-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, LhbkB10ni+E3D1deMgVDSMqAQkD2lmCZmCKiNTYy02CiR33JoB16VepfLnbShQ5C kZvh5WwDaY2NUaWZG3CCug== 0000950152-94-000542.txt : 19940517 0000950152-94-000542.hdr.sgml : 19940517 ACCESSION NUMBER: 0000950152-94-000542 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940516 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KEYCORP/NEW CENTRAL INDEX KEY: 0000091576 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 346542451 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11302 FILM NUMBER: 94528972 BUSINESS ADDRESS: STREET 1: 127 PUBLIC SQ CITY: CLEVELAND STATE: OH ZIP: 44114-1306 BUSINESS PHONE: 2166893000 FORMER COMPANY: FORMER CONFORMED NAME: SOCIETY CORP DATE OF NAME CHANGE: 19920703 10-Q 1 KEYCORP 10-Q 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) 2 KEYCORP TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION ----------------------------- 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
-2- 3 PART I. FINANCIAL INFORMATION KEYCORP AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, MARCH 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1993 - -------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) 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 ========================================================================================================================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-3- 4 KEYCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ 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 =============================================================================================================================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 4 - 5 KEYCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
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 - ------------------------------------------------------------------------------------------------------------------------------------ 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) ==================================================================================================================================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 5 - 6 KEYCORP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------- (IN THOUSANDS) 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------------ 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 ================================================================================================================================== SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 6 - 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 - 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):
MARCH 31, 1994 ---------------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ---------- 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 =========== ========== ========== ==========
- 8 - 9
DECEMBER 31, 1993 ------------------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- 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 ========== ========== ========== ==========
Securities available for sale by remaining contractual maturity were as follows (in thousands):
MARCH 31, 1994 --------------------------------- AMORTIZED FAIR COST VALUE ---------- ---------- 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 ========== ==========
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):
MARCH 31, 1994 ----------------------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ---------- ---------- ---------- ---------- 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 ---------- ---------- ---------- ---------- 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 =========== ========== ========== ==========
- 9 - 10 Investment securities by remaining contractual maturity were as follows (in thousands):
MARCH 31, 1994 ----------------------------------------------- AMORTIZED FAIR COST VALUE ---------- ---------- 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 ========== ==========
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
Loans are summarized as follows (in thousands): MARCH 31, DECEMBER 31, MARCH 31, 1994 1993 1993 ----------- ---------- ---------- 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 ========== ==========
- 10 - 11 6. NONPERFORMING ASSETS Nonperforming assets were as follows (in thousands):
MARCH 31, DECEMBER 31, MARCH 31, 1994 1993 1993 -------- -------- -------- 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 ======== ======== ========
Changes in allowance for OREO losses are summarized as follows (in thousands): Three months ended March 31, ----------------------------- 1994 1993 -------- -------- 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 ======== ========
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 - 12 7. LONG-TERM DEBT The components of long-term debt, presented net of unamortized discount where appropriate, were as follows (dollars in thousands):
MARCH 31, DECEMBER 31, MARCH 31, 1994 1993 1993 -------- -------- -------- 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 ========== ========== ==========
(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 - 13 9. INCOME TAXES
Income taxes included in the consolidated statements of income are as follows (in thousands): Three months ended March 31, ---------------------------------------------- 1994 1993 --------- -------- 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 ========= ========
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.
March 31, 1994 FINANCIAL INSTRUMENTS WHOSE CONTRACTUAL AMOUNTS REPRESENT CREDIT RISK AND/OR ----------------- MARKET RISK (IN THOUSANDS) 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
- 13 - 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):
Receive Pay Forward- Fixed Fixed Starting Total ------- ------ -------- ------- "Portfolio" $8,208 $756 $50 $9,014 Customer 576 499 28 1,103 ------- ------ -------- ------- Total interest rate swaps $8,784 $1,255 $78 $10,117 ======= ====== ======== =======
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 - 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 - 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
THREE MONTHS ENDED MARCH 31, CHANGE ---------------------------- ---------------------- 1994 1993 AMOUNT PERCENT ------ ------ ------- -------- 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 % ===== ===== =====
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 - 17 FIGURE 2. - SELECTED FINANCIAL DATA
1994 1993 ----------- --------------------------------------------------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) First Fourth Third Second First - --------------------------------------------------------------------------------------------------------------------------------- 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 =================================================================================================================================
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 - 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 - 19 FIGURE 3. AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND YIELDS/RATES
FIRST QUARTER 1994 Fourth Quarter 1993 -------------------------------------- --------------------------------------- AVERAGE YIELD/ Average Yield/ (DOLLARS IN MILLIONS) BALANCE INTEREST RATE Balance Interest Rate - ------------------------------------------------------------------------------------- --------------------------------------- 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 - ------------------------------------------------------------------------------------------------------------------------------- (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.
- 19 - 20
THIRD QUARTER 1993 SECOND QUARTER 1993 FIRST QUARTER 1993 ------------------------------------- ----------------------------------------- ---------------------------------- Average Yield/ Average Yield/ Average Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate - ------------------------------------------------------------------------------------------------------------------------------- $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 - -------------------------------------------------------------------------------------------------------------------------------
- 20 - 21 FIGURE 4. COMPONENTS OF NET INTEREST INCOME CHANGES
FROM FIRST QUARTER 1993 TO FIRST QUARTER 1994 ---------------------------------------------------- AVERAGE YIELD/ NET (IN MILLIONS) VOLUME RATE CHANGE ------------------------------------------------------------------------------------------------------------ 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 ===== ===== ===== 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.
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 - 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. FIGURE 5. INTEREST RATE SWAP PORTFOLIO AT MARCH 31, 1994
(DOLLARS IN MILLIONS) WEIGHTED AVERAGE WEIGHTED AVERAGE RATE NOTIONAL MATURITY FAIR ----------------------- VALUE (YEARS) VALUE RECEIVE PAY -------- -------- ----- ------- --- 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 % ======= ======
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. FIGURE 6. "PORTFOLIO" SWAP ACTIVITY FOR THE THREE MONTHS ENDED MARCH 31, 1994
(IN MILLIONS) TOTAL RECEIVE PAY FORWARD- "PORTFOLIO" FIXED FIXED BASIS STARTING SWAPS -------- ----- ----- -------- ------------ 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 ====== ==== ==== ==== ======
- 22 - 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. FIGURE 7. NONINTEREST INCOME
(DOLLARS IN MILLIONS) THREE MONTHS ENDED MARCH 31, CHANGE ---------------------------- ------------------------ 1994 1993 AMOUNT PERCENT ---- ---- ------ ------- 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% ====== ====== ====
FIGURE 8. MORTGAGE BANKING INCOME (IN MILLIONS) THREE MONTHS ENDED MARCH 31, ---------------------------- 1994 1993 ----- ----- 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 ===== =====
- 23 - 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
(DOLLARS IN MILLIONS) THREE MONTHS ENDED MARCH 31, CHANGE ----------------------------- ------------------ 1994 1993 Amount Percent ------------- ------------- -------- ------- 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
(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- 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
(DOLLARS IN MILLIONS) INTERNALLY CHANGE FROM GENERATED ACQUIRED TOTAL 12/31/93 ------------- -------------- ------------ ------------- 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 % ============= ============== ============
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
(DOLLARS IN MILLIONS) TOTAL LOANS DISTRIBUTION -------------- ---------------- 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 % ============== ================
-25- 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)
COMMERCIAL CONSTRUCTION MORTGAGE TOTAL ------------ ---------- --------- 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 ============ ========== =========
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 - 27 FIGURE 13. SECURITIES AVAILABLE FOR SALE AT MARCH 31, 1994 (DOLLARS IN MILLIONS)
U.S. TREASURY, MORTGAGE- WEIGHTED AGENCIES AND BACKED OTHER AVERAGE CORPORATIONS SECURITIES (1) SECURITIES TOTAL YIELD (2) ------------ ------------ ------------ ------------ ------------ 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 (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%.
FIGURE 14. INVESTMENT SECURITIES AT MARCH 31, 1994 (DOLLARS IN MILLIONS)
U.S. TREASURY, STATES AND MORTGAGE- WEIGHTED AGENCIES AND POLITICAL BACKED OTHER AVERAGE CORPORATIONS SUBDIVISIONS SECURITIES(1) SECURITIES TOTAL YIELD(2) ------------ ------------ ------------ ------------ ------------ ------------ 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 (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%.
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 - 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)
THREE MONTHS ENDED MARCH 31, -------------------------------------- 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
- 28 - 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
(DOLLARS IN MILLIONS) MARCH 31, DECEMBER 31, MARCH 31, 1994 1993 1993 -------- ------- ------- 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
FIGURE 17. SUMMARY OF CHANGES IN NONACCRUAL LOANS AND OREO
(IN MILLIONS) SUMMARY OF CHANGES IN NONACCRUAL LOANS THREE MONTHS ENDED MARCH 31, ---------------------------- 1994 1993 --------- --------- 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 ========= ========= * 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 -
30
SUMMARY OF CHANGES IN OREO THREE MONTHS ENDED MARCH 31, ---------------------------- 1994 1993 ---------- --------- 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 ====== ======
FIGURE 18. NONPERFORMING LOANS AND ASSETS BY REGION
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 ------------ -------------- -------------- --------------- 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 % ============ ============= ============== ===============
FIGURE 19. PERCENTAGE OF NONPERFORMING LOANS TO PERIOD-END LOANS BY LOAN TYPE AT MARCH 31, 1994
COMMERCIAL, REAL ESTATE- REAL ESTATE- FINANCIAL AND REAL ESTATE- COMMERCIAL RESIDENTIAL AGRICULTURAL CONSTRUCTION MORTGAGE MORTGAGE CONSUMER TOTAL ------------- ------------- ------------- ------------- ------------- ------------- 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 % ============= ============= ============= ============== ============= =============
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 - 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 - 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 - 33 FIGURE 20. CAPITAL COMPONENTS AND RISK-ADJUSTED ASSETS
(DOLLARS IN MILLIONS) MARCH 31, DECEMBER 31, 1994 1993 --------- ---------- 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 (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.
- 33 - 34 FIGURE 21. BANKING SERVICES DATA BY REGION AT MARCH 31
(DOLLARS IN MILLIONS) NORTHEAST REGION GREAT LAKES REGION ---------------------- ---------------------- 1994 1993 1994 1993 --------- --------- --------- --------- 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 (DOLLARS IN MILLIONS) ROCKY MOUNTAIN REGION NORTHWEST REGION ---------------------- ---------------------- 1994 1993 1994 1993 --------- --------- --------- --------- 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
- 34 - 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 - 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 - EX-11 2 KEYCORP EX-11 1 EXHIBIT 11 KEYCORP COMPUTATION OF NET INCOME PER COMMON SHARE (dollars in thousands, except per share amounts)
THREE MONTHS ENDED MARCH 31, --------------------------------- 1994 1993 ----------- ----------- 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.
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