<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15d of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 15, 1998
[KEYCORP LOGO]
--------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Ohio 0-850 34-6542451
- ------------------------------- ------------------------------------ -------------------------------------
(State or other jurisdiction Commission File Number (I.R.S. Employer Identification No.)
of incorporation or
organization)
</TABLE>
127 Public Square, Cleveland, Ohio 44114-1306
- --------------------------------------- ------------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (216) 689-6300
<PAGE> 2
ITEM 5. OTHER EVENTS
------------
On October 15, 1998, the Registrant issued a press release announcing its
earnings results for the three-month and nine-month periods ended September 30,
1998. This press release, dated October 15, 1998, is attached as Exhibit 99 to
this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(C) Exhibits
--------
99 The Registrant's October 15, 1998, press release announcing its
earnings results for the three-month and nine-month periods
ended September 30, 1998.
<PAGE> 3
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)
Date: October 16, 1998 /s/ Lee Irving
------------------------------------
By: Lee Irving
Executive Vice President
and Chief Accounting Officer
<PAGE> 1
EXHIBIT 99
MEDIA CONTACTS: ANALYST CONTACTS:
Bill Murschel (216) 689-0457 Lee Irving (216) 689-3564
Mary Lou Ringle (216) 689-0456 Vern Patterson (216) 689-0520
WEB SITE: www.Key.com
FOR IMMEDIATE RELEASE
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
-------------------------------------------
- - FEE INCOME UP 25 PERCENT FROM THE YEAR-AGO QUARTER
- - CONTINUED STRONG COMMERCIAL LOAN GROWTH
- - STRONG ASSET QUALITY; NO EXPOSURE IN RUSSIA OR IN HEDGE FUNDS
CLEVELAND, October 15, 1998 -- KeyCorp (NYSE: KEY) today reported
third-quarter earnings of $252 million, or $0.57 per diluted common share, up
from $236 million, or $0.53, recorded in the third quarter of 1997. This
represents an 8 percent increase in earnings per diluted common share from the
year-ago quarter. For the first nine months of 1998, earnings were $736 million,
up 10 percent from $671 million for the first nine months of 1997. On a diluted
per common share basis, Key's year-to-date earnings were $1.65, amounting to a 9
percent increase from $1.51 for the same period last year.
Key's return on average equity was 18.1 percent, and return on average
total assets was 1.32 percent for the third quarter of 1998, compared with 19.4
percent and 1.34 percent, respectively, for the third quarter of last year. For
the first nine months of 1998, Key's returns on average equity and assets were
18.3 percent and 1.33 percent, respectively, compared with 18.8 percent and 1.32
percent for the first nine months of 1997.
"Strong growth in fee income continued to drive Key's earnings
improvement in the third quarter," said Robert W. Gillespie, KeyCorp chairman
and chief executive officer. "Noninterest income was up 25 percent from the
year-ago third quarter, after excluding 1997 branch divestiture gains. Asset
quality continues to be strong; our minimal emerging markets exposure relates
predominantly to self-liquidating trade finance transactions. That fact and the
absence of hedge fund exposure have contributed to the stability of our
provision for loan losses and net charge-off levels.
<PAGE> 2
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 2
Especially in light of recent foreign economic deterioration, we are gratified
by our success in growing and diversifying Key's revenue stream with a
disciplined credit culture.
"We continue to implement strategies that will significantly alter
Key's revenue mix in 1999 and beyond by expanding into fee-generating businesses
outside of traditional banking. Along those lines, we are pleased that the
planning for the integration of McDonald & Company Investments, Inc. has been
progressing well, and we anticipate that depending upon the timing of the
receipt of certain regulatory approvals, the acquisition of McDonald may close
as early as October 23. Through the integration process, we have become even
more convinced that this partnership will create new benefits for clients and
increased opportunities for growth in fee-generating businesses," Gillespie
said.
Net interest income in the third quarter of 1998 totaled $700 million,
up $20 million, or an annualized 12 percent from the prior quarter and
relatively unchanged from the third quarter of last year. The improvement from
the second quarter of 1998 reflected a $1.7 billion increase in average earning
assets, while the net interest margin of 4.19 percent was level with the prior
quarter. The growth in earning assets was attributable primarily to an
annualized 21 percent increase in commercial loans. The small decrease in net
interest income from the third quarter of 1997 reflected a 39 basis point
reduction in the net interest margin, which more than offset an 8 percent
increase in average earning assets to $67.5 billion.
Noninterest income for the third quarter of 1998 was $392 million.
Excluding branch divestiture gains of $79 million recorded in the third quarter
of 1997, noninterest income increased by $78 million, or 25 percent from the
year-ago quarter, and comprised 36 percent of total revenue, compared with 31
percent a year ago. This growth reflected the continuation of broad-based
strength with the largest increases coming from investment banking and capital
markets activities and trust and asset management. Excluding branch divestiture
gains, noninterest income for the first nine months of 1998 was up $238 million,
or 28 percent, from the same period last year.
Noninterest expense totaled $647 million for the third quarter of 1998,
compared to $648 million in the year-ago quarter. Included in last year's
expense was a $50 million real estate impairment charge recorded in connection
with Key's nationalization and related centralization efforts. Excluding this
charge, noninterest expense increased by $49 million, or 8 percent. The increase
came largely from the impact of acquisitions completed in the third quarter of
1997 and higher personnel costs associated with various incentive programs,
including those related to investment banking and capital markets activities.
Compared with the second quarter of 1998, noninterest expense increased by $31
million. For the first nine months of 1998, noninterest expense (excluding the
real estate
<PAGE> 3
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 3
impairment charge) rose $108 million, or 6 percent, from the comparable 1997
period. This included an $8 million increase in costs incurred to be Year 2000
compliant.
The provision for loan losses for the 1998 third quarter was $71
million and equal to the level of net charge-offs. The provision was essentially
unchanged from the prior quarter and $31 million lower than that reported in the
third quarter of 1997. Net loan charge-offs were 0.48 percent of average loans
outstanding for the quarter, compared with 0.51 percent for the prior quarter
and 0.64 percent for the year-ago quarter.
Key's capital ratios continue to exceed all "well-capitalized"
benchmarks. The tangible equity to tangible assets ratio (including capital
securities receiving Tier 1 treatment) was 6.76 percent as of September 30,
1998, compared with 6.91 percent last quarter and 6.16 percent a year earlier.
The decline from the prior quarter reflected Key's third quarter 1998 repurchase
of 4.6 million of its common shares in connection with the anticipated closing
of the McDonald transaction in the fourth quarter.
- --------------------------------------------------------------------------------
This news release contains forward-looking statements which are subject to
numerous assumptions, risks and uncertainties. Actual results could differ
materially from those contained in or implied by such forward-looking statements
for a variety of factors including: sharp and/or rapid changes in interest
rates; significant changes in the economy which could materially change
anticipated credit quality trends and the ability to generate loans; significant
delay in or inability to execute strategic initiatives designed to grow revenues
and/or manage expenses; consummation of significant business combinations or
divestitures; unforeseen business risks related to Year 2000 computer systems
issues; and significant changes in accounting, tax, or regulatory practices or
requirements.
- --------------------------------------------------------------------------------
# # #
<PAGE> 4
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 4
FINANCIAL HIGHLIGHTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
---------------------------------------------------------------
09-30-98 06-30-98 09-30-97
--------------- ---------------- ----------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income (TE) $ 708 $ 689 $ 715
Provision for loan losses 71 72 102
Noninterest income 392 380 393
Noninterest expense 647 616 648
Net income 252 249 236
PER COMMON SHARE
Net income $ .57 $ .57 $ .54
Net income - assuming dilution .57 .56 .53
Cash dividends .235 .235 .21
Book value at period end 12.73 12.55 11.55
Market price at period end 28.88 35.63 31.82
AT PERIOD END
Full-time equivalent employees 24,586 24,711 25,622
Full-service banking offices 961 962 1,088
PERFORMANCE RATIOS
Return on average total assets 1.32% 1.35% 1.34%
Return on average equity 18.14 18.47 19.41
Efficiency 1 57.09 58.22 56.75
Overhead 2 33.33 37.30 37.76
Net interest margin (TE) 4.19 4.19 4.58
CAPITAL RATIOS AT PERIOD END
Equity to assets 3 8.11% 8.28% 7.74%
Tangible equity to tangible assets 3 6.76 6.91 6.16
Tier 1 risk-adjusted capital 4 6.72 7.15 6.73
Total risk-adjusted capital 4 11.12 11.86 11.10
Leverage 4 6.88 7.04 6.33
</TABLE>
1 Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) divided by taxable-equivalent net
interest income plus noninterest income (excluding net securities
transactions and gains from bank and branch divestitures).
2 Calculated as noninterest expense (excluding certain nonrecurring charges
and distributions on capital securities) less noninterest income (excluding
net securities transactions and gains from bank and branch divestitures)
divided by taxable-equivalent net interest income.
3 Excluding capital securities receiving Tier 1 treatment, these ratios at
9-30-98 are 7.15% and 5.79%, respectively; at 6-30-98 are 7.29% and 5.91%,
respectively; and at 9-30-97 are 7.04% and 5.46%, respectively.
4 9-30-98 ratio is estimated.
TE = Taxable Equivalent
<PAGE> 5
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 5
FINANCIAL HIGHLIGHTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------------
09-30-98 06-30-98 09-30-97
--------------- ---------------- ----------------
<S> <C> <C> <C>
ASSET QUALITY
Net loan charge-offs $ 71 $ 72 $ 85
Net loan charge-offs to average loans .48% .51% .64%
Allowance for loan losses $ 900 $ 900 $ 900
Allowance for loan losses to
period end loans 1.51% 1.56% 1.68%
Allowance for loan losses to
nonperforming loans 250.00 240.64 247.25
Nonperforming loans at period end $ 360 $ 374 $ 364
Nonperforming assets at period end 402 417 411
Nonperforming loans to period end loans .61% .65% .68%
Nonperforming assets to period end loans plus
OREO and other nonperforming assets .68 .72 .77
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
--------------------------------------
SUMMARY OF OPERATIONS 09-30-98 09-30-97
---------------- ----------------
<S> <C> <C>
Net interest income (TE) $ 2,070 $ 2,122
Provision for loan losses 220 244
Noninterest income 1,128 940
Noninterest expense 1,863 1,805
Net income 736 671
PER COMMON SHARE
Net income $ 1.68 $ 1.53
Net income - assuming dilution 1.65 1.51
Cash dividends .705 .63
PERFORMANCE RATIOS
Return on average total assets 1.33% 1.32%
Return on average equity 18.29 18.78
Efficiency 1 57.56 57.75
Overhead 2 35.31 40.81
Net interest margin (TE) 4.20 4.67
ASSET QUALITY
Net loan charge-offs $ 220 $ 217
Net loan charge-offs to average loans .52% .57%
</TABLE>
<PAGE> 6
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 6
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<TABLE>
<CAPTION>
ASSETS 09-30-98 06-30-98 09-30-97
--------------- ---------------- ----------------
<S> <C> <C> <C>
Loans $59,444 $57,769 $53,676
Investment securities 984 1,038 1,344
Securities available for sale 5,928 6,482 7,563
Short-term investments 2,212 1,652 1,217
--------------- ---------------- ----------------
Total earning assets 68,568 66,941 63,800
Allowance for loan losses (900) (900) (900)
Cash and due from banks 2,750 3,050 2,940
Premises and equipment 876 894 993
Goodwill 1,038 1,028 1,095
Other intangible assets 83 88 112
Corporate owned life insurance 1,974 1,945 1,583
Other assets 3,302 2,732 2,454
--------------- ---------------- ----------------
TOTAL ASSETS $77,691 $75,778 $72,077
=============== ================ ================
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 8,732 $ 8,967 $ 8,965
Interest-bearing 31,841 31,262 32,733
Deposits in foreign offices-interest-bearing 2,024 1,565 2,172
--------------- ---------------- ----------------
Total deposits 42,597 41,794 43,870
Federal funds purchased and securities
sold under repurchase agreements 6,652 6,828 6,662
Bank notes and other short-term borrowings 7,576 7,855 6,053
Other liabilities 2,963 2,583 2,099
Long-term debt 11,353 10,196 7,567
--------------- ---------------- ----------------
TOTAL LIABILITIES 71,141 69,256 66,251
Capital securities of subsidiary trusts 997 997 750
SHAREHOLDERS' EQUITY 5,553 5,525 5,076
TOTAL LIABILITIES, CAPITAL SECURITIES
OF SUBSIDIARY TRUSTS AND --------------- ---------------- ----------------
SHAREHOLDERS' EQUITY $77,691 $75,778 $72,077
=============== ================ ================
Common Shares outstanding (000) 436,092 1 440,352 1 219,666
</TABLE>
1 Adjusted to reflect the impact of a two-for-one stock split declared January
15, 1998, effected by means of a 100% stock dividend paid March 6, 1998.
<PAGE> 7
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 7
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------
09-30-98 06-30-98 09-30-97
--------------- ---------------- ----------------
<S> <C> <C> <C>
INTEREST INCOME $1,415 $1,372 $1,347
INTEREST EXPENSE 715 692 643
--------------- ---------------- ----------------
NET INTEREST INCOME 700 680 704
Provision for loan losses 71 72 102
--------------- ---------------- ----------------
629 608 602
NONINTEREST INCOME
Service charges on deposit accounts 77 75 77
Trust and asset management income 82 80 66
Investment banking and capital markets income 62 50 38
Credit card fees 18 17 25
Insurance and brokerage income 22 24 22
Corporate owned life insurance income 25 24 20
Loan securitization income 14 8 15
Net securities gains -- 2 --
Gains from sales of branches/subsidiaries -- 33 79
Other income 92 67 51
-----------------------------------------------------
Total noninterest income 392 380 393
NONINTEREST EXPENSE
Personnel 317 302 299
Net occupancy 58 56 54
Equipment 46 45 44
Amortization of intangibles 22 22 23
Marketing 25 28 22
Professional fees 14 15 10
Other expense 165 148 196
--------------- ---------------- ----------------
Total noninterest expense 647 616 648
--------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 374 372 347
Income taxes 122 123 111
--------------- ---------------- ----------------
NET INCOME $ 252 $ 249 $ 236
=============== ================ ================
Net income per Common Share $ .57 $ .57 $ .54
Net income per Common Share - assuming dilution .57 .56 .53
Wtd. avg. Common Shares (000) 438,856 440,092 436,214
Wtd. avg. Common Shares and potential
Common Shares (000) 443,750 446,568 442,050
Taxable-equivalent adjustment $8 $9 $11
</TABLE>
<PAGE> 8
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 8
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Nine months ended
-----------------------------------
09-30-98 09-30-97
---------------- ----------------
<S> <C> <C>
INTEREST INCOME $4,114 $3,897
INTEREST EXPENSE 2,070 1,808
---------------- ----------------
NET INTEREST INCOME 2,044 2,089
Provision for loan losses 220 244
---------------- ----------------
1,824 1,845
NONINTEREST INCOME
Service charges on deposit accounts 230 222
Trust and asset management income 239 194
Investment banking and capital markets income 159 77
Credit card fees 50 73
Insurance and brokerage income 68 64
Corporate owned life insurance income 72 60
Loan securitization income 32 19
Net securities gains 4 --
Gains from sales of branches/subsidiaries 62 89
Other income 212 142
---------------- ----------------
Total noninterest income 1,128 940
NONINTEREST EXPENSE
Personnel 913 872
Net occupancy 170 164
Equipment 134 131
Amortization of intangibles 67 65
Marketing 81 65
Professional fees 46 34
Other expense 452 474
---------------- ----------------
Total noninterest expense 1,863 1,805
---------------- ----------------
INCOME BEFORE INCOME TAXES 1,089 980
Income taxes 353 309
---------------- ----------------
NET INCOME $ 736 $ 671
================ ================
Net income per Common Share $1.68 $1.53
Net income per Common Share - assuming dilution 1.65 1.51
Wtd. avg. Common Shares (000) 439,180 439,140
Wtd. avg. Common Shares and potential
Common Shares (000) 445,047 444,340
Taxable-equivalent adjustment $26 $33
</TABLE>
<PAGE> 9
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 9
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
Three months ended
-----------------------------------------------------
ASSETS 09-30-98 06-30-98 09-30-97
--------------- ---------------- ----------------
<S> <C> <C> <C>
Loans $58,559 $56,441 $52,708
Investment securities 995 1,141 1,413
Securities available for sale 6,175 6,765 7,399
Short-term investments 1,728 1,422 807
--------------- ---------------- ----------------
Total earning assets 67,457 65,769 62,327
Allowance for loan losses (888) (888) (873)
Cash and due from banks 2,481 2,574 2,633
Other assets 6,836 6,611 6,025
--------------- ---------------- ----------------
TOTAL ASSETS $75,886 $74,066 $70,112
=============== ================ ================
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 8,485 $ 8,328 $ 8,551
Interest-bearing 31,425 31,928 32,977
Deposits in foreign offices-interest-bearing 954 1,095 2,065
--------------- ---------------- ----------------
Total deposits 40,864 41,351 43,593
Federal funds purchased and securities
sold under repurchase agreements 7,456 6,773 6,939
Bank notes and other short-term borrowings 7,305 7,710 5,001
Other liabilities 2,724 2,547 2,125
Long-term debt 11,029 9,511 6,879
--------------- ---------------- ----------------
TOTAL LIABILITIES 69,378 67,892 64,537
Capital securities of subsidiary trusts 997 766 750
SHAREHOLDERS' EQUITY 5,511 5,408 4,825
TOTAL LIABILITIES, CAPITAL SECURITIES
OF SUBSIDIARY TRUSTS AND --------------- ---------------- ----------------
SHAREHOLDERS' EQUITY $75,886 $74,066 $70,112
=============== ================ ================
</TABLE>
<PAGE> 10
KEYCORP REPORTS THIRD QUARTER 1998 EARNINGS
OCTOBER 15, 1998
PAGE 10
CONSOLIDATED YEAR-TO-DATE AVERAGE BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
Nine months ended
-----------------------------------
ASSETS 09-30-98 09-30-97
---------------- ----------------
<S> <C> <C>
Loans $56,332 $50,778
Investment securities 1,110 1,543
Securities available for sale 6,794 7,672
Short-term investments 1,502 573
---------------- ----------------
Total earning assets 65,738 60,566
Allowance for loan losses (888) (869)
Cash and due from banks 2,558 2,584
Other assets 6,631 5,814
---------------- ----------------
TOTAL ASSETS $74,039 $68,095
================ ================
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 8,408 $ 8,464
Interest-bearing 31,775 33,760
Deposits in foreign offices-interest-bearing 1,097 1,862
---------------- ----------------
Total deposits 41,280 44,086
Federal funds purchased and securities
sold under repurchase agreements 7,117 6,809
Bank notes and other short-term borrowings 7,235 4,425
Other liabilities 2,555 1,998
Long-term debt 9,632 5,388
---------------- ----------------
TOTAL LIABILITIES 67,819 62,706
Capital securities of subsidiary trusts 839 613
SHAREHOLDERS' EQUITY 5,381 4,776
TOTAL LIABILITIES, CAPITAL SECURITIES
OF SUBSIDIARY TRUSTS AND ---------------- ----------------
SHAREHOLDERS' EQUITY $74,039 $68,095
================ ================
</TABLE>
