<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From _____________ To ____________
Commission File Number 0-850
KEYCORP
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-6542451
- ----------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
127 Public Square, Cleveland, Ohio 44114-1306
- -------------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 689-3000
------------------------
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 [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Shares, $1 par value 244,865,860 Shares
- ------------------------------------- -------------------------------
(Title of class) (Outstanding at April 30, 1994)
<PAGE> 2
<TABLE>
KEYCORP
TABLE OF CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION
-----------------------------
<S> <C> <C> <C>
Item 1. FINANCIAL STATEMENTS (UNAUDITED) PAGE NO.
--------------------------------- --------
Consolidated Balance Sheets --
March 31, 1994, December 31, 1993, and March 31, 1993 3
Consolidated Statements of Income --
Three months ended March 31, 1994 and 1993 4
Consolidated Statements of Changes in Shareholders' Equity --
Three months ended March 31, 1994 and 1993 5
Consolidated Statements of Cash Flow --
Three months ended March 31, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Independent Accountants' Review Report 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
------------------------- 16
PART II. OTHER INFORMATION
--------------------------
Item 1. LEGAL PROCEEDINGS 35
-----------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 35
--------------------------------
SIGNATURE 36
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
KEYCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1993
- --------------------------------------------------------------------------------------------------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $2,830,739 $2,777,438 $2,832,995
Short-term investments 66,077 107,219 1,678,939
Mortgage loans held for sale 901,599 1,325,338 653,931
Securities available for sale (fair value in 1993: $1,794,845
and $2,287,787, respectively) 4,474,809 1,726,828 2,189,373
Investment securities (fair value: $9,060,585, $11,340,201
and $9,761,370) 9,091,151 11,122,093 9,452,437
Loans 41,379,815 40,071,244 38,371,674
Less: Allowance for loan losses 812,592 802,712 793,247
- --------------------------------------------------------------------------------------------------------------------------
Net loans 40,567,223 39,268,532 37,578,427
Premises and equipment 910,937 912,870 891,501
Other real estate owned 134,301 150,362 327,107
Goodwill 381,440 385,359 406,766
Other intangible assets 161,545 163,989 262,152
Purchased mortgage servicing rights 197,921 188,592 176,423
Other assets 1,758,077 1,502,531 1,400,791
- --------------------------------------------------------------------------------------------------------------------------
Total assets $61,475,819 $59,631,151 $57,850,842
==========================================================================================================================
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $8,213,644 $8,826,300 $7,780,409
Interest-bearing 36,181,995 35,658,315 35,979,503
Deposits in foreign office -- interest-bearing 2,484,963 2,014,533 1,204,408
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 46,880,602 46,499,148 44,964,320
Federal funds purchased and securities sold
under agreements to repurchase 5,674,508 4,120,258 5,036,226
Other short-term borrowings 1,560,153 1,776,192 880,673
Other liabilities 1,079,668 1,078,116 1,029,115
Long-term debt 1,744,545 1,763,870 1,904,104
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 56,939,476 55,237,584 53,814,438
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value; authorized 25,000,000 shares,
none issued --- --- ---
Cumulative Preferred Stock:
Series A, $50 stated value; issued 479,374 shares --- --- 23,970
Class A (Series B in 1993), $125 stated value; authorized 1,400,000
shares, issued 1,280,000 shares 160,000 160,000 160,000
Common Shares, $1 par value; authorized 900,000,000 shares;
issued 245,898,999, 242,827,755 and 239,764,768 shares 245,899 242,828 239,765
Capital surplus 1,466,502 1,433,861 1,379,741
Retained earnings 2,769,062 2,641,450 2,326,343
Loans to ESOP trustee (63,909) (63,909) (63,909)
Net unrealized securities gains (losses) (22,588) ---
Treasury stock at cost (1,135,833, 1,280,604 and 1,828,598 shares) (18,623) (20,663) (29,506)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,536,343 4,393,567 4,036,404
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $61,475,819 $59,631,151 $57,850,842
==========================================================================================================================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
-3-
<PAGE> 4
KEYCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Loans $826,281 $810,460
Mortgage loans held for sale 18,424 14,510
Taxable investment securities 100,554 148,090
Tax-exempt investment securities 23,349 28,349
Securities available for sale 74,994 39,949
Short-term investments 1,388 6,044
- -------------------------------------------------------------------------------------------------------------------------------
Total interest income 1,044,990 1,047,402
INTEREST EXPENSE
Deposits 296,121 319,083
Federal funds purchased and securities
sold under agreements to repurchase 38,967 34,569
Other short-term borrowings 14,190 8,089
Long-term debt 27,600 31,536
- -------------------------------------------------------------------------------------------------------------------------------
Total interest expense 376,878 393,277
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 668,112 654,125
Provision for loan losses 36,792 55,851
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan
losses 631,320 598,274
NONINTEREST INCOME
Service charges on deposit accounts 62,317 60,724
Trust income 57,037 62,915
Mortgage banking income 19,378 13,985
Credit card fees 16,668 16,287
Insurance and brokerage income 16,007 14,094
Special asset management fees 2,156 16,291
Net securities gains 6,428 1,286
Other income 46,565 36,975
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 226,556 222,557
NONINTEREST EXPENSE
Personnel 275,598 257,351
Net occupancy 55,494 50,943
Equipment 39,868 38,679
FDIC insurance assessments 23,999 26,255
Professional fees 12,504 12,997
OREO expense, net 1,332 8,660
Other expense 134,032 140,157
- -------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 542,827 535,042
- -------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 315,049 285,789
Income taxes 106,412 95,915
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 208,637 $ 189,874
===============================================================================================================================
Net income applicable to Common Shares $ 204,637 $ 184,385
Net income per Common Share .85 .77
Weighted average Common Shares outstanding 241,925,802 237,925,676
===============================================================================================================================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
- 4 -
<PAGE> 5
<TABLE>
KEYCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
NET
UNREALIZED
LOANS TO SECURITIES COMMON
PREFERRED COMMON CAPITAL RETAINED ESOP GAINS SHARES IN
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STOCK SHARES SURPLUS EARNINGS TRUSTEE (LOSSES) TREASURY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $243,970 $237,364 $1,336,556 $2,206,051 $(65,478) $(31,175)
Net income 189,874
Cash dividends on Common Shares ($.28
per share) (32,691)
Cash dividends on Fixed/Adjustable
Rate Cumulative Preferred Stock ($1.297
per share) (1,556)
Cash dividend declared by pooled
company prior to merger:
Common Stock (31,156)
Preferred Stock (4,451)
Issuance of Common Shares:
Acquisition - 2,111,638 shares 2,112 38,493
Dividend reinvestment, stock option
and purchase plans - 392,350 shares 289 6,492 1,669
Redemption of 1,200,000 shares of
Fixed/Adjustable Rate Cumulative
Preferred Stock (60,000) (1,800)
Tax benefits attributable to ESOP dividends 272
Loan payments from ESOP trustee 1,569
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1993 $183,970 $239,765 $1,379,741 $2,326,343 $(63,909) $(29,506)
====================================================================================================================================
BALANCE AT DECEMBER 31, 1993 $160,000 $242,828 $1,433,861 $2,641,450 $(63,909) ($20,663)
Adjustment to beginning balance for
change in accounting method, net of
income taxes of $26,621 $46,153
Adjustments relating to poolings of interests (11) (375)
Net income 208,637
Cash dividends on Common Shares ($.32
per share) (37,575)
Cash dividends declared by pooled
company prior to merger:
Common Stock (39,793)
Preferred Stock (4,000)
Issuance of Common Shares:
Acquisition - 2,900,389 shares 2,900 29,503
Dividend reinvestment, stock option
and purchase plans - 326,206 shares 182 3,513 2,040
Change in unrealized securities gains
(losses), net of income taxes of $(39,124) (68,741)
Tax benefits attributable to ESOP dividends 343
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1994 $160,000 $245,899 $1,466,502 $2,769,062 $(63,909) $(22,588) $(18,623)
====================================================================================================================================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
- 5 -
<PAGE> 6
<TABLE>
KEYCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
(IN THOUSANDS) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $208,637 $189,874
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 36,792 55,851
Depreciation expense 28,991 26,906
Amortization of intangibles 12,536 14,529
Amortization of purchased mortgage servicing rights 11,264 12,645
Deferred income taxes 13,388 8,185
Net securities gains (6,428) (1,286)
Net decrease in mortgage loans held for sale 423,739 284,610
Gains from the sales of other real estate owned (868) (89)
Other operating activities, net (105,913) 183,405
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 622,138 774,630
INVESTING ACTIVITIES
Net increase in loans (1,090,688) (348,388)
Purchases of investment securities (2,708,771) (634,098)
Proceeds from sales of investment securities --- 767
Proceeds from prepayments and maturities of investment securities 803,434 618,129
Purchases of securities available for sale (156,606) (7,697)
Proceeds from sales of securities available for sale 1,133,866 207,444
Proceeds from prepayments and maturities of securities available for sale 148,975 83,342
Net (increase) decrease in short-term investments 41,142 (574,820)
Purchases of premises and equipment (21,667) (50,526)
Proceeds from sales of premises and equipment 2,021 10,212
Proceeds from sales of other real estate owned 17,997 20,849
Purchases of mortgage servicing rights (19,411) (16,700)
Net cash provided by (used in) acquisitions 30,690 (52,909)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (1,819,018) (744,395)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 40,407 (1,061,554)
Net increase in short-term borrowings 1,337,546 762,634
Proceeds from issuance of long-term debt 50,900 199,958
Payments on long-term debt (71,926) (86,523)
Redemption of preferred stock --- (61,800)
Proceeds from issuance of common stock pursuant to employee
stock purchase, stock option and dividend reinvestment plans 6,042 7,953
Cash dividends (113,311) (57,538)
Other financing activities, net 523 19,893
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,250,181 (276,977)
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 53,301 (246,742)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 2,777,438 3,079,737
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS AT END OF PERIOD $2,830,739 $2,832,995
=================================================================================================================================
Additional disclosures relative to cash flows:
Interest paid $387,052 $385,847
Income taxes paid (received) (10,525) (13,019)
Noncash item:
Transfer of loans to other real estate owned 16,827 19,659
==================================================================================================================================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
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<PAGE> 7
KEYCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
On March 1, 1994, KeyCorp merged into and with Society Corporation
("Society"), which was the surviving corporation under the name KeyCorp.
The merger was accounted for as a pooling of interests and, accordingly,
the financial information for all prior periods has been restated to
present the combined financial condition and results of operations of both
companies as if the merger had been in effect for all periods presented.
Further details pertaining to the merger are presented in Note 2, Mergers,
Acquisitions and Divestitures, below.
The unaudited consolidated interim financial statements include the
accounts of KeyCorp and its subsidiaries (the "Corporation"). All
significant intercompany accounts and transactions have been eliminated in
consolidation. In the opinion of management, the unaudited consolidated
interim financial statements reflect all adjustments and disclosures which
are necessary for a fair presentation of the results for the interim
periods presented and should be read in conjunction with the consolidated
financial statements and related notes included in the Corporation's 1993
Annual Report to Shareholders filed on Form 8-K on April 20, 1994. Certain
amounts previously reported in the financial statements have been
reclassified to conform with the current presentation. The results of
operations for the interim periods are not necessarily indicative of the
results of operations to be expected for the full year.
2. MERGERS, ACQUISITIONS AND DIVESTITURES
FAR WEST FEDERAL SAVINGS BANK BRANCHES
On April 15, 1994, Key Bank of Oregon ("Key Bank"), an indirect
wholly-owned subsidiary of KeyCorp, assumed approximately $418 million in
deposits of 21 branches from the Resolution Trust Corporation ("RTC"), as
receiver for the failed Far West Federal Savings Bank of Portland, Oregon.
Key Bank paid a premium of $27.5 million in the transaction.
COMMERCIAL BANCORPORATION OF COLORADO
On March 24, 1994, Commercial Bancorporation of Colorado ("CBC"), a bank
holding company with subsidiary banks operating in the Denver, Colorado
Springs, Sterling and Fort Collins areas of Colorado, merged with Key Bank
of Colorado, a wholly-owned subsidiary of KeyCorp. Under the terms of the
merger agreement, 2,900,389 KeyCorp Common Shares were exchanged for all of
the outstanding shares of CBC common stock (based on an exchange ratio of
.899 common shares for each share of CBC). CBC had total assets of $390
million at December 31, 1993. The merger qualified for accounting as a
pooling of interests; however, financial statements for periods prior to
the merger have not been restated to include the accounts and results of
operations of CBC because the transaction was not material to KeyCorp.
KEYCORP-SOCIETY MERGER
On March 1, 1994, KeyCorp ("old KeyCorp"), a financial services company
headquartered in Albany, New York, with approximately $33 billion in assets
as of December 31, 1993, merged into and with Society Corporation
("Society"), a financial services holding company headquartered in
Cleveland, Ohio, with approximately $27 billion in assets at year-end 1993,
which was the surviving corporation and assumed the name KeyCorp. Under
the terms of the merger agreement, 124,351,183 KeyCorp Common Shares were
exchanged for all of the outstanding shares of old KeyCorp common stock
(based on an exchange ratio of 1.205 shares for each share of old KeyCorp).
The outstanding preferred stock of old KeyCorp was exchanged for 1,280,000
shares of a comparable, new issue of 10% Cumulative Preferred Stock of
KeyCorp.
- 7 -
<PAGE> 8
PENDING ACQUISITIONS
STATE HOME SAVINGS BANK, FSB
On May 6, 1994, Society National Bank, a wholly-owned subsidiary of
KeyCorp, reached a definitive agreement to acquire State Home Savings Bank,
FSB, ("State Home Savings") based in Bowling Green, Ohio, in a cash
purchase. The agreement is subject to certain regulatory and board
approvals and the transaction is expected to close in the fall of 1994. It
is anticipated that the proposed acquisition will be accounted for as a
purchase. State Home Savings is a closely-held Federal savings bank with
total assets of $338 million at March 31, 1994, and 14 branches in five
Northwest Ohio counties.
THE BANK OF GREELEY
On October 5, 1993, KeyCorp agreed to acquire the Bank of Greeley, a single
branch bank headquartered in Greeley, Colorado ("Greeley Bank"). Under
terms of the agreement, all shares of Greeley Bank will be exchanged for
approximately 240,000 KeyCorp Common Shares. Greeley Bank had total assets
of approximately $61 million at December 31, 1993.
3. SECURITIES AVAILABLE FOR SALE
Effective January 1, 1994, the Corporation adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." Under this new
accounting standard, equity securities having readily determinable fair
values and all investments in debt securities are classified and accounted
for in three categories. Debt securities that management has the positive
intent and ability to hold to maturity are classified as "held-to-maturity
securities" and reported at amortized cost. Debt and equity securities
that are bought and principally held for the purpose of selling them in the
near term are classified as "trading securities" and reported at fair
value, with unrealized gains and losses included in operating results. Debt
and equity securities not classified as either held-to-maturity securities
or trading securities are classified as "available for sale" and reported
at fair value, with the unrealized gains and losses excluded from operating
results and reported in a separate component of shareholders' equity.
Gains or losses from the sale of securities available for sale are computed
using the specific identification method and included in net securities
gains.
As a result of this accounting change, approximately $4.5 billion of
securities were classified as available for sale at March 31, 1994, and
shareholders' equity was reduced by $22.6 million, representing the net
unrealized loss on these securities, net of deferred income taxes. This
accounting change had no impact on net income.
The amortized cost, unrealized gains and losses, and approximate fair
values of securities available for sale were as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1994
----------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury, agencies and corporations $1,430,129 $22,849 ($5,542) $1,447,436
Mortgage-backed securities 2,787,809 22,986 (76,053) 2,734,742
Other securities 291,962 780 (111) 292,631
----------- ---------- ---------- ----------
Total $4,509,900 $46,615 ($81,706) $4,474,809
=========== ========== ========== ==========
</TABLE>
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<PAGE> 9
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury, agencies and corporations $1,433,980 $64,136 ($171) $1,497,945
Mortgage-backed securities 269,735 4,165 (861) 273,039
Other securities 23,113 753 (5) 23,861
---------- ---------- ---------- ----------
Total $1,726,828 $69,054 ($1,037) $1,794,845
========== ========== ========== ==========
</TABLE>
Securities available for sale by remaining contractual maturity were as
follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1994
---------------------------------
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less $440,026 $403,750
Due after one through five years 2,455,030 2,396,748
Due after five through ten years 1,466,522 1,443,354
Due after ten years 148,322 230,957
---------- ----------
Total $4,509,900 $4,474,809
========== ==========
</TABLE>
Mortgage-backed securities are included in the above maturity schedule
based on their expected average lives.
During the first quarter of 1994, proceeds from the sales of securities
available for sale were $1.1 billion, resulting in gross gains of $9.8 million
and gross losses of $3.4 million.
4. INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and approximate fair
values of investment securities ("held-to-maturity securities") were as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, 1994
-----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury, agencies and corporations $578,833 $8,012 $(13,450) $573,395
States and political subdivisions 1,605,613 61,399 (2,661) 1,664,351
Mortgage-backed securities 6,472,865 30,227 (123,198) 6,379,894
Other securities 433,840 9,343 (238) 442,945
---------- ---------- ---------- ----------
Total $9,091,151 $108,981 $(139,547) $9,060,585
========== ========== ========== ==========
DECEMBER 31, 1993
------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury, agencies and corporations $795,966 $11,601 $(134) $807,433
States and political subdivisions 1,677,823 102,402 (394) 1,779,831
Mortgage-backed securities 7,877,216 108,627 (18,889) 7,966,954
Other securities 771,088 14,900 (5) 785,983
---------- ---------- ---------- ----------
Total $11,122,093 $237,530 $(19,422) $11,340,201
=========== ========== ========== ==========
</TABLE>
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<PAGE> 10
Investment securities by remaining contractual maturity were as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, 1994
-----------------------------------------------
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Due in one year or less $1,868,780 $1,969,855
Due after one through five years 3,925,793 3,918,694
Due after five through ten years 2,598,901 2,510,453
Due after ten years 697,677 661,583
---------- ----------
Total $9,091,151 $9,060,585
========== ==========
</TABLE>
Mortgage-backed securities are included in the above maturity schedule
based on their expected average lives.
At March 31, 1994, investment and available for sale securities, with an
aggregate amortized cost of approximately $8.0 billion were pledged to
secure public and trust deposits and securities sold under repurchase
agreements, and for other purposes required or permitted by law.
5. LOANS
<TABLE>
<CAPTION>
Loans are summarized as follows (in thousands):
MARCH 31, DECEMBER 31, MARCH 31,
1994 1993 1993
----------- ---------- ----------
<S> <C> <C> <C>
Commercial, financial and agricultural $9,575,237 $8,965,528 $9,330,339
Real estate - construction 1,164,134 1,160,480 1,448,830
Real estate - commercial mortgage 6,320,673 6,228,188 6,145,439
Real estate - residential mortgage 11,532,894 11,026,319 10,030,863
Consumer 9,400,693 9,276,334 8,874,117
Student loans held for sale 1,538,427 1,648,611 1,180,720
Lease financing 1,763,850 1,702,472 1,289,296
Foreign 83,907 63,312 72,070
----------- ---------- ----------
Total $41,379,815 $40,071,244 $38,371,674
============ ========== ==========
Changes in the allowance for loan losses are summarized as follows (in thousands):
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1994 1993
---------- ----------
Balance at beginning of period $802,712 $782,649
Charge-offs (55,453) (82,390)
Recoveries 24,138 20,768
---------- ----------
Net charge-offs (31,315) (61,622)
Provision for loan losses 36,792 55,851
Allowance of merged affiliates 4,403 16,369
---------- ----------
Balance at end of period $812,592 $793,247
========== ==========
</TABLE>
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<PAGE> 11
6. NONPERFORMING ASSETS
Nonperforming assets were as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
Nonaccrual loans $315,438 $329,843 $495,366
Restructured loans 1,320 6,469 2,087
-------- -------- --------
Total nonperforming loans 316,758 336,312 497,453
Other real estate owned 167,501 186,052 351,060
Allowance for OREO losses (33,200) (35,690) (23,953)
-------- -------- --------
Other real estate owned, net of allowance 134,301 150,362 327,107
Other nonperforming assets 12,972 13,462 15,017
-------- -------- --------
Total nonperforming assets $464,031 $500,136 $839,577
======== ======== ========
</TABLE>
Changes in allowance for OREO losses are summarized as follows (in thousands):
<TABLE>
Three months ended March 31,
-----------------------------
1994 1993
-------- --------
<S> <C> <C>
Balance at beginning of period $35,690 $17,915
Net charge-offs (3,584) (2,056)
Provision for other real estate owned losses 880 8,094
Allowance of merged affiliate 214 --
-------- --------
Balance at end of period $33,200 $23,953
======== ========
</TABLE>
In May 1993, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which takes
effect for fiscal years beginning after December 15, 1994. SFAS No. 114
prescribes a valuation methodology for impaired loans as defined by the
standard. Generally, a loan is considered impaired if management believes that
it is probable that all amounts due will not be collected according to the
contractual terms, as scheduled in the loan agreement. An impaired loan must be
valued using the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's observable market price or the fair
value of the loan's underlying collateral. The Corporation expects to adopt
SFAS No. 114 prospectively in the first quarter of 1995. It is anticipated that
the adoption of SFAS No. 114 will not have a material effect on the
Corporation's financial condition or results of operations.
- 11 -
<PAGE> 12
7. LONG-TERM DEBT
The components of long-term debt, presented net of unamortized discount
where appropriate, were as follows (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
Medium-Term Notes due through 2003 $505,200 $546,230 $446,530
8.125 % Subordinated Notes due 2002 197,963 197,902 197,716
8.00 % Subordinated Notes due 2004 125,000 125,000 125,000
8.40 % Subordinated Capital Notes due 1999 75,000 75,000 75,000
8.875 % Notes due 1996 74,786 74,772 74,729
11.125 % Notes due 1995 49,982 49,979 49,970
8.48 % Notes due 1997 through 2001 48,864 48,864 48,864
8.33 % Notes due 1996 22,794 22,794 22,794
12.63 % Notes due 1994 -- 1,860 1,860
7.875 % Notes due 1993 -- -- 99,965
8.625 % Notes due 1996 -- -- 99,789
9.45 % Senior Notes due 1993 -- -- 75,000
5.25 % Floating Rate Subordinated Notes due 1997 -- -- 50,000
8.25 % Notes due 1993 -- -- 25,000
9.56 % Note due 1995 -- -- 14,922
7.75 % Debentures due to 2002 -- -- 13,533
All other long-term debt 2,030 384 4,420
-------- -------- --------
Total parent company 1,101,619 1,142,785 1,425,092
7.85 % Subordinated Notes due 2002 199,828 199,823 198,562
6.75 % Subordinated Notes due 2003 198,855 198,823 --
Federal Home Loan Bank Advances (1) 187,228 165,100 221,350
10.00 % Notes due 1995 36,735 36,735 36,735
Industrial revenue bonds 10,904 10,938 11,280
All other long-term debt 9,376 9,666 11,085
-------- -------- --------
Total subsidiaries 642,926 621,085 479,012
-------- -------- --------
Total $1,744,545 $1,763,870 $1,904,104
========== ========== ==========
</TABLE>
(1) Long-term advances from the Federal Home Loan Bank of Seattle (FHLB)
are at adjustable and fixed rates ranging from 3.19% to 12.13% at March 31,
1994, and mature at various dates through 2005. Real estate loans with a
recorded value of $189.4 million and $174.5 million at March 31, 1994 and
December 31, 1993, respectively, collateralize FHLB advances.
8. MERGER AND INTEGRATION CHARGES
During the fourth quarter of 1993, merger and integration charges of
$118.7 million ($80.6 million after tax, $.33 per Common Share) were recorded in
connection with the March 1, 1994, merger of old KeyCorp with and into Society
(the "Merger"). These charges included accruals for merger expenses, consisting
primarily of investment banking and other professional fees directly related to
the Merger ($20.5 million); severance payments and other employee costs ($49.6
million); systems and facilities costs ($35.7 million); and other costs incident
to the Merger ($12.9 million). These charges were recorded by the parent company
in the fourth quarter of 1993 at which time management determined that it was
probable that a liability for all such charges had been incurred and could be
reasonably estimated. During the first quarter of 1994, there were no material
developments with respect to merger and integration charges and management
presently believes that the amount recorded during the fourth quarter of 1993 is
adequate. The Merger is described in greater detail in Note 2, Mergers,
Acquisitions and Divestitures, on page 7 of this report.
- 12 -
<PAGE> 13
9. INCOME TAXES
<TABLE>
<CAPTION>
Income taxes included in the consolidated statements of income are as follows
(in thousands):
Three months ended March 31,
----------------------------------------------
1994 1993
--------- --------
<S> <C> <C>
Currently payable -- Federal $85,904 $77,116
Currently payable -- State 7,120 10,614
Deferred -- Federal 12,008 9,356
Deferred -- State 1,380 (1,171)
--------- --------
Total income tax expense $106,412 $95,915
========= ========
</TABLE>
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Corporation, mainly through its affiliate banks, is party to various
financial instruments with off-balance sheet risk. The banks use these
financial instruments in the normal course of business to meet the
financing needs of their customers and to effectively manage their exposure
to interest rate risk.
The following is a summary of the contractual or notional amount of each
significant class of off-balance sheet financial instruments outstanding.
The Corporation's maximum possible accounting loss from commitments to
extend credit and from standby letters of credit equals the contractual
amount of these instruments. The notional amount represents the total
dollar volume of transactions and is significantly greater than the amount
at risk.
<TABLE>
<CAPTION>
March 31, 1994
FINANCIAL INSTRUMENTS WHOSE CONTRACTUAL AMOUNTS REPRESENT CREDIT RISK AND/OR -----------------
MARKET RISK (IN THOUSANDS)
<S> <C>
Loan commitments:
Credit card lines $4,659,110
Home equity 2,803,181
Commercial real estate and construction 1,238,391
Other 8,435,058
-----------------
Total loan commitments 17,135,740
Other commitments:
Standby letters of credit 1,153,596
Commercial letters of credit 331,759
Loans sold with recourse 143,914
-----------------
Total loan and other commitments $18,765,009
=================
FINANCIAL INSTRUMENTS WHOSE NOTIONAL OR CONTRACTUAL AMOUNTS EXCEED THE AMOUNT OF CREDIT
AND/OR MARKET RISK (IN THOUSANDS)
Mortgage loan sale commitments $1,257,223
Mortgage loan options 90,000
Futures and options on financial futures 1,105,885
Interest rate swap agreements 10,117,345
Interest rate cap and floor agreements 109,334
</TABLE>
- 13 -
<PAGE> 14
The affiliate banks enter into interest rate swap agreements primarily to
manage interest rate risk and to accommodate the business needs of
customers. Under a typical swap agreement, one party pays a fixed rate of
interest based on a notional amount to a second party, which pays to the
first party a variable rate of interest based on the same notional amount.
The management of interest rate risk through the use of "portfolio"
interest rate swaps is usually accomplished by synthetically altering the
interest rate characteristics of specifically designated assets or
liabilities. The swaps have an average maturity of 3.8 years, with selected
swaps having fixed maturity dates through 2003. The following is a summary
of the notional amounts of outstanding interest rate swap agreements at
March 31, 1994 (in millions):
<TABLE>
<CAPTION>
Receive Pay Forward-
Fixed Fixed Starting Total
------- ------ -------- -------
<S> <C> <C> <C> <C>
"Portfolio" $8,208 $756 $50 $9,014
Customer 576 499 28 1,103
------- ------ -------- -------
Total interest rate swaps $8,784 $1,255 $78 $10,117
======= ====== ======== =======
</TABLE>
Interest rate swaps were valued based on discounted cash flow models and
had a fair value of $(126.6) million at March 31, 1994. The discounted
cash flow models contemplate future interest rates using a forward
yield-curve.
At March 31, 1994, the Corporation had a net deferred loss of $22.2
million which resulted from the termination of interest rate swaps used to
synthetically alter certain financial instruments. Gains and losses from the
termination of such interest rate swaps are deferred and amortized over the
remaining lives of the related financial instruments.
- 14 -
<PAGE> 15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
SHAREHOLDERS AND BOARD OF DIRECTORS
KEYCORP
We have reviewed the unaudited consolidated balance sheets of KeyCorp and
subsidiaries as of March 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity, and cash flow for the
three-month periods then ended. These financial statements, which give effect
to the March 1, 1994, merger of KeyCorp and Society Corporation, are the
responsibility of the Corporation's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of KeyCorp as of December 31, 1993,
and the related consolidated statements of income, changes in shareholders'
equity, and cash flow for the year then ended (not presented herein) and in our
report dated March 1, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1993, is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Ernst & Young
Cleveland, Ohio
April 19, 1994
- 15 -
<PAGE> 16
KEYCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
On March 1, 1994, KeyCorp ("old KeyCorp"), a financial services holding
company headquartered in Albany, New York, merged into and with Society
Corporation ("Society"), a financial services holding company headquartered
in Cleveland, Ohio. Society was the surviving corporation of the merger
under the name "KeyCorp". The merger was accounted for as a pooling of
interests and, accordingly, the financial information included in the
remainder of this discussion and analysis of financial condition and
results of operations of KeyCorp and its subsidiaries (the "Corporation")
presents the combined results of old KeyCorp and Society as if the Merger
had been in effect for all periods presented. This discussion should be
read in conjunction with the consolidated financial statements and notes
presented on pages 3 through 14 of this report.
PERFORMANCE OVERVIEW
Figure 1 presents certain income statement components for the first three
months of 1994 and 1993 expressed on a per Common Share basis. The
selected financial data set forth in Figure 2 presents certain information
highlighting the financial performance of the Corporation for the last five
quarters. Each of the items referred to in this performance overview and in
Figures 1 and 2 is more fully described in the following discussion or in
the notes to the consolidated financial statements presented on pages 3
through 14 of this report.
FIGURE 1. COMPONENTS OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, CHANGE
---------------------------- ----------------------
1994 1993 AMOUNT PERCENT
------ ------ ------- --------
<S> <C> <C> <C> <C>
Interest income $4.32 $4.40 $(0.08) (1.8)%
Interest expense 1.56 1.65 (0.09) (5.5)
----- ----- -----
Net interest income 2.76 2.75 0.01 0.4
Provision for loan losses 0.15 0.24 (0.09) (37.5)
----- ----- -----
Net interest income after provision for
loan losses 2.61 2.51 0.10 4.0
Noninterest income 0.94 0.94 --- ---
Noninterest expense 2.25 2.25 --- ---
----- ----- -----
Income before income taxes 1.30 1.20 0.10 8.3
Income taxes 0.44 0.40 0.04 10.0
Preferred dividends 0.01 0.03 (0.02) (66.7)
----- ----- -----
Earnings per Common Share $0.85 $0.77 $0.08 10.4 %
===== ===== =====
</TABLE>
Net income for the first quarter of 1994 reached a record high of $208.6
million. This represented an increase of $18.7 million, or 10%, from the
$189.9 million recorded in the first quarter of 1993. Earnings per Common
Share also rose by 10% over the same period, increasing from $.77 to $.85.
On an annualized basis, the return on average common equity for the first
quarter of 1994 was 19.20% compared with 19.83% for the first quarter of
1993. The annualized returns on average total assets for the first
quarters of 1994 and 1993 were 1.41% and 1.38%, respectively.
- 16 -
<PAGE> 17
<TABLE>
FIGURE 2. - SELECTED FINANCIAL DATA
<CAPTION>
1994 1993
----------- ---------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE QUARTER
Interest income $1,045.0 $1,050.5 $1,051.0 $1,065.0 $1,047.4
Interest expense 376.9 372.2 378.6 390.8 393.3
Net interest income 668.1 678.3 672.4 674.2 654.1
Provision for loan losses 36.8 46.4 49.9 59.5 55.9
Noninterest income 226.6 237.1 288.7 253.3 222.6
Noninterest expense 542.8 689.5 590.8 569.8 535.0
Income before income taxes 315.1 179.5 320.4 298.2 285.8
Net income 208.6 122.3 200.8 196.9 189.9
Net income applicable to Common Shares 204.6 118.4 196.6 192.4 184.4
- ---------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income $0.85 $0.49 $0.82 $0.81 $0.77
Cash dividends declared 0.32 0.28 0.28 0.28 0.28
Book value at quarter end 17.88 17.53 17.32 16.74 16.19
Market price:
High 33.00 33.50 35.75 37.25 35.75
Low 28.88 27.25 30.88 28.63 30.88
Close 30.00 29.75 32.00 35.13 34.63
Weighted average Common Shares (000) 241,925.8 240,778.3 240,821.9 239,532.0 237,925.7
- ---------------------------------------------------------------------------------------------------------------------------------
AT PERIOD-END
Loans $41,379.8 $40,071.3 $39,070.7 $38,375.9 $38,371.7
Earning assets 55,913.5 54,352.7 52,935.5 52,699.9 52,346.4
Total assets 61,475.8 59,631.2 58,169.2 57,944.5 57,850.8
Deposits 46,880.6 46,499.1 44,339.9 44,400.8 44,964.3
Long-term debt 1,744.5 1,763.9 1,908.4 1,957.2 1,904.1
Common shareholders' equity 4,376.3 4,233.6 4,150.1 3,999.5 3,852.4
Total shareholders' equity 4,536.3 4,393.6 4,310.1 4,183.5 4,036.4
- ---------------------------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average total assets 1.41 % 0.83 % 1.40 % 1.38 % 1.38 %
Return on average common equity 19.20 11.09 19.10 19.67 19.83
Return on average total equity 18.88 11.05 18.73 19.22 19.27
Efficiency(1) 60.13 61.35 60.13 60.54 60.04
Overhead(2) 47.27 48.12 46.50 46.15 46.84
Net interest margin 5.03 5.21 5.30 5.35 5.40
- ---------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS AT PERIOD-END
Equity to assets 7.38 % 7.37 % 7.41 % 7.22 % 6.98 %
Tangible equity to tangible assets 6.55 6.51 6.52 6.16 5.89
Tier I risk-adjusted capital 8.91 8.73 8.66 8.42 8.05
Total risk-adjusted capital 12.34 12.22 12.18 11.98 11.24
Leverage 6.85 6.72 6.74 6.48 6.37
=================================================================================================================================
</TABLE>
ON MARCH 1, 1994, KEYCORP MERGED INTO AND WITH SOCIETY CORPORATION
WHICH WAS THE SURVIVING CORPORATION AND ASSUMED THE NAME KEYCORP. THE
MERGER WAS ACCOUNTED FOR AS A POOLING OF INTERESTS AND, ACCORDINGLY,
THE FINANCIAL RESULTS (EXCEPT FOR CASH DIVIDENDS AND MARKET PRICE PER
COMMON SHARE) FOR PRIOR PERIODS PRESENTED WITHIN THIS REPORT HAVE BEEN
RESTATED TO INCLUDE THE COMBINED FINANCIAL RESULTS OF BOTH COMPANIES.
CASH DIVIDENDS AND MARKET PRICE PER COMMON SHARE ARE THE HISTORICAL
AMOUNTS ORIGINALLY REPORTED BY SOCIETY CORPORATION.
(1) CALCULATED AS NONINTEREST EXPENSE (EXCLUDING MERGER AND INTEGRATION
CHARGES AND OTHER NONRECURRING CHARGES) DIVIDED BY TAXABLE-EQUIVALENT
NET INTEREST INCOME PLUS NONINTEREST INCOME (EXCLUDING NET SECURITIES
TRANSACTIONS AND CERTAIN GAINS ON ASSET SALES).
(2) CALCULATED AS NONINTEREST EXPENSE (EXCLUDING MERGER AND INTEGRATION
CHARGES AND OTHER NONRECURRING CHARGES) LESS NONINTEREST INCOME
(EXCLUDING NET SECURITIES TRANSACTIONS AND CERTAIN GAINS ON ASSETS
SALES) DIVIDED BY TAXABLE-EQUIVALENT NET INTEREST INCOME.
- 17 -
<PAGE> 18
The primary factors which contributed to the improvement in 1994 earnings
were a $12.8 million, or 2%, increase in taxable-equivalent net interest
income, a $4.0 million, or 2%, increase in noninterest income and a $19.1
million, or 34%, decrease in the provision for loan losses. These positive
factors were offset in part by a $7.8 million, or 1%, increase in
noninterest expense and a $10.5 million, or 11%, increase in income taxes.
Excluding the impact of nonrecurring items such as merger and integration
charges, the efficiency ratio, which measures the extent to which revenue
is supported by overhead expense, was 60.13% for the first three months of
1994 compared with 61.35% and 60.04% for the fourth quarter of 1993 and the
first quarter of 1993, respectively. The improvement in this ratio from
that reported for the fourth quarter was achieved despite the fact that
most of the anticipated merger-related expense savings are yet to be
realized by the Corporation.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, which is comprised of interest and loan-related fee
income less interest expense, is the principal source of earnings for
KeyCorp's banking affiliates. Net interest income is affected by a number
of factors including the level, pricing, mix and maturity of earning assets
and interest-bearing liabilities, interest rate fluctuations and asset
quality. To facilitate comparisons in the following discussion, net
interest income is presented on a taxable-equivalent basis, which restates
tax-exempt income to an amount that would yield the same after-tax income
had the income been subject to taxation at the Federal statutory income tax
rate.
Various components of the balance sheet and their respective yields and
rates which affect interest income and expense are illustrated in Figure 3.
The information presented in Figure 4 provides a summary of the effect on
net interest income of changes in the Corporation's yields/rates and
average balances from the first quarter of 1993 to the first quarter of
1994. A more in-depth discussion of changes in earning assets and funding
sources is presented in the Financial Condition section beginning on page
25.
For the first quarter of 1994 net interest income was $682.7 million, up
$12.8 million or 2% from the same period last year. This growth was
attributed to an increase of $4.3 billion in average earning assets,
partially offset by a 37 basis point decline in the net interest margin to
5.03%. The net interest margin is computed by dividing taxable-equivalent
net interest income on an annualized basis by average earning assets.
Average earning assets for the first quarter totaled $54.5 billion, which
was $4.3 billion, or 8%, higher than the first quarter 1993 level. This
increase reflected the impact of acquisitions as well as internal growth
generated in the loan and securities portfolios. Average loans rose $2.9
billion, or 8%, while securities (including both investment securities held
to maturity and securities available for sale) were up $1.5 billion, or
13%, from the first quarter of 1993. Average earning assets comprised 91%
of average total assets during the first quarter of 1994, up slightly from
90% in the first quarter of 1993.
The first quarter's net interest margin of 5.03% represented a decrease of
37 basis points from the 5.40% margin in the same period last year. The
decline was primarily the result of a narrower interest rate spread, which
decreased 31 basis points, as the decrease in the yield on earning assets
(70 basis points) exceeded the decrease in the rate paid on
interest-bearing liabilities (39 basis points). The decline in the spread
is attributed to the growth in earning assets over the twelve-month period
ended March 31, 1994, and the repricing/reinvestment of higher-yielding
investment securities and mortgage-related assets in a lower interest rate
environment, followed by a modest rise in short-term interest rates. The
Corporation continues to use "portfolio" interest rate swaps in the
management of its interest rate sensitivity position. The notional amount
of such swaps increased to $9.0 billion at March 31, 1994, from $8.4
billion at year-end 1993. Interest rate swaps contributed $37.8 million to
net interest income and 28 basis points to the net interest margin for the
first quarter of 1994. During the first three months of 1993 interest rate
swaps contributed $33.0 million to net interest income and added 26 basis
points to the net interest margin.
- 18 -
<PAGE> 19
<TABLE>
FIGURE 3. AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES
<CAPTION>
FIRST QUARTER 1994 Fourth Quarter 1993
-------------------------------------- ---------------------------------------
AVERAGE YIELD/ Average Yield/
(DOLLARS IN MILLIONS) BALANCE INTEREST RATE Balance Interest Rate
- ------------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Loans (1)(2):
Commercial, financial and agricultural $10,109.3 $207.4 8.32 % $8,948.7 $180.0 7.98 %
Real estate 17,305.6 341.6 8.01 18,127.9 378.8 8.29
Consumer 9,513.3 226.4 9.65 9,166.2 226.4 9.80
Student loans held for sale 1,513.3 22.4 5.93 1,379.0 21.2 6.17
Lease financing 1,729.6 29.9 6.92 1,570.6 29.8 7.59
Foreign 71.1 1.1 6.03 65.5 1.3 7.60
- -------------------------------------------------------------------------------------------------------------------------------
Total loans 40,242.2 828.8 8.35 39,257.9 837.5 8.46
Mortgage loans held for sale 1,139.2 18.4 6.47 1,278.1 21.5 6.73
Taxable investment securities 6,112.6 100.6 6.58 8,643.3 137.8 6.37
Tax-exempt investment securities (1) 1,630.7 35.2 8.63 1,726.5 37.4 8.67
- -------------------------------------------------------------------------------------------------------------------------------
Total investment securities 7,743.3 135.8 7.01 10,369.8 175.2 6.76
Securities available for sale 5,260.9 75.2 5.68 1,773.3 29.7 6.71
Interest-bearing deposits with banks 32.8 0.4 5.17 48.4 0.6 5.18
Federal funds sold and securities
purchased under agreements to resell 88.8 0.7 3.17 78.1 0.7 3.47
Trading account assets 33.3 0.3 3.38 13.8 0.1 3.45
- -------------------------------------------------------------------------------------------------------------------------------
Total earning assets 54,540.5 1,059.6 7.88 52,819.4 1,065.3 8.00
Allowance for loan losses (815.8) (807.9)
Other assets 6,248.4 6,277.8
- -------------------------------------------------------------------------------------------------------------------------------
$59,973.1 $58,289.3
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Money market deposit accounts $7,197.6 43.0 2.43 $7,273.1 44.6 2.43
Savings deposits 7,900.3 50.5 2.59 7,739.1 52.9 2.71
NOW accounts 5,571.9 25.4 1.85 5,499.3 26.8 1.94
Certificates ($100,000 or more) 2,856.7 31.3 4.44 2,846.5 32.4 4.51
Other time deposits 12,077.8 124.3 4.17 12,291.1 129.8 4.19
Deposits in foreign office 2,678.0 21.6 3.27 1,282.6 10.0 3.08
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 38,282.3 296.1 3.14 36,931.7 296.5 3.18
Federal funds purchased and securities
sold under agreements to repurchase 4,993.3 39.0 3.16 4,472.5 33.2 2.95
Other short-term borrowings 1,435.2 14.2 4.01 1,239.8 12.4 3.96
Long-term debt (3) 1,756.9 27.6 6.55 1,883.9 30.1 6.64
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 46,467.7 376.9 3.29 44,527.9 372.2 3.32
Noninterest-bearing deposits 7,802.7 8,166.4
Other liabilities 1,220.8 1,200.3
Preferred stock 160.0 160.0
Common shareholders' equity 4,321.9 4,234.7
- -------------------------------------------------------------------------------------------------------------------------------
$59,973.1 $58,289.3
========= =========
Interest rate spread 4.59 4.68
- -------------------------------------------------------------------------------------------------------------------------------
Net interest income and net
interest margin $682.7 5.03 % $693.1 5.21 %
====== ====== ====== ======
Taxable-equivalent adjustment (1) $14.6 $14.8
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) INTEREST INCOME ON TAX-EXEMPT INVESTMENT SECURITIES AND LOANS HAS BEEN
ADJUSTED TO A FULLY TAXABLE-EQUIVALENT BASIS USING THE STATUTORY
FEDERAL INCOME TAX RATE.
(2) FOR PURPOSES OF THESE COMPUTATIONS, NONACCRUAL LOANS ARE INCLUDED IN
THE AVERAGE LOAN BALANCES OUTSTANDING.
(3) RATE CALCULATION EXCLUDES ESOP DEBT.
</TABLE>
- 19 -
<PAGE> 20
<TABLE>
<CAPTION>
THIRD QUARTER 1993 SECOND QUARTER 1993 FIRST QUARTER 1993
------------------------------------- ----------------------------------------- ----------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$8,936.5 $183.1 8.13 % $9,128.8 $192.4 8.45 % $9,187.0 $174.2 7.69 %
17,796.3 372.7 8.31 17,680.0 369.9 8.39 16,880.1 357.0 8.58
9,059.2 229.9 10.07 8,947.9 232.3 10.41 8,794.3 237.7 37.7
1,162.9 18.8 6.46 1,088.3 17.7 6.53 1,151.0 19.3 6.80
1,412.2 29.6 8.39 1,328.5 26.0 7.83 1,231.0 23.9 7.78
64.2 1.0 6.39 75.3 1.1 5.68 79.5 1.2 5.98
- -------------------------------------------------------------------------------------------------------------------------------
38,431.3 835.1 8.62 38,248.8 839.4 8.80 37,322.9 813.3 8.84
1,155.3 20.1 6.96 972.6 17.9 7.38 752.6 14.5 7.71
7,597.0 132.4 6.97 7,497.3 138.2 7.37 7,327.7 148.1 8.08
1,769.8 39.8 8.99 1,816.5 40.0 8.80 1,835.0 41.3 9.00
- -------------------------------------------------------------------------------------------------------------------------------
9,366.8 172.2 7.35 9,313.8 178.2 7.65 9,162.7 189.4 8.27
1,987.2 34.4 6.93 2,193.5 37.4 6.82 2,333.0 39.9 6.85
396.5 3.5 3.53 716.8 6.0 3.36 552.4 4.8 3.50
259.3 2.7 4.17 199.0 1.5 3.02 128.8 1.1 3.42
15.5 0.1 3.22 15.7 0.1 3.24 22.0 0.2 3.52
- -------------------------------------------------------------------------------------------------------------------------------
51,611.9 1,068.1 8.21 51,660.2 1,080.5 8.39 50,274.4 1,063.2 8.58
(806.4) (805.4) (795.8)
6,246.2 6,344.2 6,157.1
- -------------------------------------------------------------------------------------------------------------------------------
$57,051.7 $57,199.0 $55,635.7
========= ========= =========
$7,227.1 46.5 2.55 $7,194.3 48.6 2.71 $7,334.4 50.0 2.76
7,597.9 54.4 2.84 7,583.6 54.6 2.89 6,798.3 52.2 3.11
5,411.7 27.7 2.03 5,276.9 27.7 2.11 5,065.0 27.2 2.18
3,037.3 32.8 4.28 3,297.4 35.8 4.35 3,177.8 37.2 4.75
12,317.2 135.6 4.37 12,521.0 140.1 4.49 12,648.8 144.9 4.65
772.4 6.0 3.08 1,043.7 8.0 3.07 976.1 7.6 3.15
- -------------------------------------------------------------------------------------------------------------------------------
36,363.6 303.0 3.31 36,916.9 314.8 3.42 36,000.4 319.1 3.59
4,058.5 30.4 2.97 4,355.6 32.0 2.95 4,631.5 34.6 3.03
1,462.4 13.2 3.57 1,176.8 10.8 3.69 899.0 8.1 3.65
1,931.4 32.0 6.89 1,932.7 33.2 7.15 1,832.9 31.5 7.16
- -------------------------------------------------------------------------------------------------------------------------------
43,815.9 378.6 3.43 44,382.0 390.8 3.54 43,363.8 393.3 3.68
7,934.0 7,730.2 7,302.1
1,048.2 978.7 974.6
168.4 184.0 224.0
4,085.2 3,924.1 3,771.2
- -------------------------------------------------------------------------------------------------------------------------------
$57,051.7 $57,199.0 $55,635.7
========= ========= =========
4.78 4.85 4.90
- -------------------------------------------------------------------------------------------------------------------------------
$689.5 5.30 % $689.7 5.35 % $669.9 5.40 %
====== ====== ====== ====== ====== ======
$17.1 $15.5 $15.8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- 20 -
<PAGE> 21
<TABLE>
FIGURE 4. COMPONENTS OF NET INTEREST INCOME CHANGES
<CAPTION>
FROM FIRST QUARTER 1993
TO FIRST QUARTER 1994
----------------------------------------------------
AVERAGE YIELD/ NET
(IN MILLIONS) VOLUME RATE CHANGE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $61.5 $(46.0) $15.5
Mortgage loans held for sale 6.5 (2.6) 3.9
Taxable investment securities (22.4) (25.1) (47.5)
Tax-exempt investment securities (4.5) (1.6) (6.1)
Securities available for sale 42.8 (7.5) 35.3
Short-term investments (4.9) 0.2 (4.7)
----- ----- -----
Total interest income 79.0 (82.6) (3.6)
INTEREST EXPENSE
Money market deposit accounts (1.0) (6.0) (7.0)
Savings deposits 7.8 (9.5) (1.7)
NOW accounts 2.6 (4.4) (1.8)
Certificates ($100,000 or more) (3.6) (2.3) (5.9)
Other time deposits (6.3) (14.3) (20.6)
Deposits in foreign office 13.7 0.3 14.0
----- ----- -----
Total interest-bearing deposits 13.2 (36.2) (23.0)
Federal funds purchased and securities
sold under agreements to repurchase 2.8 1.6 4.4
Other short-term borrowings 5.2 0.9 6.1
Long-term debt (1.3) (2.6) (3.9)
----- ----- -----
Total interest expense 19.9 (36.3) (16.4)
----- ----- -----
Net interest income $59.1 $(46.3) $12.8
===== ===== =====
<FN>
THE CHANGE IN INTEREST NOT DUE SOLELY TO VOLUME OR RATE HAS BEEN ALLOCATED
IN PROPORTION TO THE ABSOLUTE DOLLAR AMOUNTS OF THE CHANGE IN EACH.
</TABLE>
ASSET AND LIABILITY MANAGEMENT
The Corporation manages its exposure to economic loss from fluctuations in
interest rates through an active program of asset and liability management
within guidelines established by the Corporation's Asset/Liability
Management Committee ("ALCO"). The ALCO has the responsibility for
approving the asset/ liability management policies of the Corporation,
approving changes in the balance sheet that would result in deviations from
the guidelines in the policies, approving strategies to improve balance
sheet positioning and/or earnings, and reviewing the interest rate
sensitivity positions of the Corporation and each of the affiliate banks.
The ALCO meets twice monthly to conduct this review and to approve
strategies consistent with its policies.
The primary tool utilized by management to measure and manage interest rate
exposure is a simulation model. Use of the model to perform simulations of
changes in interest rates over one-year and two-year time horizons has
enabled management to develop strategies for managing exposure to interest
rate risk. In its simulations, management estimates the impact on net
interest income from pro forma 100 and 200 basis point changes in the
overall level of interest rates. ALCO policy guidelines provide that a 200
basis point increase or decrease in short-term rates over a twelve-month
period should not result in more than a 2% negative impact on net interest
income. Simulations as of March 31, 1994, indicated that the Corporation
was moderately liability sensitive.
- 21 -
<PAGE> 22
The Corporation's core lending and deposit-gathering businesses tend to
generate significantly more fixed-rate deposits than fixed-rate
interest-earning assets. Left unaddressed, this tendency would place the
Corporation's earnings at risk to declining interest rates as
interest-earning assets would reprice faster than would interest-bearing
liabilities. Management has utilized its securities portfolio and, for the
past several years, interest rate swaps in the management of interest rate
risk. The decision to use "portfolio" interest rate swaps to manage
interest rate risk versus on-balance sheet securities has depended on
various factors, including funding costs, liquidity, and capital
requirements. The Corporation's "portfolio" swaps totaled $9.0 billion at
March 31, 1994, and consisted principally of contracts wherein the
Corporation receives a fixed rate of interest while paying at a variable
rate, as summarized in Figure 5.
<TABLE>
FIGURE 5. INTEREST RATE SWAP PORTFOLIO AT MARCH 31, 1994
<CAPTION>
(DOLLARS IN MILLIONS) WEIGHTED
AVERAGE WEIGHTED AVERAGE RATE
NOTIONAL MATURITY FAIR -----------------------
VALUE (YEARS) VALUE RECEIVE PAY
-------- -------- ----- ------- ---
<S> <C> <C> <C> <C> <C>
Receive fixed/pay variable $8,208 4.0 $(132.1) 6.21 % 3.75 %
Pay fixed/receive variable 756 2.0 3.6 3.29 5.21
Forward-starting receive fixed/pay variable 50 1.5 --- 4.96 4.13
------- ------
Total "portfolio" swaps 9,014 3.8 (128.5) 5.96 3.87
Customer swaps 1,103 3.8 1.9 5.39 5.19
------- ------
Total interest rate swaps $10,117 3.8 $(126.6) 5.90 % 4.01 %
======= ======
</TABLE>
In addition to "portfolio" swaps, the Corporation has entered into interest
rate swap agreements to accommodate the needs of its customers, typically
commercial loan customers. The Corporation offsets the interest rate risk
of customer swaps by entering into offsetting swaps with third parties.
These offsetting swaps are included in the customer swap portfolio. Where
the Corporation does not have an existing loan with the customer, the swap
position with the customer and any offsetting swap with a third party are
recorded at their fair values. The $1.1 billion notional value of customer
swaps in Figure 5 includes $595 million of interest rate swaps that receive
a fixed rate and pay a variable rate and $508 million of interest rate
swaps that pay a fixed rate and receive a variable rate.
The total notional value of all interest rate swap contracts outstanding
was $10.1 billion at March 31, 1994, and $9.6 billion at December 31, 1993.
Interest rate swaps, including both "portfolio" and customer swaps, had a
fair value of $(126.6) million at March 31, 1994, based on discounted cash
flow models. The discounted cash flow models contemplate future interest
rates using a forward yield-curve. The portfolio swap activity for the
first three months of 1994 is summarized in Figure 6.
<TABLE>
FIGURE 6. "PORTFOLIO" SWAP ACTIVITY FOR THE THREE MONTHS ENDED MARCH 31, 1994
<CAPTION>
(IN MILLIONS) TOTAL
RECEIVE PAY FORWARD- "PORTFOLIO"
FIXED FIXED BASIS STARTING SWAPS
-------- ----- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $7,559 $150 $150 $500 $8,359
Additions 4,150 606 --- 50 4,806
Maturities (901) --- (150) --- (1,051)
Terminations (2,600) --- --- (500) (3,100)
------ ---- ---- ---- ------
Balance at end of period $8,208 $756 $--- $ 50 $9,014
====== ==== ==== ==== ======
</TABLE>
- 22 -
<PAGE> 23
NONINTEREST INCOME
A summary of noninterest income is presented in Figure 7. Total
noninterest income increased $4.0 million, or 2%, for the three-month
period ended March 31, 1994, compared to the same period in 1993.
Excluding the noncore items consisting of special asset management fees and
net securities transactions for comparative purposes, noninterest income
was $218.0 million, up $13.0 million or 6% from the same period last year.
Special asset management fees are earned in connection with loan collection
and asset disposition work performed for the Federal Deposit Insurance
Corporation ("FDIC") under asset management contracts. The level of these
fees decreased from the first quarter of 1993 and is anticipated to
decrease over time as the FDIC assets under contract are collected and,
therefore decline. These fees may vary from quarter-to-quarter as a result
of the timing associated with the loan work-outs or asset dispositions.
The overall increase in noninterest income from the first quarter of last
year reflected the impact of six acquisitions completed during the
twelve-month period ended March 31, 1994.
As shown in Figure 7, income from mortgage banking, and insurance and
brokerage activities contributed $5.4 million and $1.9 million,
respectively, to the increase in noninterest income. In addition, total
other income was up $9.6 million. These increases were partially offset by
a $5.9 million decline in trust income, including investment management
fees. As shown in Figure 8, the increase in mortgage banking income was
primarily due to gains from the sales of mortgage loans in the current year
and an increase in origination fees. Origination fees were up from the
prior year largely due to the prospective reclassification of fees
previously recorded in other categories. The increase in insurance and
brokerage fees reflected the impact of new business resulting from the
increased emphasis placed upon this area as a source of noninterest income.
The increase in total other noninterest income for the first quarter of
1994 was due, in part, to gains from the sales of certain loans.
After giving effect to the sale of Ameritrust Texas Corporation, which
contributed approximately $11 million to total trust income in the first
quarter of last year, trust income was up approximately $5.1 million in
1994.
<TABLE>
FIGURE 7. NONINTEREST INCOME
<CAPTION>
(DOLLARS IN MILLIONS) THREE MONTHS ENDED MARCH 31, CHANGE
---------------------------- ------------------------
1994 1993 AMOUNT PERCENT
---- ---- ------ -------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $ 62.3 $ 60.7 $ 1.6 2.6%
Trust income 57.0 62.9 (5.9) (9.4)
Mortgage banking income 19.4 14.0 5.4 38.6
Credit card fees 16.7 16.3 0.4 2.5
Insurance and brokerage income 16.0 14.1 1.9 13.5
Special asset management fees 2.2 16.3 (14.1) (86.5)
Net securities gains 6.4 1.3 5.1 392.3
Other income:
International fees 5.1 5.9 (0.8) (13.6)
Miscellaneous 41.5 31.1 10.4 33.4
------ ------ ----
Total other income 46.6 37.0 9.6 25.9
------ ------ ----
Total noninterest income $226.6 $222.6 $4.0 1.8%
====== ====== ====
</TABLE>
<TABLE>
FIGURE 8. MORTGAGE BANKING INCOME
(IN MILLIONS) THREE MONTHS ENDED MARCH 31,
----------------------------
1994 1993
----- -----
<S> <C> <C>
Servicing fees $ 9.1 $ 9.9
Gains (losses) on sales of loans 2.5 (1.1)
Origination fees 6.6 2.7
Late fees and other 1.2 2.5
----- -----
Total mortgage banking income $19.4 $14.0
===== =====
</TABLE>
- 23 -
<PAGE> 24
NONINTEREST EXPENSE
Figure 9 provides a summary of noninterest expense. Total noninterest
expense grew by $7.8 million, or 1%, during the first quarter of 1994 as
compared to the first quarter of 1993. Excluding noncore items consisting
of net OREO expense, and merger and integration charges for comparative
purposes, noninterest expense was $541.5 million, representing an increase
of only $15.2 million, or 3%, from the first quarter of 1993 and down $17.6
million, or 3%, from the 1993 fourth quarter. A primary factor
contributing to the overall increase in noninterest expense from the first
quarter of last year was the impact of six acquisitions completed during
the twelve-month period ended March 31, 1994.
As shown in Figure 9, in comparison with the first quarter of 1993 the
largest increases in noninterest expense came from the personnel and net
occupancy categories which rose by $18.3 million and $4.6 million,
respectively. These increases were partially offset by a $2.3 million
decline in FDIC insurance assessments and a $6.1 million decrease in total
other noninterest expense.
The growth in personnel expense in the first quarter of 1994 relative to
the same period last year reflected a 3% increase in full-time equivalent
employees, primarily due to acquisitions. Also contributing to the rise in
personnel expense were higher costs associated with health care benefits.
The higher level of net occupancy expense reflected the impact of
acquisitions as well as the opening of a new operations center late in
1993. FDIC insurance assessments declined as a result of a decrease in the
assessment rate paid by certain affiliate banks which took effect during
for latter half of 1993. The decline in total other noninterest expense
reflected decreases in various categories of operating expense, including
insurance and the amortization of intangible assets.
FIGURE 9. NONINTEREST EXPENSE
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) THREE MONTHS ENDED MARCH 31, CHANGE
----------------------------- ------------------
1994 1993 Amount Percent
------------- ------------- -------- -------
<S> <C> <C> <C> <C>
Personnel:
Salaries $221.1 $208.4 $12.7 6.1 %
Employee benefits 54.5 48.9 5.6 11.5
----------- ----------- ---------
Total personnel 275.6 257.3 18.3 7.1
Net occupancy 55.5 50.9 4.6 9.0
Equipment 39.9 38.7 1.2 3.1
FDIC insurance assessments 24.0 26.3 (2.3) (8.7)
Professional fees 12.5 13.0 (0.5) (3.8)
OREO expense (net of income of $.9 and $3.5) 1.3 8.7 (7.4) (85.1)
Other expense:
Marketing 15.3 13.5 1.8 13.3
Amortization of intangibles 12.5 14.5 (2.0) (13.8)
Miscellaneous 106.2 112.1 (5.9) (5.3)
----------- ----------- ---------
Total other expense 134.0 140.1 (6.1) (4.4)
----------- ----------- ---------
Total noninterest expense $542.8 $535.0 $7.8 1.5 %
=========== =========== =========
Full-time equivalent employees 30,054 29,170
Efficiency ratio (1) 60.13 % 60.04 %
Overhead ratio (2) 47.27 46.84
</TABLE>
(1)Calculated as noninterest expense divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities
transactions).
(2)Calculated as noninterest expense less noninterest income (excluding net
securities transactions) divided by taxable-equivalent net interest
income.
-24-
<PAGE> 25
The efficiency ratio, which provides a measure of the extent to which
recurring revenues are used to pay operating expenses, was 60.13% for the
first three months of 1994 compared with 61.35% and 60.04% for the fourth
quarter of 1993 and the first quarter of 1993, respectively. As previously
stated, the improvement in this ratio from that reported for the fourth
quarter was achieved despite the fact that most of the anticipated
merger-related expense savings are yet to be realized by the Corporation.
INCOME TAXES
The provision for income taxes was $106.4 million for the three-month
period ended March 31, 1994, as compared to $95.9 million for the same
period in 1993. The higher provision resulted from an overall increase in
the level of taxable earnings and the increase in the statutory Federal
income tax rate from 34% in the first quarter of 1993 to 35% for the first
three months of this year. The effective tax rate (provision for income
taxes as a percentage of income before income taxes) for the 1994 first
quarter was 33.8% compared to 33.6% for the first three months of 1993.
The effective tax rate in both periods was lower than the statutory Federal
income tax rate primarily due to tax-exempt income from certain investment
securities and loans.
FINANCIAL CONDITION
LOANS
At March 31, 1994, total loans outstanding were $41.4 billion, compared
with $40.1 billion at December 31, 1993, and $38.4 billion at March 31,
1993. The composition of the loan portfolio by loan type as of each of
these respective dates is presented in Note 5, Loans, on page 10 of this
report. The growth from the December 31, 1993 level was primarily due to
increases of $609.7 million in commercial loans, $602.8 million in real
estate loans (of which $506.6 million pertained to residential mortgages)
and $124.4 million in consumer loans. Student loans held for sale declined
by $110.2 million from year-end 1993. As shown in Figure 10, the
internally generated loan growth was primarily concentrated in the Great
Lakes Region. The acquired loan growth resulted from the acquisition of
CBC, previously described in Note 2, Mergers, Acquisitions and
Divestitures, on page 7 of this report.
FIGURE 10. PERIOD-END LOAN GROWTH BY REGION
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) INTERNALLY CHANGE FROM
GENERATED ACQUIRED TOTAL 12/31/93
------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Northeast region $271.7 --- $271.7 2.4 %
Great Lakes region 689.5 --- 689.5 3.8
Rocky Mountain region 30.5 $217.9 248.4 9.3
Northwest region 73.3 --- 73.3 0.9
Financial Services 25.7 --- 25.7 26.8
------------- -------------- ------------
Total $1,090.7 $217.9 $1,308.6 3.3 %
============= ============== ============
</TABLE>
With respect to geographic concentration, Figure 11 depicts the loan
portfolio at March 31, 1994, by banking region. The Corporation's unique
thirteen-state, four-region profile has provided significant credit risk
diversification.
FIGURE 11. LOANS OUTSTANDING BY REGION AT MARCH 31, 1994
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
TOTAL LOANS DISTRIBUTION
-------------- ----------------
<S> <C> <C>
Northeast region $11,527.3 27.8 %
Great Lakes region 18,537.2 44.8
Rocky Mountain region 2,931.4 7.1
Northwest region 8,262.3 20.0
Financial Services 121.6 0.3
-------------- ----------------
$41,379.8 100.0 %
============== ================
</TABLE>
-25-
<PAGE> 26
Figure 12 details the industry concentrations within the commercial real
estate portfolio at March 31, 1994, and shows the portions of the portfolio
which are nonowner-occupied versus owner-occupied. At March 31, 1994, 53%
of the construction portfolio and 45% of the commercial mortgage loan
portfolio were comprised of loans secured by owner-occupied properties.
These borrowers are engaged in business activities other than real estate,
and the primary source of repayment is not solely dependent on the real
estate market.
FIGURE 12. CONSTRUCTION AND COMMERCIAL MORTGAGE LOANS AT MARCH 31, 1994
(IN MILLIONS)
<TABLE>
<CAPTION>
COMMERCIAL
CONSTRUCTION MORTGAGE TOTAL
------------ ---------- ---------
<S> <C> <C> <C>
Nonowner-occupied:
Retail $120.6 $847.5 $968.1
Multi-family properties 87.4 807.8 895.2
Office buildings 135.3 796.4 931.7
Hotels/Motels 26.4 245.3 271.7
Health facilities 9.4 95.5 104.9
Manufacturing facilities 8.5 92.1 100.6
Warehouses 11.3 243.4 254.7
Other 144.9 364.9 509.8
------------ ---------- ---------
543.8 3,492.9 4,036.7
Owner-occupied 620.3 2,827.8 3,448.1
------------ ---------- ---------
Total $1,164.1 $6,320.7 $7,484.8
============ ========== =========
</TABLE>
SECURITIES
Effective January 1, 1994, the Corporation adopted the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." This new accounting standard requires, among other things,
that securities be classified into three portfolios: securities held to
maturity, securities available for sale, and trading securities. The
designation of securities as available for sale applies to all securities
that may be held for indefinite periods, including securities that may be
sold in response to changes in interest rates, changes in prepayment risk,
increases in loan demand, or for general liquidity and other similar
factors. These securities are adjusted to their fair values through
shareholders' equity with no impact on net income. Securities which the
Corporation has the ability and positive intent to hold to maturity are
included in the investment securities portfolio and are carried at
amortized cost.
As a result of the above accounting change, approximately $4.5 billion of
securities were classified as available for sale at March 31, 1994, and
shareholders' equity was reduced by $22.6 million, representing the net
unrealized loss on these securities, net of deferred income taxes. This
accounting change had no impact on net income. SFAS No. 115 is more fully
described in Note 3, Securities Available for Sale, on page 8 of this
report.
Certain information pertaining to securities available for sale and
investment securities is presented in Figure 13 and Figure 14,
respectively, which follow.
- 26 -
<PAGE> 27
FIGURE 13. SECURITIES AVAILABLE FOR SALE AT MARCH 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
U.S. TREASURY, MORTGAGE- WEIGHTED
AGENCIES AND BACKED OTHER AVERAGE
CORPORATIONS SECURITIES (1) SECURITIES TOTAL YIELD (2)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Maturity:
One year or less $170.8 $232.3 $36.9 $440.0 5.52%
After one through five years 887.8 1,342.6 224.7 2,455.1 5.87
After five through ten years 299.9 1,140.1 26.5 1,466.5 5.35
After ten years 71.6 72.8 3.9 148.3 6.99
------------ ------------ ------------ ------------ ------------
Amortized cost $1,430.1 $2,787.8 $292.0 $4,509.9 5.70%
============ ============ ============ ============ ============
Fair value $1,447.4 $2,734.8 $292.6 $4,474.8
Weighted average yield 6.47% 5.49% 3.67% 5.70%
Weighted average maturity 2.9 years 5.2 years 2.9 years 4.4 years
<FN>
(1) MATURITY IS BASED UPON EXPECTED AVERAGE LIVES RATHER THAN CONTRACTUAL
TERMS.
(2) WEIGHTED AVERAGE YIELDS ARE CALCULATED ON THE BASIS OF AMORTIZED COST.
SUCH YIELDS HAVE BEEN ADJUSTED TO A FULLY TAXABLE- EQUIVALENT BASIS
USING THE STATUTORY FEDERAL INCOME TAX RATE OF 35%.
</TABLE>
FIGURE 14. INVESTMENT SECURITIES AT MARCH 31, 1994
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
U.S. TREASURY, STATES AND MORTGAGE- WEIGHTED
AGENCIES AND POLITICAL BACKED OTHER AVERAGE
CORPORATIONS SUBDIVISIONS SECURITIES(1) SECURITIES TOTAL YIELD(2)
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Maturity:
One year or less $165.6 $576.6 $1,064.1 $ 62.5 $1,868.8 6.89%
After one through five years 184.0 532.7 2,987.2 221.9 3,925.8 6.98
After five through ten years 26.9 361.0 2,153.7 57.3 2,598.9 6.84
After ten years 202.3 135.3 267.9 92.2 697.7 6.84
------------ ------------ ------------ ------------ ------------ ------------
Amortized cost $578.8 $1,605.6 $6,472.9 $433.9 $9,091.2 6.92%
============ ============ ============ ============ ============ ============
Fair value $573.4 $1,664.4 $6,379.9 $442.9 $9,060.6
Weighted average yield 6.74% 8.32 % 6.63% 6.60% 6.92%
Weighted average maturity 6.0 years 3.9 years 5.3 years 3.1 years 5.3 years
<FN>
(1) MATURITY IS BASED UPON EXPECTED AVERAGE LIVES RATHER THAN CONTRACTUAL
TERMS.
(2) WEIGHTED AVERAGE YIELDS ARE CALCULATED ON THE BASIS OF AMORTIZED COST.
SUCH YIELDS HAVE BEEN ADJUSTED TO A FULLY TAXABLE-EQUIVALENT BASIS
USING THE STATUTORY FEDERAL INCOME TAX RATE OF 35%.
</TABLE>
At March 31, 1994, the Corporation had $9.3 billion invested in
mortgage-backed pass-through securities and collateralized mortgage
obligations ("CMO") within the investment securities and securities
available for sale portfolios, compared with $8.1 billion at December 31,
1993. A mortgage-backed pass-through security depends on the underlying
pool of mortgage loans to provide a cash flow "pass-through" of principal
and interest. The Corporation had $5.1 billion invested in mortgage-backed
pass-through securities at March 31, 1994. A CMO is a mortgage-backed
security that is comprised of classes of bonds created by prioritizing the
cash flows from the underlying mortgage pool in order to meet different
objectives of investors. The Corporation had $4.2 billion invested in CMO
securities at March 31, 1994. The CMO securities held by the Corporation
are primarily shorter-maturity class bonds that were structured to have
more predictable cash flows by being less sensitive to prepayments during
periods of changing interest rates. At March 31, 1994, substantially all of
the CMOs and mortgage-backed pass-through securities held by the
Corporation were issued or backed by Federal agencies.
- 27 -
<PAGE> 28
ASSET QUALITY
The Corporation's Loan Review Group measures and determines the level of
risk in the Corporation's loan-related assets. This includes the
formulation of underwriting standards and active line management.
Geographic diversification and variation of the dollar amount of loans
throughout the Corporation also provide methods for managing asset quality.
In addition, the Loan Review Group is responsible for reviewing the
adequacy of the allowance for loan losses ("Allowance"). The Corporation's
Credit Policy/Risk Management Group reviews corporate assets other than
loans, leases and OREO to determine the quality and risk inherent in such
assets. This Group is also responsible for commercial and consumer credit
policy development, concentration management and credit systems
development.
Allowance methodologies are designed to provide adequate coverage for both
potential and unforeseen loan losses. The methodology applied at KeyCorp
focuses on a combination of specific allocations directly attributable to
potential problem credits and historical losses on a portfolio basis. In
addition, indirect risk in the form of general economic conditions,
portfolio diversification and off-balance sheet risk are taken into
consideration. Management continues to target and maintain a minimum
allowance equal to the allocated requirement plus an unallocated portion,
as appropriate. Management believes this is an appropriate posture in
light of current and expected economic conditions and trends, the
geographic and industry mix of the portfolio and similar risk-related
matters.
As shown in Figure 15, net loans charged off for the first quarter of 1994
totaled $31.3 million (.31% of average loans), down significantly from
$61.6 million (.66% of average loans) for the same period last year. This
improvement came primarily from the commercial, real estate mortgage and
consumer portfolios. As a result of the overall improvement in asset
quality, including a large reduction in nonperforming loans, the first
quarter provision for loan losses was $36.8 million, down from $55.9
million in the year-ago quarter. At March 31, 1994, the Allowance as a
percentage of loans outstanding was 1.96%, down from 2.00% at December 31,
1993. Although used as a general indicator, this percentage is not a
primary factor used by management in determining the adequacy of the
Allowance. There have been no significant changes in the allocation of the
Allowance since year end.
FIGURE 15. SUMMARY OF LOAN LOSS EXPERIENCE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
<S> <C> <C>
1994 1993
--------- ---------
Average loans outstanding during the period $40,242.2 $37,322.9
Allowance for loan losses at beginning of period 802.7 782.6
Loans charged off:
Commercial, financial and agricultural 17.6 31.8
Real estate-construction 4.4 4.7
Real estate-mortgage 9.4 14.4
Consumer 23.8 31.1
Lease financing 0.2 0.4
--------- ---------
55.4 82.4
Recoveries:
Commercial, financial and agricultural 12.7 7.8
Real estate-construction 0.2 0.1
Real estate-mortgage 1.5 2.3
Consumer 9.5 9.7
Lease financing 0.2 0.9
--------- ---------
24.1 20.8
--------- ---------
Net loans charged off (31.3) (61.6)
Provision for loan losses 36.8 55.9
Allowance of merged affiliates 4.4 16.3
--------- ---------
Allowance for loan losses at end of period $812.6 $793.2
========= =========
Net loan charge-offs to average loans 0.31 % 0.66 %
Allowance for loan losses to period-end loans 1.96 2.07
Allowance for loan losses to nonperforming loans 256.53 159.46
</TABLE>
- 28 -
<PAGE> 29
The composition of nonperforming assets is shown in Figure 16. These assets
totaled $464 million at March 31, 1994 and represented 1.12% of loans,
OREO and other nonperforming assets compared with $500.1 million, or 1.24%,
at year-end 1993 and $839.6 million, or 2.17%, at March 31, 1993.
Nonperforming assets declined $36.1 million, or 7%, from the end of the
prior year as a result of decreases in both nonperforming loans and other
real estate owned of $19.5 million and $16.1 million, respectively. Other
nonperforming assets, which are comprised primarily of nonperforming
venture capital investments, decreased $.5 million, or 4%, during the first
quarter. The reduction in nonperforming loans was principally attributable
to decreases in nonaccrual commercial and construction loans. At March 31,
1994, nonaccrual loans in these categories comprised 36% and 10%,
respectively, of nonperforming loans and totaled $144.0 million, down $20.5
million, or 12%, from the previous year end. As indicated in Figure 17,
the reduction in OREO was largely due to the selective sale of assets.
On a regional basis, the largest basis point improvements in the ratio of
nonperforming assets to total loans plus OREO and other nonperforming
assets were experienced in the Northeast and Great Lakes regions as
illustrated in Figure 18.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." This standard affects
the definition and basis for measuring impaired loans and is more fully
discussed in Note 6, Nonperforming Assets, on page 11 of this report.
FIGURE 16. SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
MARCH 31, DECEMBER 31, MARCH 31,
1994 1993 1993
-------- ------- -------
<S> <C> <C> <C>
Nonaccrual loans $315.5 $329.8 $495.4
Restructured loans 1.3 6.5 2.1
-------- ------- -------
Total nonperforming loans 316.8 336.3 497.5
Other real estate owned 167.5 186.1 351.1
Allowance for OREO losses (33.2) (35.7) (24.0)
-------- ------- -------
Other real estate owned, net of allowance 134.3 150.4 327.1
Other nonperforming assets 12.9 13.4 15.0
-------- ------- -------
Total nonperforming assets $464.0 $500.1 $839.6
======== ======== ========
Accruing loans past due 90 days or more $53.8 $51.8 $74.7
Nonperforming loans to period-end loans 0.77 % 0.84 % 1.30 %
Nonperforming assets to period-end loans plus other
real estate owned and other nonperforming assets 1.12 1.24 2.17
</TABLE>
FIGURE 17. SUMMARY OF CHANGES IN NONACCRUAL LOANS AND OREO
<TABLE>
<CAPTION>
(IN MILLIONS)
SUMMARY OF CHANGES IN NONACCRUAL LOANS THREE MONTHS ENDED MARCH 31,
----------------------------
1994 1993
--------- ---------
<S> <C> <C>
Balance at beginning of period $329.8 $550.5
Loans placed on nonaccrual 61.6 103.9
Charge-offs* (32.6) (56.1)
Payments (29.4) (60.4)
Transfers to OREO (5.3) (14.0)
Loans returned to accrual (10.4) (31.6)
Acquisitions 1.8 3.1
--------- ---------
Balance at end of period $315.5 $495.4
========= =========
<FN>
* Represents the gross charge-offs taken against nonaccrual loans; excluded are charge-offs taken against
accruing loans and credit card receivables, and interest reversals.
- 29 -
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
SUMMARY OF CHANGES IN OREO THREE MONTHS ENDED MARCH 31,
----------------------------
1994 1993
---------- ---------
<S> <C> <C>
Balance at beginning of period $150.4 $332.4
Additions 16.8 19.6
Sales (17.1) (20.8)
Charge-offs and writedowns (8.4) (8.1)
Transfers to loans (5.5) ---
Acquisitions 2.2 8.0
Other (4.1) (4.0)
------ ------
Balance at end of period $134.3 $327.1
====== ======
</TABLE>
FIGURE 18. NONPERFORMING LOANS AND ASSETS BY REGION
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
NONPERFORMING LOANS TO TOTAL LOANS PLUS
TO TOTAL LOANS OREO AND OTHER NPA
--------------------------- --------------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1994 1993 1994 1993
------------ -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Northeast Region 0.97 % 1.01 % 1.62 % 1.73 %
Great Lakes Region 0.78 0.91 1.03 1.25
Rocky Mountain Region 0.28 0.26 0.50 0.44
Northwest Region 0.61 0.63 0.84 0.91
Financial Services 0.61 1.03 10.78 7.76
------------ -------------- -------------- ---------------
Total 0.77 % 0.84 % 1.12 % 1.24 %
============ ============= ============== ===============
</TABLE>
FIGURE 19. PERCENTAGE OF NONPERFORMING LOANS TO PERIOD-END LOANS BY LOAN
TYPE AT MARCH 31, 1994
<TABLE>
<CAPTION>
COMMERCIAL, REAL ESTATE- REAL ESTATE-
FINANCIAL AND REAL ESTATE- COMMERCIAL RESIDENTIAL
AGRICULTURAL CONSTRUCTION MORTGAGE MORTGAGE CONSUMER TOTAL
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Northeast Region 1.77 % 4.74 % 2.12 % 0.34 % 0.22 % 0.97 %
Great Lakes Region 0.93 3.77 1.83 0.43 0.12 0.78
Rocky Mountain Region 0.24 0.08 0.53 0.10 0.29 0.28
Northwest Region 0.65 0.44 1.23 0.50 0.21 0.61
Financial Services --- --- --- 0.71 --- 0.61
------------- ------------- ------------- ------------- ------------- ------------
Total 1.01 % 2.69 % 1.65 % 0.41 % 0.18 % 0.77 %
============= ============= ============= ============== ============= =============
</TABLE>
DEPOSITS AND OTHER SOURCES OF FUNDS
Core deposits, defined as domestic deposits other than certificates of
deposit of $100,000 or more, are the Corporation's primary source of
funding. During the first quarter of 1994, these deposits averaged $40.6
billion and represented 74% of the Corporation's funds supporting earning
assets compared with $39.1 billion and 78%, respectively, for the first
three months of 1993. The growth in average core deposits reflected the
impact of acquisitions, offset in part by the pursuit of other alternatives
by consumers in response to the interest rate environment. As shown in
Figure 3 on page 19, over the past year balances have also shifted
significantly from the "Other time deposits" category, consisting primarily
of fixed rate certificates of deposit of less than $100,000, to
noninterest-bearing and savings deposits (including NOW accounts) with
higher liquidity, also in response to the interest rate environment.
- 30 -
<PAGE> 31
Purchased funds, which are comprised of large certificates of deposit,
deposits in the foreign office and short-term borrowings, averaged $12.0
billion for the first quarter of 1994, up $2.3 billion, or 24%, from the
comparable prior year period. These instruments were more heavily relied
upon in the current year as the growth in earning assets exceeded the
increase in core deposits discussed above. As illustrated in Figure 3, the
increase was attributable to growth in foreign office deposits, Federal
funds purchased and securities sold under agreements to repurchase, and
other short-term borrowings. These increases were partially offset by a
decline in large certificates of deposit.
LIQUIDITY
Liquidity represents the availability of funding to meet the needs of
depositors, borrowers and creditors at a reasonable cost and without
adverse consequences. The Corporation's ALCO actively analyzes and manages
the Corporation's liquidity in coordination with similar committees at each
affiliate bank. The affiliate banks individually maintain liquidity in the
form of short-term money market investments, securities available for sale,
anticipated prepayments and maturities on securities and through the
maturity structure of their loan portfolios. Liquidity is also enhanced by
a sizable concentration of core deposits, previously discussed, which are
generated by nearly 1300 banking offices in 13 states. In addition, the
affiliate banks have access to various sources of non-core market funding
for short-term liquidity requirements should the need arise.
During the first three months of 1994, Society National Bank, the
Corporation's Ohio bank, issued $226 million in debt securities under a
Medium-Term Note program. These securities have maturities of one year or
less and are included in other short-term borrowings. The proceeds from
this program are to be used for general corporate purposes in the ordinary
course of business.
The liquidity requirements of the parent company, primarily for dividends
to shareholders, retirement of debt and other corporate purposes, are met
principally through regular dividends from affiliate banks. Excess funds
are maintained in short-term investments. The parent company has no lines
of credit with other financial institutions, but has access to the capital
markets as a result of its debt ratings.
Further information pertaining to the Corporation's sources and uses of
cash for the three-month periods ended March 31, 1994 and 1993, is
presented in the Consolidated Statements of Cash Flow on page 6 of this
report.
CAPITAL AND DIVIDENDS
Total shareholders' equity at March 31, 1994, was $4.5 billion, up $142.8
million, or 3%, and $499.9 million, or 12%, from December 31 and March 31,
1993, balances, respectively. The increases resulted principally from the
retention of net income after dividends paid to shareholders. Other
factors contributing to the change in shareholders' equity during the first
quarter of 1994 are shown in the Statement of Changes in Shareholders'
Equity presented on page 5 of this report. Included in these changes are
net unrealized securities losses of $68.7 million, bringing cumulative net
unrealized securities losses as of March 31, 1994, to $22.6 million. These
net unrealized losses were recorded in connection with the adoption of SFAS
No. 115, "Accounting for Certain Debt and Equity Securities," which took
effect as of January 1, 1994. This new accounting standard establishes,
among other things, net unrealized holding gains and losses on securities
available for sale as a new component of shareholders' equity and is more
fully described in Note 3, Securities Available for Sale, on page 8 of this
report.
Capital adequacy is an important indicator of financial stability and
performance. Overall, the Corporation's capital position remains strong
with a ratio of total shareholders' equity to total assets of 7.38% at
March 31, 1994, compared to 7.37% at December 31, 1993, and 6.98% at March
31, 1993.
- 31 -
<PAGE> 32
Banking industry regulators define minimum capital ratios for bank holding
companies and their banking and savings association subsidiaries. Based on
the risk-adjusted capital rules and definitions prescribed by the banking
regulators, KeyCorp's Tier I and total capital to net risk-adjusted assets
ratios at March 31, 1994, were 8.91% and 12.34%, respectively. These
compare favorably with the minimum requirements of 4.0% for Tier I and 8.0%
for total capital. The regulatory Tier I leverage ratio standard prescribes
a minimum ratio of 3.0%, although most banking organizations are expected
to maintain ratios of at least 100 to 200 basis points above the minimum.
At March 31, 1994, KeyCorp's leverage ratio was 6.85%, substantially higher
than the minimum requirement. In response to SFAS No. 115, the Office of
the Comptroller of the Currency, the Federal Reserve and the FDIC are
proposing amendments to their respective regulatory capital rules to
include in Tier I capital the net unrealized changes in securities
available for sale for purposes of calculating the risk-based and leverage
ratios. If adopted as proposed, the rules could cause the Tier I capital
to be subject to greater volatility. The regulatory agencies are also
proposing to add a new component to the risk-based capital requirements
based upon the level of an institution's exposure to interest rate risk.
Figure 20 presents the details of KeyCorp's capital position at March 31,
1994, and December 31, 1993.
Under the FDIC Improvement Act, the Federal bank regulators group
FDIC-insured depository institutions into five broad categories based on
certain capital ratios. The five categories are "well capitalized,"
"adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Although these
provisions are not directly applicable to the Corporation under existing
law and regulations, based upon its ratios the Corporation would qualify,
and KeyCorp's affiliate banks do qualify, as "well capitalized" at March
31, 1994. The FDIC-defined capital categories, as determined by applying
the prompt corrective action provisions of the law, may not constitute an
accurate representation of the overall financial condition or prospects of
KeyCorp or its affiliate banks.
- 32 -
<PAGE> 33
<TABLE>
FIGURE 20. CAPITAL COMPONENTS AND RISK-ADJUSTED ASSETS
<CAPTION>
(DOLLARS IN MILLIONS) MARCH 31, DECEMBER 31,
1994 1993
--------- ----------
<S> <C> <C>
TIER I CAPITAL
Common shareholders' equity (1) $ 4,398.3 $ 4,233.6
Qualifying preferred stock 160.0 160.0
Less: Goodwill (381.4) (385.4)
Other intangible assets (2) (101.6) (104.0)
Other (3) (1.6) (18.9)
--------- ---------
Total Tier I Capital 4,073.7 3,885.3
--------- ---------
TIER II CAPITAL
Allowance for loan losses (4) 574.3 559.7
Qualifying long-term debt 994.3 993.4
--------- ---------
Total Tier II Capital 1,568.6 1,553.1
--------- ---------
Total Capital $ 5,642.3 $ 5,438.4
========= =========
RISK-ADJUSTED ASSETS
Risk-adjusted assets on balance sheet $42,021.0 $40,979.9
Risk-adjusted off-balance sheet exposure 4,409.6 4,283.3
Less: Goodwill (381.4) (385.4)
Other intangible assets (2) (101.6) (104.0)
Other (3) (1.6) (18.9)
--------- ---------
Gross risk-adjusted assets 45,946.0 44,754.9
Less: Excess allowance for loan losses (238.3) (243.0)
--------- ---------
Net risk-adjusted assets $45,707.7 $44,511.9
========= =========
AVERAGE QUARTERLY TOTAL ASSETS $59,973.1 $58,289.3
========= =========
CAPITAL RATIOS
Tier I capital to risk-adjusted assets 8.91 % 8.73 %
Total capital to risk-adjusted assets 12.34 12.22
Leverage (5) 6.85 6.72
<FN>
(1) COMMON SHAREHOLDERS' EQUITY EXCLUDES THE IMPACT OF NET UNREALIZED GAINS
OR LOSSES ON SECURITIES CLASSIFIED AS AVAILABLE FOR SALE.
(2) INTANGIBLE ASSETS (EXCLUDING GOODWILL, PURCHASED MORTGAGE SERVICING
RIGHTS AND PURCHASED CREDIT CARD RELATIONSHIPS) RECORDED AFTER
FEBRUARY 19, 1992, AND DEDUCTIBLE PORTIONS OF PURCHASED MORTGAGE
SERVICING RIGHTS AND PURCHASED CREDIT CARD RELATIONSHIPS.
(3) VALUATION ADJUSTMENT FOR PURCHASED MORTGAGE SERVICING RIGHTS.
(4) THE ALLOWANCE FOR LOAN LOSSES INCLUDED IN TIER II CAPITAL IS LIMITED TO
1.25% OF GROSS RISK-ADJUSTED ASSETS.
(5) TIER I CAPITAL DIVIDED BY AVERAGE TOTAL ASSETS FOR THE QUARTER LESS
GOODWILL AND OTHER INTANGIBLE ASSETS AS DEFINED IN (1) ABOVE.
</TABLE>
- 33 -
<PAGE> 34
<TABLE>
FIGURE 21. BANKING SERVICES DATA BY REGION AT MARCH 31
<CAPTION>
(DOLLARS IN MILLIONS)
NORTHEAST REGION GREAT LAKES REGION
---------------------- ----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SIGNIFICANT RATIOS
Return on average total assets 1.41% 1.32% 1.47% 1.63%
Net interest margin 5.21 5.31 4.71 5.20
Nonperforming loans to period-end loans 0.97 0.93 0.78 1.82
Allowance for loan losses to period-end loans 1.40 1.36 2.65 2.85
Net charge-offs to average loans 0.58 0.82 0.20 0.75
Efficiency 53.03 51.86 52.55 52.87
AVERAGE BALANCES
Loans $11,581 $11,068 $18,289 $17,344
Earning assets 15,766 14,856 25,446 23,540
Total assets 16,864 16,068 27,773 25,745
Deposits 13,994 13,369 20,181 18,855
Shareholders' equity 1,330 1,213 2,022 2,192
<CAPTION>
(DOLLARS IN MILLIONS)
ROCKY MOUNTAIN REGION NORTHWEST REGION
---------------------- ----------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SIGNIFICANT RATIOS
Return on average total assets 1.28% 1.27% 1.29% 1.41%
Net interest margin 5.18 5.41 5.18 5.66
Nonperforming loans to period-end loans 0.28 0.30 0.61 0.76
Allowance for loan losses to period-end loans 1.43 1.29 1.27 1.34
Net charge-offs to average loans 0.32 0.35 0.17 0.22
Efficiency 58.92 59.92 60.32 60.70
AVERAGE BALANCES
Loans $2,663 $2,307 $8,964 $7,701
Earning assets 3,556 3,233 10,418 9,181
Total assets 3,860 3,512 11,347 10,229
Deposits 3,205 2,860 9,212 8,425
Shareholders' equity 305 261 864 865
</TABLE>
- 34 -
<PAGE> 35
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
In the ordinary course of business, the Corporation and its
subsidiaries are subject to legal actions which involve claims for
substantial monetary relief. Based on information presently available
to management and the Corporation's counsel, management does not
believe that any legal actions, individually or in the aggregate, will
have a material adverse effect on KeyCorp's consolidated financial
condition.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
(11) Statement Re: Earnings Per Share Computation
(b) Reports on Form 8-K
January 20, 1994 - Item 5. Other Events. On January 20,
1994, the Registrant issued a press release announcing the
declaration of a 14.3% increase in its quarterly Common Share
dividend and its earnings results for the three- and twelve-month
periods ended December 31, 1993. This press release was attached
as Exhibit 99.
March 16, 1994 - Item 2. Acquisition or Disposition of
Assets and Item 7. Financial Statements, Pro Forma Financial
Information, and Exhibits. On March 1, 1994, the Registrant
completed the merger with "old" KeyCorp. On March 16, 1994, the
Registrant filed financial statements of old KeyCorp and
subsidiaries and pro forma condensed combined financial
information which gives effect to the merger.
No other reports on Form 8-K were filed
during the three-month period ended March 31, 1994.
- 35 -
<PAGE> 36
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KEYCORP
-------------------
(Registrant)
/s/ Lee Irving
Dated: May 16, 1994 -------------------
By: Lee Irving
Excutive Vice President,
Treasurer and Chief
Accounting Officer
- 36 -
<PAGE> 1
<TABLE>
EXHIBIT 11
KEYCORP
COMPUTATION OF NET INCOME PER COMMON SHARE
(dollars in thousands, except per share amounts)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------
1994 1993
----------- -----------
<S> <C> <C>
NET INCOME APPLICABLE TO COMMON SHARES
Net income $208,637 $189,874
Less: Preferred dividend requirements 4,000 5,489
----------- -----------
Net income applicable to Common Shares $204,637 $184,385
=========== ===========
NET INCOME PER COMMON SHARE
Weighted average Common Shares outstanding 241,925,802 237,925,676
=========== ===========
Net income applicable to Common Shares $204,637 $184,385
=========== ===========
Net income per Common Share $0.85 $0.77
=========== ===========
NET INCOME PER COMMON SHARE -- PRIMARY
Weighted average Common Shares outstanding 241,925,802 237,925,676
Dilutive common stock options 2,355,939 1,898,854
----------- -----------
Weighted average Common Shares and Common Share
equivalents outstanding 244,281,741 239,824,530
=========== ===========
Net income applicable to Common Shares $204,637 $184,385
=========== ===========
Net income per Common Share $0.84 $0.77
=========== ===========
NET INCOME PER COMMON SHARE -- FULLY DILUTED
Weighted average Common Shares outstanding 241,925,802 237,925,676
Dilutive common stock options 2,357,998 2,255,306
----------- -----------
Weighted average Common Shares and Common Share
equivalents outstanding 244,283,800 240,180,982
=========== ===========
Net income applicable to Common Shares $204,637 $184,385
=========== ===========
Net income per Common Share $0.84 $0.77
=========== ===========
FN>
DILUTIVE COMMON STOCK OPTIONS ARE BASED ON THE TREASURY STOCK METHOD USING
AVERAGE MARKET PRICE IN COMPUTING NET INCOME PER COMMON SHARE -- PRIMARY,
AND THE HIGHER OF PERIOD-END MARKET PRICE OR AVERAGE MARKET PRICE IN
COMPUTING NET INCOME PER COMMON SHARE -- FULLY DILUTED.
</TABLE>
