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Federal bank regulators group FDIC-insured depository institutions into five categories, ranging from “critically undercapitalized” to “well capitalized.” Both of Key’s affiliate banks qualified as “well capitalized” at December 31, 2003, since each exceeded the prescribed thresholds of 10.00% for total capital, 6.00% for Tier 1 capital and 5.00% for the leverage ratio. If these provisions applied to bank holding companies, Key would also qualify as “well capitalized” at December 31, 2003. The FDIC-defined capital categories serve a limited supervisory function. Investors should not treat them as a representation of the overall financial condition or prospects of KeyCorp or its affiliate banks. 

Figure 23 presents the details of Key’s regulatory capital position at December 31, 2003 and 2002. 

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Common shareholdersGLYPH<213> equity does not include net unrealized gains or losses on securities available for sale (except for net unrealized losses on marketable equity securities) nor net gains or losses on cash GLYPH<223>ow hedges. 

b Other assets deducted from Tier 1 capital consist of intangible assets (excluding goodwill) recorded after February 19, 1992, deductible portions of purchased mortgage servicing rights and deductible portions of nonGLYPH<222>nancial equity investments. 

Other assets deducted from risk-weighted assets consist of intangible assets (excluding goodwill) recorded after February 19, 1992, deductible portions of purchased mortgage servicing rights and deductible portions of nonGLYPH<222>nancial equity investments. 

c This ratio is Tier 1 capital divided by average quarterly total assets less goodwill, the nonqualifying intangible assets described in footnote (b) and deductible portions of nonGLYPH<222>nancial equity investments. 

KeyCorp’s common shares are traded on the New York Stock Exchange under the symbol KEY. At December 31, 2003: 

• Book value per common share was $16.73, based on 416,494,244 shares outstanding, compared with $16.12, based on 423,943,645 shares outstanding, at December 31, 2002. 

• The closing market price of a KeyCorp common share was $29.32. This price was 175% of year-end book value per share, and would produce a dividend yield of 4.16%. 

• There were 46,814 holders of record of KeyCorp common shares. 

In 2003, the quarterly dividend was $.305 per common share, up from $.30 per common share in 2002. On January 16, 2004, the quarterly dividend per common share was increased by 1.6% to $.31, effective with the March 2004 dividend payment. 

Figure 35 on page 44 shows the market price ranges of Key’s common shares, per common share net income and dividends paid by quarter for each of the last two years. 

## OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS 

## Off-balance sheet arrangements 

Key is party to various types of off-balance sheet arrangements, which could expose Key to contingent liabilities or risks of loss that are not reflected on its balance sheet. 

Variable Interest Entities. A variable interest entity (“VIE”) is a partnership, limited liability company, trust or other legal entity that does not have sufficient equity to permit it to finance its activities without additional subordinated financial support from other parties, or whose investors lack one of three characteristics associated with owning a controlling financial interest. Interpretation No. 46, “Consolidation of Variable Interest Entities,” addresses how companies determine whether they must consolidate an entity depending on whether the entity is a voting rights entity or a VIE. This interpretation is summarized in Note 1 (“Summary of Significant Accounting Policies”) under the headings “Basis of Presentation” on page 50 and “Accounting Pronouncements Adopted in 2003” on page 55. 

Key is involved with certain VIEs in which it holds a significant interest, but for which it is not the primary beneficiary. As a result, these entities are not consolidated under Interpretation No. 46. Key defines a “significant interest” in a VIE as a subordinated interest that exposes it to a significant portion of the VIE’s expected losses or residual returns, if any. Key’s involvement with VIEs in which it holds a significant interest but for which it is not the primary beneficiary is described in Note 8 (“Loan Securitizations and Variable Interest Entities”) under the heading “Unconsolidated VIEs” on page 65. 

Loan Securitizations. Key securitizes and sells primarily education loans. A securitization involves the sale of a pool of loan receivables to investors through either a public or private issuance (generally by a special purpose entity (“SPE”)) of asset-backed securities. Securitized loans are typically removed from the balance sheet and transferred to a trust that sells interests in the form of certificates of ownership. These transactions provide an alternative source of funding for Key and reduce its credit exposure to borrowers. Under Interpretation No. 46, qualifying SPEs, including securitization trusts established by Key under SFAS No. 140, are exempt from consolidation. 

