<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): July 15, 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 offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (216) 689-6300
<PAGE> 2
ITEM 5. OTHER EVENTS
------------
On July 15, 1999, the Registrant issued a press release announcing its earnings
results for the three-month and six-month periods ended June 30, 1999. This
press release, dated July 15, 1999, is attached as Exhibit 99 to this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(c) Exhibits
--------
99 The Registrant's July 15, 1999, press release announcing its
earnings results for the three-month and six-month periods
ended June 30, 1999.
<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: July 16, 1999 /s/ Lee Irving
-------------------------------------
By: Lee Irving
Executive Vice President
and Chief Accounting Officer
<PAGE> 1
EXHIBIT 99
MEDIA CONTACT: ANALYST CONTACT:
John Fuller (216) 689-8140 Vern Patterson (216) 689-0520
WEB SITE: www.Key.com
FOR IMMEDIATE RELEASE
KEYCORP REPORTS SECOND QUARTER 1999 EARNINGS
--------------------------------------------
- - CORE REVENUE UP AN ANNUALIZED 17 PERCENT FROM THE PRIOR QUARTER; MORE THAN
DOUBLE THE RATE OF INCREASE IN CORE NONINTEREST EXPENSE
- - EARNINGS PER SHARE UP 11 PERCENT FROM THE YEAR-AGO QUARTER
- - COMMERCIAL AND HOME EQUITY LOAN GROWTH CONTINUE TO BE STRONG
- - ASSET QUALITY REMAINS STABLE
CLEVELAND, July 15, 1999 -- KeyCorp (NYSE: KEY) today reported second
quarter earnings of $280 million, or $0.62 per diluted common share, up from
$249 million, or $0.56, in the second quarter of 1998. This improvement
represented an 11 percent increase in earnings per diluted common share from the
year-ago quarter. For the first half of 1999, Key's earnings were $573 million,
or $1.27 per common share, compared with $484 million, or $1.09, for the first
six months of last year.
"Second quarter results were strong," said Robert W. Gillespie,
chairman and chief executive officer. "Our core revenue increased an annualized
17 percent from the previous quarter, far exceeding the 7 percent increase in
core noninterest expense. All four of our major lines of business contributed to
this strong performance. We have begun to realize improved earnings growth as a
result of the initiatives undertaken earlier this year to strengthen the
profitability of the retail banking unit within Key Community Bank. Revenue
growth was boosted by the strong performance of our fee-generating businesses,
particularly those in our Key Capital Partners units that continue to benefit
from the acquisition of McDonald & Company. Continued strong demand for home
equity loans and improving consumer credit have bolstered the earnings of Key
Consumer Finance, while Key Corporate Capital's efforts have helped the Company
achieve its ninth consecutive quarter of double-digit commercial loan growth. We
are also pleased with the improvement in Key's net interest margin, in light of
the efforts that we've made to improve loan pricing in our various lines of
business.
<PAGE> 2
KEYCORP REPORTS SECOND QUARTER 1999 EARNINGS
JULY 15, 1999
PAGE 2
"Results for the quarter demonstrate significant progress in our drive
to reshape the Company's revenue mix. Based on good growth in all major
fee-based product categories -- including investment banking and capital
markets, brokerage and asset management -- core noninterest income now accounts
for 42 percent of Key's total revenue." Revenue from these businesses accounted
for only 29 percent of Key's total revenue as recently as 1997.
For the second quarter of 1999, Key's return on average equity was 18.2
percent (approximately 26.0 percent on a cash earnings basis), and its return on
average total assets was 1.40 percent (approximately 1.55 percent on a cash
earnings basis). This compares with 18.5 percent (approximately 25.1 percent on
a cash earnings basis) and 1.35 percent (approximately 1.47 percent on a cash
earnings basis), respectively, for the second quarter of last year. For the
first six months of 1999, Key's returns on average equity and assets were 18.8
percent and 1.45 percent, respectively, compared with 18.4 percent and 1.34
percent for the first six months of 1998.
Net interest income in the second quarter of 1999 totaled $697 million,
up $12 million from the prior quarter and $31 million from the second quarter of
last year. Compared with the prior quarter, net interest income rose by an
annualized 7 percent, reflecting increases in both average earning assets and
the net interest margin. The increase from the second quarter of 1998 reflected
an 8 percent increase in average earning assets (primarily commercial loans) to
$70.9 billion, which more than offset a 13 basis point reduction in the net
interest margin.
Noninterest income for the second quarter of 1999 was $526 million,
significantly higher than the $380 million of a year ago. Strong increases in
income from investment banking and capital markets (up $50 million), insurance
and brokerage (up $35 million) and trust and asset management (up $30 million)
reflected the impact of the October 1998 acquisition of McDonald.
Core revenue, defined as net interest income plus noninterest income
(excluding certain nonrecurring gains), rose by $48 million, or an annualized 17
percent, from the first quarter of 1999. Nonrecurring gains were comprised of
$15 million from the second quarter sale of Key's interest in Concord EFS, Inc.
and $134 million from the sale of Key's interest in Electronic Payment Services,
Inc. in the previous quarter.
Noninterest expense totaled $717 million for the second quarter of
1999, compared with $602 million in the year-ago quarter. The increase came
largely from the impact of the McDonald acquisition and higher personnel costs
that reflected the effect of various incentive programs, as well as merit
increases that took effect on April 1, 1999, for the vast majority of Key's
workforce. Included in first quarter 1999 results was a $20 million special
contribution to Key's charitable foundation, as well
<PAGE> 3
KEYCORP REPORTS SECOND QUARTER 1999 EARNINGS
JULY 15, 1999
PAGE 3
as $27 million of other nonrecurring charges. A related, additional contribution
of $3 million was made during the second quarter. Excluding these noncore
charges, noninterest expense for the second quarter increased by $13 million, or
an annualized 7 percent, from the first quarter of 1999.
The provision for loan losses was $76 million for the second quarter of
1999 and equal to the level of net charge-offs. The provision was $35 million
lower than that reported in the prior quarter and $4 million higher than that
reported for the second quarter of last year. Net loan charge-offs were 0.49
percent of average loans outstanding for the quarter, compared with 0.53 percent
for the prior quarter and 0.51 percent for the year-ago quarter. Key's
nonperforming assets ended the second quarter at $412 million, or 0.66 percent
of loans plus other real estate owned and other nonperforming assets, compared
with $404 million, or 0.65 percent, at December 31, 1998.
Key's capital ratios continue to exceed all "well-capitalized"
benchmarks. At June 30, 1999, Key's estimated Tier 1 and total risk-adjusted
capital ratios were 7.39 percent and 11.60 percent, respectively; the estimated
leverage ratio was 7.41 percent. The tangible equity to tangible assets ratio
was 5.95 percent as of June 30, 1999, compared with 5.86 percent last quarter
and 5.91 percent a year earlier. The improvement from the prior quarter
reflected Key's second quarter 1999 retained net income, offset in part by Key's
repurchase of 851,200 of its common shares during the same period.
- --------------------------------------------------------------------------------
This news release contains forward-looking statements that 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 SECOND QUARTER 1999 EARNINGS
JULY 15, 1999
PAGE 4
FINANCIAL HIGHLIGHTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
6-30-99 3-31-99 6-30-98
------------ -------------- -------------
<S> <C> <C> <C>
SUMMARY OF OPERATIONS
Net interest income (TE) $ 704 $ 693 $ 675
Provision for loan losses 76 111 72
Noninterest income 526 609 380
Noninterest expense 717 748 602
Net income 280 293 249
PER COMMON SHARE
Net income $ .63 $ .65 $ .57
Net income - assuming dilution .62 .65 .56
Cash dividends .26 .26 .235
Book value at period end 13.90 13.63 12.55
Market price at period end 32.13 30.31 35.63
AT PERIOD END
Full-time equivalent employees 25,758 25,650 24,711
Full-service banking offices 965 969 962
PERFORMANCE RATIOS
Return on average total assets 1.40% 1.49% 1.35%
Return on average equity 18.16 19.48 18.47
Efficiency 1 59.26 60.22 59.02
Overhead 2 29.97 33.19 38.07
Net interest margin (TE) 3.97 3.95 4.10
CAPITAL RATIOS AT PERIOD END
Equity to assets 7.71% 7.63% 7.29%
Tangible equity to tangible assets 5.95 5.86 5.91
Tier 1 risk-adjusted capital 3 7.39 7.44 7.15
Total risk-adjusted capital 3 11.60 11.92 11.86
Leverage 3 7.41 7.21 7.04
ASSET QUALITY
Net loan charge-offs $ 76 $ 81 $ 72
Net loan charge-offs to average loans .49% .53% .51%
Allowance for loan losses $ 930 $ 930 $ 900
Allowance for loan losses to period end loans 1.50% 1.52% 1.56%
Allowance for loan losses to nonperforming loans 247.34 235.44 240.64
Nonperforming loans at period end $ 376 $ 395 $ 374
Nonperforming assets at period end 412 430 417
Nonperforming loans to period end loans .61% .65% .65%
Nonperforming assets to period end loans plus
OREO and other nonperforming assets .66 .70 .72
</TABLE>
<PAGE> 5
KEYCORP REPORTS SECOND QUARTER 1999 EARNINGS
JULY 15, 1999
PAGE 5
FINANCIAL HIGHLIGHTS
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------
6-30-99 6-30-98
------------- --------------
<S> <C> <C>
SUMMARY OF OPERATIONS
Net interest income (TE) $1,397 $1,334
Provision for loan losses 187 149
Noninterest income 1,135 736
Noninterest expense 1,465 1,188
Net income 573 484
PER COMMON SHARE
Net income $ 1.28 $ 1.10
Net income - assuming dilution 1.27 1.09
Cash dividends .52 .47
PERFORMANCE RATIOS
Return on average total assets 1.45% 1.34%
Return on average equity 18.81 18.36
Efficiency 1 59.73 58.61
Overhead 2 31.57 37.11
Net interest margin (TE) 3.96 4.12
ASSET QUALITY
Net loan charge-offs $ 157 $ 149
Net loan charge-offs to average loans .51% .54%
</TABLE>
1 Calculated as noninterest expense (excluding certain nonrecurring charges)
divided by taxable-equivalent net interest income plus noninterest income
(excluding net securities transactions and gains from certain divestitures).
2 Calculated as noninterest expense (excluding certain nonrecurring charges)
less noninterest income (excluding net securities transactions and gains
from certain divestitures) divided by taxable-equivalent net interest
income.
3 6-30-99 ratio is estimated.
TE = Taxable Equivalent
<PAGE> 6
KEYCORP REPORTS SECOND QUARTER 1999 EARNINGS
JULY 15, 1999
PAGE 6
CONSOLIDATED BALANCE SHEETS
(dollars in millions)
<TABLE>
<CAPTION>
6-30-99 3-31-99 6-30-98
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Loans $ 61,971 $ 61,045 $ 57,769
Investment securities 967 1,005 1,038
Securities available for sale 6,404 6,778 6,482
Short-term investments 1,755 1,630 1,652
-------- -------- --------
Total earning assets 71,097 70,458 66,941
Allowance for loan losses (930) (930) (900)
Cash and due from banks 3,060 2,981 3,050
Premises and equipment 846 863 894
Goodwill 1,446 1,435 1,028
Other intangible assets 68 72 88
Corporate owned life insurance 2,056 2,032 1,945
Other assets 3,246 3,081 2,732
-------- -------- --------
TOTAL ASSETS $ 80,889 $ 79,992 $ 75,778
======== ======== ========
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 9,058 $ 8,601 $ 8,967
Interest-bearing 31,948 32,555 31,262
Deposits in foreign office-interest-bearing 2,010 167 1,565
-------- -------- --------
Total deposits 43,016 41,323 41,794
Federal funds purchased and securities
sold under repurchase agreements 4,727 4,336 6,828
Bank notes and other short-term borrowings 7,344 8,242 7,855
Other liabilities 3,405 3,285 2,583
Long-term debt 15,168 15,457 10,196
Capital securities of subsidiary trusts 994 1,244 997
-------- -------- --------
TOTAL LIABILITIES 74,654 73,887 70,253
SHAREHOLDERS' EQUITY 6,235 6,105 5,525
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 80,889 $ 79,992 $ 75,778
======== ======== ========
Common Shares outstanding (000) 448,641 447,822 440,352
</TABLE>
<PAGE> 7
KEYCORP REPORTS SECOND QUARTER 1999 EARNINGS
JULY 15, 1999
PAGE 7
CONSOLIDATED STATEMENTS OF INCOME
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------------- ------------------------
6-30-99 3-31-99 6-30-98 6-30-99 6-30-98
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME $ 1,392 $ 1,381 $ 1,372 $ 2,773 $ 2,699
INTEREST EXPENSE 695 696 706 1,391 1,383
-------- -------- -------- -------- --------
NET INTEREST INCOME 697 685 666 1,382 1,316
Provision for loan losses 76 111 72 187 149
-------- -------- -------- -------- --------
621 574 594 1,195 1,167
NONINTEREST INCOME
Trust and asset management income 110 106 80 216 157
Service charges on deposit accounts 82 81 75 163 153
Investment banking and capital markets income 100 66 50 166 97
Insurance and brokerage income 59 57 24 116 46
Corporate owned life insurance income 27 24 24 51 47
Credit card fees 21 10 17 31 32
Net loan securitization gains 18 32 -- 50 --
Net securities gains 20 4 2 24 4
Gains from branch divestitures -- -- 33 -- 39
Other income 89 229 75 318 161
-------- -------- -------- -------- --------
Total noninterest income 526 609 380 1,135 736
NONINTEREST EXPENSE
Personnel 383 372 302 755 596
Net occupancy 58 59 56 117 112
Equipment 49 56 45 105 88
Computer processing 59 54 41 113 81
Marketing 24 25 28 49 56
Amortization of intangibles 26 28 22 54 45
Professional fees 17 15 15 32 32
Other expense 101 139 93 240 178
-------- -------- -------- -------- --------
Total noninterest expense 717 748 602 1,465 1,188
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES 430 435 372 865 715
Income taxes 150 142 123 292 231
-------- -------- -------- -------- --------
NET INCOME $ 280 $ 293 $ 249 $ 573 $ 484
======== ======== ======== ======== ========
Net income per Common Share $ .63 $ .65 $ .57 $ 1.28 $ 1.10
Net income per Common Share - assuming dilution .62 .65 .56 1.27 1.09
Wtd. avg. Common Shares (000) 448,037 449,520 440,092 448,774 439,345
Wtd. avg. Common Shares and potential
Common Shares (000) 452,733 454,197 446,568 453,461 445,707
Taxable-equivalent adjustment $ 7 $ 8 $ 9 $ 15 $ 18
</TABLE>
<PAGE> 8
KEYCORP REPORTS SECOND QUARTER 1999 EARNINGS
JULY 15, 1999
PAGE 8
CONSOLIDATED AVERAGE BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------------------------- ---------------------------
6-30-99 3-31-99 6-30-98 6-30-99 6-30-98
------------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Loans $ 61,604 $ 61,693 $ 56,441 $ 61,648 $ 55,200
Investment securities 984 990 1,141 987 1,168
Securities available for sale 6,575 6,004 6,765 6,291 7,109
Short-term investments 1,725 1,975 1,422 1,849 1,387
-------- -------- -------- -------- --------
Total earning assets 70,888 70,662 65,769 70,775 64,864
Allowance for loan losses (919) (888) (888) (904) (888)
Cash and due from banks 2,571 2,613 2,574 2,592 2,597
Other assets 7,485 7,471 6,611 7,479 6,526
-------- -------- -------- -------- --------
TOTAL ASSETS $ 80,025 $ 79,858 $ 74,066 $ 79,942 $ 73,099
======== ======== ======== ======== ========
LIABILITIES
Deposits in domestic offices:
Noninterest-bearing $ 8,438 $ 8,495 $ 8,328 $ 8,466 $ 8,368
Interest-bearing 32,247 32,109 31,928 32,179 31,954
Deposits in foreign office-interest-bearing 1,096 509 1,095 804 1,170
-------- -------- -------- -------- --------
Total deposits 41,781 41,113 41,351 41,449 41,492
Federal funds purchased and securities
sold under repurchase agreements 5,479 5,077 6,773 5,279 6,944
Bank notes and other short-term borrowings 6,786 9,208 7,710 7,991 7,199
Other liabilities 3,264 3,188 2,547 3,226 2,469
Long-term debt 15,368 14,133 9,511 14,754 8,922
Capital securities of subsidiary trusts 1,162 1,039 766 1,100 758
-------- -------- -------- -------- --------
TOTAL LIABILITIES 73,840 73,758 68,658 73,799 67,784
SHAREHOLDERS' EQUITY 6,185 6,100 5,408 6,143 5,315
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 80,025 $ 79,858 $ 74,066 $ 79,942 $ 73,099
======== ======== ======== ======== ========
</TABLE>
