a discontinued operation.

(b)

In April 2009, we decided to wind down the operations of Austin, a subsidiary that specialized in managing hedge fund investments for institutional customers. In September 2009, we decided to discontinue the education lending business conducted through Key Education Resources, the education payment and financing unit of KeyBank. In February 2013, we decided to sell Victory to a private equity fund. As a result of these decisions, we have accounted for these businesses as discontinued operations. For further discussion regarding the income (loss) from discontinued operations, see Note 13 (“Acquisitions and Discontinued Operations”).

(c)	EPS may not foot due to rounding.

(d)

See Figure 4 entitled “GAAP to Non-GAAP Reconciliations,” which presents the computations of certain financial measures to “tangible common equity,” “Tier 1 common equity” and “cash efficiency ratio.” The table reconciles the GAAP performance to the corresponding non-GAAP measures, which provides a basis for period-to-period comparisons.

(e)	Represents period-end consolidated total loans and loans held for sale (excluding education loans in securitizations trusts) divided by period-end consolidated total deposits (excluding deposits in foreign office).

Economic overview

The economy continued its modest recovery in 2013, with overall GDP starting slowly and accelerating as the year progressed, resulting in 1.9% growth in 2013. U.S. economic growth during 2013 was plagued by policy and political headwinds. The year began with uncertainty around the potential effects of the looming sequester and a large payroll tax increase. In the second quarter, the Federal Reserve sent mixed messages regarding when it would begin scaling back its latest round of quantitative easing, inadvertently causing interest rates to increase and hindering the housing recovery. In the fourth quarter, the federal government endured a 16-day shutdown, and briefly approached a breach of the federal debt ceiling. In spite of these issues, growth accelerated in the second half of the year. Although the shutdown temporarily disrupted positive momentum, consumer confidence increased, financial markets continued to rise and the housing market rebounded from a summer slump to close out the year. The stock market boomed in 2013, with the S&P 500 equity index increasing 30%, compared to a 13% increase in 2012. Globally, the modest recovery continued; central banks in developed nations maintained easy money policies. In the second half of the year, Europe’s recession ended. Emerging markets did not fare as well — demand decreased, exports dropped, and China grew at its slowest rate in 20 years.

For the year, 2.19 million new jobs were added in the U.S. The unemployment rate fell further, from 7.9% at December 31, 2012, to 6.7% at December 31, 2013. While job growth was a factor, the majority of the improvement was driven by a decrease in the labor force participation rate, which declined to its lowest level in over 35 years. Wage growth deteriorated through much of the year and income growth was weak, both due in part to the payroll tax hikes and the sequester. However, consumer spending held up reasonably well, resulting in a falling savings rate. A slowing rate of inflation supported incomes, and therefore spending, throughout the year; by December 2013, headline inflation was down to 1.5% (compared to 1.7% one year earlier). Core inflation also remained low through the year, ending 2013 at 1.7% (down from 1.9% in 2012).

The housing market provided another boost in 2013, with improvement in nearly all metrics. With the economy continuing its modest expansion, and home prices appearing to stabilize, demand for for-sale housing posted steady gains throughout the year. As mortgage rates rose, sales of existing homes began to diminish, finishing 2013 at a seasonally adjusted annual rate of 4.87 million (down slightly from December 2012). New home sales improved, reaching a seasonally adjusted annual rate of 414,000 in December 2013 (up 4.5% from 2012). As the share of distressed transactions fell, the pace of price appreciation increased, with the median price for existing homes up 9.9% year-over-year in December 2013. Housing starts accelerated further, with starts up 18% over 2012’s totals, driven primarily by substantial gains in both single and multi-family construction.

The Federal Reserve remained active and accommodative in 2013, keeping the federal funds target rate near zero, expanding its balance sheet further, and making significant changes to its communications. The latest round of quantitative easing was held constant until December, driven by mixed economic results, troubling inflation data and the government shutdown. In December, the Federal Reserve announced it would begin tapering the pace of asset purchases by $10 billion (from $85 billion per month to $75 billion per month) in January 2014, with the expectation that the pace of purchases will continue to drop throughout 2014. In addition, the Federal Reserve updated its forward guidance in December, explicitly stating that the federal funds rate will be kept near zero well past a 6.5% unemployment rate; low inflation remains a concern and will be monitored closely. Long-time Chairman Ben Bernanke also made his exit, with Vice-Chair Janet Yellen replacing Bernanke starting in February 2014. The 10-year U.S. Treasury yield began the year at 1.9%, and was range bound from 1.5-2.0% for the first half of the year, driven by disappointing economic data. Around the year’s halfway point, with more positive data, rates began to increase, approaching 3.0% in September on expectations that the Federal Reserve would soon begin to

taper quantitative easing asset purchases. The taper did not begin as expected, and the October government shutdown helped to keep rates down in the 2.5-2.6% range for the majority of the fourth quarter, until surprisingly positive economic data prompted the Federal Reserve to reduce asset purchases by $10 billion at the December meeting. Rates subsequently rose, and closed the year at 3.0%.

Long-term financial goals

Our long-term financial goals are as follows:

¿	Target a loan-to-core deposit ratio range of 90% to 100%;

¿	Maintain a moderate risk profile by targeting a net loan charge-off ratio range of .40% to .60%;

¿	Grow high quality and diverse revenue streams by targeting a net interest margin in excess of 3.50%, and ratio of noninterest income to total revenue of greater than 40%;

¿	Create positive operating leverage and target a cash efficiency ratio in the range of 60% to 65%; and

¿	Achieve a return on average assets in the range of 1.00% to 1.25%.

Figure 2 shows the evaluation of our long-term financial goals for the fourth quarter of 2013 and the year ended 2013.

Figure 2. Evaluation of Our Long-Term Financial Goals


KEY Business Model	Key Metrics ^(a)	4Q13		2013		Targets		Action Plans
Core funded	Loan to deposit ratio ^(b)	84	%	84	%	90 - 100	%	• Use integrated model to grow relationships and loans
Core funded	Loan to deposit ratio ^(b)	84	%	84	%	90 - 100	%	• Improve deposit mix
Maintain a moderate risk profile	NCOs to average loans	.27	%	.32	%	.40 - .60	%	• Focus on relationship clients
								• Exit noncore portfolios
	Provision to average loans	.14	%	.25	%			• Limit concentrations
								• Focus on risk-adjusted returns
Growing high quality, diverse revenue streams	Net interest margin	3.01	%	3.12	%	> 3.50	%	• Improve funding mix
								• Focus on risk-adjusted returns
	Noninterest income to total revenue	43	%	43	%	> 40	%	• Grow client relationships
	Noninterest income to total revenue							• Capitalize on Key’s total client solutions and cross-selling capabilities
Creating positive operating leverage	Cash efficiency ratio^(c)	67	%	68	%	60 - 65	%	• Improve efficiency and effectiveness
								• Better utilize technology
	Adj. cash efficiency ratio (ex. efficiency initiative charges)^{(c), (d)}	65	%	65	%			• Change cost base to more variable from fixed
Executing our strategies	Return on average assets	1.08	%	1.03	%	1.00 - 1.25	%	• Execute our client insight-driven relationship model
								• Focus on operating leverage
								• Improved funding mix with lower cost core deposits

(a)	Calculated from continuing operations, unless otherwise noted.

(b)	Represents period-end consolidated total loans and loans held for sale (excluding education loans in the securitization trusts) divided by period-end consolidated total deposits (excluding deposits in foreign office).

(c)	Excludes intangible asset amortization; Non-GAAP measures: see Figure 4 for reconciliation.

(d)	Efficiency initiative charges include pension settlement.

Corporate strategy

We remain committed to enhancing long-term shareholder value by continuing to execute our relationship business model, growing our franchise, and being disciplined in our management of capital. Our 2013/2014 strategic focus is to add new clients and to expand our relationship with existing clients. We intend to pursue this strategy by continuing to control and reduce expenses; being more productive from the front office to the back office; effectively balancing risk and rewards within our moderate risk profile; and engaging, retaining and inspiring our diverse and high performing workforce. Our strategic priorities for enhancing long-term shareholder value are described below.

Grow profitably — We will continue to focus on growing revenue and creating a more efficient operating environment. Our relationship business model sets us apart from our competitors. We expect the model to keep generating organic growth as it helps us expand engagement with existing clients and attract new customers. We will leverage our continuous improvement culture to create a more efficient cost structure that is aligned, sustainable and consistent with the current operating environment and supports our relationship business model.

¿	*Acquire and expand targeted relationships* — We have taken purposeful steps to enhance our ability to acquire and expand targeted relationships. Our local delivery of broad product set and industry expertise allows us to match client needs and market conditions to deliver the best solutions.

¿	*Effectively manage risk and rewards —* Our risk management activities are focused on ensuring we properly identify, measure, and manage risks across the entire company to maintain safety and soundness and maximize profitability.

Maintain financial strength — With the foundation of a strong balance sheet, we will remain focused on sustaining strong reserves, liquidity and capital. We will work closely with our Board of Directors and regulators to manage capital to support our clients’ needs and create shareholder value. Our capital remains a competitive advantage for us in both the intermediate and long term.

Engage a high performing, talented and diverse workforce — Every day our employees provide our clients with great ideas, extraordinary service and smart solutions. We will continue to engage our high performing, talented and diverse workforce to create an environment where they can make a difference, own their careers, be respected and feel a sense of pride.

Strategic developments

We initiated the following actions during 2013 to support our corporate strategy:

We completed our acquisition of a commercial real estate servicing portfolio and special servicing business. This acquisition brought in over $1 billion in low-cost escrow deposits and further leverages our existing servicing platforms. We are now the third largest servicer of commercial and multi-family loans and the fifth largest special servicer of CMBS in the U.S.

Our revenue benefited from solid loan growth, driven by a 7.4% increase from the prior year in commercial, financial and agricultural loans, as well as improved trends in several of our fee-based businesses. These results reflect the success of our distinctive business model and our progress implementing our growth initiatives.

We achieved annualized run rate savings of $241 million, exceeding our announced expense target set in June 2012 to achieve annualized savings of $200 million. We consolidated 62 branches during 2013, reaching 81 total consolidated branches since the launch of the efficiency initiative, and realigned our Community Bank organization to strengthen our relationship-based business model, while responding to economic factors and evolving client expectations.

¿	On July 31, 2013, we completed the divestiture of Victory. This sale resulted in an after-tax gain of $92 million; the cash portion of this gain was $72 million.

In the first quarter of 2013, we completed $65 million of common share repurchases on the open market under our 2012 capital plan, and in the second through fourth quarters of 2013 we completed $409 million of common share repurchases on the open market under our 2013 capital plan. The amount repurchased under our 2013 capital plan included repurchases related to the cash portion of the net after-tax gain from the sale of Victory. Common share repurchases under the 2013 capital plan authorization are expected to be executed through the first quarter of 2014.

¿	In May 2013, our Board of Directors approved an increase in our quarterly cash dividend to $.055 per common share, or $.22 on an annualized basis, in accordance with our 2013 capital plan.

At December 31, 2013, our capital ratios remained strong with a Tier 1 common equity ratio of 11.22%, our loan loss reserves were adequate at 1.56% to period-end loans, and we were core funded with a loan-to-deposit ratio of 84%. We believe our strong capital position provides us with the flexibility to support our clients and our business needs, and to evaluate other appropriate capital deployment opportunities.

Highlights of Our 2013 Performance

Financial performance

For 2013, we announced net income from continuing operations attributable to Key common shareholders of $847 million, or $.93 per common share. These results compare to net income from continuing operations attributable to Key common shareholders of $813 million, or $.86 per common share, for 2012.

Figure 3 shows our continuing and discontinued operating results for the past three years.

Figure 3. Results of Operations


Year ended December 31,
in millions, except per share amounts		2013		2012		2011
SUMMARY OF OPERATIONS
Income (loss) from continuing operations attributable to Key	$	870	$	835	$	955
Income (loss) from discontinued operations, net of taxes^(a)		40		23		(35)

Net income (loss) attributable to Key	$	910	$	858	$	920

Income (loss) from continuing operations attributable to Key	$	870	$	835	$	955
Less: Dividends on Series A Preferred Stock		23		22		23
Cash dividends on Series B Preferred Stock		—		—		31
Amortization of discount on Series B Preferred Stock ^(b)		—		—		53

Income (loss) from continuing operations attributable to Key common shareholders		847		813		848
Income (loss) from discontinued operations, net of taxes^(a)		40		23		(35)

Net income (loss) attributable to Key common shareholders	$	887	$	836	$	813

PER COMMON SHARE—ASSUMING DILUTION
Income (loss) from continuing operations attributable to Key common shareholders	$	.93	$	.86	$	.91
Income (loss) from discontinued operations, net of taxes ^(a)		.04		.02		(.04)

Net income (loss) attributable to Key common shareholders ^(c)	$	.97	$	.89	$	.87

(a)

(b)	Includes a $49 million deemed dividend recorded in the first quarter of 2011 related to the repurchase of the $2.5 billion Series B Preferred Stock.

(c)	EPS may not foot due to rounding.

Our full-year results for 2013 reflect success in executing our strategies by growing loans, acquiring a commercial real estate servicing portfolio and special servicing business, and achieving annualized run rate savings in excess of our goal.

We ended 2013 with annual run rate savings of approximately $241 million as a result of our efficiency initiative. We continue to invest in future revenue growth by upgrading our technology to meet the needs of our clients and looking for opportunities to rationalize and optimize our existing branch network. In 2013, we shifted our focus related to our branch network more toward relocations and consolidations to reposition our branch footprint into more attractive markets. During 2013, we consolidated 62 branches as part of our efficiency initiative. We also realigned our Community Bank organization to strengthen our relationship-based business model, while responding to economic factors and evolving client expectations. We remain committed to delivering on our goal of achieving a cash efficiency ratio in the range of 60% to 65% as we enter 2014.

The net interest margin from continuing operations was 3.12% for 2013, a decrease of nine basis points from 2012. This decrease was primarily attributable to the impact of lower asset yields combined with a significant increase in liquidity levels from strong deposit inflows. In 2014, we expect the net interest margin will continue to be under pressure from elevated levels of liquidity and the impact of low interest rates.

Average total loans increased $2.7 billion, or 5.3%, during 2013 compared to 2012. The average balances of commercial, financial and agricultural loans increased from $21.1 billion to $23.7 billion, or approximately 12.2%. We continued to have success in growing our commercial loan portfolio by acquiring new clients in our focus industries as well as expanding existing relationships. For 2014, we anticipate average total loans to grow in the mid-single digit range, continuing to be led by growth in our commercial, financial and agricultural loans.

We continued to improve the mix of deposits during 2013, as we experienced a $6.3 billion, or 12.1%, increase in non-time deposits. Approximately $4.4 billion of our certificates of deposit outstanding at December 31, 2013, with an average cost of .93%, are scheduled to mature over the next twelve months. The maturation of these certificates of deposit and other liability repricing opportunities will continue to help offset repricing pressure on our assets. This improved funding mix reduced the cost of interest-bearing deposits during 2013 compared to 2012. Our consolidated loan to deposit ratio was 83.8% at December 31, 2013, compared to 85.8% at December 31, 2012.

Our asset quality statistics continued to improve during 2013. Net loan charge-offs declined to $168 million, or .32%, of average loan balances for 2013, compared to $345 million, or .69%, for 2012. In addition, our nonperforming loans declined to $508 million, or .93%, of period-end loans at December 31, 2013, compared to $674 million, or 1.28%, at December 31, 2012. Our ALLL was $848 million, or 1.56%, of period-end loans, compared to $888 million, or 1.68%, at December 31, 2012, and represented 166.9% and 131.8% coverage of nonperforming loans at December 31, 2013, and December 31, 2012, respectively. We expect net loan charge-offs to average loans during 2014 to remain at the lower end or below our long-term targeted range of 40 to 60 basis points.

Our tangible common equity ratio and Tier 1 common ratio both remain strong at December 31, 2013, at 9.80% and 11.22% respectively, compared to 10.15% and 11.36%, respectively, at December 31, 2012. These ratios have placed us in the top quartile of our peer group for these measures. We have identified four primary uses of capital:

investing in our businesses, supporting our clients, and loan growth;

maintaining or increasing our common share dividend;

returning capital in the form of common share repurchases to our shareholders; and

remaining disciplined and opportunistic about how we invest in our franchise to include selective acquisitions over time.

Our capital management remains focused on creating value. To that end, we returned approximately 76% of our net income to shareholders through both common share repurchases and dividends in 2013. We also used our capital to acquire a commercial real estate servicing portfolio and special servicing business.

The Federal Reserve is currently reviewing of our 2014 capital plan under the CCAR process. Until such time as it has completed its review and has no objection to our plan, we are not permitted to implement our capital plan for periods after the first quarter of 2014. Should we receive an objection to our plan, it would likely delay any actions on capital management until later in the calendar year. For more information about the CCAR process, see “Capital planning and stress testing” under “Supervision and Regulation” in Item 1 of this report.

Figure 4 presents certain non-GAAP financial measures related to “tangible common equity,” “return on tangible common equity,” “Tier 1 common equity,” “pre-provision net revenue,” “cash efficiency ratio,” and “adjusted cash efficiency ratio.”

The tangible common equity ratio and the return on tangible common equity ratio have been a focus for some investors, and management believes these ratios may assist investors in analyzing Key’s capital position without regard to the effects of intangible assets and preferred stock. Tier 1 common equity, a non-GAAP financial measure, is a component of Tier 1 risk-based capital. Tier 1 common equity is not formally defined by GAAP or prescribed in amount by federal banking regulations applicable to us before January 1, 2015. However, since analysts and banking regulators may assess our capital adequacy using tangible common equity and Tier 1 common equity, we believe it is useful to enable investors to assess our capital adequacy on these same bases. Figure 4 also reconciles the GAAP performance measures to the corresponding non-GAAP measures.

Traditionally, the banking regulators have assessed bank and BHC capital adequacy based on both the amount and the composition of capital, the calculation of which is prescribed in federal banking regulations. Since early 2009, the Federal Reserve has focused its assessment of capital adequacy on a component of Tier 1 capital known as Tier 1 common equity. Because the Federal Reserve has long indicated that voting common shareholders’ equity (essentially Tier 1 risk-based capital less preferred stock, qualifying capital securities and noncontrolling interests in subsidiaries) generally should be the dominant element in Tier 1 risk-based capital, this focus on Tier 1 common equity is consistent with existing capital adequacy categories. The Regulatory Capital Rules, described in more detail under the section “Supervision and Regulation” in Item 1 of this report, also make Tier 1 common equity a priority. The Regulatory Capital Rules change the regulatory capital standards that apply to BHCs by, among other changes, phasing out the treatment of trust preferred securities and cumulative preferred securities as Tier 1 eligible capital. By 2016, our trust preferred securities will only be included in Tier 2 capital.

Figure 4 also shows the computation for pre-provision net revenue, which is not formally defined by GAAP. We believe that eliminating the effects of the provision for loan and lease losses makes it easier to analyze our results by presenting them on a more comparable basis.

The cash efficiency ratio and adjusted cash efficiency ratio are ratios of two non-GAAP performance measures. Accordingly, there are no directly comparable GAAP performance measures. The cash efficiency ratio performance measure removes the impact of our intangible asset amortization from the calculation. The adjusted cash efficiency ratio further removes the impact of the efficiency initiative and pension settlement charges. We believe these ratios provide greater consistency and comparability between our results and those of our peer banks. Additionally, these ratios are used by analysts and investors as they develop earnings forecasts and peer bank analysis.

Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP.

Figure 4. GAAP to Non-GAAP Reconciliations

Year ended December 31,


dollars in millions		2013				2012				2011				2010			^(a)		2009			^(a)

Tangible common equity to tangible assets at period end
Key shareholders’ equity (GAAP)		$	10,303			$	10,271			$	9,905			$	11,117				$	10,663
Less:	Intangible assets ^(b)		1,014				1,027				934				938					967
	Series B Preferred Stock		—				—				—				2,446					2,430
	Series A Preferred Stock ^(c)		282				291				291				291					291

	Tangible common equity (non-GAAP)	$	9,007			$	8,953			$	8,680			$	7,442				$	6,975


Total assets (GAAP)		$	92,934			$	89,236			$	88,785			$	91,843				$	93,287
Less:	Intangible assets ^(b)		1,014				1,027				934				938					967

	Tangible assets (non-GAAP)	$	91,920			$	88,209			$	87,851			$	90,905				$	92,320


Tangible common equity to tangible assets ratio (non-GAAP)			9.80		%		10.15		%		9.88		%		8.19			%		7.56			%

Tier 1 common equity at period end
Key shareholders’ equity (GAAP)		$	10,303			$	10,271			$	9,905			$	11,117				$	10,663
Qualifying capital securities			339				339				1,046				1,791					1,791
Less:	Goodwill		979				979				917				917					917
	Accumulated other comprehensive income (loss) ^(d)		(394	)			(172	)			(72	)			(66	)				(48	)
	Other assets ^(e)		89				114				72				248					632

	Total Tier 1 capital (regulatory)		9,968				9,689				10,034				11,809					10,953
Less:	Qualifying capital securities		339				339				1,046				1,791					1,791
	Series B Preferred Stock		—				—				—				2,446					2,430
	Series A Preferred Stock ^(c)		282				291				291				291					291

	Total Tier 1 common equity (non-GAAP)	$	9,347			$	9,059			$	8,697			$	7,281				$	6,441


Net risk-weighted assets (regulatory)		$	83,328			$	79,734			$	77,214			$	77,921				$	85,881

Tier 1 common equity ratio (non-GAAP)			11.22		%		11.36		%		11.26		%		9.34			%		7.50			%

Pre-provision net revenue
Net interest income (GAAP)		$	2,325			$	2,264			$	2,267			$	2,511				$	2,380
Plus:	Taxable-equivalent adjustment		23				24				25				26					26
	Noninterest income (GAAP)		1,766				1,856				1,688				1,954					2,035
Less:	Noninterest expense (GAAP)		2,820				2,818				2,684				3,034					3,554

Pre-provision net revenue from continuing operations (non-GAAP)		$	1,294			$	1,326			$	1,296			$	1,457				$	887


Average tangible common equity
Average Key shareholders’ equity (GAAP)		$	10,276			$	10,144			$	10,133			$	10,895				$	10,592
Less:	Intangible assets (average) ^(f)		1,021				978				935				959					1,068
	Series B Preferred Stock (average)		—				—				590				2,438					2,578
	Series A Preferred Stock (average)		291				291				291				291					291

	Average tangible common equity (non-GAAP)	$	8,964			$	8,875			$	8,317			$	7,207				$	6,655


Return on average tangible common equity from continuing operations
Net income (loss) from continuing operations attributable to Key common shareholders (GAAP)		$	847			$	813			$	848			$	413				$	(1,581	)
Average tangible common equity (non-GAAP)			8,964				8,875				8,317				7,207					6,655

Return on average tangible common equity from continuing operations (non-GAAP)			9.45		%		9.16		%		10.20		%		5.73			%		(23.8	)		%

Return on average tangible common equity consolidated
Net income (loss) attributable to Key common shareholders (GAAP)		$	887			$	836			$	813			$	390				$	(1,629	)
Average tangible common equity (non-GAAP)			8,964				8,875				8,317				7,207					6,655

Return on average tangible common equity consolidated (non-GAAP)			9.90		%		9.42		%		9.78		%		5.41			%		(24.5	)		%

Cash efficiency ratio
Noninterest expense (GAAP)		$	2,820			$	2,818			$	2,684			$	3,034				$	3,554
Less:	Intangible asset amortization on credit cards (GAAP)		30				14				—				—					—
	Other intangible asset amortization (GAAP)		14				9				4				14					77
	Intangible asset impairment (GAAP)		—				—				—				—					214

	Adjusted noninterest expense (non-GAAP)	$	2,776			$	2,795			$	2,680			$	3,020				$	3,263


Net interest income (GAAP)		$	2,325			$	2,264			$	2,267			$	2,511				$	2,380
Plus:	Taxable-equivalent adjustment		23				24				25				26					26
	Noninterest income (GAAP)		1,766				1,856				1,688				1,954					2,035

	Total taxable-equivalent revenue (non-GAAP)	$	4,114			$	4,144			$	3,980			$	4,491				$	4,441


Cash efficiency ratio (non-GAAP)			67.5		%		67.4		%		67.3		%		67.3			%		73.5			%

Adjusted cash efficiency ratio net of efficiency initiative charges
Adjusted noninterest expense (non-GAAP)		$	2,776			$	2,795			$	2,680			$	3,020				$	3,263
Less:	Efficiency initiative and pension settlement charges (non-GAAP)		117				25				—				—					—

	Net adjusted noninterest expense (non-GAAP)	$	2,659			$	2,770			$	2,680			$	3,020				$	3,263


Total taxable-equivalent revenue (non-GAAP)		$	4,114			$	4,144			$	3,980			$	4,491				$	4,441

Adjusted cash efficiency ratio net of efficiency initiative charges (non-GAAP)			64.6		%		66.8		%		67.3		%		67.3			%		73.5			%

Figure 4. GAAP to Non-GAAP Reconciliations, continued

Three months ended

dollars in millions

12-31-13

9-30-13

Common Equity Tier 1 under the Regulatory Capital Rules (estimates)

Tier 1 common equity under current regulatory rules

9,347

9,258

Adjustments from current regulatory rules to the Regulatory Capital Rules:

Deferred tax assets and other^(g)

(129

)

(140

)

Common Equity Tier 1 anticipated under the Regulatory Capital Rules^(h)

9,218

9,118

Net risk-weighted assets under current regulatory rules

83,328

82,913

Adjustments from current regulatory rules to the Regulatory Capital Rules:

Loan commitments less than one year

784

496

Past due loans

164

244

Mortgage servicing assets⁽ⁱ⁾

497

576

Deferred tax assets⁽ⁱ⁾

182

240

Other

1,413

1,451

Total risk-weighted assets anticipated under the Regulatory Capital Rules

86,368

85,920

Common Equity Tier 1 ratio under the Regulatory Capital Rules^(h)

10.67

10.61

(a)	Financial data was not adjusted to reflect the treatment of Victory as a discontinued operation.

(b)	Years ended December 31, 2013, and December 31, 2012, exclude $92 million and $123 million, respectively, of period-end purchased credit card receivable intangible assets.

(c)	Net of capital surplus for the year ended December 31, 2013.

(d)

Includes net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities), net gains or losses on cash flow hedges, and amounts resulting from the application of the applicable accounting guidance for defined benefit and other postretirement plans.

(e)

Other assets deducted from Tier 1 capital and net risk-weighted assets consist of disallowed intangible assets (excluding goodwill) and deductible portions of nonfinancial equity investments. There were no disallowed deferred tax assets at December 31, 2013, December 31, 2012, and December 31, 2011. There were disallowed deferred tax assets of $158 million at December 31, 2010, and $514 million at December 31, 2009.

(f)	Years ended December 31, 2013, and December 31, 2012, exclude $107 million and $55 million, respectively, of average ending purchased credit card receivable intangible assets.

(g)	Includes the deferred tax asset subject to future taxable income for realization, primarily tax credit carryforwards, as well as the deductible portion of purchased credit card receivables.

(h)	The anticipated amount of regulatory capital and risk-weighted assets is based upon the federal banking agencies’ Regulatory Capital Rules (as fully phased-in on January 1, 2019); Key is subject to the Regulatory Capital Rules under the “standardized approach.”

(i)	Item is included in the 10%/15% exceptions bucket calculation and is risk-weighted at 250%.

Results of Operations

Net interest income

One of our principal sources of revenue is net interest income. Net interest income is the difference between interest income received on earning assets (such as loans and securities) and loan-related fee income, and interest expense paid on deposits and borrowings. There are several factors that affect net interest income, including:

¿	the volume, pricing, mix and maturity of earning assets and interest-bearing liabilities;

¿	the volume and value of net free funds, such as noninterest-bearing deposits and equity capital;

¿	the use of derivative instruments to manage interest rate risk;

¿	interest rate fluctuations and competitive conditions within the marketplace; and

¿	asset quality.

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

Figure 5 shows the various components of our balance sheet that affect interest income and expense, and their respective yields or rates over the past five years. This figure also presents a reconciliation of taxable-equivalent net interest income to net interest income reported in accordance with GAAP for each of those years. The net interest margin, which is an indicator of the profitability of the earning assets portfolio less cost of funding, is calculated by dividing net interest income by average earning assets.

Taxable-equivalent net interest income for 2013 was $2.3 billion, and the net interest margin was 3.12%. These results compare to taxable-equivalent net interest income of $2.3 billion and a net interest margin of 3.21% for the prior year. Total 2013 net interest income increased compared to the prior year because the interest expense associated with lower deposit costs declined by more than interest income. The decrease in interest income is primarily attributable to a change in the mix of average earning assets: higher-yielding loans were paid down and replaced by new originations with lower yields. Yields on the investment portfolio also declined. The decrease in interest expense is primarily attributable to continued improvements in the mix of deposits: the volume of low cost non-time and noninterest bearing deposit balances increased and higher costing certificates of deposit and long-term debt matured.

Average earning assets for 2013 totaled $75.4 billion, which was $3.5 billion, or 4.9%, higher than the 2012 level. The increase reflects $2.7 billion of loan growth primarily in commercial, financial and agricultural loans, as well as the 2012 acquisitions of credit cards and other loans. Our investment portfolio increased $900 million as a result of our strategy to increase our liquidity position.

Figure 5. Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates from Continuing Operations



	2013												2012
Year ended December 31,	Average								Yield/				Average								Yield/
dollars in millions	Balance					Interest		^(a)	Rate		^(a)		Balance					Interest		^(a)	Rate		^(a)
ASSETS
Loans: ^(c),(d)
Commercial, financial and agricultural	$	23,723		^(h	⁾	$	855			3.60		%	$	21,141		^(h	⁾	$	810			3.83	%
Real estate — commercial mortgage		7,591					312			4.11				7,656					339			4.43
Real estate — construction		1,058					45			4.25				1,171					56			4.74
Commercial lease financing		4,683					172			3.67				5,142					187			3.64

Total commercial loans		37,055					1,384			3.73				35,110					1,392			3.96
Real estate — residential mortgage		2,185					98			4.49				2,049					100			4.86
Home equity:
Key Community Bank		10,086					397			3.93				9,520					384			4.03
Other		377					29			7.70				473					37			7.81

Total home equity loans		10,463					426			4.07				9,993					421			4.21
Consumer other — Key Community Bank		1,404					103			7.33				1,269					121			9.53
Credit Card		701					83			11.86				288					40			13.99
Consumer other:
Marine		1,172					74			6.26				1,551					97			6.26
Other		74					6			8.32				102					8			8.14

Total consumer other		1,246					80			6.38				1,653					105			6.38

Total consumer loans		15,999					790			4.94				15,252					787			5.16

Total loans		53,054					2,174			4.10				50,362					2,179			4.33
Loans held for sale		532					20			3.72				579					20			3.45
Securities available for sale ^(c),(e)		12,689					311			2.49				13,422					399			3.08
Held-to-maturity securities ^(c)		4,387					82			1.87				3,511					69			1.97
Trading account assets		756					21			2.78				718					18			2.48
Short-term investments		2,948					6			.20				2,116					6			.27
Other investments ^(e)		1,028					29			2.84				1,141					38			3.27

Total earning assets		75,394					2,643			3.51				71,849					2,729			3.82
Allowance for loan and lease losses		(879	)											(919	)
Accrued income and other assets		9,662												9,912
Discontinued assets		5,036												5,573

Total assets	$	89,213											$	86,415


LIABILITIES
NOW and money market deposit accounts	$	32,846					53			.16			$	29,673					56			.19
Savings deposits		2,505					1			.04				2,218					1			.05
Certificates of deposit ($100,000 or more) ^(f)		2,829					50			1.76				3,574					94			2.64
Other time deposits		4,084					53			1.30				5,386					104			1.92
Deposits in foreign office		567					1			.23				767					2			.23

Total interest-bearing deposits		42,831					158			.37				41,618					257			.62
Federal funds purchased and securities sold under repurchase agreements		1,802					2			.13				1,814					4			.19
Bank notes and other short-term borrowings		394					8			1.89				413					7			1.69
Long-term debt^{(f), (g)}		4,184					127			3.28				4,673					173			4.10

Total interest-bearing liabilities		49,211					295			.60				48,518					441			.92
Noninterest-bearing deposits		23,046												20,217
Accrued expense and other liabilities		1,656												1,958
Discontinued liabilities^(g)		4,995												5,555

Total liabilities		78,908												76,248

EQUITY
Key shareholders’ equity		10,276												10,144
Noncontrolling interests		29												23

Total equity		10,305