PNC Bank 2015 Annual Report Download - page 36

adverse to us in addition to continuing to affect our net interest
income. Even if the Federal Reserve continues to increase the
interest rates it directly influences, there may be a prolonged
period before interest rates return to more historically typical
levels.
In addition, monetary and fiscal policy actions by
governmental and regulatory decision makers in other
countries or in the European Union could have an impact on
global interest rates, affecting rates in the United States as
well as rates on instruments denominated in currencies other
than the United States dollar, any of which could have one or
more of the potential effects on PNC described above.
While we have not experienced negative interest rates in the
United States, some central banks in Europe and Asia have cut
interest rates below zero. It is unclear what the impact of these
actions will be. If U.S. interest rates fell below zero, it could
significantly affect our businesses and results of operation.
Our business and financial performance are vulnerable to
the impact of changes in the values of financial assets.
As a financial institution, a substantial majority of PNC’s
assets and liabilities are financial in nature (items such as
loans, securities, servicing rights, deposits and borrowings).
Such assets and liabilities will fluctuate in value, often
significantly, due to movements in the financial markets or
market volatility as well as developments specific to the asset
or liability in question.
Credit-based assets and liabilities will fluctuate in value due to
changes in the perceived creditworthiness of the borrowers
and also due to changes in market interest rates. A lessening
of confidence in the creditworthiness of the United States or
other governments whose securities we hold could impact the
value of those holdings. Changes in loan prepayment speeds,
usually based on fluctuations in market interest rates, could
adversely impact the value of our mortgage servicing rights.
The financial strength of counterparties, with whom we have
hedged some of our exposure to certain types of assets, could
affect the value of such transactions and assets. Additionally,
the underlying value of an asset under lease may decrease due
to supply and demand for the asset or the condition of the
asset at the end of the lease. This could cause our recorded
lease value to decline.
In many cases, PNC marks its assets and liabilities to market
on its financial statements, either through its Net income and
Retained earnings or through adjustments to Accumulated
other comprehensive income on its balance sheet. We may
need to record losses in the value of financial assets even
where our expectation of realizing the face value of the
underlying instrument has not changed.
In addition, asset management revenue is primarily based on a
percentage of the value of the assets being managed and thus
is impacted by general changes in market valuations. Thus,
although we are not directly impacted by changes in the value
of such assets, decreases in the value of those assets would
affect related fee income.
Our business and financial performance are dependent on
our ability to attract and retain customers for our
products and services, which may be negatively impacted
by a lack of consumer and business economic confidence
as well as our actions, including our ability to anticipate
and satisfy customer demands for products and services.
As a financial institution, our performance is subject to risks
associated with the loss of customer confidence and demand.
Economic and market developments, particularly in the
United States, Europe and Asia, may affect consumer and
business confidence levels. If customers lose confidence due
to a weak or deteriorating economy or uncertainty surrounding
the future of the economy, the demand for our products and
services could suffer.
We may also fail to attract or retain customers if we are
unable to develop and market products and services that meet
evolving customer needs or demands or if we are unable to
deliver them effectively and securely to our customers,
particularly to the extent that our competitors are able to do
so.
News or other publicity that impairs our reputation, or the
reputation of our industry generally, also could cause a loss of
customers.
If we fail to attract and retain customers, demand for our loans
and other financial products and services could decrease and
we could experience adverse changes in payment patterns. We
could lose interest income from a decline in credit usage and
fee income from a decline in product sales, investments and
other transactions. PNC’s customers could remove money
from checking and savings accounts and other types of deposit
accounts in favor of other banks or other types of investment
products. Deposits are a low cost source of funds. Therefore,
losing deposits could increase our funding costs and reduce
our net interest income.
For several years, the United States has been in a very low
interest rate environment. This situation has decreased the
attractiveness of alternatives to bank checking and savings
accounts, which may lack deposit insurance and some of the
convenience associated with more traditional banking
products and which may no longer be able to offer much
higher interest rates. If interest rates were to rise significantly,
customers may be less willing to maintain balances in non-
interest bearing or low interest bank accounts, which could
result in a loss of deposits or a relatively higher cost of funds
to PNC. This could also result in a loss of fee income.
In our asset management business, investment performance is
an important factor influencing the level of assets that we
18 The PNC Financial Services Group, Inc. – Form 10-K