NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES 5. RESTRICTIONS ON CASH, DIVIDENDS AND LENDING ACTIVITIES During 2003, affiliate banks paid KeyCorp a total of $245 million in dividends and nonbank subsidiaries paid a total of $73 million. KeyCorp also received a $365 million distribution of surplus in the form of cash from KBNA. At January 1, 2004, the affiliate banks had an additional $512 million available to pay dividends to KeyCorp without prior regulatory approval and remain well-capitalized under the FDIC-defined capital categories.  Federal law requires depository institutions to maintain a prescribed amount of cash or noninterest-bearing balances with the Federal Reserve Bank. KeyCorp’s bank subsidiaries maintained average reserve balances aggregating $178 million in 2003 to fulfill these requirements. KeyCorp’s principal source of cash flow to pay dividends on its common shares, to service its debt and to finance its corporate operations is capital distributions from KBNA and its other subsidiaries. Federal banking law limits the amount of capital distributions that national banks can make to their holding companies without obtaining prior regulatory approval. A national bank’s dividend paying capacity is affected by several factors, including the amount of its net profits (as defined by statute) for the two previous calendar years, and net profits for the current year up to the date of dividend declaration.  Federal law also restricts loans and advances from bank subsidiaries to their parent companies (and to nonbank subsidiaries of their parent companies), and requires those transactions to be secured. The amortized cost, unrealized gains and losses, and approximate fair value of Key’s investment securities and securities available for sale were as follows: 6. SECURITIES Realized gains and losses related to securities available for sale were as follows: When Key retains an interest in loans it securitizes, it bears risk that the loans will be prepaid (which would reduce expected interest income) or not paid at all. Key accounts for these retained interests as debt securities, classifying them as available for sale or as trading account assets. “Other securities” held in the available for sale portfolio primarily are marketable equity securities. “Other securities” held in the investment securities portfolio are foreign bonds.  61 NEXT PAGE BACK TO CONTENTS SEARCH PREVIOUS PAGE December 31,  2003 2002 Gross Gross Gross Gross Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair in millions Cost Gains Losses Value Cost Gains Losses Value INVESTMENT SECURITIES States and political subdivisions $83 $6 GLYPH<209> $ 89 $120 $9 GLYPH<209> $129 Other securities 15 GLYPH<209> GLYPH<209> 15 GLYPH<209> GLYPH<209> GLYPH<209> GLYPH<209> Total investment securities $98 $6 GLYPH<209> $104 $120 $9 GLYPH<209> $129 SECURITIES AVAILABLE FOR SALE U.S. Treasury, agencies and corporations $ 63 $ 1 GLYPH<209> $ 64 $2 2 $1 GLYPH<209> $2 3 States and political subdivisions 23 GLYPH<209> GLYPH<209> 23 35 GLYPH<209> GLYPH<209> 35 Collateralized mortgage obligations 6,696 33 $123 6,606 7,143 129 $65 7,207 Other mortgage-backed securities 453 18 2 469 815 37 GLYPH<209> 852 Retained interests in securitizations 105 70 GLYPH<209> 175 166 43 GLYPH<209> 209 Other securities 288 13 GLYPH<209> 301 208 GLYPH<209> 27 181 Total securities available for sale $7,628 $135 $125 $7,638 $8,389 $210 $92 $8,507 Year ended December 31, in millions 2003 2002 2001 Realized gains $48 $34 $40 Realized losses 37 28 5 Net securities gains $11 $6 $35