KeyCorp Reports First Quarter 2007 Earnings

CLEVELAND, April 17 /PRNewswire-FirstCall/ -- KeyCorp today announced first quarter income from continuing operations of $358 million, or $0.89 per diluted common share. This compares to income from continuing operations - before the cumulative effect of an accounting change - of $274 million, or $0.66 per share, for the first quarter of 2006 and income from continuing operations of $311 million, or $0.76 per share, for the fourth quarter of 2006.

Net income totaled $350 million, or $0.87 per diluted common share, for the first quarter of 2007, compared to net income of $289 million, or $0.70 per share, for the first quarter of 2006 and $146 million, or $0.36 per share, for the fourth quarter of 2006.

The following table shows Key's continuing and discontinued operating results for the three-month periods ended March 31, 2007, December 31, 2006, and March 31, 2006.

Results of Operations Three months ended in millions, except per share amounts 3-31-07 12-31-06 3-31-06 Summary of operations Income from continuing operations before cumulative effect of accounting change $358 $311 $274 Income (loss) from discontinued operations, net of taxes (8) (165)(a) 10 Cumulative effect of accounting change, net of taxes -- -- 5 Net income $350 $146 $289 Per common share - assuming dilution (b) Income from continuing operations before cumulative effect of accounting change $.89 $.76 $.66 Income (loss) from discontinued operations (.02) (.40)(a) .02 Cumulative effect of accounting change -- -- .01 Net income $.87 $.36 $.70 (a) Includes a net after-tax charge of $165 million, or $.40 per share, consisting of: (1) a $170 million, or $.42 per share, write-off of goodwill associated with Key's 1997 acquisition of Champion and (2) a net after-tax credit of $5 million, or $.01 per share, from the net gain on sale of the Champion Mortgage loan portfolio and disposal transaction costs. (b) Earnings per share may not foot due to rounding.

In February, Key sold the McDonald Investments branch network. First quarter results were also impacted by actions taken to reposition the securities portfolio. In March, Key sold $2.4 billion of shorter-maturity, agency-issued collateralized mortgage obligations and reinvested the proceeds in agency-issued securities with higher yields and longer expected average maturities. Key continues to maintain a relatively neutral exposure to changes in near-term interest rates. Neither funding nor capital levels were affected materially by this portfolio repositioning. In addition, as previously disclosed, Key recorded a gain from the settlement of the automobile residual value insurance litigation during the current quarter.

The following Summary of Operations shows Key's results for the first quarter of 2007 as reported and on an adjusted basis after excluding the McDonald Investments branch network, the loss resulting from the repositioning of the securities portfolio and the gain associated with the litigation settlement.

Summary of Operations McDonald Invest- 1Q07 ments Other 1Q07 in millions, except As Branch Adjust- Adjusted per share amounts Reported Network(a) ments(b) Basis Net interest income (TE) $700 $(3) -- $697 Noninterest income 654 (190) $23 487 Total revenue (TE) 1,354 (193) 23 1,184 Provision for loan losses 44 -- -- 44 Personnel expense 428 (15) -- 413 Nonpersonnel expense 356 (19) -- 337 Income from continuing operations before income taxes (TE) 526 (159) 23 390 Income taxes and TE adjustments 168 (60) 9 117 Income from continuing operations 358 (99) 14 273 Loss from discontinued operations, net of taxes (8) -- -- (8) Net income $350 $(99) $14 $265 Diluted earnings per common share Income from continuing operations $.89 $(.25) $.04 $.68 Net income .87 (.25) .04 .66 (a) Adjustments reflect the financial effect of the McDonald Investments branch network, including a $171 million gain resulting from the February 9 sale, on Key's results for the first quarter of 2007. (b) Adjustments include a loss of $49 million ($31 million after tax, $.08 per diluted common share) from the repositioning of the securities portfolio and a gain of $26 million ($17 million after tax, $.04 per diluted common share) from the settlement of the automobile residual value insurance litigation. TE = Taxable Equivalent

"The first quarter sales of the McDonald Investments branch network and the Champion Mortgage loan origination platform improve our risk profile and focus on the company's core relationship businesses," said Chairman and Chief Executive Officer Henry L. Meyer III. "During the quarter, we also repositioned the securities portfolio to respond to changing market conditions. We expect this change to enhance the company's future performance, particularly in the event of a decline in interest rates.

"The current rate environment has continued to pressure Key's net interest margin and, although asset quality has declined slightly from a year ago, it is still very good compared to historical measures. We also are pleased to have resolved the automobile residual value insurance litigation during the first quarter."

Based on adjusted earnings of $0.68 per share for the first quarter, the company expects earnings to be in the range of $2.80 to $2.95 per share for the full year.

SUMMARY OF CONTINUING OPERATIONS

Taxable-equivalent net interest income was $700 million for the first quarter of 2007, compared to $722 million for the year-ago quarter. Key's net interest margin for the current quarter declined to 3.50% from 3.72% for the first three months of 2006. The reductions in net interest income and the net interest margin were due to tighter interest rate spreads on deposits caused by a continuation of the inverted yield curve, and a continued shift in deposit mix from transaction accounts and money market deposit accounts to higher-cost certificates of deposit. Additionally, as part of the sale of the McDonald Investments branch network, Key transferred approximately $1.3 billion of money market deposit accounts to the buyer. Average earning assets were up 3% from the year-ago quarter, due primarily to an increase in commercial loans.

Compared to the fourth quarter of 2006, taxable-equivalent net interest income decreased by $44 million and the net interest margin declined by 16 basis points. During the fourth quarter of 2006, Key's net interest margin benefited from a $16 million lease accounting adjustment resulting from a change in effective state tax rates, and an $8 million principal investing distribution received in the form of a dividend. These two items added approximately 12 basis points to the taxable-equivalent net interest margin for the fourth quarter. The level of average earning assets decreased slightly due to the annual securitization of education loans completed in the fourth quarter of 2006.

Excluding the $171 million gain associated with the sale of the McDonald Investments branch network, the $49 million loss recorded in connection with the repositioning of the securities portfolio and the $26 million gain from the settlement of the automobile residual value insurance litigation, Key's noninterest income was $506 million for the first quarter of 2007, compared to $481 million for the year-ago quarter. A $32 million improvement in principal investing results accounted for the increase. Income from investment banking and capital markets activities was down due to a $25 million gain recorded in the first quarter of 2006 from the initial public offering completed by the New York Stock Exchange.

Compared to the fourth quarter of 2006, adjusted noninterest income decreased by $52 million. Normal seasonal fluctuations and the McDonald sale caused reductions in several components of noninterest income. These reductions were moderated by higher net gains from principal investing. Additionally, results for the fourth quarter of 2006 included a $24 million charge to miscellaneous income recorded in connection with the redemption of certain trust preferred securities.

Key's noninterest expense for the first quarter of 2007 was $784 million, compared to $752 million for the same period last year. Personnel expense rose by $28 million, due to higher salaries expense and stock-based compensation. Nonpersonnel expense was up $4 million, due to additional costs incurred in connection with the sale of the McDonald Investments branch network. These additional costs were offset in part by an $8 million reduction in Key's liability for credit losses on lending-related commitments recorded during the first quarter.

Compared to the fourth quarter of 2006, noninterest expense decreased by $25 million. Reductions in personnel expense, marketing expense, professional fees and net occupancy expense were offset in part by higher franchise taxes. In the fourth quarter of 2006, Key's franchise taxes were a credit of $7 million as a result of settlements reached with regard to disputed amounts.

ASSET QUALITY

Key's provision for loan losses from continuing operations was $44 million for the first quarter of 2007, compared to $39 million for the year-ago quarter and $53 million for the fourth quarter of 2006.

Net loan charge-offs for the quarter totaled $44 million, or 0.27% of average loans from continuing operations, compared to $39 million, or 0.24%, for the same period last year and $54 million, or 0.33%, for the previous quarter.

At March 31, 2007, Key's nonperforming loans totaled $254 million and represented 0.39% of period-end portfolio loans, compared to 0.33% at December 31, 2006, and 0.44% at March 31, 2006. At March 31, 2007, nonperforming assets totaled $353 million and represented 0.54% of portfolio loans, other real estate owned and other nonperforming assets, compared to 0.41% at December 31, 2006, and 0.48% at March 31, 2006. The increase in nonperforming assets during the first quarter of 2007 reflected a higher level of nonperforming credits in the Equipment Finance line of business. In addition, Key placed a real estate-related investment in Key's Private Equity unit within the Real Estate Capital line of business on nonperforming status.

Key's allowance for loan losses was $944 million, or 1.44% of loans outstanding, at March 31, 2007, compared to $944 million, or 1.43%, at December 31, 2006, and $966 million, or 1.44%, at March 31, 2006.

CAPITAL

Key's capital ratios continued to exceed all "well-capitalized" regulatory benchmarks at March 31, 2007. Key's tangible equity to tangible assets ratio was 6.97% at quarter end, compared to 7.01% at December 31, 2006, and 6.71% at March 31, 2006.

Key repurchased 8.0 million of its common shares and reissued 3.3 million shares under employee benefit and dividend reinvestment plans during the first quarter of 2007. At March 31, 2007, Key had 22.0 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 1Q07 4Q06 3Q06 2Q06 1Q06 Shares outstanding at beginning of period 399,153 402,748 402,672 405,273 406,624 Issuance of shares under employee benefit and dividend reinvestment plans 3,330 1,405 2,576 1,399 4,649 Repurchase of common shares (8,000) (5,000) (2,500) (4,000) (6,000) Shares outstanding at end of period 394,483 399,153 402,748 402,672 405,273 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 last two pages of this release. Key's line of business results for all periods presented reflect a new organizational structure that took effect January 1, 2007.

Major Business Groups Percent change 1Q07 vs. dollars in millions 1Q07 4Q06 1Q06 4Q06 1Q06 Revenue from continuing operations (TE) Community Banking $800 $670 $650 19.4 % 23.1 % National Banking 605 678 584 (10.8) 3.6 Other Segments (20) (11) (7) (81.8) (185.7) Total Segments 1,385 1,337 1,227 3.6 12.9 Reconciling Items (31) (35) (24) 11.4 (29.2) Total $1,354 $1,302 $1,203 4.0 % 12.6 % Income (loss) from continuing operations ` Community Banking $198 $97 $103 104.1 % 92.2 % National Banking 163 199 171 (18.1) (4.7) Other Segments (9) 2 -- N/M N/M Total Segments 352 298 274 18.1 28.5 Reconciling Items 6 13 -- (53.8) N/M Total $358 $311 $274 15.1 % 30.7 % TE = Taxable Equivalent, N/M = Not Meaningful Community Banking Percent change 1Q07 vs. dollars in millions 1Q07 4Q06 1Q06 4Q06 1Q06 Summary of operations Net interest income (TE) $418 $438 $429 (4.6)% (2.6)% Noninterest income 382 232 221 64.7 72.9 Total revenue (TE) 800 670 650 19.4 23.1 Provision for loan losses 14 23 29 (39.1) (51.7) Noninterest expense 469 492 456 (4.7) 2.9 Income before income taxes (TE) 317 155 165 104.5 92.1 Allocated income taxes and TE adjustments 119 58 62 105.2 91.9 Net income $198 $97 $103 104.1 % 92.2 % Percent of consolidated income from continuing operations 55 % 31 % 38 % N/A N/A Average balances Loans and leases $26,426 $26,667 $26,765 (.9)% (1.3)% Total assets 29,240 29,616 29,817 (1.3) (1.9) Deposits 46,581 47,383 45,830 (1.7) 1.6 TE = Taxable Equivalent, N/A = Not Applicable Percent change Additional Community Banking Data 1Q07 vs. dollars in millions 1Q07 4Q06 1Q06 4Q06 1Q06 Average deposits outstanding Noninterest-bearing $7,737 $8,083 $8,097 (4.3)% (4.4)% Money market deposit accounts and other savings 21,257 22,238 21,978 (4.4) (3.3) Time 17,587 17,062 15,755 3.1 11.6 Total deposits $46,581 $47,383 $45,830 (1.7)% 1.6% Home equity loans Average balance $9,677 $9,881 $10,151 Weighted-average loan-to- value ratio 70 % 70 % 70 % Percent first lien positions 59 59 61 Other data On-line households/ household penetration 687,263/53 % 682,955/53 % 631,523/51 % Branches 950 950 945 Automated teller machines 1,447 2,050 2,169 Community Banking Summary of Operations

Net income for Community Banking was $198 million for the first quarter of 2007, up from $103 million for the year-ago quarter. The improvement was attributable primarily to growth in noninterest income resulting from the gain associated with the sale of the McDonald Investments branch network during the first quarter of 2007. In addition, Community Banking experienced a lower provision for loan losses. The positive effects of these items were offset in part by a decrease in net interest income and higher noninterest expense.

Taxable-equivalent net interest income decreased by $11 million, or 3%, from the first quarter of 2006. The decrease was attributable to a reduction in, and a tighter interest rate spread on, average earning assets, along with a continued shift from transaction accounts and money market deposit accounts to higher-cost certificates of deposit.

Excluding the $171 million gain associated with the sale of the McDonald Investments branch network, noninterest income decreased by $10 million, or 5%, from the year-ago quarter. A reduction in brokerage commissions caused by the McDonald sale was offset in part by an increase in service charges on deposit accounts.

The provision for loan losses decreased by $15 million, or 52%, as a result of lower net loan charge-offs and an improved credit risk profile.

Noninterest expense grew by $13 million, or 3%, reflecting additional costs incurred in connection with the McDonald sale. Personnel expense and net occupancy expense also contributed to the growth.

National Banking Percent change 1Q07 vs. dollars in millions 1Q07 4Q06 1Q06 4Q06 1Q06 Summary of operations Net interest income (TE) $341 $366 $347 (6.8)% (1.7)% Noninterest income 264 312 237 (15.4) 11.4 Total revenue (TE) 605 678 584 (10.8) 3.6 Provision for loan losses 30 30 10 -- 200.0 Noninterest expense 314 330 300 (4.8) 4.7 Income from continuing operations before income taxes (TE) 261 318 274 (17.9) (4.7) Allocated income taxes and TE adjustments 98 119 103 (17.6) (4.9) Income from continuing operations 163 199 171 (18.1) (4.7) Income (loss) from discontinued operations, net of taxes (8) (165) 10 95.2 N/M Net income $155 $34 $181 355.9 % (14.4)% Percent of consolidated income from continuing operations 46 % 64 % 62 % N/A N/A Average balances from continuing operations Loans and leases $38,869 $38,498 $37,046 1.0 % 4.9 % Loans held for sale 3,917 4,521 3,683 (13.4) 6.4 Total assets 48,480 49,135 46,786 (1.3) 3.6 Deposits 11,231 11,839 9,952 (5.1) 12.9 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 $163 million for the first quarter of 2007, compared to $171 million for the same period last year. A decrease in net interest income, along with increases in the provision for loan losses and noninterest expense, accounted for the reduction and more than offset an increase in noninterest income.

Taxable-equivalent net interest income decreased by $6 million, or 2%, from the first quarter of 2006, due primarily to a tighter interest rate spread on average earning assets.

Noninterest income for the first quarter of 2007 included a $26 million gain from the settlement of the automobile residual value insurance litigation. In the first quarter of 2006, income from investment banking and capital markets activities included a $25 million gain from the initial public offering completed by the New York Stock Exchange. Excluding these gains, noninterest income increased by $26 million, or 12%, from the first quarter of 2006. Higher income from operating leases, trust and investment services, and investment banking and capital markets activities drove the improvement.

The provision for loan losses rose by $20 million, reflecting a higher level of net loan charge-offs.

Noninterest expense grew by $14 million, or 5%, due to increases in personnel expense and costs associated with operating leases. These increases were partially offset by decreases in a variety of other expense categories.

Other Segments

Other segments consist of Corporate Treasury and Key's Principal Investing unit. These segments generated a net loss of $9 million for the first quarter of 2007, compared to net income of less than $1 million for the same period last year. A $49 million loss recorded in the current quarter in connection with the repositioning of the securities portfolio was offset in part by a $32 million improvement in principal investing results.

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.

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 $93 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 950 branches and additional offices; a network of 1,447 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.

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, April 17, 2007. An audio replay of the call will be available through April 24.

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) disruption in the economy and general business climate as a result of terrorist activities or military actions; and (12) 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 http://www.sec.gov/.

Financial Highlights (dollars in millions, except per share amounts) Three months ended 3-31-07 12-31-06 3-31-06 Summary of operations Net interest income (TE) $700 $744 $722 Noninterest income 654 558 481 Total revenue (TE) 1,354 1,302 1,203 Provision for loan losses 44 53 39 Noninterest expense 784 809 752 Income from continuing operations before cumulative effect of accounting change 358 311 274 Income (loss) from discontinued operations, net of taxes (8) (165) 10 Net income 350 146 289 Per common share Income from continuing operations before cumulative effect of accounting change $.90 $.77 $.67 Income from continuing operations before cumulative effect of accounting change - assuming dilution .89 .76 .66 Income (loss) from discontinued operations (.02) (.41) .02 Income (loss) from discontinued operations - assuming dilution (.02) (.40) .02 Net income .88 .36 .71 Net income - assuming dilution .87 .36 .70 Cash dividends declared .365 .345 .345 Book value at period end 19.57 19.30 18.85 Market price at period end 37.47 38.03 36.80 Performance ratios - from continuing operations Return on average total assets 1.58 % 1.33 % 1.23 % Return on average equity 19.06 15.63 14.67 Net interest margin (TE) 3.50 3.66 3.72 Performance ratios - from consolidated operations Return on average total assets 1.54 % .61 % 1.26 % Return on average equity 18.63 7.34 15.48 Net interest margin (TE) 3.51 3.69 3.77 Capital ratios at period end Equity to assets 8.28 % 8.34 % 8.18 % Tangible equity to tangible assets 6.97 7.01 6.71 Tier 1 risk-based capital (a) 8.14 8.24 7.64 Total risk-based capital (a) 12.29 12.43 11.91 Leverage (a) 9.20 8.98 8.52 Asset quality Net loan charge-offs $44 $54 $39 Net loan charge-offs to average loans from continuing operations .27 % .33 % .24 % Allowance for loan losses $944 $944 $966 Allowance for loan losses to period- end loans 1.44 % 1.43 % 1.44 % Allowance for loan losses to nonperforming loans 371.65 439.07 327.46 Nonperforming loans at period end $254 $215 $295 Nonperforming assets at period end 353 273 320 Nonperforming loans to period-end portfolio loans .39 % .33 % .44 % Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets .54 .41 .48 Trust and brokerage assets Assets under management $82,388 $84,699 $79,558 Nonmanaged and brokerage assets (b) 32,838 56,292 56,944 Other data Average full-time equivalent employees 19,801 20,100 19,694 Branches 950 950 945 Taxable-equivalent adjustment $21 $32 $28 (a) 3-31-07 ratio is estimated. (b) On February 9, 2007, Key sold the McDonald Investments branch network. TE = Taxable Equivalent Consolidated Balance Sheets (dollars in millions) 3-31-07 12-31-06 3-31-06 Assets Loans $65,711 $65,826 $66,980 Loans held for sale 4,175 3,637 3,631 Investment securities 38 41 46 Securities available for sale 7,789 7,827 7,086 Short-term investments 2,084 1,407 1,974 Other investments 1,466 1,352 1,370 Total earning assets 81,263 80,090 81,087 Allowance for loan losses (944) (944) (966) Cash and due from banks 2,052 2,264 2,486 Premises and equipment 590 595 564 Operating lease assets 1,074 1,124 969 Goodwill 1,202 1,202 1,355 Other intangible assets 115 120 120 Corporate-owned life insurance 2,805 2,782 2,711 Derivative assets 1,132 1,091 947 Accrued income and other assets 3,930 4,013 4,118 Total assets $93,219 $92,337 $93,391 Liabilities Deposits in domestic offices: NOW and money market deposit accounts $23,317 $24,340 $25,271 Savings deposits 1,654 1,642 1,850 Certificates of deposit ($100,000 or more) 6,094 5,941 5,411 Other time deposits 12,086 11,956 11,364 Total interest-bearing 43,151 43,879 43,896 Noninterest-bearing 13,473 13,553 12,748 Deposits in foreign office - interest-bearing 3,149 1,684 2,758 Total deposits 59,773 59,116 59,402 Federal funds purchased and securities sold under repurchase agreements 5,770 3,643 3,511 Bank notes and other short-term borrowings 1,108 1,192 2,508 Derivative liabilities 870 922 1,048 Accrued expense and other liabilities 4,918 5,228 5,252 Long-term debt 13,061 14,533 14,032 Total liabilities 85,500 84,634 85,753 Shareholders' equity Preferred stock --- --- --- Common shares 492 492 492 Capital surplus 1,614 1,602 1,535 Retained earnings 8,528 8,377 8,031 Treasury stock, at cost (2,801) (2,584) (2,299) Accumulated other comprehensive loss (114) (184) (121) Total shareholders' equity 7,719 7,703 7,638 Total liabilities and shareholders' equity $93,219 $92,337 $93,391 Common shares outstanding (000) 394,483 399,153 405,273 Consolidated Statements of Income (dollars in millions, except per share amounts) Three months ended 3-31-07 12-31-06 3-31-06 Interest income Loans $1,161 $1,187 $1,060 Loans held for sale 75 90 68 Investment securities 1 --- --- Securities available for sale 100 96 83 Short-term investments 18 16 15 Other investments 13 24 25 Total interest income 1,368 1,413 1,251 Interest expense Deposits 433 440 330 Federal funds purchased and securities sold under repurchase agreements 49 37 20 Bank notes and other short-term borrowings 11 19 24 Long-term debt 196 205 183 Total interest expense 689 701 557 Net interest income 679 712 694 Provision for loan losses 44 53 39 Net interest income after provision for loan losses 635 659 655 Noninterest income Trust and investment services income 125 142 135 Service charges on deposit accounts 75 77 72 Investment banking and capital markets income 44 69 60 Operating lease income 64 63 52 Letter of credit and loan fees 38 55 40 Corporate-owned life insurance income 25 31 25 Electronic banking fees 24 27 24 Net gains from loan securitizations and sales 9 42 10 Net securities gains (losses) (47) 3 1 Gain on sale of McDonald Investments branch network 171 --- --- Other income 126 49 62 Total noninterest income 654 558 481 Noninterest expense Personnel 428 447 400 Net occupancy 63 68 61 Computer processing 51 55 56 Operating lease expense 52 50 41 Professional fees 26 33 33 Equipment 25 24 26 Marketing 19 27 15 Other expense 120 105 120 Total noninterest expense 784 809 752 Income from continuing operations before income taxes and cumulative effect of accounting change 505 408 384 Income taxes 147 97 110 Income from continuing operations before cumulative effect of accounting change 358 311 274 Income (loss) from discontinued operations, net of taxes (8) (165) 10 Income before cumulative effect of accounting change 350 146 284 Cumulative effect of change in accounting for forfeited stock-based awards, net of taxes --- --- 5 Net income $350 $146 $289 Per common share: Income from continuing operations before cumulative effect of accounting change $.90 $.77 $.67 Income before cumulative effect of accounting change .88 .36 .70 Net income .88 .36 .71 Per common share - assuming dilution: Income from continuing operations before cumulative effect of accounting change $.89 $.76 $.66 Income before cumulative effect of accounting change .87 .36 .69 Net income .87 .36 .70 Cash dividends declared per common share $.365 $.345 $.345 Weighted-average common shares outstanding (000) 397,875 402,329 407,386 Weighted-average common shares and potential common shares outstanding (000) 403,478 407,828 413,140 Consolidated Average Balance Sheets, Net Interest Income and Yields/Rates From Continuing Operations (dollars in millions) First Quarter 2007 Average Balance Interest Yield/Rate Assets Loans: (a,b) Commercial, financial and agricultural $21,562 $392 7.38 % Real estate - commercial mortgage 8,426 163 7.83 Real estate - construction 8,227 166 8.20 Commercial lease financing 10,094 146 5.78 Total commercial loans 48,309 867 7.26 Real estate - residential 1,444 24 6.60 Home equity 10,706 191 7.22 Consumer - direct 1,450 36 10.15 Consumer - indirect 3,760 64 6.79 Total consumer loans 17,360 315 7.32 Total loans 65,669 1,182 7.28 Loans held for sale 3,940 75 7.70 Investment securities (a) 39 1 7.21 Securities available for sale (c) 7,548 100 5.27 Short-term investments 1,607 18 4.55 Other investments (c) 1,400 13 3.65 Total earning assets 80,203 1,389 6.99 Allowance for loan losses (942) Accrued income and other assets 12,835 Total assets $92,096 Liabilities NOW and money market deposit accounts $23,424 177 3.06 Savings deposits 1,629 1 .19 Certificates of deposit ($100,000 or more) (d) 6,151 76 5.03 Other time deposits 12,063 138 4.64 Deposits in foreign office (e) 3,258 41 5.12 Total interest-bearing deposits 46,525 433 3.77 Federal funds purchased and securities sold under repurchase agreements (e) 3,903 49 5.04 Bank notes and other short-term borrowings 1,113 11 3.98 Long-term debt (d,e) 13,617 196 5.90 Total interest-bearing liabilities 65,158 689 4.29 Noninterest-bearing deposits 13,237 Accrued expense and other liabilities 6,083 Total liabilities 84,478 Shareholders' equity 7,618 Total liabilities and shareholders' equity $92,096 Interest rate spread (TE) 2.70 % Net interest income (TE) and net interest margin (TE) 700 3.50 % TE adjustment (a) 21 Net interest income, GAAP basis $679 Fourth Quarter 2006 Average Balance Interest Yield/Rate Assets Loans: (a,b) Commercial, financial and agricultural $21,384 $400 7.42 % Real estate - commercial mortgage 8,399 167 7.86 Real estate - construction 8,347 174 8.25 Commercial lease financing 9,891 160 6.47 Total commercial loans 48,021 901 7.44 Real estate - residential 1,428 24 6.59 Home equity 10,896 197 7.22 Consumer - direct 1,557 34 8.63 Consumer - indirect 3,671 62 6.85 Total consumer loans 17,552 317 7.21 Total loans 65,573 1,218 7.38 Loans held for sale 4,547 90 7.86 Investment securities (a) 38 1 7.68 Securities available for sale (c) 7,765 96 4.88 Short-term investments 1,584 16 4.04 Other investments (c) 1,351 24 6.76 Total earning assets 80,858 1,445 7.09 Allowance for loan losses (941) Accrued income and other assets 13,129 Total assets $93,046 Liabilities NOW and money market deposit accounts $25,136 198 3.13 Savings deposits 1,651 1 .19 Certificates of deposit ($100,000 or more) (d) 6,013 75 4.93 Other time deposits 11,921 136 4.50 Deposits in foreign office (e) 2,245 30 5.55 Total interest-bearing deposits 46,966 440 3.72 Federal funds purchased and securities sold under repurchase agreements (e) 2,816 37 5.21 Bank notes and other short-term borrowings 1,814 19 4.17 Long-term debt (d,e) 14,092 205 5.80 Total interest-bearing liabilities 65,688 701 4.24 Noninterest-bearing deposits 13,424 Accrued expense and other liabilities 6,041 Total liabilities 85,153 Shareholders' equity 7,893 Total liabilities and shareholders' equity $93,046 Interest rate spread (TE) 2.85 % Net interest income (TE) and net interest margin (TE) 744 3.66 % TE adjustment (a) 32 Net interest income, GAAP basis $712 First Quarter 2006 Average Balance Interest Yield/Rate Assets Loans: (a,b) Commercial, financial and agricultural $21,720 $357 6.66 % Real estate - commercial mortgage 8,089 144 7.23 Real estate - construction 7,312 138 7.66 Commercial lease financing 9,581 143 5.98 Total commercial loans 46,702 782 6.78 Real estate - residential 1,450 23 6.33 Home equity 10,971 184 6.82 Consumer - direct 1,730 41 9.66 Consumer - indirect 3,367 57 6.66 Total consumer loans 17,518 305 7.03 Total loans 64,220 1,087 6.85 Loans held for sale 3,692 68 7.44 Investment securities (a) 61 1 6.34 Securities available for sale (c) 7,148 83 4.61 Short-term investments 1,746 15 3.61 Other investments (c) 1,336 25 7.13 Total earning assets 78,203 1,279 6.60 Allowance for loan losses (958) Accrued income and other assets 12,998 Total assets $90,243 Liabilities NOW and money market deposit accounts $24,452 145 2.40 Savings deposits 1,812 1 .32 Certificates of deposit ($100,000 or more) (d) 5,407 58 4.34 Other time deposits 11,282 104 3.73 Deposits in foreign office (e) 2,030 22 4.40 Total interest-bearing deposits 44,983 330 2.97 Federal funds purchased and securities sold under repurchase agreements (e) 2,025 20 3.98 Bank notes and other short-term borrowings 2,550 24 3.89 Long-term debt (d,e) 13,991 183 5.27 Total interest-bearing liabilities 63,549 557 3.55 Noninterest-bearing deposits 12,692 Accrued expense and other liabilities 6,429 Total liabilities 82,670 Shareholders' equity 7,573 Total liabilities and shareholders' equity $90,243 Interest rate spread (TE) 3.05 % Net interest income (TE) and net interest margin (TE) 722 3.72 % TE adjustment (a) 28 Net interest income, GAAP basis $694 (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 Noninterest Income (in millions) Three months ended 3-31-07 12-31-06 3-31-06 Trust and investment services income (a) $125 $142 $135 Service charges on deposit accounts 75 77 72 Investment banking and capital markets income (a) 44 69 60 Operating lease income 64 63 52 Letter of credit and loan fees 38 55 40 Corporate-owned life insurance income 25 31 25 Electronic banking fees 24 27 24 Net gains from loan securitizations and sales 9 42 10 Net securities gains (losses) (47) 3 1 Gain on sale of McDonald Investments branch network 171 --- --- Other income: Insurance income 14 15 14 Loan securitization servicing fees 5 5 5 Credit card fees 3 3 3 Net gains (losses) from principal investing 29 5 (3) Miscellaneous income 75 21 43 Total other income 126 49 62 Total noninterest income $654 $558 $481 (a) Additional detail provided in tables below. Trust and Investment Services Income (in millions) Three months ended 3-31-07 12-31-06 3-31-06 Brokerage commissions and fee income $40 $58 $62 Personal asset management and custody fees 40 40 39 Institutional asset management and custody fees 45 44 34 Total trust and investment services income $125 $142 $135 Investment Banking and Capital Markets Income (in millions) Three months ended 3-31-07 12-31-06 3-31-06 Investment banking income $21 $43 $22 Dealer trading and derivatives income 8 10 7 Income from other investments 5 6 21 Foreign exchange income 10 10 10 Total investment banking and capital markets income $44 $69 $60 Noninterest Expense (dollars in millions) Three months ended 3-31-07 12-31-06 3-31-06 Personnel (a) $428 $447 $400 Net occupancy 63 68 61 Computer processing 51 55 56 Operating lease expense 52 50 41 Professional fees 26 33 33 Equipment 25 24 26 Marketing 19 27 15 Other expense: Postage and delivery 12 12 13 Franchise and business taxes 9 (7) 10 Telecommunications 7 7 7 Credit for losses on lending- related commitments (8) (6) --- Miscellaneous expense 100 99 90 Total other expense 120 105 120 Total noninterest expense $784 $809 $752 Average full-time equivalent employees 19,801 20,100 19,694 (a) Additional detail provided in table below. Personnel Expense (in millions) Three months ended 3-31-07 12-31-06 3-31-06 Salaries $245 $238 $229 Incentive compensation 75 120 77 Employee benefits 82 64 80 Stock-based compensation 24 17 14 Severance 2 8 --- Total personnel expense $428 $447 $400 Loan Composition (dollars in millions) Percent change 3-31-07 vs. 3-31-07 12-31-06 3-31-06 12-31-06 3-31-06 Commercial, financial and agricultural $21,476 $21,412 $21,681 .3 % (.9)% Commercial real estate: Commercial mortgage 8,519 8,426 8,145 1.1 4.6 Construction 8,355 8,209 7,507 1.8 11.3 Total commercial real estate loans 16,874 16,635 15,652 1.4 7.8 Commercial lease financing 10,036 10,259 9,668 (2.2) 3.8 Total commercial loans 48,386 48,306 47,001 .2 2.9 Real estate - residential mortgage 1,440 1,442 1,435 (.1) .3 Home equity (a) 10,669 10,826 13,429 (1.5) (20.6) Consumer - direct 1,375 1,536 1,691 (10.5) (18.7) Consumer - indirect: Marine 3,203 3,077 2,804 4.1 14.2 Other 638 639 620 (.2) 2.9 Total consumer - indirect loans 3,841 3,716 3,424 3.4 12.2 Total consumer loans 17,325 17,520 19,979 (1.1) (13.3) Total loans $65,711 $65,826 $66,980 (.2)% (1.9)% (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 2006 sale of the Champion Mortgage loan portfolio. Loans Held for Sale Composition (dollars in millions) Percent change 3-31-07 vs. 3-31-07 12-31-06 3-31-06 12-31-06 3-31-06 Commercial, financial and agricultural $68 $47 $189 44.7 % (64.0)% Real estate - commercial mortgage 1,224 946 411 29.4 197.8 Real estate - construction 163 36 62 352.8 162.9 Commercial lease financing 1 3 4 (66.7) (75.0) Real estate - residential mortgage 26 21 14 23.8 85.7 Home equity - 180 1 (100.0) (100.0) Education 2,681 2,390 2,930 12.2 (8.5) Automobile 12 14 20 (14.3) (40.0) Total loans held for sale $4,175 $3,637 $3,631 14.8 % 15.0 % Summary of Loan Loss Experience (dollars in millions) Three months ended 3-31-07 12-31-06 3-31-06 Average loans outstanding from continuing operations $65,669 $65,573 $64,220 Allowance for loan losses at beginning of period $944 $944 $966 Loans charged off: Commercial, financial and agricultural 17 18 24 Real estate --- commercial mortgage 6 15 3 Real estate --- construction 1 1 2 Total commercial real estate loans 7 16 5 Commercial lease financing 13 13 6 Total commercial loans 37 47 35 Real estate --- residential mortgage 1 2 1 Home equity 8 8 8 Consumer --- direct 7 7 10 Consumer --- indirect 11 10 11 Total consumer loans 27 27 30 64 74 65 Recoveries: Commercial, financial and agricultural 7 7 12 Real estate --- commercial mortgage 3 2 1 Commercial lease financing 3 4 5 Total commercial loans 13 13 18 Home equity 1 2 2 Consumer --- direct 2 2 2 Consumer --- indirect 4 3 4 Total consumer loans 7 7 8 20 20 26 Net loan charge-offs (44) (54) (39) Provision for loan losses from continuing operations 44 53 39 Foreign currency translation adjustment --- 1 --- Allowance for loan losses at end of period $944 $944 $966 Net loan charge-offs to average loans from continuing operations .27% .33% .24% Allowance for loan losses to period-end loans 1.44 1.43 1.44 Allowance for loan losses to nonperforming loans 371.65 439.07 327.46 Changes in Liability for Credit Losses on Lending-Related Commitments (in millions) Three months ended 3-31-07 12-31-06 3-31-06 Balance at beginning of period $53 $59 $59 Credit for losses on lending- related commitments (8) (6) --- Balance at end of period (a) $45 $53 $59 Summary of Nonperforming Assets and Past Due Loans (dollars in millions) 3-31-07 12-31-06 9-30-06 6-30-06 3-31-06 Commercial, financial and agricultural $70 $38 $42 $76 $68 Real estate - commercial mortgage 44 48 36 35 37 Real estate - construction 10 10 37 4 4 Total commercial real estate loans 54 58 73 39 41 Commercial lease financing 31 22 20 29 29 Total commercial loans 155 118 135 144 138 Real estate - residential mortgage 32 34 34 36 48 Home equity (b) 52 50 46 90 97 Consumer - direct 2 2 2 3 6 Consumer - indirect 13 11 6 6 6 Total consumer loans 99 97 88 135 157 Total nonperforming loans 254 215 223 279 295 Nonperforming loans held for sale (b) 3 3 56 1 2 OREO 42 57 52 26 21 Allowance for OREO losses (2) (3) (3) (1) (1) OREO, net of allowance 40 54 49 25 20 Other nonperforming assets 56(c) 1 1 3 3 Total nonperforming assets $353 $273 $329 $308 $320 Accruing loans past due 90 days or more $146 $120 $125 $119 $107 Accruing loans past due 30 through 89 days 626 644 715 600 498 Nonperforming loans to period-end portfolio loans .39% .33% .34% .41% .44% Nonperforming assets to period-end portfolio loans plus OREO and other nonperforming assets .54 .41 .50 .46 .48 Summary of Changes in Nonperforming Loans (in millions) 1Q07 4Q06 3Q06 2Q06 1Q06 Balance at beginning of period $215 $223 $279 $295 $277 Loans placed on nonaccrual status 129 115 134 98 100 Charge-offs (61) (74) (70) (59) (65) Loans sold --- (5) (22) (6) (2) Payments (7) (23) (43) (45) (15) Transfer to held-for-sale portfolio (b) --- --- (55) --- --- Transfers to OREO (9) (12) --- (4) --- Loans returned to accrual status (13) (9) --- --- --- Balance at end of period $254 $215 $223 $279 $295 (a) Included in "accrued expenses 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 an expected sale of the Champion Mortgage finance business. (c) Primarily a real estate-related investment in Key's Private Equity unit within the Real Estate Capital line of business. Line of Business Results (dollars in millions) Community Banking 1Q07 4Q06 3Q06 2Q06 1Q06 Summary of operations Total revenue (TE) $800 $670 $679 $672 $650 Provision for loan losses 14 23 23 21 29 Noninterest expense 469 492 485 491 456 Net income 198 97 107 100 103 Average loans and leases 26,426 26,667 26,767 26,830 26,765 Average deposits 46,581 47,383 46,976 46,675 45,830 Net loan charge-offs 19 24 23 22 28 Return on average allocated equity 32.66 % 15.41 % 16.93 % 16.10 % 16.67 % Average full-time equivalent employees 8,619 8,805 8,915 8,782 8,628 Supplementary information (lines of business) Regional Banking Total revenue (TE) $707 $571 $578 $572 $554 Provision for loan losses 18 19 19 19 22 Noninterest expense 420 444 436 438 407 Net income 168 67 77 72 78 Average loans and leases 18,445 18,628 18,773 18,816 18,817 Average deposits 43,006 43,707 43,431 43,115 42,246 Net loan charge-offs 18 19 19 21 22 Return on average allocated equity 39.29 % 15.03 % 17.24 % 16.49 % 17.90 % Average full-time equivalent employees 8,296 8,484 8,595 8,454 8,318 Commercial Banking Total revenue (TE) $93 $99 $101 $100 $96 Provision for loan losses (4) 4 4 2 7 Noninterest expense 49 48 49 53 49 Net income 30 30 30 28 25 Average loans and leases 7,981 8,039 7,994 8,014 7,948 Average deposits 3,575 3,676 3,545 3,560 3,584 Net loan charge-offs 1 5 4 1 6 Return on average allocated equity 16.78 % 16.35 % 16.19 % 15.16 % 13.72 % Average full-time equivalent employees 323 321 320 328 310 Community Banking Percent change 1Q07 vs. 4Q06 1Q06 Summary of operations Total revenue (TE) 19.4 % 23.1 % Provision for loan losses (39.1) (51.7) Noninterest expense (4.7) 2.9 Net income 104.1 92.2 Average loans and leases (.9) (1.3) Average deposits (1.7) 1.6 Net loan charge-offs (20.8) (32.1) Return on average allocated equity N/A N/A Average full-time equivalent employees (2.1) (.1) Supplementary information (lines of business) Regional Banking Total revenue (TE) 23.8 % 27.6 % Provision for loan losses (5.3) (18.2) Noninterest expense (5.4) 3.2 Net income 150.7 115.4 Average loans and leases (1.0) (2.0) Average deposits (1.6) 1.8 Net loan charge-offs (5.3) (18.2) Return on average allocated equity N/A N/A Average full-time equivalent employees (2.2) (.3) Commercial Banking Total revenue (TE) (6.1)% (3.1)% Provision for loan losses N/M N/M Noninterest expense 2.1 --- Net income --- 20.0 Average loans and leases (.7) .4 Average deposits (2.7) (.3) Net loan charge-offs (80.0) (83.3) Return on average allocated equity N/A N/A Average full-time equivalent employees .6 4.2 Line of Business Results (continued) (dollars in millions) National Banking 1Q07 4Q06 3Q06 2Q06 1Q06 Summary of operations Total revenue (TE) $605 $678 $596 $596 $584 Provision for loan losses 30 30 12 2 10 Noninterest expense 314 330 306 313 300 Income from continuing operations 163 199 174 176 171 Net income 155 34 181 181 181 Average loans and leases (a) 38,869 38,498 37,898 37,730 37,046 Average loans held for sale (a) 3,917 4,521 4,553 3,821 3,683 Average deposits (a) 11,231 11,839 11,066 10,633 9,952 Net loan charge- offs (a) 25 30 20 12 11 Return on average allocated equity (a) 16.44 % 19.87 % 17.79 % 18.46 % 18.20 % Return on average allocated equity 15.63 3.20 17.40 17.85 18.07 Average full-time equivalent employees 4,219 4,313 4,326 4,231 4,231 Supplementary information (lines of business) Real Estate Capital Total revenue (TE) $167 $189 $170 $176 $156 Provision for loan losses 1 18 7 --- 2 Noninterest expense 72 70 70 72 64 Net income 59 63 58 65 56 Average loans and leases 12,755 12,931 12,854 12,719 12,467 Average loans held for sale 1,145 1,125 1,022 692 577 Average deposits 4,297 4,096 3,598 3,467 3,214 Net loan charge- offs 1 8 --- 2 2 Return on average allocated equity 19.28 % 20.40 % 19.05 % 21.80 % 19.33 % Average full-time equivalent employees 971 957 970 980 981 Equipment Finance Total revenue (TE) $134 $146 $137 $136 $124 Provision for loan losses 13 7 11 2 3 Noninterest expense 86 77 81 76 73 Net income 22 39 28 36 30 Average loans and leases 10,479 10,222 10,100 9,871 9,569 Average loans held for sale 4 33 6 34 8 Average deposits 13 15 19 14 15 Net loan charge- offs 13 14 11 3 3 Return on average allocated equity 10.09 % 17.72 % 12.78 % 17.13 % 14.57 % Average full-time equivalent employees 952 938 927 915 935 Institutional and Capital Markets Total revenue (TE) $183 $223 $191 $191 $209 Provision for loan losses --- (5) 3 (3) (5) Noninterest expense 115 136 112 117 117 Net income 42 57 48 48 60 Average loans and leases 7,436 7,521 7,390 7,601 7,832 Average loans held for sale 140 387 454 139 112 Average deposits 6,491 7,285 6,933 6,676 6,249 Net loan charge- offs (recoveries) 1 (2) 3 --- (4) Return on average allocated equity 14.36 % 18.97 % 16.73 % 17.27 % 21.48 % Average full-time equivalent employees 1,350 1,375 1,385 1,296 1,294 Consumer Finance Total revenue (TE) $121 $120 $98 $93 $95 Provision for loan losses 16 10 (9) 3 10 Noninterest expense 41 47 43 48 46 Income from continuing operations 40 40 40 27 25 Net income (loss) 32 (125) 47 32 35 Average loans and leases (a) 8,199 7,824 7,554 7,539 7,178 Average loans held for sale (a) 2,628 2,976 3,071 2,956 2,986 Average deposits (a) 430 443 516 476 474 Net loan charge- offs (a) 10 10 6 7 10 Return on average allocated equity (a) 22.82 % 23.20 % 23.83 % 16.14 % 15.20 % Return on average allocated equity 18.25 (53.67) 20.45 14.04 15.43 Average full-time equivalent employees 946 1,043 1,044 1,040 1,021 National Banking Percent change 1Q07 vs. 4Q06 1Q06 Summary of operations Total revenue (TE) (10.8)% 3.6 % Provision for loan losses --- 200.0 Noninterest expense (4.8) 4.7 Income from continuing operations (18.1) (4.7) Net income 355.9 (14.4) Average loans and leases (a) 1.0 4.9 Average loans held for sale (a) (13.4) 6.4 Average deposits (a) (5.1) 12.9 Net loan charge-offs (a) (16.7) 127.3 Return on average allocated equity (a) N/A N/A Return on average allocated equity N/A N/A Average full-time equivalent employees (2.2) (.3) Supplementary information (lines of business) Real Estate Capital Total revenue (TE) (11.6)% 7.1 % Provision for loan losses (94.4) (50.0) Noninterest expense 2.9 12.5 Net income (6.3) 5.4 Average loans and leases (1.4) 2.3 Average loans held for sale 1.8 98.4 Average deposits 4.9 33.7 Net loan charge-offs (87.5) (50.0) Return on average allocated equity N/A N/A Average full-time equivalent employees 1.5 (1.0) Equipment Finance Total revenue (TE) (8.2)% 8.1 % Provision for loan losses 85.7 333.3 Noninterest expense 11.7 17.8 Net income (43.6) (26.7) Average loans and leases 2.5 9.5 Average loans held for sale (87.9) (50.0) Average deposits (13.3) (13.3) Net loan charge-offs (7.1) 333.3 Return on average allocated equity N/A N/A Average full-time equivalent employees 1.5 1.8 Institutional and Capital Markets Total revenue (TE) (17.9)% (12.4)% Provision for loan losses 100.0 100.0 Noninterest expense (15.4) (1.7) Net income (26.3) (30.0) Average loans and leases (1.1) (5.1) Average loans held for sale (63.8) 25.0 Average deposits (10.9) 3.9 Net loan charge-offs (recoveries) N/M N/M Return on average allocated equity N/A N/A Average full-time equivalent employees (1.8) 4.3 Consumer Finance Total revenue (TE) .8 % 27.4 % Provision for loan losses 60.0 60.0 Noninterest expense (12.8) (10.9) Income from continuing operations --- 60.0 Net income (loss) N/M (8.6) Average loans and leases (a) 4.8 14.2 Average loans held for sale (a) (11.7) (12.0) Average deposits (a) (2.9) (9.3) Net loan charge-offs (a) --- --- Return on average allocated equity (a) N/A N/A Return on average allocated equity N/A N/A Average full-time equivalent employees (9.3) (7.3) (a) From continuing operations. TE = Taxable Equivalent N/A = Not Applicable N/M = Not Meaningful