KeyBank 2014 Annual Report Download - page 36

/A decrease in consumer and business confidence levels generally, decreasing credit usage and investment or
increasing delinquencies and defaults;
/A decrease in household or corporate incomes, reducing demand for Key’s products and services;
/A decrease in the value of collateral securing loans to Key’s borrowers or a decrease in the quality of Key’s
loan portfolio, increasing loan charge-offs and reducing Key’s net income;
/A decrease in our ability to liquidate positions at market prices;
/The extended continuation of the current low-interest rate environment, continuing or increasing downward
pressure to our net interest income;
/A decrease in the accuracy and viability of our quantitative models;
/An increase in competition and consolidation in the financial services industry;
/Increased concern over and scrutiny of the capital and liquidity levels of financial institutions generally, and
those of our transaction counterparties specifically;
/A decrease in confidence in the creditworthiness of the United States or other governments whose securities
we hold; and
/An increase in limitations on or the regulation of financial services companies like Key.
We are subject to interest rate risk, which could adversely affect net interest income.
Our earnings are largely dependent upon our net interest income. Net interest income is the difference between
interest income earned on interest-earning assets such as loans and securities and interest expense paid on
interest-bearing liabilities such as deposits and borrowed funds. Interest rates are highly sensitive to many factors
that are beyond our control, including general economic conditions, the competitive environment within our
markets, consumer preferences for specific loan and deposit products and policies of various governmental and
regulatory agencies, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest
rate controls being applied by the Federal Reserve, could influence the amount of interest we receive on loans
and securities, the amount of interest we pay on deposits and borrowings, our ability to originate loans and obtain
deposits, and the fair value of our financial assets and liabilities. If the interest we pay on deposits and other
borrowings increases at a faster rate than the interest we receive on loans and other investments, net interest
income, and therefore our earnings, would be adversely affected. Conversely, earnings could also be adversely
affected if the interest we receive on loans and other investments falls more quickly than the interest we pay on
deposits and other borrowings.
Our methods for simulating and analyzing our interest rate exposure are discussed more fully under the heading
“Risk Management — Management of interest risk exposure” found in Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operation.
Our profitability depends upon economic conditions in the geographic regions where we have significant
operations and on certain market segments with which we conduct significant business.
We have concentrations of loans and other business activities in geographic regions where our bank branches are
located — Pacific; Rocky Mountains; Indiana; West Ohio/Michigan; East Ohio; Western New York; Eastern
New York; and New England — and potential exposure to geographic regions outside of our branch footprint.
The moderate U.S. economic recovery has been experienced unevenly in the various regions where we operate,
and continued improvement in the overall U.S. economy may not result in similar improvement, or any
improvement at all, in the economy of any particular geographic region. Adverse conditions in a geographic
region such as inflation, unemployment, recession, natural disasters, or other factors beyond our control could
impact the ability of borrowers in these regions to repay their loans, decrease the value of collateral securing
loans made in these regions, or affect the ability of our customers in these regions to continue conducting
business with us.
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