7% gain.

Earnings per share of 60 cents missed consensus estimates by a penny.

Nancy Bush, an analyst with Ryan, Beck & Co., called the Cleveland-based company's performance "soft across the board. There just don't seem to be any particular areas of strength."

The results come at a pivotal juncture for the $83 billion-asset banking company. Many analysts were hoping KeyCorp's results would reverse a long history of slow, unremarkable growth and prove the company's strong second-quarter performance was not a fluke.

KeyCorp earned $280 million for the second quarter, a 12% rise, driven mainly by fee income, which was up 38%, to $536 million.

However, "they didn't hit the cover off the ball this quarter," said Michael Mayo, an analyst with Credit Suisse First Boston.

KeyCorp's weak performance, particularly in investment banking, shows the hazards banks face when they focus on building fee income rather than lending to middle-market companies. Investment banking income dropped 33% from the second quarter to the third, to $77 million.

The banking company, the nation's 11th-largest, earned $489 million in noninterest income during the third quarter, up 25% from a year earlier. However that figure was down 9% from this year's second quarter.

Robert W. Gillespie, KeyCorp's chairman and chief executive officer, attributed the decline to "less favorable conditions in the financial markets that we serve."

Interest rate jitters kept many companies from pursuing capital markets debt for mergers, buyouts, expansion, or refinancing. As a result, KeyCorp suddenly found its earnings growth stalled.

"This is what happens," said Lori Appelbaum, an analyst with Goldman Sachs & Co. Fee income "is much more volatile" than traditional banking businesses.

KeyCorp's chief expansion in investment banking came in June 1998 when it announced a $653 million stock deal to buy McDonald & Co., a local investment bank.

To date, the acquisition has been a boon to earnings. Noninterest income in the first nine months of this year jumped 19%, to $2.2 billion.

There was some good news for KeyCorp in the most recent quarter, though. Analysts said the company's mainline banking business showed improvement. Interest income grew 1%, to $709 million.

Loan growth jumped 6%, to $63 billion.

Perhaps most striking, nonperforming assets declined as a percentage of overall assets to 0.6%, from 0.61%.

Meanwhile, the bank's loan-loss reserves grew by a mere $7 million, to $78 million.

"Credit quality is very good," Ms. Appelbaum said. "The credit trend looks very good for them."

KeyCorp also posted $32 million in gains from securitizations during the quarter. The bank said half that total was an education loan securitization that had been expected in the fourth quarter.

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