Corporate-wide advances Revenue growth Revenue growth remained Key’s toughest challenge in 2003. As we enter 2004, we see hopeful signs that suggest improvement. A strengthening economy, for one.  Key’s business mix is well suited for the opportunities created by an expand- ing economy. Our investment banking, a group of our most talented employees to devote themselves to creating the tools, processes and behaviors needed by our businesses to consistently provide clients with an outstanding experience unique to Key. We call this effort the 1Key Client Experience (see box, page 3). Its “quick wins” element encourages managers to use test-and-learn methods to generate earnings growth, and invest In addition, many of our continuous improvement (CI) efforts helped keep costs in check. In 2003, we initiated 180 employee-generated expense reduction projects, valued at about $30 million. We also launched an electronic CI Suggestion Box to encourage employees to keep the good ideas coming; it receives, on average, nearly 50 ideas per month. Of course, expense management is not an end in itself. Our goal is to free up resources and invest them in growth opportunities.  A good example, in addition to the line-driven investments I noted earlier, is our rapidly developing imaging capabil- ity. Key is at the forefront of the industry’s drive to modernize check processing – an action that will improve our operating efficiency and, more important, create opportunities to offer innovative prod- ucts and services to our clients. We also have invested in “data mirroring” technology. It provides near- instantaneous back-up of client data – a crucial advantage, should the need for data recovery arise. These actions exemplify why Key has been listed, for five years running, among the nation’s largest and most innovative users of information technology by  Information Week , in its annual 500 ranking. While we believe we have many opportunities to grow our core busi- nesses organically, we also intend to explore appropriate acquisitions. We are interested in opportunities to buy businesses that generate fee-based revenue, and in-footprint community banks or branches to build market share. All major asset quality indicators headed in the right direction in 2003 (see box, page 5)–a reflection of efforts begun in May 2001 to exit certain credit-only relationships with insufficient profitability. In a period when economic conditions made asset generation difficult, that decision demonstrates our commitment to building share- holder value. In addition, the dramatic reduction in the size of our run-off We continued to be disciplined in our spending in 2003. Costs grew 3 percent during the year, compared with a peer average of approximately 8 percent. We reduced labor-related spending, the largest component of our expense base. Through increased productivity, we were able to reduce staff by more than 750 average full-time equivalent employees in 2003. We maintained – and will continue to maintain – flat salary expense. We also focused salary dollars and incentive compensation payouts on our highest performing employees.  The use of EPA will support our drive to grow more quickly and achieve the superior returns our shareholders expect.  asset management, commercial lending and equipment-leasing units stand to benefit particularly.  In fact, many leading indicators are showing positive trends. A good example is the number of brokerage accounts opened per MFG advisor in 2003, which climbed 13 percent. In addition, asset volumes in the line’s brokerage accounts rose 20 percent in 2003. Both trends bode well for future revenue growth. In addition, combined loan commit- ments to institutional and middle-market borrowers rose 6 percent in 2003, suggesting that business activity is improving. Further, commitment uti- lization fell to 35 percent at year end, materially below our customary range of 46 to 50 percent. Not only is this consistent with improvements in our credit quality, but it also suggests that demand for funding will grow, as many clients won’t pay to maintain commit- ments unless they intend to use them.  Underpinning these and other positive indications are advances made by our businesses to position themselves as trusted advisors to clients and build deeper, more profitable relationships with them. Many relationships start with the establishment of a deposit account. So we were pleased that we were able to grow average core deposits 10 percent in 2003. To accelerate our efforts to build deep relationships, we have assigned the proceeds in new revenue-building initiatives. An example of a quick win is Corporate and Investment Banking’s success in conducting formal relation- ship reviews with institutional clients. Annual profit per client rose by a third among those participating in reviews, demonstrating mutually beneficial solutions for the clients and Key. To ensure that all relationships ulti- mately are profitable, we are introducing a new internal measure in 2004: economic profit added, or EPA. EPA makes explicit the cost of capital and creates accountability among managers for its responsible use. Beginning in 2004, EPA performance will affect the funding of all incentive compensation pools for the company. Credit quality Expense management 4  GLYPH<c5412> Key 2003 PREVIOUS PAGE SEARCH BACK TO CONTENTS NEXT PAGE KeyGLYPH<213>s business mix is well suited for the opportunities created by an expanding economy. Our investment banking, asset management, commercial lending and equipment-leasing units stand to beneGLYPH<222>t particularly.