MANAGEMENTGLYPH<213>S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS KEYCORP AND SUBSIDIARIES Net loan charge-offs. Net loan charge-offs for 2003 were $548 million, or .87% of average loans, representing the lowest level of net charge-offs since 2000. These results compare with net charge-offs of $780 million, or 1.23% of average loans, for 2002, and $673 million, or 1.02% of average loans, for 2001. The composition of Key’s loan charge-offs and recoveries by type of loan is shown in Figure 30. The decrease in net charge-offs for 2003 occurred primarily in the healthcare, structured finance and large corporate segments of the commercial loan portfolio. Structured finance refers to a type of lending characterized by a high degree of leverage in the borrower’s financial condition and a relatively low level of tangible loan collateral. Included in net charge-offs for 2003, 2002 and 2001 are $47 million, $227 million and $215 million, respectively, of losses charged to the now depleted portion of Key’s allowance for loan losses that had been segregated in connection with management’s decision to discontinue many credit-only relationships in the leveraged financing and nationally syndicated lending businesses and to facilitate sales of distressed loans in other portfolios. Considering the progress that has been made in exiting the commitments related to these two portfolios, management believes that it is no longer necessary to segregate the run-off portfolio for reporting purposes. a See Figure 15 and the accompanying discussion on page 26 for more information related to KeyGLYPH<213>s commercial real estate portfolio. 39 NEXT PAGE PREVIOUS PAGE SEARCH BACK TO CONTENTS Year ended December 31, dollars in millions 2003 2002 2001 2000 1999 Average loans outstanding during the year $62,879 $63,393 $65,976 $65,294 $62,401 Allowance for loan losses at beginning of year $1,452 $1,677 $1,001 $ 930 $ 900 Loans charged off: Commercial, GLYPH<222>nancial and agricultural 284 407 313 175 112 Real estate GLYPH<209> commercial mortgage 39 78 18 9 2 Real estate GLYPH<209> construction 7 22 8 GLYPH<209> GLYPH<209> Total commercial real estate loans a 46 100 26 9 2 Commercial lease GLYPH<222>nancing 60 94 62 14 20 Total commercial loans 390 601 401 198 134 Real estate GLYPH<209> residential mortgage 10 6 17 8 8 Home equity 60 56 99 19 10 Credit card GLYPH<209> GLYPH<209> 1 17 89 Consumer GLYPH<209> direct 47 51 47 57 41 Consumer GLYPH<209> indirect lease GLYPH<222>nancing 15 25 27 23 13 Consumer GLYPH<209> indirect other 156 166 192 200 125 Total consumer loans 288 304 383 324 286 678 905 784 522 420 Recoveries: Commercial, GLYPH<222>nancial and agricultural 36 44 26 25 28 Real estate GLYPH<209> commercial mortgage 11 6 4 4 4 Real estate GLYPH<209> construction 3 2 GLYPH<209> GLYPH<209> 1 Total commercial real estate loans a 14 8 4 4 5 Commercial lease GLYPH<222>nancing 13 9 5 2 3 Total commercial loans 63 61 35 31 36 Real estate GLYPH<209> residential mortgage 1 1 8 4 4 Home equity 5 4 1 2 1 Credit card GLYPH<209> GLYPH<209> 1 5 14 Consumer GLYPH<209> direct 9 8 8 8 8 Consumer GLYPH<209> indirect lease GLYPH<222>nancing 6 8 9 6 3 Consumer GLYPH<209> indirect other 46 43 49 52 36 Total consumer loans 67 64 76 77 66 130 125 111 108 102 Net loans charged off (548) (780) (673) (414) (318) Provision for loan losses 501 553 1,350 490 348 Allowance related to loans acquired (sold), net GLYPH<209> 2 (1) (5) GLYPH<209> Foreign currency translation adjustment 1 GLYPH<209> GLYPH<209> GLYPH<209> GLYPH<209> Allowance for loan losses at end of year $1,406 $1,452 $1,677 $1,001 $ 930 Net loan charge-offs to average loans .87% 1.23% 1.02% .63% .51% Allowance for loan losses to year-end loans 2.24 2.32 2.65 1.50 1.45 Allowance for loan losses to nonperforming loans 202.59 153.98 184.29 154.00 208.05 FIGURE 30. SUMMARY OF LOAN LOSS EXPERIENCE