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Previous: SIMMONS FIRST NATIONAL CORP, 8-K, 1999-01-20 |
Next: SOUTHERN CALIFORNIA WATER CO, 8-K, 1999-01-20 |
<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): January 19, 1999
[LOGO]
KEYCORP
--------------------------------------------
(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)
127 Public Square, Cleveland, Ohio 44114-1306
- --------------------------------------- -------------------------------------
(Address of principal executive (Zip Code)
offices)
</TABLE>
Registrant's telephone number, including area code: (216) 689-6300
<PAGE> 2
ITEM 5. OTHER EVENTS
------------
On January 19, 1999, the Registrant issued a press release announcing its
earnings results for the three-month and twelve-month periods ended December 31,
1998. This press release, dated January 19, 1999, is attached as Exhibit 99 to
this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(c) Exhibits
--------
99 The Registrant's January 19, 1999, press release announcing its
earnings results for the three-month and twelve-month periods
ended December 31, 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: January 20, 1999 /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 FOURTH QUARTER 1998 EARNINGS
--------------------------------------------
- - FEE INCOME RISES 25 PERCENT TO ALL-TIME HIGH; BOLSTERED BY MCDONALD
ACQUISITION
- - CONTINUED STRONG COMMERCIAL LOAN GROWTH
- - STABLE ASSET QUALITY; MINIMAL EXPOSURE TO EMERGING MARKETS
- - EVOLUTION AS FINANCIAL SERVICES COMPANY CONTINUES
CLEVELAND, January 19, 1999 -- KeyCorp (NYSE: KEY) today reported
fourth-quarter earnings of $260 million, or $0.57 per diluted common share, up
from $248 million, or $0.56 in the fourth quarter of 1997. Earnings for the full
year were $996 million, or $2.23 per diluted common share, both amounts up 8
percent from $919 million, or $2.07, in 1997.
Earnings per diluted common share were $0.59 for the fourth quarter,
and rose 9 percent to $2.25 for the full year, after excluding the impact of
merger and integration charges of $8 million recorded in connection with the
October 23 acquisition of McDonald & Company Investments, Inc., and McDonald's
results subsequent to the acquisition date.
Key's return on average equity was 17.1 percent (approximately 24.0
percent on a cash earnings basis) for the fourth quarter of 1998, compared with
19.2 percent for the fourth quarter of last year. Return on average total assets
was 1.31 percent (approximately 1.44 percent on a cash earnings basis) for the
fourth quarter of 1998, compared with 1.38 percent in the fourth quarter of
1997. For the full year, Key's returns on average equity and assets were 18.0
percent (approximately 24.7 percent on a cash earnings basis) and 1.32 percent
(approximately 1.45 percent on a cash earnings basis), respectively, compared
with 18.9 percent and 1.33 percent for 1997.
"Key continued to experience strong growth in fee income and commercial
loans, coupled with stable asset quality during the fourth quarter of 1998,"
said Robert W. Gillespie, KeyCorp chairman
<PAGE> 2
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 2
and chief executive officer. "Particularly noteworthy was the fact that
noninterest income reached a record high and accounted for 39 percent of total
revenue, up from 36 percent the previous quarter and 30 percent a year ago,
after excluding branch divestiture gains. This strong growth was underscored by
Key's acquisition of McDonald & Company Investments, Inc., and was achieved
despite the absence of securitization activity in a period of significant
capital markets volatility. Commercial loans achieved annualized growth
exceeding 10 percent for the seventh consecutive quarter, and minimal exposure
to emerging markets, along with a lower nonperforming assets ratio, contributed
to Key's stable asset quality. We have previously reported that we have no hedge
fund exposure, nor exposure to borrowers in Russia; in light of recent
developments, we can add that we have virtually no loss exposure to Brazil.
"We are pleased with Key's overall solid performance during 1998. In
addition, we are convinced that the strategies we have implemented are driving
Key toward true distinctiveness as a financial services provider. We have
structured our business units around selected client groups and geographies,
focused our resources on high-growth opportunities and divested low-performing
lines. The McDonald acquisition is an excellent example of a significant step in
this strategic direction, and we could not be more pleased with how quickly we
have integrated our organizations and with the client synergies we have already
begun to achieve," Gillespie said.
Net interest income in the fourth quarter of 1998 totaled $705 million,
up $5 million from the prior quarter and unchanged from the fourth quarter of
last year. The increase from the third quarter of 1998 reflected an annualized
12 percent increase in average earning assets to $69.5 billion, which more than
offset a 9 basis point reduction in the net interest margin to 4.10 percent.
Compared to the fourth quarter of 1997, average earning assets grew by $6.0
billion. The impact of this growth, however, was offset by a 40 basis point
decrease in the net interest margin. The higher level of earning assets was
primarily driven by commercial loans.
Noninterest income for the fourth quarter of 1998 was $447 million,
representing the highest level for any quarter in Key's history, 39 percent of
total revenue and a 22 percent increase from the fourth quarter of 1997. This
improvement, bolstered by the recent acquisition of McDonald, reflected strong
contributions from trust and asset management (up $24 million), insurance and
brokerage income (up $19 million), and investment banking and capital markets
activities (up $38 million). In addition, fourth quarter results included $27
million of additional revenue related to the joint venture entered into with
NOVA Information Services, Inc. a year ago. Noninterest income for the fourth
quarter of 1997 totaled $366 million and included $62 million of branch
divestiture gains and a net
<PAGE> 3
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 3
securitization loss of $31 million. There were no such branch sales or
securitizations completed by Key in the fourth quarter of 1998.
Noninterest expense totaled $685 million for the fourth quarter of
1998, compared to $630 million in the year-ago quarter. The increase came
largely from higher personnel costs associated with various incentive programs,
including those related to investment banking and capital markets activities. In
addition, expenses in the fourth quarter of 1998 included $8 million of merger
and integration charges recorded in connection with the McDonald acquisition.
For the full year, noninterest expense rose $163 million, or 7 percent, from
1997, after excluding a $50 million real estate impairment charge recorded in
the 1997 third quarter. This charge was taken in connection with Key's formation
of a single nationwide community bank and related centralization efforts.
The provision for loan losses for the 1998 fourth quarter was $77
million and equal to the level of net charge-offs. The provision was $6 million
higher than that reported in the prior quarter and essentially unchanged from
the fourth quarter of 1997. Net loan charge-offs were 0.50 percent of average
loans outstanding for the quarter, compared with 0.48 percent for the prior
quarter and 0.57 percent for the year-ago quarter. Key's nonperforming assets
ended the fourth quarter at $404 million, or 0.65 percent of loans, plus other
real estate owned and other nonperforming assets, compared with $431 million, or
0.81 percent, at December 31, 1997.
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 6.88 percent as of December 31, 1998,
compared with 6.76 percent last quarter and 6.21 percent a year earlier. The
improvement from the prior quarter reflected Key's fourth quarter 1998 earnings
as well as the issuance of 19.3 million Key common shares in the October
acquisition of McDonald. During the quarter, Key repurchased 3.3 million shares
related to the closing of the McDonald transaction.
- --------------------------------------------------------------------------------
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; failure of
the capital markets to function consistent with customary levels; 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 FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 4
FINANCIAL HIGHLIGHTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------
12-31-98 09-30-98 12-31-97
----------- ------------- --------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income (TE) $713 $708 $716
Provision for loan losses 77 71 76
Noninterest income 447 392 366
Noninterest expense 685 647 630
Net income 260 252 248
PER COMMON SHARE
Net income $.58 $.57 $.56
Net income - assuming dilution .57 .57 .56
Cash dividends .235 .235 .21
Book value at period end 13.63 12.73 11.83
Market price at period end 32.00 28.88 35.41
AT PERIOD END
Full-time equivalent employees 25,862 24,586 24,595
Full-service banking offices 968 961 1,015
PERFORMANCE RATIOS
Return on average total assets 1.31% 1.32% 1.38%
Return on average equity 17.12 18.14 19.16
Efficiency(1) 57.75 57.09 56.81
Overhead(2) 31.56 33.33 36.17
Net interest margin (TE) 4.10 4.19 4.50
CAPITAL RATIOS AT PERIOD END
Equity to assets(3) 8.64% 8.11% 7.71%
Tangible equity to tangible assets(3) 6.88 6.76 6.21
Tier 1 risk-adjusted capital(4) 7.01 7.01 6.65
Total risk-adjusted capital(4) 11.35 11.61 10.83
Leverage(4) 6.95 6.88 6.40
<FN>
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
12-31-98 are 7.71% and 5.93%, respectively; at 9-30-98 are 7.15% and 5.79%,
respectively; and at 12-31-97 are 7.03% and 5.52%, respectively.
4 12-31-98 ratio is estimated.
TE = Taxable Equivalent
</TABLE>
<PAGE> 5
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 5
FINANCIAL HIGHLIGHTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------
12-31-98 09-30-98 12-31-97
---------------- ----------------- ----------------
<S> <C> <C> <C>
ASSET QUALITY
Net loan charge-offs $ 77 $ 71 $ 76
Net loan charge-offs to average loans .50% .48% .57%
Allowance for loan losses $ 900 $ 900 $ 900
Allowance for loan losses to
period end loans 1.45% 1.51% 1.69%
Allowance for loan losses to
nonperforming loans 246.58 250.00 236.22
Nonperforming loans at period end $ 365 $ 360 $ 381
Nonperforming assets at period end 404 402 431
Nonperforming loans to period end loans .59% .61% .71%
Nonperforming assets to period end loans plus
OREO and other nonperforming assets .65 .68 .81
<CAPTION>
Twelve months ended
------------------------------------
12-31-98 12-31-97
----------------- ----------------
<S> <C> <C>
SUMMARY OF OPERATIONS
Net interest income (TE) $2,783 $2,838
Provision for loan losses 297 320
Noninterest income 1,575 1,306
Noninterest expense 2,548 2,435
Net income 996 919
PER COMMON SHARE
Net income $ 2.25 $ 2.09
Net income - assuming dilution 2.23 2.07
Cash dividends .94 .84
PERFORMANCE RATIOS
Return on average total assets 1.32% 1.33%
Return on average equity 17.97 18.89
Efficiency 1 57.61 57.50
Overhead 2 34.35 39.64
Net interest margin (TE) 4.18 4.62
ASSET QUALITY
Net loan charge-offs $297 $293
Net loan charge-offs to average loans .52% .57%
</TABLE>
<PAGE> 6
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 6
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<TABLE>
<CAPTION>
12-31-98 09-30-98 12-31-97
---------------- ----------------- ----------------
<S> <C> <C> <C>
ASSETS
Loans $62,012 $59,444 $53,380
Investment securities 976 984 1,230
Securities available for sale 5,278 5,928 7,708
Short-term investments 1,974 2,212 1,928
---------------- ----------------- ----------------
Total earning assets 70,240 68,568 64,246
Allowance for loan losses (900) (900) (900)
Cash and due from banks 3,296 2,750 3,651
Premises and equipment 902 876 985
Goodwill 1,430 1,038 1,071
Other intangible assets 79 83 105
Corporate owned life insurance 2,008 1,974 1,895
Other assets 2,965 3,302 2,646
---------------- ----------------- ----------------
TOTAL ASSETS $80,020 $77,691 $73,699
================ ================= ================
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 9,540 $ 8,732 $ 9,368
Interest-bearing 32,091 31,841 32,005
Deposits in foreign offices-interest-bearing 952 2,024 3,700
---------------- ----------------- ----------------
Total deposits 42,583 42,597 45,073
Federal funds purchased and securities
sold under repurchase agreements 4,468 6,652 6,979
Bank notes and other short-term borrowings 9,728 7,576 5,967
Other liabilities 3,110 2,963 2,303
Long-term debt 12,967 11,353 7,446
---------------- ----------------- ----------------
TOTAL LIABILITIES 72,856 71,141 67,768
Capital securities of subsidiary trusts 997 997 750
SHAREHOLDERS' EQUITY 6,167 5,553 5,181
TOTAL LIABILITIES, CAPITAL SECURITIES
OF SUBSIDIARY TRUSTS AND ---------------- ----------------- ----------------
SHAREHOLDERS' EQUITY $80,020 $77,691 $73,699
================ ================= ================
Common Shares outstanding (000) 452,452 436,092 438,064
</TABLE>
<PAGE> 7
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
Three months ended
-------------------------------------------------------
12-31-98 09-30-98 12-31-97
---------------- ----------------- ----------------
<S> <C> <C> <C>
INTEREST INCOME $1,411 $1,415 $1,365
INTEREST EXPENSE 706 715 660
---------------- ----------------- ----------------
NET INTEREST INCOME 705 700 705
Provision for loan losses 77 71 76
---------------- ----------------- ----------------
628 629 629
NONINTEREST INCOME
Trust and asset management income 96 82 72
Service charges on deposit accounts 76 77 77
Investment banking and capital markets income 80 62 42
Corporate owned life insurance income 32 25 25
Insurance and brokerage income 43 22 24
Credit card fees 18 18 23
Loan securitization income (loss) 3 14 (31)
Net securities gains 5 -- 1
Gains from sales of branches/subsidiaries 27 -- 62
Other income 67 92 71
---------------- ------------------------------------
Total noninterest income 447 392 366
NONINTEREST EXPENSE
Personnel 343 317 309
Net occupancy 56 58 58
Equipment 51 46 46
Computer processing 49 46 36
Marketing 19 25 21
Amortization of intangibles 24 22 22
Professional fees 16 14 13
Other expense 127 119 125
---------------- ----------------- ----------------
Total noninterest expense 685 647 630
---------------- ----------------- ----------------
INCOME BEFORE INCOME TAXES 390 374 365
Income taxes 130 122 117
---------------- ----------------- ----------------
NET INCOME $ 260 $ 252 $ 248
================ ================= ================
Net income per Common Share $.58 $.57 $.56
Net income per Common Share - assuming dilution .57 .57 .56
Wtd. avg. Common Shares (000) 449,949 438,856 438,746
Wtd. avg. Common Shares and potential
Common Shares (000) 454,527 443,750 445,152
Taxable-equivalent adjustment $8 $8 $11
</TABLE>
<PAGE> 8
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 8
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
Twelve months ended
---------------------------------------
12-31-98 12-31-97
-------------------- ----------------
<S> <C> <C>
INTEREST INCOME $5,525 $5,262
INTEREST EXPENSE 2,776 2,468
-------------------- ----------------
NET INTEREST INCOME 2,749 2,794
Provision for loan losses 297 320
-------------------- ----------------
2,452 2,474
NONINTEREST INCOME
Trust and asset management income 335 266
Service charges on deposit accounts 306 299
Investment banking and capital markets income 239 119
Corporate owned life insurance income 104 85
Insurance and brokerage income 111 88
Credit card fees 68 96
Loan securitization income (loss) 35 (12)
Net securities gains 9 1
Gains from sales of branches/subsidiaries 89 151
Other income 279 213
-------------------- ----------------
Total noninterest income 1,575 1,306
NONINTEREST EXPENSE
Personnel 1,256 1,181
Net occupancy 226 222
Equipment 185 177
Computer processing 176 131
Marketing 100 86
Amortization of intangibles 91 87
Professional fees 62 47
Other expense 452 504
-------------------- ----------------
Total noninterest expense 2,548 2,435
-------------------- ----------------
INCOME BEFORE INCOME TAXES 1,479 1,345
Income taxes 483 426
-------------------- ----------------
NET INCOME $ 996 $ 919
==================== ================
Net income per Common Share $2.25 $2.09
Net income per Common Share - assuming dilution 2.23 2.07
Wtd. avg. Common Shares (000) 441,895 439,042
Wtd. avg. Common Shares and potential
Common Shares (000) 447,437 444,544
Taxable-equivalent adjustment $34 $44
</TABLE>
<PAGE> 9
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 9
CONSOLIDATED QUARTERLY AVERAGE BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------
12-31-98 09-30-98 12-31-97
---------------- ----------------- ----------------
<S> <C> <C> <C>
ASSETS
Loans $60,656 $58,559 $53,304
Investment securities 1,002 995 1,270
Securities available for sale 6,066 6,175 7,502
Short-term investments 1,747 1,728 1,404
---------------- ----------------- ----------------
Total earning assets 69,471 67,457 63,480
Allowance for loan losses (888) (888) (893)
Cash and due from banks 2,655 2,481 2,738
Other assets 7,730 6,836 6,165
---------------- ----------------- ----------------
TOTAL ASSETS $78,968 $75,886 $71,490
================ ================= ================
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 8,810 $ 8,485 $ 8,750
Interest-bearing 32,072 31,425 32,433
Deposits in foreign offices-interest-bearing 366 954 1,663
---------------- ----------------- ----------------
Total deposits 41,248 40,864 42,846
Federal funds purchased and securities
sold under repurchase agreements 5,205 7,456 7,335
Bank notes and other short-term borrowings 10,171 7,305 5,678
Other liabilities 3,057 2,724 2,304
Long-term debt 12,265 11,029 7,443
---------------- ----------------- ----------------
TOTAL LIABILITIES 71,946 69,378 65,606
Capital securities of subsidiary trusts 997 997 750
SHAREHOLDERS' EQUITY 6,025 5,511 5,134
TOTAL LIABILITIES, CAPITAL SECURITIES
OF SUBSIDIARY TRUSTS AND ---------------- ----------------- ----------------
SHAREHOLDERS' EQUITY $78,968 $75,886 $71,490
================ ================= ================
</TABLE>
<PAGE> 10
KEYCORP REPORTS FOURTH QUARTER 1998 EARNINGS
JANUARY 19, 1999
PAGE 10
CONSOLIDATED YEAR-TO-DATE AVERAGE BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
Twelve months ended
---------------------------------------
12-31-98 12-31-97
-------------------- ----------------
<S> <C> <C>
ASSETS
Loans $57,422 $51,415
Investment securities 1,083 1,474
Securities available for sale 6,610 7,629
Short-term investments 1,563 782
-------------------- ----------------
Total earning assets 66,678 61,300
Allowance for loan losses (888) (875)
Cash and due from banks 2,583 2,623
Other assets 6,908 5,902
-------------------- ----------------
TOTAL ASSETS $75,281 $68,950
==================== ================
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 8,509 $ 8,536
Interest-bearing 31,850 33,425
Deposits in foreign offices-interest-bearing 913 1,812
-------------------- ----------------
Total deposits 41,272 43,773
Federal funds purchased and securities
sold under repurchase agreements 6,635 6,942
Bank notes and other short-term borrowings 7,975 4,741
Other liabilities 2,681 2,074
Long-term debt 10,296 5,906
-------------------- ----------------
TOTAL LIABILITIES 68,859 63,436
Capital securities of subsidiary trusts 879 648
SHAREHOLDERS' EQUITY 5,543 4,866
TOTAL LIABILITIES, CAPITAL SECURITIES
OF SUBSIDIARY TRUSTS AND -------------------- ----------------
SHAREHOLDERS' EQUITY $75,281 $68,950
==================== ================
</TABLE>
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