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Key’s loans by category are summarized as follows: 

<img src='content_image/24181.jpg'>

Key uses interest rate swaps to manage interest rate risk; these swaps modify the repricing and maturity characteristics of certain loans. For more information about such swaps, see Note 19 (GLYPH<210>Derivatives and Hedging ActivitiesGLYPH<211>), which begins on page 80. 

## RETAINED INTERESTS IN LOAN SECURITIZATIONS 

Key sells certain types of loans in securitizations. A securitization involves the sale of a pool of loan receivables to investors through either a public or private issuance of asset-backed securities. Generally, the assets are transferred to a trust that sells interests in the form of certificates of ownership. In some cases, Key retains an interest in the securitized loans. Certain assumptions and estimates are used to determine the fair value allocated to these retained interests at the date of transfer and at subsequent measurement dates. These assumptions and estimates include loan repayment rates, projected charge-offs and discount rates commensurate with the risks involved. Additional information pertaining to Key’s residual interests is disclosed in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Loan Securitizations” on page 52. 

In accordance with Interpretation No. 46, “Consolidation of Variable Interest Entities,” Key’s securitization trusts are exempt from consolidation. 

## 8. LOAN SECURITIZATIONS AND VARIABLE INTEREST ENTITIES 

## 7. LOANS 

Commercial and consumer lease financing receivables in the preceding table are primarily direct financing leases, but also include leveraged leases and operating leases. The composition of the net investment in direct financing leases is as follows: 

<img src='content_image/24182.jpg'>

Minimum future lease payments to be received at December 31, 2003, are as follows: 2004 GLYPH<209> $2.0 billion; 2005 GLYPH<209> $1.3 billion; 2006 GLYPH<209> $850 million; 2007 GLYPH<209> $525 million; 2008 GLYPH<209> $414 million; and all subsequent years GLYPH<209> $274 million. 

Changes in the allowance for loan losses are summarized as follows: 

<img src='content_image/24180.jpg'>

For more information on Interpretation No. 46, see the following section entitled “Variable Interest Entities,” which begins on page 64, and Note 1 under the headings “Basis of Presentation” on page 50 and “Accounting Pronouncements Adopted in 2003” on page 55. 

Key securitized and sold $1.0 billion of education loans (including accrued interest) in 2003 and $792 million in 2002. The securitizations resulted in an aggregate gain of $12 million in 2003 (from gross cash proceeds of $1.0 billion) and $7 million in 2002 (from gross cash proceeds of $799 million). In these transactions, Key retained residual interests in the form of servicing assets and interest-only strips. During 2003, Key retained servicing assets of $6 million and interest-only strips of $17 million. During 2002, Key retained servicing assets of $6 million and interest-only strips of $26 million. Additionally, in 2003, Key repurchased the remaining loans outstanding in the automobile trust for an immaterial amount. 

