The 2002 improvement in noninterest income was due primarily to an $84 million increase in income from investment banking and capital markets activities, an $18 million increase in service charges on deposit accounts and a $10 million rise in letter of credit and non-yield- related loan fees. In addition, noninterest income was unusually low in 2001 because of two significant charges recorded during the fourth quarter: a $45 million write-down of the principal investing portfolio and a $15 million increase to the reserve for customer derivative losses mentioned earlier in the discussion of strategic actions taken in 2001. Positive results in 2002 were offset in part by a $42 million reduction in income from trust and investment services and a $29 million decrease in net securities gains. The following discussion explains the composition of certain components of Key’s noninterest income and the factors that caused those components to change. Trust and investment services income. Trust and investment services are Key’s largest source of noninterest income. The primary components of revenue generated by these services are shown in Figure 9. The June 2002 sale of Key’s 401(k) plan recordkeeping business accounted for approximately $36 million of the decrease in income from institutional asset management and custody fees — a large part of the overall decline in this segment. In addition, trust and investment services income was adversely affected by weak activity and lower market values in the equity and fixed income markets during the first half of 2003. The adverse effects of these factors were offset in part by improvement in the financial markets during the latter half of the year. A significant portion of trust and investment services income is based on the market value of assets under management. In addition, results for 2003 received a modest boost from the July 2003 acquisition of NewBridge Partners. In 2002, the level of revenue derived from trust and investment services was adversely affected by declines in the financial markets. FIGURE 9. TRUST AND INVESTMENT SERVICES INCOME FIGURE 10. ASSETS UNDER MANAGEMENT At December 31, 2003, KeyCorp’s bank, trust and registered investment advisory subsidiaries had assets under management of $68.7 billion, representing an 11% increase from $61.7 billion at the end of 2002. An increase in the market value of assets under management and net asset inflows of approximately $2.6 billion during the year drove the improvement. Approximately 47% of the inflows were attributable to the acquisition of NewBridge Partners. The composition of Key’s assets under management is shown in Figure 10. Service charges on deposit accounts. In 2003, the decrease in service charges on deposit accounts was due primarily to a reduction in the level of overdraft and maintenance fees charged to clients. Maintenance fees were lower because Key introduced free checking products in the third quarter of 2002 and made them available in all of Key’s markets by the end of that year. In 2002, service charges rose primarily because of strategies implemented in connection with a competitiveness initiative and an increase in noninterest-bearing deposits. Investment banking and capital markets income. As shown in Figure 11, investment banking and capital markets income for both 2003 and 2002 increased because of improved results from principal investing activities. The 2002 improvement reflects the $45 million charge taken for write- downs in the fourth quarter of 2001. Key’s principal investing income is susceptible to volatility since it is derived from investments in small to medium-sized businesses, some of which are in relatively early stages of economic development and strategy implementation. Principal investments consist of direct and indirect investments in predominantly privately-held companies and are carried on the balance sheet at fair value ($732 million at December 31, 2003, and $677 million at December 31, 2002). Thus, the net gains and losses presented in Figure 11 stem from changes in estimated fair values, as well as actual gains and losses on sales of principal investments. The level of dealer trading and derivatives income varies in part with the demand for commercial loans. Accordingly, the weak commercial loan demand in 2003 contributed to the $24 million decline in dealer trading 22 PREVIOUS PAGE SEARCH BACK TO CONTENTS NEXT PAGE Year ended December 31, Change 2003 vs 2002 dollars in millions 2003 2002 2001 Amount Percent Brokerage commission income $192 $198 $202 $ (6) (3.0)% Personal asset management and custody fees 155 156 174 (1) (.6) Institutional asset management and custody fees 39 77 87 (38) (49.4) Bond services 38 36 40 2 5.6 All other fees 125 142 148 (17) (12.0) Total trust and investment services income $549 $609 $651 $(60) (9.9)% December 31, in millions 2003 2002 2001 Assets under management  by investment type: Equity $31,768 $27,224 $35,798 Fixed income 17,355 16,133 16,919 Money market 19,580 18,337 20,000 Total $68,703 $61,694 $72,717 Proprietary mutual funds  included in assets  under management: Equity $ 3,165 $ 2,878 $ 3,973 Fixed income 1,015 1,215 1,190 Money market 10,188 11,457 13,801 Total $14,368 $15,550 $18,964 MANAGEMENTGLYPH<213>S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES