MANAGEMENTGLYPH<213>S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES As shown in Figure 30, the decrease in commercial loan net charge-offs was accompanied by a decrease in the level of net charge-offs in the consumer loan portfolio, primarily in the indirect lending segments. The reduction in these segments reflects actions taken by Key since May 2001 to exit the automobile leasing business and to de-emphasize indirect prime automobile lending. Nonperforming assets. Figure 31 shows the composition of Key’s nonperforming assets. These assets totaled $753 million at December 31, 2003, and represented 1.20% of loans, other real estate owned (known as “OREO”) and other nonperforming assets, compared with $993 million, or 1.59%, at December 31, 2002. See Note 1 (“Summary of Significant Accounting Policies”) under the headings “Impaired and Other Nonaccrual Loans” and “Allowance for Loan Losses” on page 51 for a summary of Key’s nonaccrual and charge-off policies. FIGURE 31. SUMMARY OF NONPERFORMING ASSETS AND PAST DUE LOANS December 31, dollars in millions 2003 2002 2001 2000 1999 Commercial, GLYPH<222>nancial and agricultural $252 $448 $409 $301 $175 Real estate GLYPH<209> commercial mortgage 85 157 187 90 102 Real estate GLYPH<209> construction 25 50 83 28 7 Total commercial real estate loans a 110 207 270 118 109 Commercial lease GLYPH<222>nancing 103 69 94 48 28 Total commercial loans 465 724 773 467 312 Real estate GLYPH<209> residential mortgage 39 36 42 52 44 Home equity 153 146 50 80 50 Consumer GLYPH<209> direct 14 13 9 8 6 Consumer GLYPH<209> indirect lease GLYPH<222>nancing 3 5 10 7 3 Consumer GLYPH<209> indirect other 20 19 26 36 32 Total consumer loans 229 219 137 183 135 Total nonperforming loans 694 943 910 650 447 OREO 61 48 38 23 27 Allowance for OREO losses (4) (3) (1) (1) (3) OREO, net of allowance 57 45 37 22 24 Other nonperforming assets 2 5 GLYPH<209> GLYPH<209> 2 Total nonperforming assets $753 $993 $947 $672 $473 Accruing loans past due 90 days or more $152 $198 $ 250 $236 $219 Accruing loans past due 30 through 89 days 613 790 1,096 963 916 Nonperforming loans to year-end loans 1.11% 1.51% 1.44% .97% .70% Nonperforming assets to year-end loans plus OREO and other nonperforming assets 1.20 1.59 1.49 1.00 .74 a See Figure 15 and the accompanying discussion on page 26 for more information related to KeyGLYPH<213>s commercial real estate portfolio. The substantial reduction in nonperforming loans during 2003 was attributable largely to decreases in the structured finance, healthcare, middle-market and commercial real estate portfolios. These reductions were offset in part by an increase in the level of commercial lease financing receivables placed on nonaccrual status; this portfolio has experienced considerable growth since mid-2002. At December 31, 2003, our 20 largest nonperforming loans totaled $219 million, representing 32% of total loans on nonperforming status. “Liquidity” measures whether an entity has sufficient cash flow to meet its financial obligations when due. Key has sufficient liquidity when it can meet its obligations to depositors, borrowers and creditors at a reasonable cost, on a timely basis, and without adverse consequences. KeyCorp has sufficient liquidity when it can pay dividends to shareholders, service its debt, and support customary corporate operations and activities, including acquisitions, at a reasonable cost, in a timely manner and without adverse consequences. Information pertaining to the credit exposure by industry classification inherent in the largest sector of Key’s loan portfolio, “commercial, financial and agricultural loans,” is presented in Figure 32. The types of activity that caused the change in Key’s nonperforming loans during 2003 are summarized in Figure 33. Liquidity risk management 40 PREVIOUS PAGE SEARCH BACK TO CONTENTS NEXT PAGE