NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES Rights will become exercisable if a person or group acquires 15% or more of KeyCorp’s outstanding shares. Until that time, the Rights will trade with the common shares; any transfer of a common share will also constitute a transfer of the associated Right. If the Rights become exercisable, they will begin to trade apart from the common shares. If one of a number of “flip-in events” occurs, each Right will entitle the holder to purchase a KeyCorp common share for $1.00 (the par value per share), and the Rights held by a 15% or more shareholder will become void. capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” At December 31, 2003 and 2002, the most recent regulatory notification classified each of KeyCorp’s subsidiary banks as “well capitalized.” Management does not believe there have been any changes in condition or events since those notifications, including the restatement of the risk-based capital ratios discussed below, that would cause the banks’ classifications to change. Bank holding companies are not assigned to any of the five capital categories applicable to insured depository institutions. However, if these categories applied to bank holding companies, management believes Key would satisfy the bank criteria for a “well capitalized” institution at December 31, 2003 and 2002. The FDIC-defined capital categories serve a limited regulatory function and may not accurately represent the overall financial condition or prospects of KeyCorp or its affiliates. The following table presents Key’s, KBNA’s and Key Bank USA’s actual capital amounts and ratios, minimum capital amounts and ratios prescribed by regulatory guidelines, and capital amounts and ratios required to qualify as “well capitalized” under the Federal Deposit Insurance Act. During the fourth quarter of 2003, KeyCorp and its bank subsidiaries restated risk-based capital ratios for certain periods to correct the risk weighting of certain loans and the measurement and risk weighting of certain unfunded commitments. These restatements are reflected in the following table. KeyCorp and its banking subsidiaries must meet specific capital requirements imposed by federal banking regulators. Sanctions for failure to meet applicable capital requirements may include regulatory enforcement actions that restrict dividend payments, require the adoption of remedial measures to increase capital, terminate FDIC deposit insurance, and mandate the appointment of a conservator or receiver in severe cases. In addition, failure to maintain a well-capitalized status affects the evaluation of regulatory applications for specific transactions and activities, including acquisitions, continuation and expansion of existing activities, and commencement of new activities, and could affect the confidence of our clients and potential investors. As of December 31, 2003, KeyCorp and its bank subsidiaries met all capital requirements.  Federal bank regulators apply certain capital ratios to assign FDIC- insured depository institutions to one of five categories: “well CAPITAL ADEQUACY To Qualify as  To Meet Minimum Well Capitalized Capital Adequacy Under Federal Deposit Actual Requirements Insurance Act dollars in millions Amount Ratio Amount Ratio Amount Ratio December 31, 2003 TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS Key $10,615 12.57% $6,756 8.00% N/A N/A KBNA 8,412 11.28 5,964 8.00 $7,456 10.00% Key Bank USA 987 11.75 672 8.00 841 10.00 TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS Key $7,056 8.35% $3,378 4.00% N/A N/A KBNA 5,324 7.14 2,982 4.00 $4,473 6.00% Key Bank USA 850 10.11 336 4.00 504 6.00 TIER 1 CAPITAL TO AVERAGE ASSETS Key $7,056 8.55% $2,475 3.00% N/A N/A KBNA 5,324 7.27 2,930 4.00 $3,663 5.00% Key Bank USA 850 8.52 399 4.00 499 5.00 December 31, 2002 TOTAL CAPITAL TO NET RISK-WEIGHTED ASSETS Key $10,378 12.11% $6,858 8.00% N/A N/A KBNA 8,346 10.91 6,122 8.00 $7,653 10.00% Key Bank USA 857 11.22 611 8.00 763 10.00 TIER 1 CAPITAL TO NET RISK-WEIGHTED ASSETS Key $ 6,639 7.74% $3,429 4.00% N/A N/A KBNA 5,062 6.62 3,061 4.00 $4,592 6.00% Key Bank USA 713 9.34 305 4.00 458 6.00 TIER 1 CAPITAL TO AVERAGE ASSETS Key $ 6,639 8.16% $2,440 3.00% N/A N/A KBNA 5,062 6.95 2,916 4.00 $3,644 5.00% Key Bank USA 713 8.50 335 4.00 419 5.00 N/A = Not Applicable NEXT PAGE PREVIOUS PAGE SEARCH BACK TO CONTENTS 71