ALBANY, N.Y., July 15 /PRNewswire/ -- KeyCorp (NYSE: KEY) reported record net income of $99.9 million in the second quarter of the year. This represents an increase of 31.9 percent over net income of $75.8 million for the same period in 1992. Earnings per common share were $.95 for the quarter, up 30.1 percent over the $.73 reported in the second quarter of 1992.
Net income for the first six months of 1993 rose 30.8 percent to $194.8 million, up from $149.0 million during the same period in 1992. This equalled $1.86 per common share, up 29.2 percent from $1.44 reported a year earlier.
KeyCorp's 1992 results have been restated to reflect the acquisition of Puget Sound Bancorp, a pooling-of-interests transaction consummated on January 15, 1993. In the first six months of 1992, Puget Sound Bancorp recorded a positive $6.6 million cumulative effect of accounting change resulting from the adoption of SFAS 109. The comparative figures discussed above exclude that nonrecurring gain from the 1992 first-half results.
Key performance ratios for the second quarter and first six months were as follows:
2nd Qtr. 1st Qtr. 2nd Qtr.
1993 1993 1992
Return on Assets (ROA) 1.27 pct. 1.28 pct. 1.10 pct.
Return on Common Equity (ROCE) 18.99 pct. 18.89 pct. 16.29 pct.
Efficiency Ratio 60.46 pct. 60.63 pct. 60.95 pct.
1st Half 1st Half
ROA 1.27 pct. 1.13 pct.
ROCE 18.94 pct. 16.96 pct.
Efficiency Ratio 60.54 pct. 61.14 pct.
"Since last year we've said that KeyCorp's objectives for the full year 1993 include a 1.20 percent ROA, between 17 percent and 18 percent for ROCE, and an efficiency ratio of 60 percent or better," said Victor J. Riley, Jr., chairman, president and chief executive officer of KeyCorp. "The results of the first six months indicate we are on our way to exceed those objectives."
William H. Dougherty, group executive vice president and chief financial officer, commented on important aspects of the second quarter and six month performance. "The net yield on average earning assets equalled 5.34 percent during the quarter, matching the yield earned in the second quarter of 1992, down from the 5.38 percent generated in the first quarter of 1993. The good news is that expansion in the volume of our earning assets, assisted by our first quarter acquisitions, more than offset the decline in the linked-quarter yield. Average earning assets climbed to $28.5 billion, a 5.6 percent increase over the first quarter's level of $27.0 billion. As a result, taxable-equivalent net interest income grew by 5.4 percent in the second quarter compared to the first quarter of the current year.
"One of the factors leading to the four basis point decline in the net yield during the second quarter was that late in the first quarter of this year we merged National Savings Bank of Albany (National) and First American Bank of New York (First American) into our system. Neither of these banks had net yields as high as ours, and it takes some time to bring newly acquired banks up to our traditional performance level. Also, low interest rates in the United States have prompted record levels of mortgage loan refinancing, leading to reduced yields on our mortgage loan and mortgage-backed securities portfolios.
"As expected, loan growth was modest during the second quarter, but headed in the right direction; that is, better than the first quarter's experience of 3.5 percent. Excluding acquisitions, the second quarter's internal loan-growth rate approximated 5.5 percent when compared to average loans in the second quarter of 1992. Loan expansion in the Western portion of our franchise continued to outpace that in the Eastern part. Our Rocky Mountain banks enjoyed average internal loan growth of 11.0 percent in the second quarter, and in our Pacific Northwest banks the rate was 5.4 percent. Our Eastern banks saw average internal loans remain flat during the quarter, but excluding run-off of out-of-market loans acquired through our regulator-assisted transactions in the state of New York, Eastern internal loan growth approximated 3.1 percent.
"We still expect internal growth for KeyCorp as a whole to approximate 5 percent for all of 1993. Including acquisitions, growth in the average loan portfolio is estimated to be in the range of 13 percent to 14 percent in the current year.
"Fee income increased to $137.2 million, 37.5 percent over the $99.8 million earned in the second quarter of 1992 and 22.9 percent above the $111.6 million reported in the first quarter of 1993. Compared to the first quarter, growth occurred in almost every category of fee income. The only exception was in the category of special asset management fees. During the first quarter, Niagara Portfolio Management, one of our two companies managing assets under contract with the FDIC, sold a significant portion of those assets which generated $13 million in fees.
"Very strong performances were posted by our insurance and brokerage operations during the second quarter. Commissions rose from $9.0 million in the first quarter to $12.1 million in the second quarter. Mortgage banking income was also robust, rebounding to $28.7 million in the second quarter, versus $13.0 million in the first quarter. Most of the increase was generated by the sale of $1.6 billion in servicing at a gain of $10.2 million as well as a jump in origination fees of $5.2 million. As in the first quarter, we accelerated the amortization of an additional $5 million in mortgage servicing rights during the second quarter in response to continued record levels of mortgage loan refinancings. Our mortgage servicing portfolio stood at $22.1 billion on June 30, 1993."
Dougherty added, "During the second quarter, noninterest expenses rose to $312.8 million, $48.0 million or 18.1 percent above the $264.8 million incurred in the second quarter of 1992. This increase was affected by operating expenses related to the purchase of 48 former Security Pacific branches on September 3 of last year, our first quarter 1993 acquisitions of National and First American, as well as other nonrecurring expenses. Excluding these expenditures, the rise in core noninterest expenses was less than 5 percent, a level we expect to continue over the remainder of the year.
"Even with the 18.1 percent growth in expenses, the efficiency ratio continued to show improvement, since revenues grew at a faster 19.1 percent rate. The efficiency ratio was 60.46 percent in the second quarter of 1993, compared to 60.95 percent in the same period last year and 60.63 percent in the first quarter of this year."
Dougherty also said, "Improvement in KeyCorp's nonperforming assets continued for the fifth consecutive quarter, despite the addition of $2.4 million from the acquisition of Home Federal Savings Bank in Fort Collins, Colorado (Home Federal). Nonperforming assets equalled $366.1 million at the end of June, versus $388.6 million at the end of the first quarter. The June figure represented 1.68 percent of loans plus ORE, down from 1.80 percent reported on March 31 and down substantially from the year ago June 30 figure of 2.31 percent.
"Consistent with the pattern in the level of nonperforming assets, loan losses continue to trend downward. Net charge-offs fell to .67 percent of average loans, down from .94 percent in the same period last year although above the .58 percent experienced in the first quarter of 1993. The decline in charge-offs allowed the second quarter provision for loan losses to be reduced to $41.5 million, a 15.8 percent improvement compared to the $49.3 million reported in the second quarter of 1992. The provision, although lowered, still exceeded net charge- offs by $6.0 million for the quarter. We expect net charge-offs for the full year to fall within a range of .55 percent to .65 percent of average loans.
"Finally with respect to asset quality, the allowance for loan losses at June 30 totalled $306.7 million, which covered 163.7 percent of nonperforming loans, up from 157.9 percent at March 31."
Riley concluded, "KeyCorp's excellent financial performance places us squarely among the premier companies in the banking industry, and we have recently announced a number of management changes intended to solidify and enhance our relative position. Gary Allen, after a very successful tenure as the top executive of Key Bank of New York, is now our chief banking officer. This is a vital position within KeyCorp, as the banks are expected to generate over 80 percent of the company's total net income even after expansion of fee-based businesses as called for in our five-year strategic plan. Gary's orientation to his new position will be brief, since he is a long-time Key executive and most recently he reported to the very position he now holds. Moving in as chairman and CEO at Key Bank of New York is Jim Menzies, KeyCorp's long- tenured chief credit officer who developed the KeyCorp loan review function into an industry model for asset quality monitoring. In addition, Deborah Bevier was named as chairman and CEO of Key Bank of Washington. She spent the last six years at the helm of Key Bank USA N.A., starting it from scratch in 1987 and developing it into an exceptionally high-quality, high-performing bank with nearly $600 million in assets. Both Jim and Deborah have set new standards for excellence in their long careers with KeyCorp, and are known for their leadership and team-building qualities."
On June 30, 1993, KeyCorp consummated the previously-announced acquisition of Home Federal, which had approximately $175 million in deposits, $200 million in loans, and $250 million in total assets. Its four branches opened as Key Bank of Colorado on July 1, 1993. KeyCorp now has ten banks in nine states and three distinct regions of the country. On June 23, KeyCorp announced that a definitive agreement had been signed to acquire Jackson County Federal Bank (JCF) in Medford, Oregon. JCF has $350 million of assets and $317 million of deposits in eight branches and three loan production offices in southern Oregon. It is expected to be merged into Key Bank of Oregon on or before December 31, 1993. One further transaction remains pending, that of Northwestern National Bank, a $46 million-asset institution headquartered in Port Angeles, Washington. It is expected to close later this month.
KeyCorp (NYSE: KEY), with assets over $32 billion, is a multi- regional bank holding company headquartered in Albany, New York. As "America's neighborhood bank", KeyCorp avoids overcrowded marketplaces, concentrating its resources in smaller communities. KeyCorp focuses its business on consumers and small to medium-sized commercial enterprises.
Summary of Operating Results
Summary of Operations Three Months Ended Six Months Ended
(in thousands except June 30 June 30
per share data) 1993 1992 1993 1992
Basis) $600,367 $580,996 $1,179,067 $1,169,781
Interest Expense 220,147 246,421 438,113 511,360
Net Interest Income 380,220 334,575 740,954 658,421
Adjustment 10,042 11,175 19,983 22,595
Provision for Loan Losses 41,534 49,258 73,384 94,024
Net Interest Income After
Provision for Loan Losses 328,644 274,142 647,587 541,802
Service Charges on Deposit
Accounts 39,452 33,126 76,260 65,907
Mortgage Banking Income 28,735 20,554 41,715 39,257
Trust Service Fees 10,115 10,010 19,660 20,371
Other Service Charges
and Fees 16,648 13,325 29,190 25,929
Insurance and Brokerage 12,090 7,361 21,057 14,474
Special Asset Management
Fees 7,684 713 23,975 1,876
Other 22,517 14,726 36,986 27,831
Total Fee Income 137,241 99,815 248,843 195,645
Gains on Sales of Loans - 1,271 - 2,832
Trading Account Gains - 54 - 40
Gains (Losses) - 1,426 (464) 2,243
Gains on Securities
Available for Sale 1,616 - 2,183 -
Total Noninterest Income 138,857 102,566 250,562 200,760
Personnel Expense 151,585 122,078 290,336 245,375
Net Occupancy Expense 28,992 28,180 56,682 56,130
FDIC Insurance 14,607 12,897 29,361 25,739
OREO Expense 7,993 8,319 16,030 12,273
Other 109,669 93,308 206,811 182,662
Total Noninterest Expense 312,846 264,782 599,220 522,179
Income Before Taxes 154,655 111,926 298,929 220,383
Income Taxes 54,706 36,136 104,093 71,432
Net Income Before
Accounting Change 99,949 75,790 194,836 148,951
Cumulative Effect of
Accounting Change - - - 6,613
Net Income $ 99,949 $ 75,790 $ 194,836 $ 155,564
Preferred Stock Dividends $ 4,450 $ 4,450 $ 8,901 $ 8,901
Net Income Applicable to
Common Shares After
Preferred Dividends $ 95,499 $ 71,340 $ 185,935 $ 146,663
Net Income Per Common Share
Before Cumulative Effect
of Accounting Change $ .95 $ .73 $1.86 $1.44
Net Income Per Common Share
After Cumulative Effect
of Accounting Change $ .95 $ .73 $1.86 $1.51
Average Common Shares
Outstanding 100,603 97,262 99,933 97,041
Return on Average Assets (pct) 1.27 1.10 1.27 1.13
Return on Average
Common Equity (pct) 18.99 16.29 18.94 16.96
Efficiency Ratio (pct) 60.46 60.95 60.54 61.14
Efficiency Ratio excluding
OREO Expenses (pct) 58.91 59.04 58.92 59.70
Net Yield on Average
Earning Assets (pct) 5.34 5.34 5.36 5.28
Equity to Assets
(Period-End)(pct) 7.05 7.15 7.05 7.15
Nonperforming Loans to
Period-End Loans (pct) .87 1.13 .87 1.13
Nonperforming Assets to
Period-End Loans Plus
OREO (pct) 1.68 2.31 1.68 2.31
Allowance for Loan Losses
to Period-End Loans (pct) 1.42 1.48 1.42 1.48
Allowance for Loan Losses
to Nonperforming Loans (pct)163.69 131.81 163.69 131.81
Net Charge-Offs to Average
Loans (pct) .67 .94 .63 .92
(dollars in thousands)
June 30 March 31 December 31 September 30 June 30
1993 1993 1992 1992 1992
Nonaccrual $180,794 $187,326 $202,743 $194,208 $210,758