KeyBank 2014 Annual Report Download - page 106

Figure 43 shows the types of activity that caused the change in our nonperforming loans held for sale during each
of the last four quarters and the years ended December 31, 2014, and 2013.
Figure 43. Summary of Changes in Nonperforming Loans Held for Sale from Continuing Operations
2014 Quarters
in millions 2014 Fourth Third Second First 2013
Balance at beginning of period $ 1 — $ 1 $ 1 $ 1 $25
Net advances / (payments) ————— (3)
Loans sold (2) — (2) — — (19)
Valuation adjustments 1— 1—— (2)
Balance at end of period — — — $ 1 $ 1 $1
Figure 44 shows the factors that contributed to the change in our OREO during 2014 and 2013. As shown in this
figure, the increase in 2014 was primarily attributable to a decrease in properties sold during 2014.
Figure 44. Summary of Changes in Other Real Estate Owned, Net of Allowance, from Continuing
Operations
2014 Quarters
in millions 2014 Fourth Third Second First 2013
Balance at beginning of period $ 15 $ 16 $ 12 $ 12 $ 15 $22
Properties acquired — nonperforming loans 20674321
Valuation adjustments (5) (2) (1) (1) (1) (6)
Properties sold (12) (2) (2) (3) (5) (22)
Balance at end of period $ 18 $ 18 $ 16 $ 12 $ 12 $15
Operational and compliance risk management
Like all businesses, we are subject to operational risk, which is the risk of loss resulting from human error or
malfeasance, inadequate or failed internal processes and systems, and external events. These events include,
among other things, threats to our cybersecurity, as we are reliant upon information systems and the Internet to
conduct our business activities.
Operational risk also encompasses compliance risk, which is the risk of loss from violations of, or
noncompliance with, laws, rules and regulations, prescribed practices, and ethical standards. Under the Dodd-
Frank Act, large financial companies like Key are subject to heightened prudential standards and regulation due
to their systemic importance. This heightened level of regulation has increased our operational risk. We have
created work teams to respond to and analyze the regulatory requirements that have been or will be promulgated
as a result of the enactment of the Dodd-Frank Act. Resulting operational risk losses and/or additional regulatory
compliance costs could take the form of explicit charges, increased operational costs, harm to our reputation, or
foregone opportunities.
We seek to mitigate operational risk through identification and measurement of risk, alignment of business
strategies with risk appetite and tolerance, and a system of internal controls and reporting. We continuously strive
to strengthen our system of internal controls to improve the oversight of our operational risk and to ensure
compliance with laws, rules, and regulations. For example, an operational event database tracks the amounts and
sources of operational risk and losses. This tracking mechanism helps to identify weaknesses and to highlight the
need to take corrective action. We also rely upon software programs designed to assist in assessing operational
risk and monitoring our control processes. This technology has enhanced the reporting of the effectiveness of our
controls to senior management and the Board.
The Operational Risk Management Program provides the framework for the structure, governance, roles, and
responsibilities, as well as the content, to manage operational risk for Key. Primary responsibility for managing
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