Good morning and welcome to KeyCorp’s 2010 Third Quarter Earnings Conference Call. This call is being recorded. At this time I’d like to turn the call over to the Chairman and Chief Executive Officer, Mr. Henry Meyer. Mr. Meyer, please go ahead sir.

Thank you, Operator. Good morning and welcome to our earnings conference call. Joining me for today’s presentation is our CFO, Jeff Weeden, and available for the Q&A portion of our call are our leaders of the Community Banking and National Banking, Beth Mooney and Chris Gorman, and our Treasurer, Joe Vayda. Slide 2 is our Forwarding-Looking Disclosure Statement. It covers our presentation materials and comments as well as the question and answer segment of our call today. Now, if you turn to Slide 3; this morning we announced Third Quarter Net Income from Continuing Operations of $163 million or $0.19 per common share. Our positive earnings for the last two quarters resulted in return to profitability for year-to-date results. The net income from Continuing Operations for the nine-month period of $121 million or $0.14 per common share. These third quarter earnings improvements compared to the second quarter was due to higher pre-provision net revenue and a lower provision for loan losses. The growth in pre-provision net revenue was the result of a higher net interest margin, well-controlled expenses and improvements in several T-based businesses. Credit quality continued to improve across the majority of loan portfolios in both Community Banking and National Banking, reflecting the work that has been done to lower our risk profile and proactively address credit issues. Our positive credit trends included net charge offs, which were down for the third consecutive quarter and non-performing loans, which have declined for the last four quarters. Our balance sheet continues to reflect strong capital, liquidity and reserve levels. Our estimated Tier 1 common equity ratio at September 30 was 8.59% and our Tier 1 risk based capital ratio was 14.26%. Key loan-loss allowance at the end of the third quarter was approximately $2 billion, which represented 3.8% of total loans…

Thank you, Henry. Slide 4 provides a summary of Key’s Third Quarter Financial Results from Continuing Operations. Unless otherwise noted, our comments today will be with regards to Key’s continuing operations. As Henry mentioned in his comments, for the third quarter the company earned a net profit of $0.19 per common share. This was a result of lower provision for loan losses and both charge offs and non-performing loans decrease from the second quarter levels. In addition, the company showed improved pre-provision net revenue as a result of higher revenue and well-controlled expenses. The third quarter profit compares to a profit of $0.06 per common share for the second quarter of this year. While not noted on this slide, the company’s book value and tangible book value increased again during the third quarter to $9.54 and $8.46 per share respectively up from $9.19 and $8.10 per share at June 30th, 2010. On Slide 5 are Key’s long-term targets for success we introduced earlier this year. On the next several slides I will comment on our progress towards achieving these targets. Turning to Slide 6, one of our objects is to be a core-funded institution with a target loan-to-deposit ratio of 90 to 100%. As of September 30, 2010, our loan-to-deposit ratio was within this targeted range at 92%. During the third quarter, the company experienced a $2.5 billion decrease in average total loan balances compared to the second quarter of 2010. As we have been commenting on for several quarters, the decline in average balances continues to reflect soft demand for credit and are continued progress on our exit portfolios as we reduce risk in the company. We would also note that we are somewhat encouraged by the stabilization we are seeing in the middle market CNI portfolio; specifically, in…

(Operator instructions) We’ll begin with Matt O’Connor with Deutsche Bank. Matt O’Connor: Hey, guys. If I could just follow up on some alone comments that you made. I think you said some of the positive signs in middle market and leasing would not be enough to offset pay downs for the next several quarters. So I think you’re assuming, or implying that loans will continue to decline for two, three, four quarter. Am I hearing that properly?

That is correct, Matt. Matt O’Connor: Okay. And then just remind us – I think your commercial mix might be a little bit different than some others. I think there might be some more large corporate – but when we look at industry wide commercial loans, they seem to be kicking up ever so slightly. Can you just remind us how your mix might be little bit different and why we’re still seeing declines in that portfolio overall?

Well Matt, the first thing I’d like to point to, we added a slide in the appendix of today’s section, Slide 15. And in there we tried to do a reconciliation or roll forward of the loan activity. And as you can see from – on that particular slide, the decline – the majority of this decline that we experienced in our loan portfolio outside of the exit portfolios coming down by about $400 million, gross charge offs were around $400 million and the rest of the decrease was around about $1.1 billion. Of that, about 800 million of that 1.2 billion really came from our commercial real estate book. We’re going to continue to see commercial real estate loans continue to pay down here. There’s improved – I think, liquidity we’re seeing in the marketplace and certainly on the multi-family is doing very well in today’s marketplace. But I think if Beth and Chris would probably be willing to comment here on the middle market and the leasing books of the large corporate.

Yeah, Matt, this is Beth Mooney. We are definitely starting to see stability in the middle market loan book. We have obviously seen that client base de-lever over the last seven to eight quarters, but if you look into the trends from the first, to the second, to third quarter, we had the lowest level of decline in this quarter that we’ve seen through the cycle and we are actually starting to see, as Jeff mentioned in his comments, particularly in our Great Lakes and Northeastern Regions, signs of increased new business activity and modest glimmers of loan growth. However, on net you still see pressures in the Western markets. They were late into the cycle, but we do see some pickup in business activity and clearly signs of stability in the middle market book, as well as in the core leasing portfolio, which intersects with a lot of that same client base of renewed activity.

Yeah, Matt, it’s Chris Gorman. If you look at what’s going on in the national bank, basically the rate of decline has flattened. But as Jeff alluded to, there’s a pretty significant mix shift. We talked last time that leasing, we thought would come pretty early because we’re very involved in technology leasing. We have seen that. So the leasing book has stabilized and now is growing a small amount. As you look at the CNI book, the rate of decline was halved, quarter over quarter on a linked basis. And conversely, we had a pretty significant step up in real estate as we strategically de-risked the balance sheet. And obviously, there’s a lot of liquidity buzz in the mortgage market, which we’ve benefited from as a player in the mortgage business. But also just liquidity in the market in general and we take our real estate book down by strategy. Matt O’Connor: And I guess the good news of all this is the capital ratios, specifically the regulatory capital is building quite quickly. You’re making money on an operating basis, you’ve got reserve draw down and your balance sheet continues to strengthen. So I guess I look at the big increase in capital and probably more to come, implying that it might make sense to wait to try and repay TARP a little bit so you can show even higher capital ratios, you know, two, three quarters out. How should I think about that?

Well, that’s clearly a way of thinking about it, Matt. We’re trying to do the right thing in paying TARP back with our shareholders in mind and we are also very conscious of some of the implications of early versus late. So we’re taking all those things into consideration as we look at the appropriate time. But no matter when that time is, it’s getting closer every day. Matt O’Connor: Okay. All right. Thank you very much.

We’ll take our next question from Craig Siegenthaler with Credit Suisse AG.

Thanks. Good morning, everyone. Craig Siegenthaler, Credit Suisse.

Morning, Craig.

Just on the time of the deposit reprice here, can you remind us when the 2.8 billion of high-cost deposit CDs repriced in 3Q? And also when the 0.8 billion will reprice in 4Q, just kind of the timing of it?

Craig, this is Jeff Weeden. The timing – we go back to the second quarter, a lot of the deposit repricing happened late in the second quarter of that particular grouping of deposits. And then the 2.8 in third quarter was more heavily weighted to the July and August time period. So we’re seeing a slow down now. As we get into the fourth quarter, the 800 million is going to be more evenly spread at this particular point in time, just like as we get into 2011 it starts to slow down pretty significantly.

Got it. And the second question, can you help us with your remaining kind of timing and prospects for the 270 million of disallowed DTA? How do you expect to realize it and is there any kind of ceiling on how much you expect to generate back in the capital of next year?

Well, I think Craig, you probably saw that the DTA decreased in the third quarter from the level in the second quarter. There’s a combination of events that draw that down. One is profitability, obviously is critical and the other part is that the reserve for loan losses, which is a very large portion of the deferred tax asset component needs to come down. So being profitable and being profitable on a pre-provision less-net charge off basis, as well as bringing the reserves on down, it improves that particular recognition of that asset. But it should be noted that as we go through the rest of this year as well as through 2011, that that particular asset will continue to decrease and should eventually get down to zero.

Great. Thanks for taking my questions.

Well take our next question from Betsy Graseck from Morgan Stanley.

Good morning. A couple questions. One is on the DTA. You noted that declined in the quarter. I just wanted to get some color. I would expect that it had to do with reserve shrinkage, but maybe you could just elaborate on kind of the drivers and how rapidly the payback is shrinking in the next couple of quarters.

Betsy, this is Jeff Weeden again. I think part of the answer was – on the last question and that is as you see reserves coming down, so we have a combination of charge offs are coming down. Charge offs now are less than our pre-provision net revenue. We see that can trend continue, obviously that’s generating taxable income at that particular point as well as having the reserve itself come down. So if you think about the reserve itself coming down and if that generated at the statutory rates for every dollar, $0.37 ½ coming off of that, that in and of itself creates less of a deferred tax asset. Profitability on the other hand improves that. So as we look forward to the utilization of any net offering loss carried forward, so sort of existed at the end of the year, it starts to also get absorbed. So there ar e all positive things that contribute to it and that’s why we believe that over the course of the next five quarters that the disallowed portion of the deferred tax asset will actually be gone.

Right. Okay. And do you have any NOLs in the DTA or is it all timing difference?

Well, an NOL is the timing difference.

Right. Okay. So it’s – the entire thing is available to go away as you indicated over five quarters?

That’s correct.

And in portfolio on Slide 16, I noticed you put some details here.

Yeah.

Could you just give us a sense, you indicated in total demand return, actually liquidity goes into the investment portfolio. You know, how do you think about the net new investment to this portfolio int terms of duration?

Well, if you’re looking at that Slide 16 that you referenced, we’ve actually put the duration that we expect to invest in and that we have been investing in and it’s basically between 2 ½ to 3 ½ years. We buy new, so we don’t buy premium bonds. We haven’t bought premium bonds. We’ve gone out basically in the first ten days of each month, we determine what our cash flow is going to be for the current month, make the appropriate investments at that particular point in time. Obviously, the yield on those in today’s market has come down fairly significantly. So new investments are going in basically for this month would be about 23%.

Okay. And as indicated, 2 ½ years or so in duration, is there any – how do you think about under Basel III construct, you know, AFS, volitility goes in to your reg caps? Does that influence how you’re thinking about the reinvestment?

It will, but the Basel III implementation takes place over a period of years. And so we will look at how we’re going to restructure or do things different going forward, obviously. It does have an impact. It will change the way we invest. We may have, obviously, one of the things to look at, we may have more health at maturity. The company will look at all different types of structures here to ensure that we don’t create a lot of volitility. I think that’s an excellent point and certainly one that we are looking at very closely here at the company.

Do you think that you will be required to adopt Basel III at this stage?

Well, I think all companies are going to be required to go to the new Basel III Capital Standards and the question I guess that you’re maybe getting it, do we think that we will have to adopt all the counter-party credit risks and the operational risk capital implications. We currently are a Basel I bank. We did not opt into Basel II. So we do not expect that that will be the case that we will end up having to have those particular components in the capital computations. But that remains to be seen.

Okay. All right. And so that’s part of the reason why your RDAs under Basel II aren’t likely to change that much?

Very, very little. We have just small trading portfolios, a very small amount.

And as a result, a systemic risk buffer?

Well, you know, we’re going to end up with the [inaudible] proforma basis on the OCI that we have right now. We would estimate that our Tier 1 common ration could approach the 9% level. So that actually would go up. Right. Okay Thank you.

We’ll take our next question from Scott Siefers with Sandler O’Neill

Morning guys. I guess a couple of question first on the OREO piece. One, do you have the dollar amount of – actually, it’s not OREO, but just – do you have the dollar amount of restructured loans that are not in NPAs?

I don’t have that right off the top of my head here. I think in terms of – it’s not a very significant amount. As you can see, we have approximately 228 million in the restructured book at this point and time. It’s not a material amount though.

Okay. And the, Jeff, you had given some color on the OREO cost and whey they were down, despite your balances going up. You mentioned that they’ll likely be volatile going forward. Do you have kind of a sense for what a more appropriate run rate is, or is it just volatile is just kind of where it’s going to be?

Well, it really is volatile. It depends on obviously the property that’s in other real estate and I think if we look at what we had originally in the other real estate categories going back a year ago or more, it was involving a lot more of the, what I call for-sale real estate in the sense of residential type property. Today we’re talking about more of the income-producing property. So we sold $63 million in the current quarter. We had good volume with good activity. We’ve actually, you know, if you look at the reconciliation that’s on Page 25 of the press release, we even had evaluation adjustments that we took in the current quarter of approximately $7 million that ran through. And yet the overall ORE expense, including all the respite costs associated with it, including taxes, maintenance, etcetera, we’re netted down to $4 million. So we’re actually moving some of this property at this particular point in time at gains. You know, that’s the part that I can’t predict in the future as to what will happen there because all real estate, obviously, is local. We were very successful in moving property in the current quarter though.

Okay. And then I guess one last question. I was hoping you could just flush out a little more how you’re thinking about the overall balance sheet? The combination of the 520 billion active portfolio and then the 6 ½ billion of discontinued options, and about 12 ½ billion of just kind of stuff you guys don’t do anymore or don’t intend to do anymore. So why wouldn’t – I guess what I’m getting at is why wouldn’t the balance sheet contraction potentially be multiple year from here on out? How is issues likely to play out as we look forward?

Well, I think if you look at the 6 ½ billion as you referred to in discontinued operations, actually, the student loan book, that has a much longer duration on it. So it’s going to be around for a long time. If you look at the 5.8 billion, it is actually coming down fairly rapidly here over the past six quarters. So if we look at that particular book, a lot of the stuff that’s going to pay off relatively quickly has done so. When we get into the commercial needs financing, this 1.1 billion on that particular book that are the LILOs and the SILOs, those are going to be around for a number of years. They may have maturities that go out into the 2020. On the Marine book, which is about 2.3 billion at the end of the current quarter, that also has a much longer duration. Now, that’s more predictable as far as the cash flow coming off of it and it will continue to probably work its way down from 100 to $150 million in any given quarter. And we may get additional acceleration of that if unemployment goes down and the economy picks up somewhat as people want to trade up to a different vote. So I think if we look at the overall balance sheet, yes it will come down some here, but it’s more going to be driven on the liability side. So to the extent that we are continuing to take in deposits, we will find a place obviously to put those particular [inaudible] in investments.

Okay, this is Henry. Let’s not ignore the growth opportunities too. Our leasing portfolio showed a little bit of life in the third quarter. Beth talked a little bit about business banking and middle market. We got some great news and publicity in our Cleveland marketplace where we regained the number one position in this market. All of those are factors that over, you know, a few years, as you know, you sort of framed it, yeah, we’re going to have run off, but we’re going to have new opportunities too.

Okay, that’s helpful. Thank you very much.

We’ll take our next question from Gerard Cassidy of RBC Capital Markets Corporation.

Good morning, Henry. Good morning, Jeff.

Good morning, Gerard.

In terms of the loan-loss provision, could you guys envision that provision dropping to zero if your credit improvement continues on the pace that you’re seeing?

Well, I think, you know, we go through the loan loss reserves and the provision calculation each and every quarter. It’s challenging to determine exactly where that would end up. Certainly if things continue to improve and continue to accelerate on the improvement and we’re not calling for that, but I’m just saying, if that were to happen on a hypothetical basis, yes, you could get down to almost a zero provision. But that’s now what we are currently expecting.

Right, right. We all recall, of course, the pressure, all you banks are under in ’03, ’04 from the accountants of the Securities Exchange Commission about having too much in reserves and there were even negative provisions people took. In fact Bank of New York had a negative provision this quarter. I know this might be putting the cart before the horse, but do you ever think about that type of thinking? Could you guys be under pressure, believe it or not, a year from now going into 2012 maybe about having too much in reserves?

Well, I think it’s a hypothetical situation. There’s too many things that you have to project out into the future to actually make that call today. I think it would be a nice problem to have and I would look for it to – seeing credit costs melt away in the future to in that position. But at this point in time, I think it’s a little premature for us to make that call.

Okay. And Henry, regarding your comments about TARP, what are some of your considerations that you’re looking at when you mention the near-term maybe beneficiary shareholders of payoff TARP? It seems like right now if anyone wants to pay off TARP over the next 90 days or so, or maybe even 120, they’re going to have to raise common equity to do it, whereas possibly if people wait until a year from now when you’re capital ratio’s much, much stronger, people may not have to raise common equity to pay it off and it would be less to move to shareholders. Can you share with us some of the pros and cons of doing it sooner versus later?

Well, you know, I think everyone understands the math to the degree our currency is higher in price, we’ll have to issue fewer shares for a given amount of capital that has been here before. I’m not sure we can get all the way out to – I’m not sure we want to get all the way out to a point in time where our capital would demand that we don’t have to raise any because during that period, we have some restrictions and those restrictions in terms of the MNA and the like could also affect the longer-term value to our shareholders. And you know, I think that the capital levels, we’re hoping that the regulators realize that the number should be coming down as companies are generating their own internal capital. So those are the, you know, the factors that we’re looking at. On the other hand, as it relates to shareholder returns, 5% non-deductible dividend is not cheap anymore. So it isn’t just let’s wait. Some of it is what’s the right opportunity, what’s the right time, what’s the cost of some equity, hopefully less than, you know, a higher number. And those are all the, you know, mathematical numbers.

Sure. The other question I have was, I think you mentioned something about some of the bank branches now are business intensive. Can you share with us what you guys are trying to do with those branches?

Yes, Gerard. This is Beth Mooney. It was a project that we started two years ago where we reviewed our franchise for intensity of small businesses in a three-to-five mile radius around our different branches. And the realigned our staffing models and the competency of the people that we put in the staff in those branches to make their calling outward calling skills, their basic business [inaudible] and their familiarity with our small business product set to be differentiated in their ability to serve those markets. And this has been going on now for two years. We’ve seen a nice lift from those activities. And just this week the JD Powers Survey came out for customer service in small business and Key was named, ranked number three of all the banks that were rated by JD Powers for their small business satisfaction. So when I look at our focus, our increased efforts around FDA, this very targeted segmenting where we have business-intensive areas around our branches coupled with our service initiatives, I think it’s paying dividends for us.

And we’ve also just recently made some organizational changes in Beth’s Community Bank, where small business SBA is a segment. So we’re really think to put a lot of focus I that area.

And just one last question, Jeff, on the pension expense that you mentioned, could you give us some color, I know you touched on it on why there was credit in this quarter and why is it going to zero in the fourth quarter?

Well, we went through with the actuaries, the assumptions that are being used on the plan. And as you recall we froze the plan a year ago. So we don’t have any additional earnings credits, salary credits, etcetera going into that particular cost. As we went through and looked at the changes of the demographics associated with the plan participants that are in there, they’ll continue to get credited, a future earnings credit on that and it would be the evaluation of the update with the actuaries. It resulted in basically coming to a zero pension expense for the year. We’d already recognized in the first two quarters, $12 million of expense. So the third quarter was a reversal of that 12 in essence, a credit coming through. And then there’s no additional expense at this phase now for the fourth quarter based on that updated valuation.

Thank you.

(Operator Instructions) We’ll take our next question from Matt Burnell of Wells Fargo Securities.

Good morning. First of all, just wanted to get a little bit more color from you in terms of the non-performing asset or non-performing loan inflows in the quarter versus the second quarter.

Well, on the non performing, we provided a little bit of information on the dollar amount of the inflows on page 25. Relatively stable as far as the dollar amount of inflow coming into it. But I think what we’re seeing now too, coming in on the inflow, specifically from the commercial real estate is going to have more income producing type property that’s going in there and then that’s getting resolved a little bit faster as we go through the cycle as liquidity it returned to the marketplace.

Okay. And Jeff, maybe another question for you, in terms of the Key-Volution savings, it looked like they were up about 25 million on an annualized run rate from the second quarter. And to get to your target of about 375 million, that implies on average about 25 million – if we assume that same run rate, that implies about another five or six quarters to get to your target. Can you give us a little more color as to how you’re thinking about the timing of reaching that 375 target?

Yes. In terms of the timing of it, it’s going to extend on our into 2012. And we have a number of initiatives that are longer cycles that are going to involve the – they’re going to involve both in terms of technology investments that we’re continuing to make and overall process changes that are taking place in the company. So we’ve got some shorter-term benefits that we’ve been recognizing. We had some additional implementation benefits in the third quarter and then as you look out, it’s not necessarily going to happen in even 25 million dollar chunks in any given quarter. We could have that type of level again, we could have more or we could have less because if we look at that between the difference between the first quarter and the second quarter, it was a much smaller overall improvement.

But it sounds like you’re going to reach that number well – potentially well ahead of your physical year end 2012 target. Correct?

That well – we will be within that range by fiscal year 2012 but we won’t be at the upper end of that range until later on.

Okay. Good. Thank you very much.

We’ll take our next question from Terry McEvoy with Oppenheimer & Co. Inc.

Thanks. Good morning. Just a question back on the expenses. I know Gerard asked about the salaries in the fourth quarter. Just looking at total expenses for the fourth quarter, could you provide any sort of guidance or range given the nice decline we saw in the third quarter?

Yes. I think earlier this year we provided a range of basically 750 to 800. We then [inaudible] that 750, more in the 765, 775 range. Again, I think with the $12 million pension credit coming through in the current quarter and ORE expenses, which are more difficult because they can be somewhat volatile to project going forward here, we would expect to be somewhere in the 750 range at this particular point in the cycle.

Okay. And then just the second question. It was nice to see the CRE charge offs come down so much. Is that a sustainable number? Is there any large recoveries within the – I’m looking at Slide 20 there?

Well, as you look at the overall improvement in what we experienced, looking at 520 of the deck itself, is that what you’re referring to?

Correct.

We did see overall improvement, I think non-performers in some of the categories were relatively stable. Other’s declined quite nicely. We saw multi-family non-performers came down very significantly. The expectation, obviously, that we’ve provided in the prepared comments regarding where we see the direction of net charge off is still an overall decrease for the organization. I think if you go to the press release itself and you look at Slide 23, you’ll notice on that that we did have a recovery, but that was in the C&I book, not so much in the CRE book. So charge offs themselves actually showed a nice decline for the quarter.

Thank you.

We’ll take our next call from Paul Miller of FBR Capital Markets.

Yeah, thank you very much. I was wondering if you could add some more color to the loan sales. You said that you sold loans at the marks. I was wondering, I don’t think you’ve given this detail, but have you disclosed what those marks are to date?

Yes. We actually have disclosed that in prior quarters where we generally carry our loans held for sale and our non-performing credit. Non-performing loans are held at about $0.67 on the dollar. If you look at in terms in non-performing loans held for sale are basically carried at about $0.60. So we’re carrying a lot of the credits that are around $0.60. Or I believe we have marked down to $0.51 on the dollar. So when I say on the dollar, I’m talking about what the original face value of that particular credit was. And we’ve been able to move the credits and some of the credits that were in the held-for-sale category at the end of the quarter have already been sold because at the end of the third quarter they were basically – the trade had taken place, a lot of these on the non-performing side is T-plus 30 as far as the closing goes.

And you talk about income producing – on multi-family when you talked about the loan portfolio. Are you getting paid down on multi-family? And just real quick, is that because Frannie and Freddie are such a big player in the market now?

Well, I think it’s primarily – Fannie and Freddie are still very active in the multi-family area and that’s an area that has done well. I think you’ll see the Class A space is in high demand on the multi-family side of the equation.

Okay, guys. Thank you very much.

We’ll take our next question from Jeff Davis of Guggenheim Partners

Good morning. A question for Beth. Beth, Huntington has introduced their 24-hour grace period in terms of NSFs in maybe a broader effort to move market share in giving up some fee income in the short run. Have you seen any impact on it, and your thoughts on maybe having done that sort of strategy for Key?

Yeah, thank you Jeff. Good question because we are obviously working very closely, not only with the regulatory changes, but trying to make sure that we review the full range of consumer options and trends given financial regulator reform. I have not seen any particular impact form that Huntington change. I think you know that we introduced a new account for consumers called Key Coverage that provides them grace periods, minimum limits, a certain number free per day for a $10 fee per month. We have also done a variety of things around how we have implemented Reg E to work with our clients to make sure they map to accounts and services that fit their needs, as well as making it a component of financial literacy. And we are watching all these various trends and making sure that we’re doing the things that meet the segments and client needs, and are responsive to the environment.

Okay, and a follow up, I think Henry touched a little bit on potential for acquisitions in the context of maybe paying back TARP and that decision process. If you had your druthers on your footprint, where would you – what would you do?

Well, there are certainly opportunities because as we have talked in the past, we have many markets where we have less than what we called optimal amount of share, which is 10% in market. While I think you would look at fill ins anywhere where it made sense to strengthen your market position and you could benefit from that combination, but when you look at market demographics over along period of time, I will tell you the demographics growth characteristics, as well as our share characteristics in our Western markets would be incredibly attractive to us. And if you look at where we’re investing our branch expansion dollars, many of those are concentrated in our Seattle and Portland market, and Colorado market.

Would you expect to see more opportunities acquired say in the West than in the Midwest?

I think that’s one of those that is – we talked – all of us talk about the enviable industry consolidation that I think as that plays out, I think the watch word for us as well as other institutions is you need to be nimble and opportunistic and evaluate what becomes available.

Thank you.

We’ll take our next question from Carol Berger with Sojay

Hi. [Inaudible] on TARP. I sort of listened to you talk about how fast capital is going to build because of the return profitability and the use of the DTA. And yet, you know, given how expensive they are, it seems to me that you would really want to pay them back as soon as practical without issuing new common. Is – when you talk to your regulator, is there – do they give you any credit for the fact that you are now earning and you will now be at those targets within X-amount of time?

Well, Carol, I would like to pay back TARP without issuing any common also. Unfortunately, that has not been the practice of the regulators to date. And we’re constantly talking to them. And as I said earlier, that is one of the factors that we’re trying to evaluate as we work with them to try to find a solution that is shareholder friendly as well.

So there’s been really no change in their attitude in terms of either meet your capital risk or don’t?

Well, I haven’t seen any banks that have, especially SCAP banks that have paid TARP back without issuing some capital. But I think that they – they aren’t necessarily set on just one number and it’s a dialog that continues.

Okay, and I’m curious as to who the buyers are on the commercial real estate. I mean, are you really seeing new investment pools come into this marketplace?

Yeah. This is Chris Gorman speaking, Carol. We are. We have set up a group that is raising a lot of private capital of joint venture groups. We’re seeing new entrants coming into the market, institutional capital. The other thing that is going on out there is the mortgage banking business is just exploding and that would be Fannie, Freddie, FHA, as we look at our backlogs, for example, our backlogs are up 84% over the same time last year. So there’s frankly a lot of capital, some from banks, but some from other players coming in as well.

Thank you.

We’ll take our next question from Chris Mutascio with Stifel Nicolaus.

Thanks for taking my call. Jeff, I was going to take a provision question kind of in a little bit different route. While your charges are high relative to your goal, and I appreciate the color showing the performance relative to goals, your actual provision expense ratio is not much higher than the charge-off ration you’re trying to get to. I think your provision expense is about 70 of average loans and your charge-off goal is about 50 or so. It seems to me that while charge-offs are high, the actual losses clearly aren’t going to income statement anymore. Are we just about at normalized levels provision expenses going forward?

Well, I think if you look at what the provision was for the third quarter as we try to project out into the future, obviously provision is a combination of the credit quality and the current buy-in of activity that’s going into the portfolio. The reserve itself is there to handle the previous loans that are recorded and the projected losses, and the losses on that particular book. So we are, as far as getting the overall level of provision has come down quite nicely here for us in the last year. But as we look forward, there’s still going to be some provision expense that we’re going to be recognizing, but we are getting closer as you’ve identified here to that more of a normalized level.

Okay. Thank you very much.

We’ll take our next question from David Conrad of KBW.

Good morning. I have another balance sheet question. I guess the answer is a function of the change in liquidity, but the securities portfolio does continue to grow I think another 7%. And we moved from around 10% of our assets last summer to now, we’re up to about 26% of earning assets. So I guess two quick questions. One, I mean, how should we think about this growth rate going forward, and you know, have you seen any changes in your asset liability position because of this?

Well, we talked about the asset liability mix position. So in the asset liability side, in the past we used to put on a lot of receipts in interest variable spots. So as we put more on the balance sheet duration, we’re reduced our off balance sheet duration. So interest rates losses have continued to come down to manage the overall interest rate position of the company.

That’s very helpful.

We’ll take our last question from Steven Alexopolis with JP Morgan

Good morning everyone. I just wanted to follow up on the comment that you’re getting closer to a normal provision level. I’m just trying to understand what was it about the current quarter that required such a low relative provision relative to other quarter? Do you just reach a point where you’re not providing on the existing non-performers as much?

Well, I think if you look at the overall level of non-performing assets, non-performing loans dropped 330 million. So if you look at our coverage ratio, our coverage ratio is not performers at this particular point in time, is up into 143%. If you look at where we have the assets recorded, we’ve already taken charge offs against that probably close to 690 to $700 million just in non-performing loan components. They’ve already been charged down. We’ve done a lot of heavy work at this point in time, plus we’re getting further along into the cycle, so we’re very aggressive early on in the process and really working a lot of these non-performers out.

We have no further questions on our roster today. At this time I’d like to turn the conference back over to Henry Meyer for closing remarks.

I just want to thank you all for taking time from your schedule to participate in our call today. If you have any follow-up questions, you can direct them to our investor relations team, Vern Paterson, or Chris at 216-689-4221. That concludes our remarks. I hope everyone has a great Friday and a good weekend. Thank you.

That concludes today’s conference. Thank you for your participation.