KeyCorp Reports First Quarter 2005 Earnings

CLEVELAND, April 15 /PRNewswire-FirstCall/ -- KeyCorp today announced first quarter net income of $264 million, or $0.64 per diluted common share. These results compare with net income of $250 million, or $0.59 per share, for the first quarter of 2004.

"We're pleased that revenue growth and positive asset quality trends continue to drive Key's improving performance," said Chairman and Chief Executive Officer Henry L. Meyer III. "Relative to the year-ago quarter, Key's total taxable-equivalent revenue rose by $60 million, reflecting stronger demand for commercial loans and growth in fee income.

"With regard to asset quality, nonperforming loans decreased for the 10th consecutive quarter, and are at the lowest level we've seen in a decade. Further, net loan charge-offs as a percentage of average loans fell to their lowest level since the fourth quarter of 1995. While a stronger economy contributed to these positive changes, they also reflect strategic business mix changes we've made to improve Key's risk profile.

"Looking ahead, we expect earnings to range from $0.62 to $0.66 per share for the second quarter of 2005 and from $2.55 to $2.65 per share for the full year."

SUMMARY OF CONSOLIDATED RESULTS

Taxable-equivalent net interest income rose to $722 million for the first quarter of 2005 from $685 million for the year-ago quarter. The positive effect of a $5.8 billion increase in average earning assets, due primarily to increases in all major components of the commercial loan portfolio, more than offset the effect of a lower net interest margin, which decreased 8 basis points to 3.66%. The growth in earning assets was attributable in part to the acquisitions of EverTrust Bank and American Express Business Finance Corporation during the fourth quarter of 2004.

Key's noninterest income was $454 million for the first quarter of 2005, compared with $431 million for the first three months of 2004. The principal driver of the increase was income from investment banking and capital markets activities, which grew by $21 million, due to higher revenue from dealer trading and derivatives. Of this amount, $11 million represented derivative income recorded in connection with the anticipated sale of the indirect automobile loan portfolio as part of a strategy announced last quarter to improve Key's risk profile and business mix. During the first quarter, Key completed the sale of the prime segment of this portfolio, resulting in a gain of $19 million. However, compared with the first quarter of 2004, net gains from loan securitizations and sales decreased by $6 million, due in part to a $9 million impairment charge in the education lending business recorded in the current year.

During the first quarter of 2005, the Securities and Exchange Commission issued interpretive guidance, applicable to all publicly held companies, related to the accounting for operating leases. Accordingly, Key's noninterest expense for the first quarter of 2005 included a net occupancy charge of $30 million to adjust the accounting for rental expense associated with such leases from an escalating to a straight-line basis. Excluding this catch-up adjustment, noninterest expense was $701 million, compared with $659 million for the same period last year. Personnel expense rose by $17 million and nonpersonnel expense grew by $25 million, with the single largest factor being a $20 million contribution (included in miscellaneous expense) to the KeyCorp Foundation to fund future contributions.

ASSET QUALITY

Key's provision for loan losses was $44 million for the first quarter of 2005, compared with a credit of $21 million for the fourth quarter of 2004 and expense of $81 million for the year-ago quarter. The $21 million credit recorded in the fourth quarter represented the reversal of provision recorded in prior periods and resulted from management's decision to sell Key's indirect automobile loan portfolio.

Net loan charge-offs for the quarter totaled $54 million, or 0.32% of average loans, compared with $140 million, or 0.83%, for the previous quarter and $111 million, or 0.71%, for the same period last year. Included in the $140 million of net charge-offs recorded for the fourth quarter of 2004 are net charge-offs of $84 million that related to the consumer loan portfolios that Key has exited or is in the process of exiting.

During the first quarter of 2005, Key's nonperforming loans decreased by $11 million to $305 million and represented 0.45% of period-end loans at March 31, 2005, compared with 0.46% at December 31, 2004, and 0.94% at March 31, 2004.

Key's allowance for loan losses stood at $1.128 billion, or 1.65% of loans outstanding at March 31, 2005, compared with $1.138 billion, or 1.66% at December 31, 2004, and $1.306 billion, or 2.09% at March 31, 2004. At March 31, 2005, the allowance for loan losses represented 370% of nonperforming loans, compared with 360% at December 31, 2004, and 222% a year ago.

CAPITAL

Key's capital ratios continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2005. Key's tangible equity to tangible assets ratio was 6.44% at quarter end, compared with 6.35% at December 31, 2004, and 6.98% at March 31, 2004. The ratio is currently within management's targeted range of 6.25% to 6.75%.

Key's capital position provides it with the flexibility to take advantage of future investment opportunities, to repurchase shares when appropriate and to pay dividends. During the first quarter of 2005, Key repurchased 2,500,000 of its common shares. At March 31, 2005, there were 26,961,248 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 1Q05 4Q04 3Q04 2Q04 1Q04 Shares outstanding at beginning of period 407,570 405,723 407,243 412,153 416,494 Issuance of shares under employee benefit and dividend reinvestment plans 2,227 1,847 980 1,128 3,659 Repurchase of common shares (2,500) -- (2,500) (6,038) (8,000) Shares outstanding at end of period 407,297 407,570 405,723 407,243 412,153 LINE OF BUSINESS RESULTS

The following table shows the contribution made by each major business group to Key's taxable-equivalent revenue and net income 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 last two pages of this release. Key's line of business results for all periods presented reflect a new organizational structure that took effect earlier this year.

Major Business Groups Percent change 1Q05 vs. dollars in millions 1Q05 4Q04 1Q04 4Q04 1Q04 Revenue (taxable equivalent) Consumer Banking $727 $690 $717 5.4 % 1.4 % Corporate and Investment Banking 454 482 407 (5.8) 11.5 Other Segments 12 (2) 4 N/M 200.0 Total segments 1,193 1,170 1,128 2.0 5.8 Reconciling Items (17) (29) (12) 41.4 (41.7) Total $1,176 $1,141 $1,116 3.1 % 5.4 % Net income (loss) ` Consumer Banking $131 $59 $124 122.0 % 5.6 % Corporate and Investment Banking 148 177 119 (16.4) 24.4 Other Segments 13 9 9 44.4 44.4 Total segments 292 245 252 19.2 15.9 Reconciling Items (28) (32) (2) 12.5 N/M Total $264 $213 $250 23.9 % 5.6 % N/M = Not Meaningful Consumer Banking Percent change 1Q05 vs. dollars in millions 1Q05 4Q04 1Q04 4Q04 1Q04 Summary of operations Net interest income (TE) $498 $501 $487 (.6)% 2.3 % Noninterest income 229 189 230 21.2 (.4) Total revenue (TE) 727 690 717 5.4 1.4 Provision for loan losses 39 9 61 333.3 (36.1) Noninterest expense 478 554 457 (13.7) 4.6 Income before income taxes (TE) 210 127 199 65.4 5.5 Allocated income taxes and TE adjustments 79 68 75 16.2 5.3 Net income $131 $59 $124 122.0 % 5.6 % Percent of consolidated net income 50 % 28 % 50 % N/A N/A Average balances Loans $33,358 $34,069 $34,134 (2.1)% (2.3)% Total assets 36,970 37,857 37,315 (2.3) (.9) Deposits 41,063 40,925 38,929 .3 5.5 TE = Taxable Equivalent, N/A = Not Applicable Percent change Additional Consumer Banking Data 1Q05 vs. dollars in millions 1Q05 4Q04 1Q04 4Q04 1Q04 Average deposits outstanding Noninterest-bearing $6,607 $6,741 $6,245 (2.0)% 5.8 % Money market deposit accounts and other savings 20,290 20,315 18,230 (.1) 11.3 Time 14,166 13,869 14,454 2.1 (2.0) Total deposits $41,063 $40,925 $38,929 .3 % 5.5 % Home equity loans Community Banking: Average balance $10,475 $10,534 $9,880 Average loan-to-value ratio 72 % 72 % 72 % Percent first lien positions 61 61 59 National Home Equity: Average balance $3,504 $4,153 $5,067 Average loan-to-value ratio 66 % 67 % 73 % Percent first lien positions 69 70 79 Other data On-line households/ household penetration 581,737/47% 571,051/45% 501,235/41% KeyCenters 940 935 903 Automated teller machines 2,211 2,194 2,172

Net income for Consumer Banking was $131 million for the first quarter of 2005, up from $124 million for the year-ago quarter. The increase was attributable to a significant reduction in the provision for loan losses and growth in net interest income. The positive effects of these factors were offset in part by an increase in noninterest expense.

The provision for loan losses decreased by $22 million, or 36%, as a result of improved asset quality in both the Retail Banking and Small Business units within the Community Banking line of business, and management's 2004 decision to sell the broker-originated home equity and indirect automobile loan portfolios within the Consumer Finance line.

Taxable-equivalent net interest income increased by $11 million, or 2%, from the first quarter of 2004, due largely to growth in average core deposits and a more favorable interest rate spread on deposits.

Noninterest income was essentially unchanged. The positive effects of a decrease in net losses incurred on the residual values of leased vehicles, along with increases in electronic banking fees, and income from dealer trading and derivatives, were offset by declines in service charges on deposit accounts, and net gains from loan securitizations and sales. During the first quarter, a $19 million gain resulting from the sale of the prime indirect automobile loan portfolio was offset in part by a $9 million impairment charge taken in the education lending business.

Noninterest expense rose by $21 million, or 5%, due primarily to higher costs associated with personnel, loan servicing, computer processing and various indirect charges.

Corporate and Investment Banking Corporate & Investment Banking Percent change 1Q05 vs. dollars in millions 1Q05 4Q04 1Q04 4Q04 1Q04 Summary of operations Net interest income (TE) $284 $271 $246 4.8 % 15.4 % Noninterest income 170 211 161 (19.4) 5.6 Total revenue (TE) 454 482 407 (5.8) 11.5 Provision for loan losses 5 (30) 20 N/M (75.0) Noninterest expense 212 229 197 (7.4) 7.6 Income before income taxes (TE) 237 283 190 (16.3) 24.7 Allocated income taxes and TE adjustments 89 106 71 (16.0) 25.4 Net income $148 $177 $119 (16.4)% 24.4 % Percent of consolidated net income 56 % 83 % 48 % N/A N/A Average balances Loans $34,920 $32,005 $27,964 9.1 % 24.9 % Total assets 39,835 36,944 33,186 7.8 20.0 Deposits 8,781 8,793 7,478 (.1) 17.4 TE = Taxable Equivalent, N/M = Not Meaningful, N/A = Not Applicable Additional Corporate and Percent change Investment Banking Data 1Q05 vs. dollars in millions 1Q05 4Q04 1Q04 4Q04 1Q04 Average lease financing receivables managed by Key Equipment Finance(a) Receivables held in Key Equipment Finance portfolio $8,575 $7,449 $6,493 15.1 % 32.1 % Receivables assigned to other lines of business 2,239 2,081 2,043 7.6 9.6 Total lease financing receivables managed $10,814 $9,530 $8,536 13.5 % 26.7 % (a) Includes lease financing receivables held in portfolio and those assigned to other lines of business (primarily Corporate Banking) if those businesses are principally responsible for maintaining the relationship with the client.

Net income for Corporate and Investment Banking was $148 million for the first quarter of 2005, up from $119 million for the same period last year. Increases in both net interest income and noninterest income, along with a significant reduction in the provision for loan losses drove the improvement and more than offset an increase in noninterest expense.

Taxable-equivalent net interest income increased by $38 million, or 15%, from the first quarter of 2004, due primarily to strong growth in average loans and leases, and deposits. Average loans and leases rose by $7.0 billion, or 25%, reflecting improvements in each of the primary lines of business. The increase in lease financing receivables in the Key Equipment Finance line was bolstered by the acquisition of American Express Business Finance Corporation during the fourth quarter of 2004.

Noninterest income rose by $9 million, or 6%, due largely to increases in income from investment banking and capital markets activities, and non-yield- related loan fees.

The provision for loan losses decreased by $15 million, or 75%, reflecting improved asset quality in the Corporate Banking and Key Equipment Finance lines of business.

Noninterest expense rose by $15 million, or 8%, due primarily to an increase in personnel expense, reflecting expansion of the business and improved profitability.

Other Segments

Other segments consist primarily of Corporate Treasury and Key's Principal Investing unit. These segments generated net income of $13 million for the first quarter of 2005, compared with net income of $9 million for the same period last year.

Line of Business Descriptions Consumer Banking

Community Banking includes Retail Banking, Small Business and McDonald Financial Group.

Retail 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.

Small Business provides businesses that typically have annual sales revenues of $10 million or less with deposit, investment and credit products, and business advisory services.

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

Consumer Finance includes Indirect Lending and National Home Equity.

Indirect Lending offers loans to consumers through dealers and finances inventory for automobile and marine 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.

National Home Equity provides both prime and nonprime mortgage and home equity loan products to individuals. These products originate outside of Key's retail branch system. This business unit also works with home improvement contractors to provide home equity and home improvement solutions.

Corporate and Investment Banking

Corporate Banking provides products and services to large corporations, middle-market companies, financial institutions and government 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, Corporate Banking 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.

KeyBank 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 for which the owner occupies less than 60% of the premises).

Key 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 Corporate Banking) if those businesses are principally responsible for maintaining the relationship with the client.

Cleveland-based KeyCorp is one of the nation's largest bank-based financial services companies, with assets of approximately $90 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 940 KeyCenters and offices; a network of 2,211 ATMs; telephone banking centers (1.800.KEY2YOU); and a Web site, Key.com,(R) that 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 http://www.key.com/ir at 9:00 a.m. ET, on Friday, April 15, 2005. A tape of the call will be available through April 22.

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

This news release contains forward-looking statements about issues like anticipated earnings outlook, asset quality trends and anticipated improvement in profitability. Forward-looking statements by their nature are subject to assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by such forward-looking statements for a variety of factors including: changes in interest rates; failure of the economy to continue to improve, which could materially impact credit quality trends and the ability to generate loans; failure to develop, market and deliver products and services and to make technological advances to support products and services; inability to execute strategic initiatives designed to grow revenues and/or manage expenses; inaccurate or erroneous assumptions made in connection with various modeling techniques; consummation of significant business combinations or divestitures; new legal obligations or restrictions or unfavorable resolution of litigation; disruption in the economy and the general business climate as a result of terrorist activities or military actions; and changes in accounting, tax or regulatory practices or requirements.

Financial Highlights (dollars in millions, except per share amounts) Three months ended 3-31-05 12-31-04 3-31-04 Summary of operations Net interest income (TE) $722 $708 $685 Noninterest income 454 433 431 Total revenue (TE) 1,176 1,141 1,116 Provision for loan losses 44 (21) 81 Noninterest expense 731 782 659 Net income 264 213 250 Per common share Net income $.65 $.52 $.60 Net income -- assuming dilution .64 .51 .59 Cash dividends paid .325 .31 .31 Book value at period end 17.58 17.46 16.98 Market price at period end 32.45 33.90 30.29 Performance ratios Return on average total assets 1.18 % .95 % 1.19 % Return on average equity 15.09 11.99 14.47 Net interest margin (TE) 3.66 3.64 3.74 Capital ratios at period end Equity to assets 7.93 % 7.84 % 8.29 % Tangible equity to tangible assets 6.44 6.35 6.98 Tier 1 risk-based capital (a) 7.33 7.22 8.10 Total risk-based capital (a) 11.52 11.47 12.22 Leverage (a) 7.91 7.96 8.45 Asset quality Net loan charge-offs $54 $140 $111 Net loan charge-offs to average loans .32 % .83 % .71 % Allowance for loan losses $1,128 $1,138 $1,306 Allowance for loan losses to period- end loans 1.65 % 1.66 % 2.09 % Allowance for loan losses to nonperforming loans 369.84 360.13 222.49 Nonperforming loans at period end $305 $316 $587 Nonperforming assets at period end 371 379 670 Nonperforming loans to period-end loans .45 % .46 % .94 % Nonperforming assets to period-end loans plus OREO and other nonperforming assets .54 .55 1.07 Other data Average full-time equivalent employees 19,571 19,575 19,585 KeyCenters 940 935 903 Taxable-equivalent adjustment $28 $26 $24 (a) 3-31-05 ratio is estimated. TE = Taxable Equivalent Consolidated Balance Sheets (dollars in millions) 3-31-05 12-31-04 3-31-04 Assets Loans $68,332 $68,464 $62,513 Investment securities 68 71 94 Securities available for sale 7,123 7,451 7,463 Short-term investments 1,763 1,472 2,042 Other investments 1,434 1,421 1,157 Total earning assets 78,720 78,879 73,269 Allowance for loan losses (1,128) (1,138) (1,306) Cash and due from banks 2,991 2,454 2,113 Premises and equipment 587 603 604 Goodwill 1,341 1,359 1,150 Other intangible assets 105 87 34 Corporate-owned life insurance 2,623 2,608 2,528 Accrued income and other assets 5,024 5,887 6,056 Total assets $90,263 $90,739 $84,448 Liabilities Deposits in domestic offices: NOW and money market deposit accounts $22,692 $21,748 $19,120 Savings deposits 2,011 1,970 2,067 Certificates of deposit ($100,000 or more) 4,809 4,697 4,850 Other time deposits 10,750 10,435 10,834 Total interest-bearing 40,262 38,850 36,871 Noninterest-bearing 11,891 11,581 10,826 Deposits in foreign office -- interest-bearing 4,974 7,411 2,234 Total deposits 57,127 57,842 49,931 Federal funds purchased and securities sold under repurchase agreements 3,220 2,145 3,584 Bank notes and other short-term borrowings 2,820 2,515 2,588 Accrued expense and other liabilities 5,834 6,274 6,013 Long-term debt 14,100 14,846 15,333 Total liabilities 83,101 83,622 77,449 Shareholders' equity Preferred stock -- -- -- Common shares 492 492 492 Capital surplus 1,481 1,491 1,459 Retained earnings 7,416 7,284 6,960 Treasury stock (2,156) (2,128) (1,966) Accumulated other comprehensive income (loss) (71) (22) 54 Total shareholders' equity 7,162 7,117 6,999 Total liabilities and shareholders' equity $90,263 $90,739 $84,448 Common shares outstanding (000) 407,297 407,570 412,153 Consolidated Statements of Income (dollars in millions, except per share amounts) Three months ended 3-31-05 12-31-04 3-31-04 Interest income Loans $974 $913 $833 Investment securities 1 1 1 Securities available for sale 80 81 88 Short-term investments 10 11 9 Other investments 8 9 8 Total interest income 1,073 1,015 939 Interest expense Deposits 206 184 161 Federal funds purchased and securities sold under repurchase agreements 25 23 10 Bank notes and other short-term borrowings 17 13 12 Long-term debt, including capital securities 131 113 95 Total interest expense 379 333 278 Net interest income 694 682 661 Provision for loan losses 44 (21) 81 650 703 580 Noninterest income Trust and investment services income 138 143 145 Service charges on deposit accounts 70 77 84 Investment banking and capital markets income 67 77 46 Letter of credit and loan fees 40 50 33 Corporate-owned life insurance income 28 33 27 Electronic banking fees 22 23 18 Net gains (losses) from loan securitizations and sales 19 (29) 25 Net securities losses (6) (3) -- Other income 76 62 53 Total noninterest income 454 433 431 Noninterest expense Personnel 390 411 373 Net occupancy 91 60 58 Computer processing 51 50 44 Equipment 28 30 31 Professional fees 28 32 25 Marketing 25 32 23 Other expense 118 167 105 Total noninterest expense 731 782 659 Income before income taxes 373 354 352 Income taxes 109 141 102 Net income $264 $213 $250 Net income per common share $.65 $.52 $.60 Net income per common share -- assuming dilution .64 .51 .59 Weighted-average common shares outstanding (000) 408,264 408,243 416,680 Weighted-average common shares and potential common shares outstanding (000) 413,762 413,727 421,572 Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates (dollars in millions) First Quarter 2005 Average Balance Interest Yield/Rate Assets Loans: (a,b) Commercial, financial and agricultural $19,796 $238 4.88 % Real estate -- commercial mortgage 7,602 108 5.74 Real estate -- construction 5,633 81 5.81 Commercial lease financing 10,814 166 6.15 Total commercial loans 43,845 593 5.46 Real estate -- residential 1,449 22 5.99 Home equity 13,986 213 6.19 Consumer -- direct 1,932 38 7.88 Consumer -- indirect lease financing 77 2 10.26 Consumer -- indirect other 3,248 52 6.42 Total consumer loans 20,692 327 6.39 Loans held for sale 4,281 81 7.64 Total loans 68,818 1,001 5.87 Investment securities (a) 70 2 7.41 Securities available for sale (c) 7,226 80 4.43 Short-term investments 1,679 10 2.43 Other investments (c) 1,423 8 2.25 Total earning assets 79,216 1,101 5.61 Allowance for loan losses (1,133) Accrued income and other assets 12,863 Total assets $90,946 Liabilities NOW and money market deposit accounts $21,619 55 1.03 Savings deposits 1,957 1 .24 Certificates of deposit ($100,000 or more) (d) 4,895 44 3.65 Other time deposits 10,589 76 2.90 Deposits in foreign office 4,963 30 2.45 Total interest-bearing deposits 44,023 206 1.90 Federal funds purchased and securities sold under repurchase agreements 4,475 25 2.24 Bank notes and other short-term borrowings 2,947 17 2.38 Long-term debt (d) 14,785 131 3.77 Total interest-bearing liabilities 66,230 379 2.34 Noninterest-bearing deposits 11,534 Accrued expense and other liabilities 6,088 Total liabilities 83,852 Shareholders' equity 7,094 Total liabilities and shareholders' equity $90,946 Interest rate spread (TE) 3.27 % Net interest income (TE) and net interest margin (TE) 722 3.66 % TE adjustment (a) 28 Net interest income, GAAP basis $694 Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates (dollars in millions) Fourth Quarter 2004 Average Balance Interest Yield/Rate Assets Loans: (a,b) Commercial, financial and agricultural $18,524 $214 4.60 % Real estate -- commercial mortgage 7,361 99 5.38 Real estate -- construction 5,291 74 5.53 Commercial lease financing 9,530 139 5.82 Total commercial loans 40,706 526 5.15 Real estate -- residential 1,493 23 5.93 Home equity 14,696 219 5.94 Consumer -- direct 2,007 38 7.62 Consumer -- indirect lease financing 104 3 10.02 Consumer -- indirect other 5,076 96 7.55 Total consumer loans 23,376 379 6.45 Loans held for sale 2,635 33 5.07 Total loans 66,717 938 5.60 Investment securities (a) 75 2 8.53 Securities available for sale (c) 7,233 81 4.48 Short-term investments 2,100 11 2.00 Other investments (c) 1,417 9 2.56 Total earning assets 77,542 1,041 5.35 Allowance for loan losses (1,251) Accrued income and other assets 12,950 Total assets $89,241 Liabilities NOW and money market deposit accounts $21,591 46 .84 Savings deposits 1,951 1 .23 Certificates of deposit ($100,000 or more) (d) 4,871 44 3.66 Other time deposits 10,366 75 2.89 Deposits in foreign office 3,506 18 1.96 Total interest-bearing deposits 42,285 184 1.73 Federal funds purchased and securities sold under repurchase agreements 5,085 23 1.81 Bank notes and other short-term borrowings 2,793 13 1.79 Long-term debt (d) 14,119 113 3.36 Total interest-bearing liabilities 64,282 333 2.08 Noninterest-bearing deposits 11,804 Accrued expense and other liabilities 6,088 Total liabilities 82,174 Shareholders' equity 7,067 Total liabilities and shareholders' equity $89,241 Interest rate spread (TE) 3.27 % Net interest income (TE) and net interest margin (TE) 708 3.64 % TE adjustment (a) 26 Net interest income, GAAP basis $682 Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates (dollars in millions) First Quarter 2004 Average Balance Interest Yield/Rate Assets Loans: (a,b) Commercial, financial and agricultural $17,037 $190 4.50 % Real estate -- commercial mortgage 5,750 72 5.00 Real estate -- construction 4,856 58 4.79 Commercial lease financing 8,536 127 5.96 Total commercial loans 36,179 447 4.96 Real estate -- residential 1,589 25 6.21 Home equity 14,963 210 5.64 Consumer -- direct 2,083 40 7.69 Consumer -- indirect lease financing 266 6 9.72 Consumer -- indirect other 5,389 105 7.79 Total consumer loans 24,290 386 6.37 Loans held for sale 2,327 23 4.07 Total loans 62,796 856 5.47 Investment securities (a) 96 2 8.79 Securities available for sale (c) 7,516 88 4.70 Short-term investments 1,859 9 1.95 Other investments (c) 1,114 8 2.78 Total earning assets 73,381 963 5.27 Allowance for loan losses (1,378) Accrued income and other assets 12,522 Total assets $84,525 Liabilities NOW and money market deposit accounts $18,882 29 .61 Savings deposits 2,052 1 .23 Certificates of deposit ($100,000 or more) (d) 4,883 46 3.81 Other time deposits 10,957 80 2.96 Deposits in foreign office 2,167 5 .97 Total interest-bearing deposits 38,941 161 1.67 Federal funds purchased and securities sold under repurchase agreements 4,068 10 .96 Bank notes and other short-term borrowings 2,603 12 1.81 Long-term debt (d) 15,229 95 2.63 Total interest-bearing liabilities 60,841 278 1.86 Noninterest-bearing deposits 10,660 Accrued expense and other liabilities 6,077 Total liabilities 77,578 Shareholders' equity 6,947 Total liabilities and shareholders' equity $84,525 Interest rate spread (TE) 3.41 % Net interest income (TE) and net interest margin (TE) 685 3.74 % TE adjustment (a) 24 Net interest income, GAAP basis $661 (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. TE = Taxable Equivalent GAAP = U.S. generally accepted accounting principles Noninterest Income (in millions) Three months ended 3-31-05 12-31-04 3-31-04 Trust and investment services income (a) $138 $143 $145 Service charges on deposit accounts 70 77 84 Investment banking and capital markets income (a) 67 77 46 Letter of credit and loan fees 40 50 33 Corporate-owned life insurance income 28 33 27 Electronic banking fees 22 23 18 Net gains (losses) from loan securitizations and sales 19 (29) 25 Net securities losses (6) (3) -- Other income: Insurance income 11 12 11 Loan securitization servicing fees 5 1 1 Credit card fees 3 4 3 Miscellaneous income 57 45 38 Total other income 76 62 53 Total noninterest income $454 $433 $431 (a) Additional detail provided in tables below. Trust and Investment Services Income (in millions) Three months ended 3-31-05 12-31-04 3-31-04 Brokerage commissions and fee income $63 $68 $70 Personal asset management and custody fees 38 39 40 Institutional asset management and custody fees 37 36 35 Total trust and investment services income $138 $143 $145 Investment Banking and Capital Markets Income (in millions) Three months ended 3-31-05 12-31-04 3-31-04 Investment banking income $17 $39 $22 Net gains from principal investing 12 5 10 Foreign exchange income 13 10 12 Dealer trading and derivatives income (loss) 16 9 (5) Income from other investments 9 14 7 Total investment banking and capital markets income $67 $77 $46 Noninterest Expense (dollars in millions) Three months ended 3-31-05 12-31-04 3-31-04 Personnel (a) $390 $411 $373 Net occupancy 91 (b) 60 58 Computer processing 51 50 44 Equipment 28 30 31 Professional fees 28 32 25 Marketing 25 32 23 Other expense: Postage and delivery 13 13 13 Telecommunications 7 7 7 Franchise and business taxes 8 (1) (1) OREO expense, net 2 3 4 Miscellaneous expense 88 145 (c) 82 Total other expense 118 167 105 Total noninterest expense $731 $782 $659 Average full-time equivalent employees 19,571 19,575 19,585 (a) Additional detail provided in table below. (b) Includes a charge of $30 million to adjust the accounting for rental expense associated with operating leases from an escalating to a straight-line basis. (c) Includes goodwill write-off of $55 million as a result of management's decision to sell Key's nonprime indirect automobile loan portfolio. Personnel Expense (in millions) Three months ended 3-31-05 12-31-04 3-31-04 Salaries $218 $216 $209 Incentive compensation 80 113 85 Employee benefits 75 65 71 Stock-based compensation 11 13 7 Severance 6 4 1 Total personnel expense $390 $411 $373 Loan Composition (dollars in millions) Percent change 3-31-05 vs. 3-31-05 12-31-04 3-31-04 12-31-04 3-31-04 Commercial, financial and agricultural $19,852 $19,343 $17,058 2.6 % 16.4 % Commercial real estate: Commercial mortgage 7,696 7,534 5,802 2.2 32.6 Construction 5,836 5,505 4,777 6.0 22.2 Total commercial real estate loans 13,532 13,039 10,579 3.8 27.9 Commercial lease financing 10,831 10,894 8,705 (.6) 24.4 Total commercial loans 44,215 43,276 36,342 2.2 21.7 Real estate -- residential mortgage 1,474 1,456 1,585 1.2 (7.0) Home equity 13,936 14,062 14,483 (.9) (3.8) Consumer -- direct 1,859 1,987 2,050 (6.4) (9.3) Consumer -- indirect: Automobile lease financing 64 89 227 (28.1) (71.8) Automobile loans -- -- 1,968 N/M (100.0) Marine 2,641 2,624 2,541 .6 3.9 Other 612 617 884 (.8) (30.8) Total consumer -- indirect loans 3,317 3,330 5,620 (.4) (41.0) Total consumer loans 20,586 20,835 23,738 (1.2) (13.3) Loans held for sale: Real estate -- commercial mortgage 248 283 277 (12.4) (10.5) Real estate -- residential mortgage 22 26 20 (15.4) 10.0 Home equity 1 29 6 (96.6) (83.3) Education 2,514 2,278 2,130 10.4 18.0 Automobile 746 1,737 -- (57.1) N/M Total loans held for sale 3,531 4,353 2,433 (18.9) 45.1 Total loans $68,332 $68,464 $62,513 (.2)% 9.3% N/M = Not Meaningful Summary of Loan Loss Experience (dollars in millions) Three months ended 3-31-05 12-31-04 3-31-04 Average loans outstanding during the period $68,818 $66,717 $62,796 Allowance for loan losses at beginning of period $1,138 $1,251 $1,406 Loans charged off: Commercial, financial and agricultural 25 20 52 Real estate -- commercial mortgage 3 9 8 Real estate -- construction 5 -- -- Total commercial real estate loans 8 9 8 Commercial lease financing 12 18 10 Total commercial loans 45 47 70 Real estate -- residential mortgage 2 2 2 Home equity 6 26 17 Consumer -- direct 8 10 12 Consumer -- indirect lease financing 1 2 3 Consumer -- indirect other 16 86 45 Total consumer loans 33 126 79 78 173 149 Recoveries: Commercial, financial and agricultural 5 6 13 Real estate -- commercial mortgage 1 4 1 Commercial lease financing 10 4 3 Total commercial loans 16 14 17 Home equity 1 2 1 Consumer -- direct 2 2 2 Consumer -- indirect lease financing 1 -- 1 Consumer -- indirect other 4 15 17 Total consumer loans 8 19 21 24 33 38 Net loans charged off (54) (140) (111) Provision for loan losses 44 (21) 81 Reclassification of allowance for credit losses on lending-related commitments (a) -- -- (70) Allowance related to loans acquired -- 48 -- Allowance for loan losses at end of period $1,128 $1,138 $1,306 Net loan charge-offs to average loans .32 % .83 % .71 % Allowance for loan losses to period- end loans 1.65 1.66 2.09 Allowance for loan losses to nonperforming loans 369.84 360.13 222.49 (a) Included in accrued expenses and other liabilities on the consolidated balance sheet. Summary of Nonperforming Assets and Past Due Loans (dollars in millions) 3-31-05 12-31-04 9-30-04 6-30-04 3-31-04 Commercial, financial and agricultural $51 $43 $61 $114 $191 Real estate -- commercial mortgage 36 31 49 61 72 Real estate -- construction 5 20 1 1 12 Total commercial real estate loans 41 51 50 62 84 Commercial lease financing 75 84 74 59 84 Total commercial loans 167 178 185 235 359 Real estate -- residential mortgage 43 39 36 38 39 Home equity 76 80 149 151 161 Consumer -- direct 3 3 4 13 10 Consumer -- indirect lease financing 5 1 1 2 2 Consumer -- indirect other 11 15 15 15 16 Total consumer loans 138 138 205 219 228 Total nonperforming loans 305 316 390 454 587 OREO 58 53 60 71 76 Allowance for OREO losses (4) (4) (5) (8) (5) OREO, net of allowance 54 49 55 63 71 Other nonperforming assets 12 14 15 23 12 Total nonperforming assets $371 $379 $460 $540 $670 Accruing loans past due 90 days or more $79 $122 $139 $114 $127 Accruing loans past due 30 through 89 days 495 491 602 622 559 Nonperforming loans to period-end loans .45 % .46 % .60 % .71 % .94 % Nonperforming assets to period-end loans plus OREO and other nonperforming assets .54 .55 .71 .84 1.07 Summary of Changes in Nonperforming Loans (in millions) 1Q05 4Q04 3Q04 2Q04 1Q04 Balance at beginning of period $316 $390 $454 $587 $694 Loans placed on nonaccrual status 69 95 94 68 145 Charge-offs (54) (91) (76) (104) (111) Loans acquired (sold), net (5) (66) (35) (33) (58) Payments (9) (11) (32) (62) (56) Transfers to OREO (12) -- -- -- (11) Loans returned to accrual status -- (1) (15) (2) (16) Balance at end of period $305 $316 $390 $454 $587 Line of Business Results (dollars in millions) Consumer Banking 1Q05 4Q04 3Q04 2Q04 1Q04 Summary of operations Total revenue (TE) $727 $690 $722 $690 $717 Provision for loan losses 39 9 52 49 61 Noninterest expense 478 554 470 476 457 Net income 131 59 125 103 124 Average loans 33,358 34,069 33,825 33,817 34,134 Average deposits 41,063 40,925 40,034 39,305 38,929 Net loan charge- offs 39 118 53 64 72 Return on average allocated equity 21.26 % 9.10 % 20.27 % 16.88 % 19.98 % Average full-time equivalent employees 10,140 10,392 10,508 10,415 10,416 Supplementary information (lines of business) Community Banking Total revenue (TE) $555 $581 $550 $547 $549 Provision for loan losses 22 21 28 25 29 Noninterest expense 392 406 386 391 372 Net income 88 97 85 82 92 Average loans 19,939 20,118 19,684 19,491 19,212 Average deposits 40,661 40,518 39,623 38,940 38,560 Net loan charge- offs 25 23 28 27 31 Return on average allocated equity 23.28 % 25.03 % 23.73 % 23.49 % 26.39 % Average full-time equivalent employees 8,520 8,754 8,914 8,833 8,793 Consumer Finance Total revenue (TE) $172 $109 $172 $143 $168 Provision for loan losses 17 (12) 24 24 32 Noninterest expense 86 148 84 85 85 Net income 43 (38) 40 21 32 Average loans 13,419 13,951 14,141 14,326 14,922 Average deposits 402 407 411 365 369 Net loan charge- offs 14 95 25 37 41 Return on average allocated equity 18.05 % (14.59)% 15.48 % 8.04 % 11.76 % Average full-time equivalent employees 1,620 1,638 1,594 1,582 1,623 Line of Business Results (dollars in millions) Consumer Banking Percent change 1Q05 vs. 4Q04 1Q04 Summary of operations Total revenue (TE) 5.4 % 1.4 % Provision for loan losses 333.3 (36.1) Noninterest expense (13.7) 4.6 Net income 122.0 5.6 Average loans (2.1) (2.3) Average deposits .3 5.5 Net loan charge-offs (66.9) (45.8) Return on average allocated equity N/A N/A Average full-time equivalent employees (2.4) (2.6) Supplementary information (lines of business) Community Banking Total revenue (TE) (4.5)% 1.1 % Provision for loan losses 4.8 (24.1) Noninterest expense (3.4) 5.4 Net income (9.3) (4.3) Average loans (.9) 3.8 Average deposits .4 5.4 Net loan charge-offs 8.7 (19.4) Return on average allocated equity N/A N/A Average full-time equivalent employees (2.7) (3.1) Consumer Finance Total revenue (TE) 57.8 % 2.4 % Provision for loan losses N/M (46.9) Noninterest expense (41.9) 1.2 Net income N/M 34.4 Average loans (3.8) (10.1) Average deposits (1.2) 8.9 Net loan charge-offs (85.3) (65.9) Return on average allocated equity N/A N/A Average full-time equivalent employees (1.1) (.2) Line of Business Results (continued) (dollars in millions) Corporate and Investment Banking 1Q05 4Q04 3Q04 2Q04 1Q04 Summary of operations Total revenue (TE) $454 $482 $420 $418 $407 Provision for loan losses 5 (30) (1) 25 20 Noninterest expense 212 229 219 202 197 Net income 148 177 126 119 119 Average loans 34,920 32,005 29,859 28,626 27,964 Average deposits 8,781 8,793 7,800 7,867 7,478 Net loan charge- offs 15 22 23 40 39 Return on average allocated equity 17.00 % 21.77 % 15.83 % 15.17 % 15.11 % Average full-time equivalent employees 3,302 3,028 2,875 2,828 2,812 Supplementary information (lines of business) Corporate Banking Total revenue (TE) $250 $265 $246 $254 $242 Provision for loan losses 2 (32) (7) 25 14 Noninterest expense 125 150 139 133 135 Net income 76 91 71 59 59 Average loans 15,301 14,058 13,887 13,336 12,976 Average deposits 7,256 7,266 6,421 6,651 6,337 Net loan charge- offs 10 12 13 36 31 Return on average allocated equity 18.04 % 21.21 % 16.36 % 13.61 % 13.53 % Average full-time equivalent employees 1,527 1,558 1,555 1,523 1,531 KeyBank Real Estate Capital Total revenue (TE) $104 $133 $104 $91 $88 Provision for loan losses 3 (4) -- (4) 1 Noninterest expense 46 50 46 43 38 Net income 35 55 36 33 30 Average loans 10,119 9,570 8,286 7,752 7,624 Average deposits 1,514 1,520 1,366 1,202 1,127 Net loan charge- offs (recoveries) 4 2 3 (1) 2 Return on average allocated equity 13.22 % 21.60 % 15.32 % 14.49 % 13.04 % Average full-time equivalent employees 758 702 678 673 668 Key Equipment Finance Total revenue (TE) $100 $84 $70 $73 $77 Provision for loan losses -- 6 6 4 5 Noninterest expense 41 29 34 26 24 Net income 37 31 19 27 30 Average loans 9,500 8,377 7,686 7,538 7,364 Average deposits 11 7 13 14 14 Net loan charge- offs 1 8 7 5 6 Return on average allocated equity 20.06 % 23.99 % 14.94 % 21.89 % 24.67 % Average full-time equivalent employees 1,017 768 642 632 613 TE = Taxable Equivalent N/A = Not Applicable N/M = Not Meaningful Line of Business Results (continued) (dollars in millions) Corporate and Investment Banking Percent change 1Q05 vs. 4Q04 1Q04 Summary of operations Total revenue (TE) (5.8)% 11.5 % Provision for loan losses N/M (75.0) Noninterest expense (7.4) 7.6 Net income (16.4) 24.4 Average loans 9.1 24.9 Average deposits (.1) 17.4 Net loan charge-offs (31.8) (61.5) Return on average allocated equity N/A N/A Average full-time equivalent employees 9.0 17.4 Supplementary information (lines of business) Corporate Banking Total revenue (TE) (5.7)% 3.3 % Provision for loan losses N/M (85.7) Noninterest expense (16.7) (7.4) Net income (16.5) 28.8 Average loans 8.8 17.9 Average deposits (.1) 14.5 Net loan charge-offs (16.7) (67.7) Return on average allocated equity N/A N/A Average full-time equivalent employees (2.0) (.3) KeyBank Real Estate Capital Total revenue (TE) (21.8)% 18.2 % Provision for loan losses N/M 200.0 Noninterest expense (8.0) 21.1 Net income (36.4) 16.7 Average loans 5.7 32.7 Average deposits (.4) 34.3 Net loan charge-offs (recoveries) 100.0 100.0 Return on average allocated equity N/A N/A Average full-time equivalent employees 8.0 13.5 Key Equipment Finance Total revenue (TE) 19.0 % 29.9 % Provision for loan losses (100.0) (100.0) Noninterest expense 41.4 70.8 Net income 19.4 23.3 Average loans 13.4 29.0 Average deposits 57.1 (21.4) Net loan charge-offs (87.5) (83.3) Return on average allocated equity N/A N/A Average full-time equivalent employees 32.4 65.9 TE = Taxable Equivalent N/A = Not Applicable N/M = Not Meaningful