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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
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
[LOGO]
KEYCORP
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(Exact name of registrant as specified in its charter)
OHIO 34-6542451
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
127 PUBLIC SQUARE, CLEVELAND, OHIO 44114-1306
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(Address of principal executive offices) (Zip Code)
(216) 689-6300
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(Registrant's telephone number, including area code)
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 with a par value of $1 each 448,726,221 Shares
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(Title of class) (Outstanding at July 30, 1999)
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Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
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in millions 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Balance at beginning of period $ 930 $ 900 $ 900 $ 900
Charge-offs (105) (97) (212) (197)
Recoveries 29 25 55 48
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Net charge-offs (76) (72) (157) (149)
Provision for loan losses 76 72 187 149
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Balance at end of period $ 930 $ 900 $ 930 $ 900
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</TABLE>
7. IMPAIRED LOANS AND OTHER NONPERFORMING ASSETS
At June 30, 1999, impaired loans totaled $188 million. Included in this amount
are $105 million of impaired loans for which the specifically allocated
allowance for loan losses is $51 million, and $83 million of impaired loans
which are carried at their estimated fair value without a specifically allocated
allowance for loan losses. At the end of the prior year, impaired loans totaled
$193 million, of which $95 million had a specifically allocated allowance of $42
million and $98 million were carried at their estimated fair value. The average
investment in impaired loans for the second quarter of 1999 and 1998 was $200
million and $181 million, respectively.
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
in millions 1999 1998 1998
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<S> <C> <C> <C>
Impaired loans $ 188 $ 193 $ 200
Other nonaccrual loans 188 172 174
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Total nonperforming loans 376 365 374
Other real estate owned ("OREO") 46 56 62
Allowance for OREO losses (11) (18) (23)
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OREO, net of allowance 35 38 39
Other nonperforming assets 1 1 4
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Total nonperforming assets $ 412 $ 404 $ 417
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</TABLE>
Impaired loans are evaluated individually. The fair value of any existing
collateral or an estimate of the present value of the future cash flows on the
loan is used to determine the extent of the impairment. When such amounts do not
support the carrying amount of the loan, the amount which management deems
uncollectible is charged to the allowance for loan losses. In instances where
collateral or other sources of repayment are sufficient, yet uncertainty exists
regarding the ultimate repayment, an allowance is specifically allocated for in
the allowance for loan losses.
Key excludes smaller-balance, homogeneous nonaccrual loans (shown in the
preceding table as "Other nonaccrual loans") from impairment evaluation.
Generally, this portfolio includes loans to finance residential mortgages,
automobiles, recreational vehicles, boats and mobile homes. Key applies
historical loss experience rates to these loans, adjusted based on management's
assessment of emerging credit trends and other factors. The resulting loss
estimates are specifically allocated for by loan type in the allowance for loan
losses.
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FIGURE 16 INVESTMENT SECURITIES
<TABLE>
<CAPTION>
STATES AND WEIGHTED
POLITICAL OTHER AVERAGE
dollars in millions SUBDIVISIONS SECURITIES TOTAL YIELD(1)
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<S> <C> <C> <C> <C>
JUNE 30, 1999
Remaining maturity:
One year or less $ 142 $ 1 $ 143 8.08%
After one through five years 251 98 349 8.26
After five through ten years 103 -- 103 9.56
After ten years 19 353(2) 372 3.58
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Amortized cost $ 515 $ 452 $ 967 6.57%
Fair value 533 452 985 --
Weighted average yield 8.96% 3.85% 6.57% --
Weighted average maturity 3.3 YEARS 7.9 YEARS 5.4 YEARS --
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DECEMBER 31, 1998
Amortized cost $ 631 $ 345 $ 976 7.13%
Fair value 659 345 1,004 --
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JUNE 30, 1998
Amortized cost $ 762 $ 276 $1,038 7.98%
Fair value 790 276 1,066 --
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</TABLE>
1 Weighted average yields are calculated on the basis of amortized cost. Such
yields have been adjusted to a taxable-equivalent basis using the statutory
Federal income tax rate of 35%.
2 Includes equity securities with no stated maturity.
ASSET QUALITY
Key has groups dedicated to evaluating and monitoring the level of risk in its
credit-related assets; formulating underwriting standards and guidelines for
line management; developing commercial and consumer credit policies and systems;
establishing credit-related concentration limits; reviewing loans, leases and
other corporate assets to evaluate credit quality; and reviewing the adequacy of
the allowance for loan losses ("Allowance"). Geographic diversity throughout Key
is a significant factor in managing credit risk.
Management relies upon an iterative methodology to estimate the level of the
Allowance on a quarterly and at times more frequent basis, as deemed necessary.
This methodology is described in detail in the Allowance for Loan Losses section
of Note 1, Summary of Significant Accounting Policies, beginning on page 65 of
Key's 1998 Annual Report to Shareholders.
As shown in Figure 17, net loan charge-offs for the second quarter of 1999 were
$76 million, or .49% of average loans, compared with $72 million, or .51% of
average loans, for the same period last year. Net charge-offs in the commercial
loan portfolio rose by $14 million, including increases of $11 million and $5
million in the commercial, financial and agricultural, and commercial lease
financing sectors, respectively. This reflected the significant growth that has
occurred in this portfolio over the past year, as well as the charge-off of
three specific credits aggregating $10 million during the second quarter of
1999. The increase in commercial loan net charge-offs was largely offset by a
decline in the level of net charge-offs in the consumer loan portfolio. Net
charge-offs in the credit card sector decreased by $7 million as a result of
higher recoveries, the improvement in consumer credit and a lower volume of
credit card receivables. Small improvements were also experienced in the
installment loan portfolios. At $76 million, the provision for loan losses
matched the level of net charge-offs in accordance with management's policy of
generally maintaining the provision at a level equal to or above net
charge-offs.
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FIGURE 17 SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
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dollars in millions 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Average loans outstanding during the period $ 61,604 $ 56,441 $ 61,648 $ 55,200
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Allowance for loan losses at beginning of period $ 930 $ 900 $ 900 $ 900
Loans charged off:
Commercial, financial and agricultural 29 19 51 35
Real estate--commercial mortgage -- 4 -- 8
Real estate--construction -- 1 -- 1
Commercial lease financing 7 1 9 2
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Total commercial loans 36 25 60 46
Real estate--residential mortgage 3 1 5 5
Home equity 2 1 5 3
Credit card 22 27 48 54
Consumer--direct 10 12 22 23
Consumer--indirect 32 31 72 66
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Total consumer loans 69 72 152 151
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105 97 212 197
Recoveries:
Commercial, financial and agricultural 7 8 15 14
Real estate--commercial mortgage -- 3 2 5
Commercial lease financing 1 -- 1 --
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Total commercial loans 8 11 18 19
Real estate--residential mortgage 2 1 3 2
Credit card 5 3 8 5
Consumer--direct 3 2 4 4
Consumer--indirect 11 8 22 18
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Total consumer loans 21 14 37 29
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29 25 55 48
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Net loans charged off (76) (72) (157) (149)
Provision for loan losses 76 72 187 149
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Allowance for loan losses at end of period $ 930 $ 900 $ 930 $ 900
======== ======== ======== ========
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Net loan charge-offs to average loans .49% .51% .51% .54%
Allowance for loan losses to period end loans 1.50 1.56 1.50 1.56
Allowance for loan losses to nonperforming loans 247.34 240.64 247.34 240.64
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</TABLE>
The Allowance at June 30, 1999, was $930 million, or 1.50% of loans, compared
with $900 million, or 1.56% of loans, at June 30, 1998. Included in the 1999 and
1998 Allowance was $51 million and $23 million, respectively, which was
specifically allocated for impaired loans. For a further discussion of impaired
loans see Note 7, Impaired Loans and Other Nonperforming Assets, on page 15. At
June 30, 1999, the Allowance was 247.34% of nonperforming loans, compared with
240.64% at June 30, 1998.
The composition of nonperforming assets is shown in Figure 18. These assets
totaled $412 million at June 30, 1999, and represented .66% of loans, OREO and
other nonperforming assets compared with $404 million, or .65%, at December 31,
1998. The $8 million rise in the level of nonperforming assets since the 1998
year end reflected an $11 million increase in nonperforming loans, offset in
part by a $3 million decrease in OREO. Over the past two years, the level of
nonperforming assets has ranged from a quarterly high of $433 million at June
30, 1997, to a low of $402 million at September 30, 1998.
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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
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(Registrant)
Date: August 16, 1999 /s/ K. Brent Somers
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By: K. Brent Somers
Senior Executive Vice President
and Chief Financial Officer
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