KeyCorp Reports Second Quarter 2008 Results

- Net loss of $2.70 per common share for the second quarter

CLEVELAND, July 22 /PRNewswire-FirstCall/ -- KeyCorp (NYSE: KEY) today
announced a second quarter loss from continuing operations of $1.126 billion,
or $2.70 per common share. This compares to income from continuing operations
of $337 million, or $0.85 per diluted common share, for the second quarter of
2007, and $218 million, or $0.54 per diluted common share, for the first
quarter of 2008.
Key's results for the second quarter include after-tax charges of $1.011
billion, or $2.43 per common share, resulting from a previously announced
adverse federal tax court ruling on a service contract lease transaction -- a
ruling that the company intends to appeal based on its position that the tax
treatment it applied to its leveraged lease transactions complied with all
applicable tax laws and regulations in effect at the time and was consistent
with industry practice. Results also reflect an increase in loan loss
reserves to 1.87% of loans to address current economic conditions.
"The federal tax court ruling notwithstanding, Key's performance this
quarter reflects an ongoing effort to fortify the company against a difficult
economic environment for lenders," said Chief Executive Officer Henry L. Meyer
III. "For our part, Key has been aggressive about reducing exposure in the
residential properties segment of the construction loan portfolio through the
planned sale of certain loans. Additionally, we have taken action to bolster
Key's loan loss reserve.
"All the while," he continued, "our earning capacity has remained strong
as evidenced by the performance of a number of our fee-based businesses,
including trust and investment services and investment banking. These
outcomes, along with a capital base that is essentially unchanged thanks to
the capital raise we initiated last month, affirm our relationship banking
approach and should put us in a good position in the periods ahead."
During the first quarter of 2008, Key increased its tax reserves for
certain lease in, lease out transactions and recalculated its lease income in
accordance with prescribed accounting standards, resulting in after-tax
charges of $38 million, or $0.10 per common share. Excluding the lease
financing charges recorded in the first and second quarters, Key had a loss
from continuing operations of $115 million, or $0.28 per common share, for the
second quarter of 2008, compared to income from continuing operations of $337
million, or $0.85 per diluted common share, for the second quarter of 2007,
and $256 million, or $0.64 per diluted common share, for the first quarter of
2008.
For the first six months of 2008, Key reported a loss from continuing
operations of $908 million, or $2.23 per common share. Adjusting for the
lease financing charges, Key had income from continuing operations of $141
million, or $0.34 per diluted common share, compared to $695 million, or $1.74
per diluted common share, for the first half of 2007.
Key reported a net loss of $1.126 billion, or $2.70 per common share, for
the second quarter of 2008, compared to net income of $334 million, or $0.84
per diluted common share, for the second quarter of 2007, and $218 million, or
$0.54 per diluted common share, for the first quarter of 2008. For the first
half of 2008, Key reported a net loss of $908 million, or $2.23 per common
share, compared to net income of $684 million, or $1.71 per diluted common
share, for the same period last year.
In addition to the lease financing charges, Key's results for the second
quarter of 2008 were adversely affected by a higher provision for loan losses
recorded in connection with the company's previously reported efforts to
aggressively reduce its exposure to the residential properties segment of its
commercial real estate construction loan portfolio. Key's provision for loan
losses for the second quarter of 2008 was $647 million, compared to $53
million for the same period one year ago and $187 million for the first
quarter of 2008. The current quarter's provision exceeded net loan
charge-offs by $123 million and increased Key's reserve for loan losses to
$1.421 billion, or 1.87% of period-loans.

The following table shows Key's continuing and discontinued operating
results for comparative quarters and for the six-month periods ended June 30,
2008 and 2007.

Three months ended Six months ended
in millions, except per
share amounts 6-30-08 3-31-08 6-30-07 6-30-08 6-30-07

Summary of operations
(Loss) income from
continuing operations $(1,126) $218 $337 $(908) $695
Loss from discontinued
operations, net of
taxes (a) --- --- (3) --- (11)
Net (loss) income $(1,126) $218 $334 $(908) $684

Per common share - assuming
dilution
(Loss) income from
continuing operations $(2.70) $.54 $.85 $(2.23) $1.74
Loss from discontinued
operations (a) --- --- (.01) --- (.03)
Net (loss) income $(2.70) $.54 $.84 $(2.23) $1.71

(a) Key sold the subprime 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.

"We took aggressive steps in the second quarter to fortify our
already-strong capital position in light of the adverse court ruling on the
tax treatment of a service contract lease transaction," said Meyer. "The
successful $1.65 billion capital raise, plus a reduction of our dividend
effective in the third quarter, will position the company to respond to future
business opportunities and are prudent steps in light of the challenging
industry environment.
"In a process that is well underway, we have also moved to reduce our
exposure in the residential homebuilder portfolio through the planned sale of
certain assets. We have been pleased with the level of bidding interest.
Although our actions in this regard resulted in additional net charge-offs and
provisioning for the quarter, the sale of these loans, once closed, will
reduce the level of Key's total nonperforming assets. With the number of
assets and bidders involved in the process, it will take additional time to
consummate the transactions, but we anticipate that the majority of the loan
sales will close in the third quarter.
"During the second quarter, we experienced positive trends in several
fee-based businesses, notably trust and investment services, and our
investment banking, syndications and capital markets businesses. Expenses
continued to be well controlled, we benefited from the actions taken in the
first quarter to significantly reduce the company's exposure to future market
volatility and we continue to gain traction in our Community Banking model.
While we work through this difficult credit cycle, we continue to focus on our
relationship business model," Meyer concluded.

As shown in the following table, the comparability of Key's earnings for
the current, prior and year-ago quarters is affected by several significant
items.

Second Quarter 2008 First Quarter 2008
in millions,
except per Pre-tax After-tax Impact Pre-tax After-tax Impact
share amounts Amount Amount on EPS Amount Amount on EPS

Charges related
to leveraged lease
tax litigation $(359) $(1,011) $(2.43) $(3) $ (38) $(.10)
Gain from redemption
of Visa Inc. shares --- --- --- 165 103 .26
Realized and
unrealized gains
(losses) on loan
and securities
portfolios held
for sale or trading 62 39 .09 (128) (80) (.20)
Litigation reserve --- --- --- --- --- ---
Gains related to
MasterCard
Incorporated shares --- --- --- --- --- ---

EPS = Earnings per diluted common share

Second Quarter 2007

in millions, except per share amounts Pre-tax After-tax Impact
Amount Amount on EPS

Charges related to leveraged lease
tax litigation --- --- ---
Gain from redemption of Visa Inc. shares --- --- ---
Realized and unrealized gains(losses) on
loan and securities portfolios held for
sale or trading $51 $32 $.08
Litigation reserve (42) (26) (.07)
Gains related to MasterCard
Incorporated shares 40 25 .06

EPS = Earnings per diluted common share

SUMMARY OF CONTINUING OPERATIONS
Key's taxable-equivalent net interest income for the second quarter of
2008 was reduced significantly as a result of an adverse federal court ruling
on the company's tax treatment of a service contract lease transaction entered
into by AWG Leasing Trust, in which Key is a partner. The court's decision
applies only to the single AWG Leasing transaction and Key has determined to
appeal the trial court decision. Notwithstanding the appeal, management
believes that the applicable accounting guidance requires Key to recalculate
lease income recognized on its entire portfolio of contested leveraged leases,
not just the single leveraged lease subject to the court's decision. Under
FASB Staff Position No. 13-2, "Accounting for a Change or Projected Change in
the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged
Lease Transaction," Key has recalculated the lease income recognized from
inception for all of the contested leases. Key's second quarter results also
reflect a $475 million charge to income taxes for the interest cost associated
with the contested tax liabilities. Key estimates that the interest accrual
associated with the contested liabilities will approximate $32 million to $34
million (after tax) per quarter for the third and fourth quarters of 2008.
The level of future interest accruals will depend on the applicable interest
rate at the time. This amount will be included in income tax expense in
future quarters. These actions reduced Key's taxable-equivalent net interest
income and net interest margin for the second quarter of 2008 by $838 million
and 376 basis points, respectively, and reduced Key's earnings by $1.011
billion, or $2.43 per common share.
The impacts of the leveraged lease accounting charges on the components of
Key's interest income and related yields for the second quarter of 2008 are
shown in the following table.
Second Quarter 2008
As Reported Adjusted Basis

Average Yield/ Average Yield/
dollars in millions Balance Interest Rate Balance Interest Rate

Total commercial loans $54,932 $(83) (.58)% $54,932 $755 5.52%

Total earning assets 89,742 422 1.89 89,742 1,260 5.63
Total interest-bearing
liabilities 77,172 522 2.75 77,172 522 2.75
Interest rate spread (TE) (.86)% 2.88%
Net interest income (TE)
and net interest
margin (TE) (100) (.44)% 738 3.32%
TE adjustment (458) 21
Net interest income $358 $717

TE = Taxable Equivalent

Excluding the charges associated with the leveraged lease tax litigation,
Key's taxable-equivalent net interest income was $738 million for the second
quarter of 2008, compared to $706 million for the year-ago quarter. Average
earning assets rose by $8.2 billion, or 10%, due primarily to growth in
commercial lending and the January 1 acquisition of U.S.B. Holding Co., Inc.,
which added approximately $1.5 billion to Key's loan portfolio. The adjusted
net interest margin for the current quarter declined to 3.32% from 3.46% for
the second quarter of 2007. The reduction was attributable largely to tighter
loan and deposit spreads caused by competitive pricing, and a higher level of
nonperforming assets.
Compared to the first quarter of 2008, Key's taxable-equivalent net
interest income and net interest margin were essentially unchanged, after
excluding the effects of charges recorded in connection with leveraged lease
transactions in both periods. During the first quarter of 2008, Key increased
its tax reserves for certain lease in, lease out transactions and recalculated
its income under FASB Staff Position No. 13-2. These actions reduced Key's
taxable-equivalent net interest income and net interest margin for the first
quarter of 2008 by $34 million and 15 basis points, respectively, and reduced
Key's earnings by $38 million, or $0.10 per diluted common share. On an
adjusted basis, Key had taxable-equivalent net interest income of $738 million
and a net interest margin of 3.29% for the first quarter of 2008.
Key's noninterest income was $555 million for the second quarter of 2008,
compared to $649 million for the year-ago quarter. The decrease was
attributable largely to net losses of $14 million from principal investing in
the second quarter of 2008, compared to net gains of $90 million for the same
period last year. Additionally, results for the second quarter of 2007
benefited from a $40 million gain related to the sale of MasterCard
Incorporated shares. These factors were offset in part by higher income from
several fee-based businesses. Income from investment banking and capital
markets activities rose by $28 million, trust and investment services income
was up $23 million, and income from deposit service charges grew by $9
million.
The major components of Key's fee-based income for the past five quarters
are shown in the following table.

in millions 2Q08 1Q08 4Q07 3Q07 2Q07

Trust and investment services income $138 $129 $131 $119 $115
Service charges on deposit accounts 93 88 90 88 84
Investment banking and capital
markets income 80 8 12 9 52
Operating lease income 68 69 72 70 66
Letter of credit and loan fees 51 37 58 51 45
Corporate-owned life insurance income 28 28 37 27 32
Electronic banking fees 27 24 25 25 25

Compared to the first quarter of 2008, noninterest income increased by $27
million. Excluding the $165 million gain from the partial redemption of Visa
Inc. shares recorded in the first quarter, noninterest income was up $192
million, reflecting improvements in both capital markets-driven businesses and
other fee-based businesses. The improvement in Key's capital markets-driven
businesses was attributable to improved execution, market conditions and the
previously announced actions taken by management during the first quarter of
2008 to mitigate the effects of future market volatility on Key's
held-for-sale and trading portfolios.
During the second quarter of 2008, Key recorded $33 million in net gains
from loan sales and mark-to-market adjustments, compared to $101 million in
net losses from loan sales and write-downs (primarily commercial real estate
loans held for sale) for the first quarter. Additionally, income from
investment banking and capital markets activities increased by $72 million,
due primarily to a $49 million contribution from dealer trading and
derivatives, and a $14 million increase in investment banking income. Net
losses from principal investing totaled $14 million for the second quarter of
2008, compared to net gains of $9 million for the prior quarter.
Trust and investment services income grew by $9 million from the first
quarter of 2008, driven by growth in income from brokerage commissions and
fees. The company also experienced increases of $14 million in syndication
and other loan-related fees, and $5 million in income from deposit service
charges.
Key's noninterest expense was $781 million for the second quarter of 2008,
compared to $815 million for the same period last year. Personnel expense
decreased by $7 million, due primarily to a reduction in costs associated with
employee benefits. Nonpersonnel expense decreased by $27 million from the
year-ago quarter, due to a $42 million litigation charge recorded during the
second quarter of 2007, offset in part by a $7 million increase in
professional fees.
Compared to the first quarter of 2008, noninterest expense rose by $49
million. Personnel expense decreased by $5 million, while nonpersonnel
expense was up $54 million, due primarily to a $2 million credit for losses on
lending-related commitments in the current quarter, compared to a $27 million
credit in the prior quarter. Also contributing to the growth were increases
in professional fees and marketing expense of $10 million and $7 million,
respectively.
ASSET QUALITY
Key's provision for loan losses from continuing operations was $647
million for the second quarter of 2008, compared to $53 million for the
year-ago quarter and $187 million for the first quarter of 2008. The increase
in the provision was due primarily to a higher level of net loan charge-offs
recorded in the commercial real estate portfolio. As previously reported, Key
had undertaken a process to aggressively reduce its exposure in the
residential properties segment of its construction loan portfolio through the
planned sale of certain loans. In conjunction with these efforts, Key
transferred $384 million of commercial real estate loans ($719 million, net of
$335 million in net charge-offs) from the held-to-maturity loan portfolio to
held-for-sale status in June. In excess of 100 bids were received in this
process. As of June 30, 2008, sales had already closed on $44 million of
these loans. With respect to the balance, Key is working with numerous
bidders to finalize sales terms and documentation, and management anticipates
that sales of the majority of the remaining $340 million of loans, which are
on nonperforming status, will close during the third quarter. Key's provision
for loan losses for the second quarter of 2008 exceeded its net loan
charge-offs by $123 million, as the company continued to build reserves.
Selected asset quality statistics for Key for each of the past five
quarters are presented in the following table.

dollars in millions 2Q08 1Q08 4Q07 3Q07 2Q07

Net loan charge-offs $524 $121 $119 $59 $53
Net loan charge-offs to
average loans from
continuing operations 2.75% .67% .67% .35% .32%
Nonperforming loans at
period end $814 $1,054 $687 $498 $276
Nonperforming loans to
period-end portfolio
loans 1.07% 1.38% .97% .72% .41%
Nonperforming assets at
period end $1,210 $1,115 $764 $570 $378
Nonperforming assets to
period-end portfolio
loans plus OREO and other
nonperforming assets 1.59% 1.46% 1.08% .83% .57%
Allowance for loan losses $1,421 $1,298 $1,200 $955 $945
Allowance for loan losses
to period-end loans 1.87% 1.70% 1.69% 1.38% 1.42%
Allowance for loan
losses to nonperforming
loans 174.57 123.15 174.67 191.77 342.39

Net loan charge-offs for the quarter totaled $524 million, or 2.75% of
average loans from continuing operations, compared to $53 million, or 0.32%,
for the same period last year and $121 million, or 0.67%, for the previous
quarter. Net loan charge-offs from the commercial real estate and educational
loan portfolios totaled $354 million and $54 million, respectively, in the
current quarter. The net charge-offs in the commercial real estate portfolio
reflect the actions previously mentioned, while the educational loan
charge-offs derived from approximately $780 million of noncore loans,
predominately loans associated with non-Title IV schools, which the company
stopped underwriting in mid-2006.
Key's net loan charge-offs by loan type for each of the past five quarters
are shown in the table below.

dollars in millions 2Q08 1Q08 4Q07 3Q07 2Q07

Commercial, financial and
agricultural $61 $36 $35 $22 $24
Real estate -- commercial
mortgage 15 4 1 2 4
Real estate -- construction 339 25 44 6 2
Commercial lease financing 14 9 6 8 5
Total consumer loans 95 47 33 21 18
Total net loan charge-offs $524 $121 $119 $59 $53

Net loan charge-offs to average
loans from continuing
operations 2.75% .67% .67% .35% .32%

The company expects net loan charge-offs to be below the second quarter
level during the remainder of 2008; however, net loan charge-offs are expected
to remain at elevated levels. Additionally, the company expects net loan
charge-offs to be in the range of 1.20% to 1.60% of average loans for the
third and fourth quarters of 2008.
At June 30, 2008, Key's nonperforming loans totaled $814 million and
represented 1.07% of period-end portfolio loans, compared to 1.38% at March
31, 2008, and 0.41% at June 30, 2007. At the same time, nonperforming assets
totaled $1.210 billion and represented 1.59% of portfolio loans, other real
estate owned and other nonperforming assets, compared to 1.46% at March 31,
2008, and 0.57% at June 30, 2007. The decrease in nonperforming loans and the
increase in nonperforming assets during the second quarter were largely
attributable to the transfer of commercial real estate construction loans
(principally those in Florida and southern California) to held-for-sale
status. Also contributing to the rise in nonperforming assets was an increase
in the level of commercial loans (principally to businesses tied to
residential construction properties) on nonaccrual status.
The following table illustrates the trend in Key's nonperforming assets by
loan type over the past five quarters.

dollars in millions 2Q08 1Q08 4Q07 3Q07 2Q07

Commercial, financial and
agricultural $259 $147 $84 $94 $83
Real estate -- commercial
mortgage 107 113 41 41 41
Real estate -- construction 256 610 415 228 23
Commercial lease financing 57 38 28 30 34
Total consumer loans 135 146 119 105 95
Total nonperforming loans 814 1,054 687 498 276
Nonperforming loans held for
sale 342 9 25 6 4
OREO and other nonperforming
assets 54 52 52 66 98
Total nonperforming
assets $1,210 $1,115 $764 $570 $378

Nonperforming loans to
period-end portfolio loans 1.07% 1.38% .97% .72% .41%
Nonperforming assets to
period-end portfolio loans,
plus OREO and other
nonperforming assets 1.59 1.46 1.08 .83 .57

Key's allowance for loan losses was $1.421 billion, or 1.87% of loans
outstanding, at June 30, 2008, compared to $1.298 billion, or 1.70%, at March
31, 2008, and $945 million, or 1.42%, at June 30, 2007.
CAPITAL
Key's capital ratios, as presented in the following table, continued to
exceed all "well-capitalized" regulatory benchmarks at June 30, 2008.

Capital Ratios
6-30-08 3-31-08 6-30-07

Tier 1 risk-based capital (a) 8.49% 8.33% 8.14%
Total risk-based capital (a) 12.35 12.34 12.15
Tangible equity to tangible assets 6.98 6.85 6.97

(a) 6-30-08 ratio is estimated.

As previously announced, during the second quarter of 2008, Key took
several actions to preserve its capital strength in light of the charges
recorded in response to the federal court ruling on the tax treatment of a
service contract lease transaction. Key issued $650 million, or 6.5 million
shares, of noncumulative perpetual convertible preferred stock with a
liquidation value of $100 per share, and $1.0 billion, or 85.1 million
additional common shares. Further Key's Board of Directors announced its
intention to reduce the dividend on Key's common shares by 50% to an
annualized dividend of $0.75 per share commencing with the dividend declared
on July 18, 2008.
As part of the over allotment granted by Key to the underwriters on June
12, 2008, Key issued 7 million additional common shares and 75,000 additional
shares of noncumulative perpetual convertible preferred stock on July 11,
2008. The proceeds received as a result of these issuances totaled
approximately $90 million, and represented approximately 9 basis points of
additional Tier 1 and total capital.
During the second quarter, Key reissued .5 million of its common shares
under employee benefit plans. There was no repurchase activity by Key during
the second quarter, and the company currently does not anticipate any share
repurchase activity during the remainder of 2008.
Share issuances and repurchases that caused the change in Key's
outstanding common shares over the past five quarters are summarized in the
following table.

Summary of Changes in Common Shares Outstanding

in thousands 2Q08 1Q08 4Q07 3Q07 2Q07

Shares outstanding at
beginning of period 400,071 388,793 388,708 389,362 394,483
Common shares issued 85,106 --- --- --- ---
Shares reissued to acquire
U.S.B. Holding Co., Inc. --- 9,895 --- --- ---
Shares reissued under
employee benefit plans 485 1,383 85 1,346 879
Common shares repurchased --- --- --- (2,000) (6,000)
Shares outstanding at end
of period 485,662 400,071 388,793 388,708 389,362

LINE OF BUSINESS RESULTS
The following table shows the contribution made by each major business
group to Key's taxable-equivalent revenue and (loss) 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. Key's line of business results for all
periods presented reflect a new organizational structure that took effect
January 1, 2008.

Major Business Groups
Percent change
2Q08 vs.
dollars in millions 2Q08 1Q08 2Q07 1Q08 2Q07

Revenue from continuing
operations (TE)
Community Banking $659 $630 $631 4.6% 4.4%
National Banking (a) (126) 439 612 N/M N/M
Other Segments (31) 26 101 N/M N/M
Total Segments 502 1,095 1,344 (54.2) (62.6)
Reconciling Items (c) (47) 137 11 N/M N/M
Total $455 $1,232 $1,355 (63.1)% (66.4)%

(Loss) income from continuing
operations
Community Banking $104 $115 $102 (9.6)% 2.0%
National Banking (a) (670) (24) 157 N/M N/M
Other Segments (b) (13) 21 55 N/M N/M
Total Segments (579) 112 314 N/M N/M
Reconciling Items (c) (547) 106 23 N/M N/M
Total $(1,126) $218 $337 N/M N/M

(a) During the second quarter of 2008, National Banking's
taxable-equivalent net interest income and net income were
reduced by $838 million and $536 million, respectively, as a result of
an adverse federal court ruling on the tax treatment of a service
contract lease transaction. During the prior quarter, National
Banking increased its tax reserves for certain lease in, lease out
transactions and recalculated its lease income in accordance with
prescribed accounting standards. These actions reduced National
Banking's taxable-equivalent revenue by $34 million and its net income
by $21 million in the first quarter.

(b) Other Segments' results for the second quarter of 2007 include a $26
million ($16 million after tax) charge for litigation. This charge
and the litigation charge referred to in note (c) below comprise the
$42 million charge recorded in connection with the Honsador
litigation.

(c) Reconciling Items for the second quarter of 2008 include a $475
million charge to income taxes for the interest cost associated with
the leveraged lease tax litigation. Reconciling Items for the prior
quarter include a $165 million ($103 million after tax) gain from the
partial redemption of Key's equity interest in Visa Inc. and a $17
million charge to income taxes for the interest cost associated with
the increase to Key's tax reserves for certain lease in, lease out
transactions. Reconciling Items for the second quarter of 2007
include a $40 million ($25 million after tax) gain related to
MasterCard Incorporated shares, and a $16 million ($10 million after
tax) charge for litigation.

TE = Taxable Equivalent, N/M = Not Meaningful

Community Banking
Percent change
2Q08 vs.
dollars in millions 2Q08 1Q08 2Q07 1Q08 2Q07

Summary of operations
Net interest income (TE) $437 $423 $417 3.3% 4.8%
Noninterest income 222 207 214 7.2 3.7
Total revenue (TE) 659 630 631 4.6 4.4
Provision for loan
losses 44 18 21 144.4 109.5
Noninterest expense 449 428 446 4.9 .7
Income before income
taxes (TE) 166 184 164 (9.8) 1.2
Allocated income taxes
and TE adjustments 62 69 62 (10.1) ---
Net income $104 $115 $102 (9.6)% 2.0%

Percent of consolidated
income from continuing
operations N/M 53% 30% N/A N/A

Average balances
Loans and leases $28,478 $28,128 $26,574 1.2% 7.2%
Total assets 31,385 31,068 29,346 1.0 6.9
Deposits 49,948 49,767 46,126 .4 8.3

Assets under management
at period end $19,366 $20,049 $21,061 (3.4)% (8.0)%

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

Additional Community
Banking Data Percent change
2Q08 vs.
dollars in millions 2Q08 1Q08 2Q07 1Q08 2Q07

Average deposits
outstanding
NOW and money market
deposit accounts $19,656 $19,865 $18,970 (1.1)% 3.6%
Savings deposits 1,804 1,754 1,619 2.9 11.4
Certificates of deposit
($100,000 or more) 6,661 6,435 4,709 3.5 41.5
Other time deposits 12,735 12,778 12,038 (.3) 5.8
Deposits in foreign
office 1,306 1,256 1,046 4.0 24.9
Noninterest-bearing
deposits 7,786 7,679 7,744 1.4 .5
Total deposits $49,948 $49,767 $46,126 .4% 8.3%

Home equity loans
Average balance $9,766 $9,693 $9,660
Weighted-average
loan-to-value ratio 70% 70% 70%
Percent first lien
positions 55 56 58
Other data
On-line households/
household
penetration 759,003/45% 749,512/45% 723,955/44%
Branches 985 985 954
Automated teller
machines 1,479 1,479 1,450

Community Banking Summary of Operations
Community Banking recorded net income of $104 million for the second
quarter of 2008, compared to $102 million for the year-ago quarter. Increases
in both net interest income and noninterest income accounted for the
improvement, but were substantially offset by a higher provision for loan
losses.
Taxable-equivalent net interest income rose by $20 million, or 5%, from
the second quarter of 2007. The increase was attributable to a $1.9 billion,
or 7%, rise in average earning assets, due largely to growth in the commercial
loan portfolio, and a $3.8 billion, or 8%, increase in average deposits. Both
loans and deposits experienced organic growth and benefited from the January 1
acquisition of U.S.B. Holding Co., Inc. described below. The positive effect
of this growth was offset in part by the impact of tighter loan and deposit
spreads.
Noninterest income increased by $8 million, or 4%, from the same period
one year ago, reflecting strong growth in bank channel investment product
sales income and deposit service charge income.
The provision for loan losses rose by $23 million, or 110%, compared to
the second quarter of 2007, reflecting a $12 million increase in net loan
charge-offs and the remainder a provision for general weakness in the economy.
On January 1, 2008, Key acquired U.S.B. Holding Co., Inc., the holding
company for Union State Bank, a 31-branch state-chartered commercial bank
headquartered in Orangeburg, New York. The acquisition doubles Key's branch
penetration in the attractive Lower Hudson Valley area. Assets and deposits
acquired in this transaction were assigned to both the Community Banking and
National Banking groups.

National Banking
Percent change
2Q08 vs.
dollars in millions 2Q08 1Q08 2Q07 1Q08 2Q07

Summary of operations
Net interest income (TE) $(472)(a) $339 $339 N/M N/M
Noninterest income 346 100 273 246.0% 26.7%
Total revenue (TE) (126) 439 612 N/M N/M
Provision for loan
losses 609 169 32 260.4 N/M
Noninterest expense 337 308 330 9.4 2.1
(Loss) income from
continuing operations
before income taxes
(TE) (1,072) (38) 250 N/M N/M
Allocated income taxes
and TE adjustments (402) (14) 93 N/M N/M
(Loss) income from
continuing operations (670) (24) 157 N/M N/M
Loss from discontinued
operations, net of
taxes --- --- (3) --- 100.0%
Net (loss) income $(670) $(24) $154 N/M N/M

Percent of consolidated
income from continuing
operations N/M N/M 47% N/A N/A

Average balances from
continuing operations
Loans and leases $47,876 $44,149 $39,325 8.4% 21.7%
Loans held for sale 1,282 4,932 4,377 (74.0) (70.7)
Total assets 56,242 56,219 49,585 --- 13.4
Deposits 12,289 11,888 12,082 3.4 1.7

Assets under management
at period end $61,632 $60,404 $64,531 2.0% (4.5)%

(a) During the second quarter of 2008, National Banking's
taxable-equivalent net interest income and net income were reduced
by $838 million and $536 million, respectively, as a result of an
adverse federal court ruling on the tax treatment of a service
contract lease transaction. During the prior quarter, National
Banking increased its tax reserves for certain lease in, lease out
transactions and recalculated its lease income in accordance with
prescribed accounting standards. These actions reduced National
Banking's taxable-equivalent revenue by $34 million and its net income
by $21 million in the first quarter.

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

National Banking Summary of Continuing Operations
National Banking recorded a loss of $670 million from continuing
operations for the second quarter of 2008, compared to income of $157 million
from continuing operations for the same period last year. During the second
quarter of 2008, National Banking's net interest income was adversely affected
by a federal court ruling on the tax treatment of a segment of Key's leveraged
lease financing portfolio as further described below. Also contributing to
the less favorable results compared to the year-ago quarter were a
substantially higher provision for loan losses and an increase in noninterest
expense, offset in part by significant growth in noninterest income.
National Banking's taxable-equivalent net interest income for the second
quarter of 2008 was reduced significantly as a result of an adverse federal
court ruling on the company's tax treatment of a service contract lease
transaction entered into by AWG Leasing Trust, in which Key is a partner. As
a result of this ruling, under FASB Staff Position No. 13-2, "Accounting for a
Change or Projected Change in the Timing of Cash Flows Relating to Income
Taxes Generated by a Leveraged Lease Transaction," National Banking
recalculated its lease income from inception for this particular transaction,
as well as any other lease financing transactions being contested by the
Internal Revenue Service. Excluding the additional charges associated with
these actions, taxable-equivalent net interest income grew by $27 million, or
8%, from the second quarter of 2007 as a result of increases in average
earning assets and deposits, offset in part by tighter loan and deposit
spreads and a higher level of nonperforming assets. Average loans and leases
grew by $8.6 billion, or 22%, while average deposits rose by $207 million, or
2%, from the year-ago quarter.
Noninterest income increased by $73 million, or 27%, reflecting higher
income from several fee-based businesses. Income from investment banking and
capital markets activities rose by $35 million, while trust and investment
services income was up $23 million. Increases in income from tuition payment
plan processing, as well as syndication and other loan-related fees also
contributed to the improvement.
The provision for loan losses rose by $577 million, due primarily to a
higher level of net loan charge-offs recorded in the commercial real estate
portfolio. National Banking's provision for loan losses for the second
quarter of 2008 exceeded its net loan charge-offs by $123 million, as the
company continued to build reserves.
Other Segments
Other segments consist of Corporate Treasury and Key's Principal Investing
unit. These segments generated a net loss of $13 million for the second
quarter of 2008, compared to net income of $55 million for the same period
last year. These results reflect net losses of $14 million from principal
investing in the second quarter of 2008, compared to net gains of $90 million
for the year-ago quarter.
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 and Corporate Banking Services consists of two
business units. Real Estate Capital is a national business that provides
construction and interim lending, permanent debt placements and servicing,
equity and investment banking, and other commercial banking products and
services to developers, brokers and owner-investors. This unit deals
primarily 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). Particular emphasis has been placed on
providing clients with finance solutions through access to the capital
markets.
Corporate Banking Services provides cash management, interest rate
derivatives, and foreign exchange products and services to clients throughout
the Community Banking and National Banking groups. Through its Public Sector
and Financial Institutions businesses, Corporate Banking Services provides a
full array of commercial banking products and services to government and
not-for-profit entities, and to community banks.
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 through its KeyBanc Capital Markets
unit, provides commercial lending, treasury management, investment banking,
derivatives and foreign exchange, equity and debt underwriting and trading,
and syndicated finance products and services to large corporations and middle-
market companies.
Through its Victory Capital Management unit, Institutional and Capital
Markets also manages or offers 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 offers loans to consumers on a direct basis and an
indirect basis through dealers. It also provides federal and private
education loans to students and their parents, and processes tuition payments
for private schools. Through its Commercial Floor Plan Lending unit, Consumer
Finance finances inventory for automobile, recreation and marine dealers.
Cleveland-based KeyCorp is one of the nation's largest bank-based
financial services companies, with assets of $102 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 985 branches and additional offices; a network of 1,479 ATMs;
telephone banking centers (1.800.KEY2YOU); and a Web site,
https://www.key.com/ (R), that provides account access and financial products
24 hours a day.
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) continued
disruption in the fixed income markets; (4) adverse capital markets
conditions; (5) 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; (6) increased competitive pressure
among financial services companies; (7) the inability to successfully execute
strategic initiatives designed to grow revenues and/or manage expenses; (8)
consummation of significant business combinations or divestitures; (9)
operational or risk management failures due to technological or other factors;
(10) changes in accounting or tax practices or requirements; (11) new legal
obligations or liabilities or unfavorable resolution of litigation; (12)
heightened regulatory practices, requirements or expectations; and (13)
disruption in the economy and general business climate as a result of
terrorist activities or military actions. 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.
SOURCE KeyCorp

ANALYSTS, Jonathan I. Shulman, +1-216-689-3882,
Jonathan_I_Shulman@KeyBank.com, or Christopher F. Sikora, +1-216-689-3133,
Chris_F_Sikora@KeyBank.com, or MEDIA, William C. Murschel, +1-216-828-7416,
William_C_Murschel@KeyBank.com/ /FIRST AND FINAL ADD -- FINANCIAL MATERIAL --
TO FOLLOW