Edgar Filing: KEYCORP /NEW/

KeyCorp/U.S.B. Holding Co., Inc. 425

Filed by KeyCorp
Pursuant to Rule 425 under the Securities Act of 1933 and
Deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934

Subject Company: KeyCorp
Commission File No. 333-146456

On October 16, 2007, KeyCorp issued the following press release announcing its results of operations for the quarter-ended September 30, 2007:


CONTACTS:	Vernon L. Patterson	William C. Murschel
	Analyst	Media
	216.689.0520	216.828.7416
	Vernon_Patterson@KeyBank.com	William_C_Murschel@KeyBank.com

INVESTOR		KEY MEDIA
RELATIONS: www.key.com/ir		NEWSROOM: www.key.com/newsroom

FOR IMMEDIATE RELEASE

KEYCORP REPORTS THIRD QUARTER 2007 EARNINGS

	w		Third quarter EPS of $0.57 from continuing operations

	w		Fixed income markets impact third quarter results

CLEVELAND, October 16, 2007 – KeyCorp (NYSE: KEY) today announced third quarter income from continuing operations of $224 million, or $0.57 per diluted common share. This compares to income from continuing operations of $305 million, or $0.74 per share, for the third quarter of 2006, and $337 million, or $0.85 per share, for the second quarter of 2007. Key’s income from continuing operations for the first nine months of 2007 was $919 million, or $2.31 per diluted common share. This compares to income from continuing operations – before the cumulative effect of an accounting change – of $882 million, or $2.15 per share, for the first nine months of 2006.

Net income totaled $210 million, or $0.54 per diluted common share, for the third quarter of 2007, compared to net income of $312 million, or $0.76 per share, for the third quarter of 2006 and $334 million, or $0.84 per share, for the second quarter of 2007. Key’s net income for the first nine months of 2007 was $894 million, or $2.25 per diluted common share, compared to $909 million, or $2.21 per share, for the same period last year.

Key’s continuing and discontinued operating results for comparative quarters and for the nine months ended September 30, 2007 and 2006 are presented in the following table.

Results of Operations


	Three months ended								Nine months ended
in millions, except per share amounts	9-30-07			6-30-07			9-30-06		9-30-07			9-30-06

Summary of operations

Income from continuing operations before cumulative effect of accounting change	$	224		$	337		$	305	$	919		$	882
(Loss) income from discontinued operations, net of taxes ^a		(14	)		(3	)		7		(25	)		22
Cumulative effect of accounting change, net of taxes		^___			^___			^___		^___			5

Net income	$	210		$	334		$	312	$	894		$	909


Per common share — assuming dilution

Income from continuing operations before cumulative effect of accounting change	$	.57		$	.85		$	.74	$	2.31		$	2.15
(Loss) income from discontinued operations ^a		(.03	)		(.01	)		.02		(.06	)		.05
Cumulative effect of accounting change		^___			^___			^___		^___			.01

Net income	$	.54		$	.84		$	.76	$	2.25		$	2.21


(a)		Key sold the nonprime mortgage loan portfolio held by the Champion Mortgage finance business in November 2006, and completed the sale of Champion’s origination platform in February 2007. As a result of these actions, Key has accounted for this business as a discontinued operation. The loss from discontinued operations recorded in the third quarter of 2007 was attributable largely to a write-down on the building lease for the former Champion headquarters.

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 2

During the third quarter of 2007, the fixed income markets experienced extraordinary volatility with credit spreads widening rapidly. The widening of these spreads had a direct impact on market values in Key’s loans held-for-sale and trading portfolios. During the third quarter, Key recorded net losses of $53 million from loan sales and write-downs, $2 million from dealer trading and derivatives, and $22 million from other investments for a total of $77 million in net losses. This compares to net gains of $26 million and $51 million from these activities in the third quarter of 2006 and the second quarter of 2007, respectively.

“The fixed income market volatility had an adverse impact on our third quarter results,” said Chairman and Chief Executive Officer Henry L. Meyer III. “While the fixed income markets continue to remain under some pressure as we head into the fourth quarter, we believe most of the financial impact on our held-for-sale portfolios is behind us and we expect to see improved results from these portfolios over the remainder of the year.

“Business activity outside of the fixed income markets remained solid during the quarter. We experienced good growth in both loans and core deposits. We also saw growth in our institutional asset management business and related fee income. Given the challenges related to revenue associated with the fixed income markets, we focused on controlling our costs, which declined compared to the same period one year ago and the second quarter of this year.

“Key’s nonperforming assets rose by $241 million from the third quarter of 2006. The increase was due primarily to deteriorating market conditions in the residential real estate segment of our Real Estate Capital line of business, principally in Florida and California. Our total net loan charge-offs were $59 million or 0.35% of average total loans for the current quarter.

“During the quarter, we made progress in expanding our franchise through targeted acquisitions. We announced our plans to acquire U.S.B. Holding Co., Inc., the holding company for Union State Bank, headquartered in Orangeburg, New York, and Tuition Management Systems, Inc., one of the leading providers of education-related financial services. We completed the acquisition of Tuition Management Systems on October 1 and we remain on track to complete the acquisition of U.S.B. Holding Company early in 2008, subject to approval by its shareholders and the banking regulators.”

The company expects earnings per share to be in the range of $0.68 to $0.74 for the fourth quarter of 2007.

SUMMARY OF CONTINUING OPERATIONS

Taxable-equivalent net interest income was $712 million for the third quarter of 2007, compared to $726 million for the year-ago quarter. Average earning assets grew by $3.6 billion, or 4%, while the net interest margin for the current quarter declined to 3.40% from 3.61% for the third quarter of 2006. Both loan and deposit spreads have remained under pressure due to the continuation of competitive pricing.

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 3

Compared to the second quarter of 2007, taxable-equivalent net interest income grew by $6 million, and the net interest margin declined by 6 basis points. The improvement in net interest income was attributable to a $1.9 billion, or annualized 9%, increase in average earning assets.

Key’s noninterest income was $438 million for the third quarter of 2007, compared to $543 million for the year-ago quarter. The decrease was attributable to the impact of market volatility on several of Key’s capital markets-driven businesses, as well as the sale of the McDonald Investments branch network completed in the first quarter of this year. Results for the current quarter included $53 million in net losses from the sales and write-downs of primarily commercial real estate loans held for sale, compared to net gains of $14 million for the same period last year. Income from investment banking and capital markets activities decreased by $35 million, due primarily to a $25 million decline in the fair values of two real estate-related investments held by the Private Equity unit within the Real Estate Capital line of business. Net gains from principal investing declined by $19 million from the third quarter of 2006. Trust and investment services income was down $18 million, due to lower brokerage income resulting from the sale of the McDonald Investments branch network. Excluding the impact of the McDonald Investments sale, trust and investment services income increased by $15 million, driven by growth in both personal and institutional asset management income. The reduction in noninterest income was moderated by a $27 million gain from the sale of MasterCard Incorporated shares in the current quarter and growth in deposit service charge income.

Compared to the second quarter of 2007, noninterest income declined by $211 million. The reduction reflected $53 million in net losses from loan sales and write-downs in the current quarter, compared to net gains of $33 million for the prior quarter, an $81 million reduction in net gains from principal investing and a $43 million decrease in income from investment banking and capital markets activities. The decrease in income from investment banking and capital markets activities was attributable to declines in the fair values of the two real estate-related investments, as well as a loss from dealer trading and derivatives in the current quarter, compared to income in the second quarter. In addition, noninterest income for the current quarter included the $27 million gain related to the sale of MasterCard Incorporated shares, compared to a $40 million gain recorded in the prior quarter.

Key’s noninterest expense was $753 million for the third quarter of 2007, down from $790 million for the same period last year. Personnel expense decreased by $35 million, due to lower incentive compensation accruals. Nonpersonnel expense was down $2 million from the year-ago quarter. Reductions in costs resulting from the sale of the McDonald Investments branch network accounted for a $46 million decline in total noninterest expense, including $27 million of the decrease in personnel expense.

Compared to the second quarter of 2007, noninterest expense decreased by $62 million. The improvement included a $28 million reduction in personnel expense due to lower incentive compensation accruals. Nonpersonnel expense decreased by $34 million. In the second quarter of 2007, Key recorded a $42 million charge related to litigation.

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 4

ASSET QUALITY

Key’s provision for loan losses from continuing operations was $69 million for the third quarter of 2007, compared to $35 million for the year-ago quarter and $53 million for the second quarter of 2007.

Net loan charge-offs for the quarter totaled $59 million, or 0.35% of average loans from continuing operations, compared to $43 million, or 0.26%, for the same period last year and $53 million, or 0.32%, for the previous quarter.

At September 30, 2007, Key’s nonperforming loans totaled $498 million and represented 0.72% of period-end portfolio loans, compared to 0.41% at June 30, 2007, and 0.34% at September 30, 2006. At September 30, 2007, nonperforming assets totaled $570 million and represented 0.83% of portfolio loans, other real estate owned and other nonperforming assets, compared to 0.57% at June 30, 2007, and 0.50% at September 30, 2006. The increase in nonperforming assets during the third quarter of 2007 was attributable primarily to deteriorating market conditions in the residential real estate segment of Key’s commercial real estate construction portfolio. The majority of the increase in this segment came from loans outstanding in Florida and California.

Key’s allowance for loan losses was $955 million, or 1.38% of loans outstanding, at September 30, 2007, compared to $945 million, or 1.42%, at June 30, 2007, and $944 million, or 1.44%, at September 30, 2006.

CAPITAL

Key’s capital ratios continued to exceed all “well-capitalized” regulatory benchmarks at September 30, 2007. Key’s tangible equity to tangible assets ratio was 6.78% at quarter end, compared to 6.89% at June 30, 2007, and 6.81% at September 30, 2006.

Key repurchased 2.0 million of its common shares and reissued 1.3 million shares under employee benefit plans during the third quarter of 2007. At September 30, 2007, Key had 14.0 million common shares remaining for repurchase under the current authorization.

Share repurchases and other activities that caused the change in Key’s outstanding common shares over the past five quarters are summarized in the table below.

Summary of Changes in Common Shares Outstanding


in thousands	3Q07			2Q07			1Q07			4Q06			3Q06

Shares outstanding at beginning of period		389,362			394,483			399,153			402,748			402,672
Issuance of shares under employee benefit plans		1,346			879			3,330			1,405			2,576
Repurchase of common shares		(2,000	)		(6,000	)		(8,000	)		(5,000	)		(2,500	)

Shares outstanding at end of period		388,708			389,362			394,483			399,153			402,748

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 5

LINE OF BUSINESS RESULTS

The following table shows the contribution made by each major business group to Key’s taxable-equivalent revenue and income from continuing operations for the periods presented. The specific lines of business that comprise each of the major business groups are described under the heading “Line of Business Descriptions.” For more detailed financial information pertaining to each business group and its respective lines of business, see the tables at the end of this release.

Major Business Groups


									Percent change 3Q07 vs.
dollars in millions	3Q07			2Q07		3Q06			2Q07			3Q06

Revenue from continuing operations (TE)

Community Banking	$	626		$	629	$	687			(.5	)%		(8.9	)%
National Banking		511			617		586			(17.2	)		(12.8	)
Other Segments		14			101		25			(86.1	)		(44.0	)

Total Segments		1,151			1,347		1,298			(14.6	)		(11.3	)
Reconciling Items		(1	)		8		(29	)		N/M			96.6

Total	$	1,150		$	1,355	$	1,269			(15.1	)%		(9.4	)%


Income from continuing operations

Community Banking	$	131		$	99	$	112			32.3	%		17.0	%
National Banking		72			162		169			(55.6	)		(57.4	)
Other Segments		16			55		20			(70.9	)		(20.0	)

Total Segments		219			316		301			(30.7	)		(27.2	)
Reconciling Items		5			21		4			(76.2	)		25.0

Total	$	224		$	337	$	305			(33.5	)%		(26.6	)%

TE = Taxable Equivalent, N/M = Not Meaningful

Community Banking


										Percent change 3Q07 vs.
dollars in millions	3Q07			2Q07			3Q06			2Q07			3Q06

Summary of operations
Net interest income (TE)	$	409		$	415		$	443			(1.4	)%		(7.7	)%
Noninterest income		217			214			244			1.4			(11.1	)

Total revenue (TE)		626			629			687			(.5	)		(8.9	)
Provision for loan losses		1			21			22			(95.2	)		(95.5	)
Noninterest expense		417			450			486			(7.3	)		(14.2	)

Income before income taxes (TE)		208			158			179			31.6			16.2
Allocated income taxes and TE adjustments		77			59			67			30.5			14.9

Net income	$	131		$	99		$	112			32.3	%		17.0	%


Percent of consolidated income from continuing operations		59	%		30	%		37	%		N/A			N/A

Average balances
Loans and leases	$	26,947		$	26,576		$	26,794			1.4	%		.6	%
Total assets		29,716			29,348			29,871			1.3			(.5	)
Deposits		46,727			46,124			46,939			1.3			(.5	)

TE = Taxable Equivalent, N/A = Not Applicable

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 6

Additional Community Banking Data


										Percent change 3Q07 vs.
dollars in millions	3Q07			2Q07			3Q06			2Q07			3Q06

Average deposits outstanding
NOW and money market deposit accounts	$	20,305		$	18,969		$	20,688			7.0	%		(1.9	)%
Savings deposits		1,569			1,619			1,688			(3.1	)		(7.0	)
Certificates of deposit ($100,000 or more)		4,566			4,709			4,101			(3.0	)		11.3
Other time deposits		11,485			12,038			11,696			(4.6	)		(1.8	)
Deposits in foreign office		1,128			1,045			694			7.9			62.5
Noninterest-bearing deposits		7,674			7,744			8,072			(.9	)		(4.9	)

Total deposits	$	46,727		$	46,124		$	46,939			1.3	%		(.5	)%


Home equity loans
Average balance	$	9,690		$	9,660		$	10,048
Weighted-average loan-to-value ratio		70	%		70	%		70	%
Percent first lien positions		58			58			60

Other data
On-line households / household penetration		743,909 / 45	%		711,254 / 54	%		646,993 / 52	%
Branches		954			954			949
Automated teller machines		1,439			1,450			2,099

Community Banking Summary of Operations

Net income for Community Banking was $131 million for the third quarter of 2007, up from $112 million for the year-ago quarter. Declines in both net interest income and noninterest income were more than offset by decreases in the provision for loan losses and noninterest expense.

Taxable-equivalent net interest income decreased by $34 million, or 8%, from the third quarter of 2006, as interest rate spreads on both average earning assets and deposits have remained under pressure due to the continuation of competitive pricing. The decrease also reflected the effect of the February 2007 sale of the McDonald Investments branch network in which Key transferred approximately $1.3 billion of NOW and money market deposit accounts to the buyer. McDonald Investments’ NOW and money market deposit accounts averaged $1.7 billion for the third quarter of 2006.

Noninterest income decreased by $27 million, or 11%. The decrease was attributable to the McDonald Investments sale. Excluding the impact of this sale, noninterest income rose by $13 million, or 6%, from the same period one year ago, due largely to growth in deposit service charge income.

The provision for loan losses decreased by $21 million, compared to the third quarter of 2006.

Noninterest expense declined by $69 million, or 14%, from the year-ago quarter. Reductions in costs resulting from the sale of the McDonald Investments branch network accounted for $46 million of the decline, including a $27 million decrease in personnel expense. The remainder of the decline in total noninterest expense reflected decreases in various direct and indirect charges, due in part to a reduction in the number of average full-time equivalent employees.

On July 27, 2007, Key entered into an agreement to acquire U.S.B. Holding Co., Inc., the holding company for Union State Bank, a state-chartered commercial bank headquartered in Orangeburg, New York, with 31 branches. U.S.B. Holding Company has assets of approximately $3 billion and deposits of approximately $2 billion. Key expects to complete this acquisition early in 2008, subject to approval by U.S.B. Holding Company shareholders and the banking regulators. The acquisition will expand Key’s presence in markets both within and contiguous to its current operations in the Hudson Valley.

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 7

National Banking


										Percent change 3Q07 vs.
dollars in millions	3Q07			2Q07			3Q06			2Q07			3Q06

Summary of operations
Net interest income (TE)	$	359		$	344		$	348			4.4	%		3.2	%
Noninterest income		152			273			238			(44.3	)		(36.1	)

Total revenue (TE)		511			617			586			(17.2	)		(12.8	)
Provision for loan losses		68			32			13			112.5			423.1
Noninterest expense		328			327			304			.3			7.9

Income from continuing operations before income taxes (TE)		115			258			269			(55.4	)		(57.2	)
Allocated income taxes and TE adjustments		43			96			100			(55.2	)		(57.0	)

Income from continuing operations		72			162			169			(55.6	)		(57.4	)
Income (loss) from discontinued operations, net of taxes		(14	)		(3	)		7			(366.7	)		N/M

Net income	$	58		$	159		$	176			(63.5	)%		(67.0	)%


Percent of consolidated income from continuing operations		32	%		48	%		55	%		N/A			N/A

Average balances from continuing operations
Loans and leases	$	40,277		$	39,323		$	37,871			2.4	%		6.4	%
Loans held for sale		4,692			4,377			4,553			7.2			3.1
Total assets		50,954			49,584			48,530			2.8			5.0
Deposits		12,633			12,085			11,106			4.5			13.7

TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable

National Banking Summary of Continuing Operations

Income from continuing operations for National Banking was $72 million for the third quarter of 2007, compared to $169 million for the same period last year. Lower noninterest income along with increases in the provision for loan losses and noninterest expense accounted for the reduction, and more than offset an increase in net interest income.

Taxable-equivalent net interest income rose by $11 million, or 3%, from the third quarter of 2006. Increases in average earning assets and deposits, and a more favorable interest rate spread on deposits more than offset the adverse effect of a tighter interest rate spread on average earning assets.

Noninterest income declined by $86 million, or 36%, as several capital markets-driven businesses were adversely affected by volatility in the financial markets. Results for the current quarter included net losses of $57 million from the sales and write-downs of primarily commercial real estate loans held for sale, compared to net gains of $10 million for the year-ago quarter. Income from investment banking and capital markets activities decreased by $39 million, due primarily to a $25 million decline in the fair values of two real estate-related investments held by the Private Equity unit within the Real Estate Capital line of business, and less favorable results related to trading activities conducted in the Debt Capital markets area.

The provision for loan losses rose by $55 million, reflecting increases in nonperforming loans in the Real Estate Capital and Consumer Finance lines of business.

Noninterest expense grew by $24 million, or 8%, from the year-ago quarter, reflecting a $12 million rise in costs associated with operating leases, and smaller increases in a variety of other expense components.

On October 1, 2007, Key acquired Tuition Management Systems, Inc., one of the nation’s largest providers of outsourced tuition planning, billing and related technology services. Headquartered in Warwick, Rhode Island, Tuition Management Systems serves more than 700

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 8

colleges, universities, elementary and secondary educational institutions. The payment plan systems and technology in place at Tuition Management Systems and the array of payment plan products offered by Key will create one of the largest, most robust payment plan offerings in the nation.

Other Segments

Other segments consist of Corporate Treasury and Key’s Principal Investing unit. These segments generated net income of $16 million for the third quarter of 2007, compared to $20 million for the same period last year. A reduction in net gains from principal investing caused the decrease.

Line of Business Descriptions

Community Banking

Regional Banking provides individuals with branch-based deposit and investment products, personal finance services and loans, including residential mortgages, home equity and various types of installment loans. This line of business also provides small businesses with deposit, investment and credit products, and business advisory services.

Regional Banking also offers financial, estate and retirement planning, and asset management services to assist high-net-worth clients with their banking, trust, portfolio management, insurance, charitable giving and related needs.

Commercial Banking provides midsize businesses with products and services that include commercial lending, cash management, equipment leasing, investment and employee benefit programs, succession planning, access to capital markets, derivatives and foreign exchange.

National Banking

Real Estate Capital provides construction and interim lending, permanent debt placements and servicing, and equity and investment banking services to developers, brokers and owner-investors. This line of business deals exclusively with nonowner-occupied properties (i.e., generally properties in which at least 50% of the debt service is provided by rental income from nonaffiliated third parties).

Equipment Finance meets the equipment leasing needs of companies worldwide and provides equipment manufacturers, distributors and resellers with financing options for their clients. Lease financing receivables and related revenues are assigned to other lines of business (primarily Institutional and Capital Markets, and Commercial Banking) if those businesses are principally responsible for maintaining the relationship with the client.

Institutional and Capital Markets provides products and services to large corporations, middle-market companies, financial institutions, government entities and not-for-profit organizations. These products and services include commercial lending, treasury management, investment banking, derivatives and foreign exchange, equity and debt underwriting and trading, and syndicated finance.

Through its Victory Capital Management unit, Institutional and Capital Markets also manages or gives advice regarding investment portfolios for a national client base, including corporations, labor unions, not-for-profit organizations, governments and individuals. These portfolios may be managed in separate accounts, common funds or the Victory family of mutual funds.

Consumer Finance includes Indirect Lending, Commercial Floor Plan Lending, Home Equity Services and Business Services.

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October 16, 2007
Page 9

Indirect Lending offers loans to consumers through dealers. This business unit also provides federal and private education loans to students and their parents, and processes payments on loans that private schools make to parents.

Commercial Floor Plan Lending finances inventory for automobile and marine dealers.

Home Equity Services works with home improvement contractors to provide home equity and home improvement financing solutions.

Business Services provides payroll processing solutions for businesses of all sizes.

Cleveland-based KeyCorp is one of the nation’s largest bank-based financial services companies, with assets of approximately $97 billion. Key companies provide investment management, retail and commercial banking, consumer finance, and investment banking products and services to individuals and companies throughout the United States and, for certain businesses, internationally. The company’s businesses deliver their products and services through 954 branches and additional offices; a network of 1,439 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, https://www.key.com/,^âthat provides account access and financial products 24 hours a day.

Notes to Editors:

A live Internet broadcast of KeyCorp’s conference call to discuss quarterly earnings and currently anticipated earnings trends and to answer analysts’ questions can be accessed through the Investor Relations section at https://www.key.com/ir at 9:00 a.m. ET, on Tuesday,
October 16, 2007. An audio replay of the call will be available through October 23.

For up-to-date company information, media contacts and facts and figures about Key’s lines of business visit our Media Newsroom at https://www.key.com/newsroom.

This news release contains forward-looking statements, including statements about our financial condition, results of operations, earnings outlook, asset quality trends and profitability. Forward-looking statements express management’s current expectations or forecasts of future events and, by their nature, are subject to assumptions, risks and uncertainties. Although management believes that the expectations and forecasts reflected in these forward-looking statements are reasonable, actual results could differ materially due to a variety of factors including: (1) changes in interest rates; (2) changes in trade, monetary or fiscal policy; (3) changes in general economic conditions, or in the condition of the local economies or industries in which we have significant operations or assets, which could, among other things, materially impact credit quality trends and our ability to generate loans; (4) increased competitive pressure among financial services companies; (5) the inability to successfully execute strategic initiatives designed to grow revenues and/or manage expenses; (6) consummation of significant business combinations or divestitures; (7) operational or risk management failures due to technological or other factors; (8) heightened regulatory practices, requirements or expectations; (9) new legal obligations or liabilities or unfavorable resolution of litigation; (10) adverse capital markets conditions; (11) continued disruption in the fixed income markets; (12) disruption in the economy and general business climate as a result of terrorist activities or military actions; and (13) changes in accounting or tax practices or requirements. Forward-looking statements are not guarantees of future performance and should not be relied upon as representing management’s views as of any subsequent date. We do not assume any obligation to update these forward-looking statements. For further information regarding KeyCorp, please read KeyCorp’s reports that are filed with the Securities and Exchange Commission and are available at www.sec.gov.

###

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 10

Financial Highlights


	Three months ended
(dollars in millions, except per share amounts)	9-30-07			6-30-07			9-30-06

Summary of operations
Net interest income (TE)	$	712		$	706		$	726
Noninterest income		438			649			543


Total revenue (TE)		1,150			1,355			1,269
Provision for loan losses		69			53			35
Noninterest expense		753			815			790
Income from continuing operations before cumulative effect of accounting change		224			337			305
(Loss) income from discontinued operations, net of taxes		(14	)		(3	)		7
Net income		210			334			312

Per common share
Income from continuing operations before cumulative effect of accounting change	$	.58		$	.86		$	.76
Income from continuing operations before cumulative effect of accounting change — assuming dilution		.57			.85			.74
(Loss) income from discontinued operations		(.03	)		(.01	)		.02
(Loss) income from discontinued operations — assuming dilution		(.03	)		(.01	)		.02
Net income		.54			.85			.77
Net income — assuming dilution		.54			.84			.76
Cash dividends declared		.365			.365			.345
Book value at period end		20.12			19.78			19.73
Market price at period end		32.33			34.33			37.44

Performance ratios — from continuing operations
Return on average total assets		.93	%		1.45	%		1.31	%
Return on average equity		11.50			17.66			15.52
Net interest margin (TE)		3.40			3.46			3.61

Performance ratios — from consolidated operations
Return on average total assets		.88	%		1.43	%		1.30	%
Return on average equity		10.79			17.50			15.88
Net interest margin (TE)		3.40			3.46			3.63

Capital ratios at period end
Equity to assets		8.03	%		8.19	%		8.26	%
Tangible equity to tangible assets		6.78			6.89			6.81
Tier 1 risk-based capital ^a		7.92			8.14			8.02
Total risk-based capital ^a		11.73			12.15			12.13
Leverage ^a		8.96			9.11			8.89

Asset quality
Net loan charge-offs	$	59		$	53		$	43
Net loan charge-offs to average loans from continuing operations		.35	%		.32	%		.26	%
Allowance for loan losses	$	955		$	945		$	944
Allowance for loan losses to period-end loans		1.38	%		1.42	%		1.44	%
Allowance for loan losses to nonperforming loans		191.77			342.39			423.32
Nonperforming loans at period end	$	498		$	276		$	223
Nonperforming assets at period end		570			378			329
Nonperforming loans to period-end portfolio loans		.72	%		.41	%		.34	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets		.83			.57			.50

Trust and brokerage assets
Assets under management	$	88,100		$	85,592		$	84,060
Nonmanaged and brokerage assets ^b		33,273			33,485			55,221

Other data
Average full-time equivalent employees		18,567			18,888			20,264
Branches		954			954			949

Taxable-equivalent adjustment	$	18		$	20		$	21

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 11

Financial Highlights (continued)


	Nine months ended
(dollars in millions, except per share amounts)	9-30-07			9-30-06

Summary of operations
Net interest income (TE)	$	2,118		$	2,174
Noninterest income		1,741			1,569


Total revenue (TE)		3,859			3,743
Provision for loan losses		166			97
Noninterest expense		2,352			2,340
Income from continuing operations before cumulative effect of accounting change		919			882
(Loss) income from discontinued operations, net of taxes		(25	)		22
Net income		894			909

Per common share
Income from continuing operations before cumulative effect of accounting change	$	2.34		$	2.18
Income from continuing operations before cumulative effect of accounting change — assuming dilution		2.31			2.15
(Loss) income from discontinued operations		(.06	)		.05
(Loss) income from discontinued operations — assuming dilution		(.06	)		.05
Net income		2.28			2.24
Net income — assuming dilution		2.25			2.21
Cash dividends declared		1.095			1.035

Performance ratios — from continuing operations
Return on average total assets		1.31	%		1.30	%
Return on average equity		16.03			15.44
Net interest margin (TE)		3.46			3.67

Performance ratios — from consolidated operations
Return on average total assets		1.28	%		1.29	%
Return on average equity		15.59			15.82
Net interest margin (TE)		3.46			3.69

Asset quality
Net loan charge-offs	$	156		$	116
Net loan charge-offs to average loans from continuing operations		.31	%		.24	%

Other data
Average full-time equivalent employees		19,081			19,974

Taxable-equivalent adjustment	$	59		$	71


(a)		9-30-07 ratio is estimated.

(b)		On February 9, 2007, Key sold the McDonald Investments branch network.

TE		= Taxable Equivalent

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 12

Consolidated Balance Sheets


(dollars in millions)	9-30-07			6-30-07			9-30-06

Assets
Loans	$	68,999		$	66,692		$	65,551
Loans held for sale		4,791			4,546			7,150
Investment securities		36			37			41
Securities available for sale		7,915			7,819			7,441
Short-term investments		1,723			1,632			1,582
Other investments		1,509			1,602			1,367

Total earning assets		84,973			82,328			83,132
Allowance for loan losses		(955	)		(945	)		(944	)
Cash and due from banks		2,016			1,818			2,957
Premises and equipment		631			600			567
Operating lease assets		1,135			1,110			1,076
Goodwill		1,201			1,202			1,372
Other intangible assets		105			110			127
Corporate-owned life insurance		2,845			2,822			2,754
Derivative assets		1,497			1,160			915
Accrued income and other assets		3,918			3,871			4,199

Total assets	$	97,366		$	94,076		$	96,155


Liabilities
Deposits in domestic offices:
NOW and money market deposit accounts	$	24,198		$	23,315		$	25,150
Savings deposits		1,544			1,613			1,672
Certificates of deposit ($100,000 or more)		6,672			6,197			5,734
Other time deposits		11,403			11,832			11,848

Total interest-bearing deposits		43,817			42,957			44,404
Noninterest-bearing deposits		14,003			14,199			13,396
Deposits in foreign office — interest-bearing		5,894			3,443			3,629

Total deposits		63,714			60,599			61,429
Federal funds purchased and securities sold under repurchase agreements		5,398			4,362			4,701
Bank notes and other short-term borrowings		2,743			2,631			2,594
Derivative liabilities		1,063			1,119			844
Accrued expense and other liabilities		5,079			5,083			4,986
Long-term debt		11,549			12,581			13,654

Total liabilities		89,546			86,375			88,208

Shareholders’ equity
Preferred stock		—			—			—
Common shares		492			492			492
Capital surplus		1,617			1,652			1,588
Retained earnings		8,788			8,720			8,371
Treasury stock, at cost		(3,023	)		(2,994	)		(2,434	)
Accumulated other comprehensive loss		(54	)		(169	)		(70	)

Total shareholders’ equity		7,820			7,701			7,947


Total liabilities and shareholders’ equity	$	97,366		$	94,076		$	96,155


Common shares outstanding (000)		388,708			389,362			402,748

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 13

Consolidated Statements of Income


	Three months ended									Nine months ended
(dollars in millions, except per share amounts)	9-30-07			6-30-07			9-30-06			9-30-07			9-30-06

Interest income
Loans	$	1,209		$	1,176		$	1,178		$	3,546		$	3,374
Loans held for sale		91			82			94			248			235
Investment securities		—			—			1			1			2
Securities available for sale		106			106			84			312			251
Short-term investments		16			16			16			50			47
Other investments		12			15			16			40			58

Total interest income		1,434			1,395			1,389			4,197			3,967

Interest expense
Deposits		482			447			428			1,362			1,136
Federal funds purchased and securities sold under repurchase agreements		55			59			30			163			70
Bank notes and other short-term borrowings		30			18			24			59			75
Long-term debt		173			185			202			554			583

Total interest expense		740			709			684			2,138			1,864


Net interest income		694			686			705			2,059			2,103
Provision for loan losses		69			53			35			166			97

Net interest income after provision for loan losses		625			633			670			1,893			2,006

Noninterest income
Trust and investment services income		119			115			137			359			411
Service charges on deposit accounts		88			84			78			247			227
Investment banking and capital markets income		9			52			44			105			161
Operating lease income		70			66			58			200			166
Letter of credit and loan fees		51			45			48			134			133
Corporate-owned life insurance income		27			32			23			84			74
Electronic banking fees		25			25			27			74			78
Net gains (losses) from loan securitizations and sales		(53	)		33			14			(11	)		34
Net securities gains (losses)		4			2			(7	)		(41	)		(2	)
Gain on sale of McDonald Investments branch network		—			—			—			171			—
Other income		98			195			121			419			287

Total noninterest income		438			649			543			1,741			1,569

Noninterest expense
Personnel		383			411			418			1,222			1,245
Net occupancy		60			59			62			182			182
Computer processing		49			49			52			149			157
Operating lease expense		58			55			48			165			134
Professional fees		27			26			28			79			101
Equipment		22			24			26			71			78
Marketing		21			20			32			60			70
Other expense		133			171			124			424			373

Total noninterest expense		753			815			790			2,352			2,340

Income from continuing operations before income taxes and cumulative effect of accounting change		310			467			423			1,282			1,235
Income taxes		86			130			118			363			353

Income from continuing operations before cumulative effect of accounting change		224			337			305			919			882
(Loss) income from discontinued operations, net of taxes		(14	)		(3	)		7			(25	)		22

Income before cumulative effect of accounting change		210			334			312			894			904
Cumulative effect of change in accounting for forfeited stock-based awards, net of taxes		—			—			—			—			5

Net income	$	210		$	334		$	312		$	894		$	909


Per common share:
Income from continuing operations before cumulative effect of accounting change	$	.58		$	.86		$	.76		$	2.34		$	2.18
Income before cumulative effect of accounting change		.54			.85			.77			2.28			2.23
Net income		.54			.85			.77			2.28			2.24

Per common share — assuming dilution:
Income from continuing operations before cumulative effect of accounting change	$	.57		$	.85		$	.74		$	2.31		$	2.15
Income before cumulative effect of accounting change		.54			.84			.76			2.25			2.20
Net income		.54			.84			.76			2.25			2.21

Cash dividends declared per common share	$	.365		$	.365		$	.345		$	1.095		$	1.035

Weighted-average common shares outstanding (000)		389,319			392,045			403,780			393,048			405,218
Weighted-average common shares and potential common shares outstanding (000)		393,164			396,918			409,428			397,816			411,029

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 14

Consolidated Average Balance Sheets, Net Interest Income and Yields /Rates
From Continuing Operations


	Third Quarter 2007								Second Quarter 2007								Third Quarter 2006
	Average					Yield /			Average					Yield /			Average					Yield /
(dollars in millions)	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate

Assets
Loans: ^a,b
Commercial, financial and agricultural	$	22,393		$	410		7.25	%	$	21,856		$	401		7.36	%	$	21,648		$	400		7.34	%
Real estate — commercial mortgage		8,855			172		7.69			8,565			165		7.75			8,106			164		8.04
Real estate — construction		8,285			167		8.01			8,243			167		8.09			7,965			171		8.51
Commercial lease financing		10,172			147		5.80			10,096			142		5.62			9,850			144		5.83

Total commercial loans		49,705			896		7.16			48,760			875		7.19			47,569			879		7.34
Real estate — residential		1,586			26		6.68			1,472			24		6.57			1,415			23		6.49
Home equity		10,883			199		7.22			10,752			193		7.22			11,017			200		7.19
Consumer — direct		1,342			36		10.66			1,370			37		10.64			1,585			36		9.07
Consumer — indirect		4,164			70		6.79			3,961			67		6.76			3,594			61		6.83

Total consumer loans		17,975			331		7.33			17,555			321		7.33			17,611			320		7.23

Total loans		67,680			1,227		7.20			66,315			1,196		7.23			65,180			1,199		7.31
Loans held for sale		4,731			91		7.59			4,415			82		7.50			4,578			94		8.17
Investment securities ^a		36			—		6.43			39			—		6.72			42			1		8.12
Securities available for sale^c		7,825			106		5.45			7,793			106		5.45			7,216			84		4.61
Short-term investments		1,688			16		3.99			1,484			16		4.19			1,588			16		3.78
Other investments^c		1,563			12		2.99			1,541			15		3.68			1,363			16		4.67

Total earning assets		83,523			1,452		6.92			81,587			1,415		6.95			79,967			1,410		7.00
Allowance for loan losses		(942	)							(942	)							(951	)
Accrued income and other assets		12,581								12,767								13,247

Total assets	$	95,162							$	93,412							$	92,263


Liabilities
NOW and money market deposit accounts	$	24,190			209		3.41		$	22,953			179		3.14		$	25,230			194		3.05
Savings deposits		1,581			—		.19			1,633			1		.19			1,700			1		.19
Certificates of deposit ($100,000 or more) ^d		6,274			80		5.06			6,237			79		5.03			5,517			67		4.82
Other time deposits		11,512			136		4.68			12,047			141		4.70			11,700			127		4.29
Deposits in foreign office^e		4,540			57		5.00			3,600			47		5.20			2,820			39		5.55

Total interest-bearing deposits		48,097			482		3.98			46,470			447		3.85			46,967			428		3.61
Federal funds purchased and securities sold under repurchase agreements^e		4,470			55		4.85			4,748			59		5.04			2,315			30		5.05
Bank notes and other short-term borrowings		2,539			30		4.70			1,771			18		4.14			2,285			24		4.29
Long-term debt^d,e		11,801			173		5.89			12,909			185		5.83			13,763			202		5.83

Total interest-bearing liabilities		66,907			740		4.40			65,898			709		4.33			65,330			684		4.15

Noninterest-bearing deposits		14,424								13,927								13,073
Accrued expense and other liabilities		6,106								5,933								6,063

Total liabilities		87,437								85,758								84,466

Shareholders’ equity		7,725								7,654								7,797


Total liabilities and shareholders’ equity	$	95,162							$	93,412							$	92,263


Interest rate spread (TE)							2.52	%							2.62	%							2.85	%

Net interest income (TE) and net interest margin (TE)					712		3.40	%					706		3.46	%					726		3.61	%

TE adjustment ^a					18								20								21

Net interest income, GAAP basis				$	694							$	686							$	705


(a)		Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.

(b)		For purposes of these computations, nonaccrual loans are included in average loan balances.

(c)		Yield is calculated on the basis of amortized cost.

(d)		Rate calculation excludes basis adjustments related to fair value hedges.

(e)		Results from continuing operations exclude the dollar amount of liabilities assumed necessary to support interest-earning assets held by the discontinued Champion Mortgage finance business. The interest expense related to these liabilities, which also is excluded from continuing operations, was calculated using a matched funds transfer pricing methodology.

TE = Taxable Equivalent

GAAP = U.S. generally accepted accounting principles

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 15

Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates
From Continuing Operations


	Nine months ended September 30, 2007								Nine months ended September 30, 2006
	Average					Yield /			Average					Yield /
(dollars in millions)	Balance			Interest		Rate			Balance			Interest		Rate

Assets
Loans: ^a,b
Commercial, financial and agricultural	$	21,940		$	1,203		7.33	%	$	21,779		$	1,147		7.04	%
Real estate — commercial mortgage		8,617			500		7.76			8,089			461		7.62
Real estate — construction		8,252			500		8.10			7,618			461		8.10
Commercial lease financing		10,121			435		5.73			9,733			435		5.95

Total commercial loans		48,930			2,638		7.20			47,219			2,504		7.09
Real estate — residential		1,501			74		6.61			1,431			69		6.45
Home equity		10,781			583		7.22			10,997			578		7.03
Consumer — direct		1,387			109		10.47			1,666			118		9.46
Consumer — indirect		3,963			201		6.78			3,489			176		6.72

Total consumer loans		17,632			967		7.33			17,583			941		7.15

Total loans		66,562			3,605		7.24			64,802			3,445		7.10
Loans held for sale		4,365			248		7.59			4,041			235		7.78
Investment securities ^a		38			1		6.79			50			2		7.38
Securities available for sale^c		7,723			312		5.39			7,147			251		4.64
Short-term investments		1,593			50		4.24			1,670			47		3.76
Other investments^c		1,502			40		3.43			1,365			58		5.45

Total earning assets		81,783			4,256		6.95			79,075			4,038		6.81
Allowance for loan losses		(942	)							(956	)
Accrued income and other assets		12,727								13,128

Total assets	$	93,568							$	91,247


Liabilities
NOW and money market deposit accounts	$	23,525			565		3.21		$	25,012			512		2.74
Savings deposits		1,614			2		.19			1,754			3		.24
Certificates of deposit ($100,000 or more) ^d		6,221			235		5.04			5,436			186		4.57
Other time deposits		11,872			415		4.68			11,481			345		4.02
Deposits in foreign office^e		3,804			145		5.10			2,325			90		5.18

Total interest-bearing deposits		47,036			1,362		3.87			46,008			1,136		3.30
Federal funds purchased and securities sold under repurchase agreements^e		4,376			163		4.97			2,012			70		4.65
Bank notes and other short-term borrowings		1,813			59		4.37			2,443			75		4.11
Long-term debt^d,e		12,769			554		5.87			13,946			583		5.57

Total interest-bearing liabilities		65,994			2,138		4.34			64,409			1,864		3.87

Noninterest-bearing deposits		13,867								12,928
Accrued expense and other liabilities		6,041								6,230

Total liabilities		85,902								83,567

Shareholders’ equity		7,666								7,680


Total liabilities and shareholders’ equity	$	93,568							$	91,247


Interest rate spread (TE)							2.61	%							2.94	%

Net interest income (TE) and net interest margin (TE)					2,118		3.46	%					2,174		3.67	%

TE adjustment ^a					59								71

Net interest income, GAAP basis				$	2,059							$	2,103


(a)		Interest income on tax-exempt securities and loans has been adjusted to a taxable-equivalent basis using the statutory federal income tax rate of 35%.

(b)		For purposes of these computations, nonaccrual loans are included in average loan balances.

(c)		Yield is calculated on the basis of amortized cost.

(d)		Rate calculation excludes basis adjustments related to fair value hedges.

(e)		Results from continuing operations exclude the dollar amount of liabilities assumed necessary to support interest-earning assets held by the discontinued Champion Mortgage finance business. The interest expense related to these liabilities, which also is excluded from continuing operations, was calculated using a matched funds transfer pricing methodology.

TE = Taxable Equivalent

GAAP = U.S. generally accepted accounting principles

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 16

Noninterest Income


	Three months ended								Nine months ended
(in millions)	9-30-07			6-30-07		9-30-06			9-30-07			9-30-06

Trust and investment services income ^a	$	119		$	115	$	137		$	359		$	411
Service charges on deposit accounts		88			84		78			247			227
Investment banking and capital markets income ^a		9			52		44			105			161
Operating lease income		70			66		58			200			166
Letter of credit and loan fees		51			45		48			134			133
Corporate-owned life insurance income		27			32		23			84			74
Electronic banking fees		25			25		27			74			78
Net gains (losses) from loan securitizations and sales		(53	)		33		14			(11	)		34
Net securities gains (losses)		4			2		(7	)		(41	)		(2	)
Gain on sale of McDonald Investments branch network		—			—		—			171			—
Other income:
Insurance income		16			15		18			45			49
Loan securitization servicing fees		5			6		5			16			15
Credit card fees		4			3		8			10			14
Net gains from principal investing		9			90		28			128			48
Gains related to Mastercard Incorporated shares		27			40		—			67			9
Litigation settlement — automobile residual value insurance		—			—		—			26			—
Miscellaneous income		37			41		62			127			152

Total other income		98			195		121			419			287

Total noninterest income	$	438		$	649	$	543		$	1,741		$	1,569



(a) Additional detail provided in tables below.


Trust and Investment Services Income

	Three months ended								Nine months ended
(in millions)	9-30-07			6-30-07		9-30-06			9-30-07			9-30-06

Brokerage commissions and fee income	$	26		$	28	$	56		$	94		$	177
Personal asset management and custody fees		41			41		39			122			116
Institutional asset management and custody fees		52			46		42			143			118

Total trust and investment services income	$	119		$	115	$	137		$	359		$	411




Investment Banking and Capital Markets Income

	Three months ended								Nine months ended
(in millions)	9-30-07			6-30-07		9-30-06			9-30-07			9-30-06

Investment banking income	$	22		$	22	$	21		$	65		$	69
Income (loss) from other investments		(22	)		6		5			(11	)		37
Dealer trading and derivatives income (loss)		(2	)		12		7			18			23
Foreign exchange income		11			12		11			33			32

Total investment banking and capital markets income	$	9		$	52	$	44		$	105		$	161

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 17

Noninterest Expense


	Three months ended						Nine months ended
(dollars in millions)	9-30-07		6-30-07		9-30-06		9-30-07		9-30-06

Personnel ^a	$	383	$	411	$	418	$	1,222	$	1,245
Net occupancy		60		59		62		182		182
Computer processing		49		49		52		149		157
Operating lease expense		58		55		48		165		134
Professional fees		27		26		28		79		101
Equipment		22		24		26		71		78
Marketing		21		20		32		60		70
Other expense:
Postage and delivery		11		11		13		34		38
Franchise and business taxes		8		8		9		25		29
Telecommunications		7		7		7		21		21
Provision for losses on lending-related commitments		5		6		—		3		—
Miscellaneous expense		102		139		95		341		285

Total other expense		133		171		124		424		373

Total noninterest expense	$	753	$	815	$	790	$	2,352	$	2,340



Average full-time equivalent employees		18,567		18,888		20,264		19,081		19,974

(a) Additional detail provided in table below.

Personnel Expense


	Three months ended						Nine months ended
(in millions)	9-30-07		6-30-07		9-30-06		9-30-07		9-30-06

Salaries	$	240	$	236	$	240	$	721	$	703
Incentive compensation		55		82		93		212		268
Employee benefits		67		73		67		222		222
Stock-based compensation		17		16		15		57		47
Severance		4		4		3		10		5

Total personnel expense	$	383	$	411	$	418	$	1,222	$	1,245

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 18

Loan Composition


							Percent change 9-30-07 vs.
(dollars in millions)	9-30-07		6-30-07		9-30-06		6-30-07			9-30-06

Commercial, financial and agricultural	$	23,192	$	21,814	$	21,556		6.3	%		7.6	%
Commercial real estate:
Commercial mortgage		9,272		8,629		8,266		7.5			12.2
Construction		8,214		8,214		8,272		—			(.7	)

Total commercial real estate loans		17,486		16,843		16,538		3.8			5.7
Commercial lease financing		10,309		10,138		9,860		1.7			4.6

Total commercial loans		50,987		48,795		47,954		4.5			6.3
Real estate — residential mortgage		1,583		1,572		1,407		.7			12.5
Home equity		10,904		10,879		10,988		.2			(.8	)
Consumer — direct		1,308		1,366		1,576		(4.2	)		(17.0	)
Consumer — indirect:
Marine		3,549		3,444		2,982		3.0			19.0
Other		668		636		644		5.0			3.7

Total consumer — indirect loans		4,217		4,080		3,626		3.4			16.3

Total consumer loans		18,012		17,897		17,597		.6			2.4

Total loans	$	68,999	$	66,692	$	65,551		3.5	%		5.3	%

Loans Held for Sale Composition


							Percent change 9-30-07 vs.
(dollars in millions)	9-30-07		6-30-07		9-30-06		6-30-07			9-30-06

Commercial, financial and agricultural	$	67	$	76	$	219		(11.8	)%		(69.4	)%
Real estate — commercial mortgage		1,560		1,613		1,062		(3.3	)		46.9
Real estate — construction		237		172		198		37.8			19.7
Commercial lease financing		5		22		2		(77.3	)		150.0
Real estate — residential mortgage		36		39		21		(7.7	)		71.4
Home equity ^a		1		—		2,485		N/M			(99.9	)
Education		2,877		2,616		3,147		10.0			(8.6	)
Automobile		8		8		16		—			(50.0	)

Total loans held for sale	$	4,791	$	4,546	$	7,150		5.4	%		(33.0	)%

(a)

On August 1, 2006, Key transferred $2.5 billion of home equity loans from the loan portfolio to loans held for sale in connection with the November 29, 2006, sale of the Champion Mortgage loan portfolio.

N/M = Not Meaningful

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 19

Summary of Loan Loss Experience


	Three months ended									Nine months ended
(dollars in millions)	9-30-07			6-30-07			9-30-06			9-30-07			9-30-06

Average loans outstanding from continuing operations	$	67,680		$	66,315		$	65,180		$	66,562		$	64,802

Allowance for loan losses at beginning of period	$	945		$	944		$	956		$	944		$	966
Loans charged off:
Commercial, financial and agricultural		33			30			30			80			74

Real estate — commercial mortgage		2			5			3			13			9
Real estate — construction		7			2			1			10			3

Total commercial real estate loans		9			7			4			23			12
Commercial lease financing		11			9			13			33			27

Total commercial loans		53			46			47			136			113
Real estate — residential mortgage		1			1			2			3			5
Home equity		9			8			6			25			22
Consumer — direct		8			8			7			23			26
Consumer — indirect		11			9			8			31			28

Total consumer loans		29			26			23			82			81

		82			72			70			218			194
Recoveries:
Commercial, financial and agricultural		11			6			8			24			27

Real estate — commercial mortgage		—			1			2			4			3
Real estate — construction		1			—			1			1			1

Total commercial real estate loans		1			1			3			5			4
Commercial lease financing		3			4			9			10			23

Total commercial loans		15			11			20			39			54
Real estate — residential mortgage		—			1			—			1			1
Home equity		1			2			2			4			5
Consumer — direct		3			1			1			6			5
Consumer — indirect		4			4			4			12			13

Total consumer loans		8			8			7			23			24

		23			19			27			62			78

Net loan charge-offs		(59	)		(53	)		(43	)		(156	)		(116	)
Provision for loan losses from continuing operations		69			53			35			166			97
Provision for loan losses from discontinued operations		—			—			(4	)		—			(3	)
Foreign currency translation adjustment		—			1			—			1			—

Allowance for loan losses at end of period	$	955		$	945		$	944		$	955		$	944

Net loan charge-offs to average loans from continuing operations		.35	%		.32	%		.26	%		.31	%		.24	%
Allowance for loan losses to period-end loans		1.38			1.42			1.44			1.38			1.44
Allowance for loan losses to nonperforming loans		191.77			342.39			423.32			191.77			423.32

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 20

Changes in Liability for Credit Losses on Lending-Related Commitments


	Three months ended							Nine months ended
(in millions)	9-30-07		6-30-07			9-30-06		9-30-07			9-30-06

Balance at beginning of period	$	50	$	45		$	59	$	53		$	59
Provision for losses on lending-related commitments		5		6			—		3			—
Charge-offs		—		(1	)		—		(1	)		—

Balance at end of period ^a	$	55	$	50		$	59	$	55		$	59

Summary of Nonperforming Assets and Past Due Loans


(dollars in millions)	9-30-07			6-30-07			3-31-07			12-31-06			9-30-06

Commercial, financial and agricultural	$	94		$	83		$	70		$	38		$	42

Real estate — commercial mortgage		41			41			44			48			36
Real estate — construction		228			23			10			10			37

Total commercial real estate loans		269			64			54			58			73
Commercial lease financing		30			34			31			22			20

Total commercial loans		393			181			155			118			135
Real estate — residential mortgage		29			27			32			34			34
Home equity		61			55			52			50			46
Consumer — direct		2			2			2			2			2
Consumer — indirect		13			11			13			11			6

Total consumer loans		105			95			99			97			88

Total nonperforming loans		498			276			254			215			223

Nonperforming loans held for sale ^b		6			4			3			3			56

OREO		21			27			42			57			52
Allowance for OREO losses		(1	)		(2	)		(2	)		(3	)		(3	)

OREO, net of allowance		20			25			40			54			49

Other nonperforming assets		46	^c		73	^c		56	^c		1			1

Total nonperforming assets	$	570		$	378		$	353		$	273		$	329


Accruing loans past due 90 days or more	$	190		$	181		$	146		$	120		$	125
Accruing loans past due 30 through 89 days		717			623			626			644			715
Nonperforming loans to period-end portfolio loans		.72	%		.41	%		.39	%		.33	%		.34	%
Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets		.83			.57			.54			.41			.50

Summary of Changes in Nonperforming Loans


(in millions)	3Q07			2Q07			1Q07			4Q06			3Q06

Balance at beginning of period	$	276		$	254		$	215		$	223		$	279
Loans placed on nonaccrual status		337			130			129			115			134
Charge-offs		(81	)		(72	)		(61	)		(74	)		(70	)
Loans sold		(6	)		(7	)		—			(5	)		(22	)
Payments		(13	)		(21	)		(7	)		(23	)		(43	)
Transfer to held-for-sale portfolio ^b		—			—			—			—			(55	)
Transfers to OREO		(12	)		—			(9	)		(12	)		—
Loans returned to accrual status		(3	)		(8	)		(13	)		(9	)		—

Balance at end of period	$	498		$	276		$	254		$	215		$	223


(a)		Included in “accrued expense and other liabilities” on the consolidated balance sheet.

(b)		On August 1, 2006, Key transferred approximately $55 million of home equity loans from nonperforming loans to nonperforming loans held for sale in connection with the anticipated November 29, 2006, sale of the Champion Mortgage finance business.

(c)		Primarily investments held by the Private Equity unit within Key’s Real Estate Capital line of business.

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 21

Line of Business Results

Community Banking


																Percent change 3Q07 vs.
(dollars in millions)	3Q07			2Q07			1Q07			4Q06			3Q06			2Q07			3Q06

Summary of operations
Total revenue (TE)	$	626		$	629		$	805		$	678		$	687			(.5	)%		(8.9	)%
Provision for loan losses		1			21			14			23			22			(95.2	)		(95.5	)
Noninterest expense		417			450			470			493			486			(7.3	)		(14.2	)
Net income		131			99			200			101			112			32.3			17.0
Average loans and leases		26,947			26,576			26,456			26,697			26,794			1.4			.6
Average deposits		46,727			46,124			46,521			47,348			46,939			1.3			(.5	)
Net loan charge-offs		20			26			19			24			21			(23.1	)		(4.8	)
Return on average allocated equity		20.77	%		16.13	%		32.96			16.05	%		17.73	%		N/A			N/A
Average full-time equivalent employees		8,632			9,028			9,478			9,683			9,836			(4.4	)		(12.2	)

Supplementary information (lines of business)
Regional Banking
Total revenue (TE)	$	532		$	535		$	713		$	579		$	587			(.6	)%		(9.4	)%
Provision for loan losses		12			19			18			19			19			(36.8	)		(36.8	)
Noninterest expense		371			401			422			444			436			(7.5	)		(14.9	)
Net income		94			72			171			72			83			30.6			13.3
Average loans and leases		18,661			18,459			18,483			18,677			18,822			1.1			(.9	)
Average deposits		43,229			42,712			43,039			43,749			43,495			1.2			(.6	)
Net loan charge-offs		18			19			18			19			19			(5.3	)		(5.3	)
Return on average allocated equity		21.38	%		16.72	%		39.83	%		16.10	%		18.52	%		N/A			N/A
Average full-time equivalent employees		8,322			8,709			9,155			9,362			9,516			(4.4	)		(12.5	)

Commercial Banking
Total revenue (TE)	$	94		$	94		$	92		$	99		$	100			—			(6.0	)%
Provision for loan losses		(11	)		2			(4	)		4			3			N/M			N/M
Noninterest expense		46			49			48			49			50			(6.1	)%		(8.0	)
Net income		37			27			29			29			29			37.0			27.6
Average loans and leases		8,286			8,117			7,973			8,020			7,972			2.1			3.9
Average deposits		3,498			3,412			3,482			3,599			3,444			2.5			1.6
Net loan charge-offs		2			7			1			5			2			(71.4	)		—
Return on average allocated equity		19.37	%		14.73	%		16.33	%		15.91	%		15.80	%		N/A			N/A
Average full-time equivalent employees		310			319			323			321			320			(2.8	)		(3.1	)

KeyCorp Reports Third Quarter 2007 Earnings
October 16, 2007
Page 22

Line of Business Results (continued)

National Banking


																Percent change 3Q07 vs.
(dollars in millions)	3Q07			2Q07			1Q07			4Q06			3Q06			2Q07			3Q06

Summary of operations
Total revenue (TE)	$	511		$	617		$	599		$	669		$	586			(17.2	)%		(12.8	)%
Provision for loan losses		68			32			30			30			13			112.5			423.1
Noninterest expense		328			327			314			328			304			.3			7.9
Income from continuing operations		72			162			159			195			169			(55.6	)		(57.4	)
Net income		58			159			151			30			176			(63.5	)		(67.0	)
Average loans and leases ^a		40,277			39,323			38,839			38,469			37,871			2.4			6.4
Average loans held for sale ^a		4,692			4,377			3,917			4,521			4,553			7.2			3.1
Average deposits ^a		12,633			12,085			11,294			11,876			11,106			4.5			13.7
Net loan charge-offs ^a		39			27			25			30			22			44.4			77.3
Return on average allocated equity ^a		6.90	%		15.76	%		16.06	%		19.45	%		17.27	%		N/A			N/A
Return on average allocated equity		5.56			15.46			15.25			2.82			16.92			N/A			N/A
Average full-time equivalent employees		3,841			3,820			4,207			4,293			4,305			.5			(10.8	)

Supplementary information (lines of business)
Real Estate Capital
Total revenue (TE)	$	104		$	187		$	167		$	189		$	170			(44.4	)%		(38.8	)%
Provision for loan losses		43			8			1			18			7			437.5			514.3
Noninterest expense		77			79			71			69			70			(2.5	)		10.0
Net income (loss)		(10	)		64			59			63			58			N/M			N/M
Average loans and leases		13,187			12,827			12,755			12,931			12,854			2.8			2.6
Average loans held for sale		1,584			1,241			1,145			1,125			1,022			27.6			55.0
Average deposits		5,559			4,864			4,293			4,091			3,593			14.3			54.7
Net loan charge-offs		7			3			1			8			—			133.3			N/M
Return on average allocated equity		(2.96)	%		19.58	%		19.30	%		20.42	%		19.06	%		N/A			N/A
Average full-time equivalent employees		1,007			991			971			957			970			1.6			3.8

Equipment Finance
Total revenue (TE)	$	139		$	153		$	135		$	146		$	137			(9.2	)%		1.5	%
Provision for loan losses		16			16			13			7			11			—			45.5
Noninterest expense		94			92			85			77			81			2.2			16.0
Net income		18			28			23			39			28			(35.7	)		(35.7	)
Average loans and leases		10,681			10,609			10,479			10,222			10,100			.7			5.8
Average loans held for sale		6			10			4			33			6			(40.0	)		—
Average deposits		16			16			13			15			19			—			(15.8	)
Net loan charge-offs		16			16			13			14			11			—			45.5
Return on average allocated equity		7.92	%		12.69	%		10.66	%		18.01	%		13.02	%		N/A			N/A
Average full-time equivalent employees		985			971			952			938			927			1.4			6.3

Institutional and Capital Markets
Total revenue (TE)	$	183		$	190		$	183		$	222		$	190			(3.7	)%		(3.7	)%
Provision for loan losses		(3	)		—			1			(4	)		3			N/M			N/M
Noninterest expense		118			115			117			136			110			2.6			7.3
Net income		42			46			42			58			48			(8.7	)		(12.5	)
Average loans and leases		7,693			7,454			7,435			7,521			7,390			3.2			4.1
Average loans held for sale		373			468			140			387			454			(20.3	)		(17.8	)
Average deposits		6,633			6,815			6,600			7,372			7,042			(2.7	)		(5.8	)
Net loan charge-offs (recoveries)		5			—			1			(2	)		5			N/M			—
Return on average allocated equity		14.34	%		15.41	%		14.31	%		18.99	%		16.46	%		N/A			N/A
Average full-time equivalent employees		1,320			1,302			1,350			1,375			1,385			1.4			(4.7	)

Consumer Finance
Total revenue (TE)	$	85		$	87		$	114		$	112		$	89			(2.3	)%		(4.5	)%
Provision for loan losses		12			8			15			9			(8	)		50.0			N/M
Noninterest expense		39			41			41			46			43			(4.9	)		(9.3	)
Income from continuing operations		22			24			35			35			35			(8.3	)		(37.1	)
Net income (loss)		8			21			27			(130	)		42			(61.9	)		(81.0	)
Average loans and leases ^a		8,716			8,433			8,170			7,795			7,527			3.4			15.8
Average loans held for sale ^a		2,729			2,658			2,628			2,976			3,071			2.7			(11.1	)
Average deposits ^a		425			390			388			398			452			9.0			(6.0	)
Net loan charge-offs ^a		11			8			10			10			6			37.5			83.3
Return on average allocated equity ^a		11.81	%		13.17	%		19.96	%		20.30	%		20.85	%		N/A			N/A
Return on average allocated equity		4.29			11.52			15.40			(55.82	)		18.29			N/A			N/A
Average full-time equivalent employees		529			556			934			1,023			1,023			(4.9	)		(48.3	)


(a)		From continuing operations.

TE = Taxable Equivalent

N/A = Not Applicable

N/M = Not Meaningful

ADDITIONAL INFORMATION ABOUT THE PROPOSED KEYCORP/U.S.B. HOLDING CO., INC. MERGER

In connection with the proposed merger (the “Merger”) of KeyCorp and U.S.B. Holding Co., Inc. (“USB”), pursuant to the Amended and Restated Agreement and Plan of Merger, dated October 22, 2007, by and among KeyCorp, an Ohio corporation (“Key”), KYCA LLC, a Delaware limited company (the “Merger Sub”) and a direct wholly-owned subsidiary of Key, and USB, USB will merge with and into the Merger Sub, with the Merger Sub as the surviving entity of such merger. Subsequently, the Merger Sub will be merged into Key.

Key has filed a registration statement on Form S-4, as amended, with the Securities and Exchange Commission (‘SEC”) under the Securities Act of 1933, as amended, that registers its common shares in the Merger and includes a Proxy Statement for USB shareholders. The registration statement, including its exhibits, contains additional relevant information about Key and USB and the proposed Merger. USB is mailing the Proxy Statement/Prospectus to its stockholders on or about October 26, 2007. Stockholders are urged to read the Registration Statement and the Proxy Statement/Prospectus regarding the Merger, as well as any other relevant documents filed with the SEC or incorporated by reference in the Proxy Statement/Prospectus, if and when they become available.

Key and USB file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any nonconfidential information filed with the SEC at the Public Reference Room of the SEC at 100 F Street, N.E., Room 1024, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330.

The SEC also maintains a website that contains reports, proxy statements and other information about issuers, like Key, that file electronically with the SEC. The address of the website is http://www.sec.gov. The reports and other information filed by USB and Key with the SEC, are also available at Key’s and USB’s websites. The address of Key’s website is http://www.key.com. The address of USB’s website is http://www.unionstate.com.