US Bank 2005 Annual Report Download - page 114

examination by the FDIC. In practice, the primary federal funds) generally pay higher rates of return than financial
regulator makes regular examinations of each subsidiary institutions, because of the absence of federal insurance
bank subject to its regulatory review or participates in joint premiums and reserve requirements.
examinations with other federal regulators. Areas subject to Changes in the laws, regulations and policies governing
regulation by federal authorities include the allowance for financial services companies could alter the Company’s
credit losses, investments, loans, mergers, issuance of business environment and adversely affect operations. The
securities, payment of dividends, establishment of branches Board of Governors of the Federal Reserve System regulates
and other aspects of operations. the supply of money and credit in the United States. Its
Risk Factors There are a number of factors, including those fiscal and monetary policies determine in a large part the
specified below, that may adversely affect the Company’s Company’s cost of funds for lending and investing and the
business, financial results or stock price. Additional risks that return that can be earned on those loans and investments,
the Company currently does not know about or currently both of which affect the Company’s net interest margin.
views as immaterial may also impair the Company’s business Federal Reserve Board policies can also materially affect the
or adversely impact its financial results or stock price. value of financial instruments that the Company holds, such
as debt securities and mortgage servicing rights.
Industry Risk Factors The Company and its bank subsidiaries are heavily
The Company’s business and financial results are regulated at the federal and state levels. This regulation is to
significantly affected by general business and economic protect depositors, federal deposit insurance funds and the
conditions. The Company’s business activities and earnings banking system as a whole. Congress and state legislatures
are affected by general business conditions in the United States and federal and state agencies continually review banking
and abroad. These conditions include short-term and laws, regulations and policies for possible changes. Changes
long-term interest rates, inflation, monetary supply, in statutes, regulations or policies could affect the Company
fluctuations in both debt and equity capital markets, and the in substantial and unpredictable ways, including limiting the
strength of the United States economy and the local economies types of financial services and products that the Company
in which the Company operates. For example, an economic offers and/or increasing the ability of non-banks to offer
downturn, an increase in unemployment, or other events that competing financial services and products. The Company
affect household and/or corporate incomes could result in a cannot predict whether any of this potential legislation will
deterioration of credit quality, a change in the allowance for be enacted, and if enacted, the effect that it or any
credit losses, or reduced demand for credit or fee-based regulations would have on the Company’s financial
products and services. Changes in the financial performance condition or results of operations.
and condition of the Company’s borrowers could negatively
The financial services industry is highly competitive, and
affect repayment of those borrowers’ loans. In addition,
competitive pressures could intensify and adversely affect
changes in securities market conditions and monetary
the Company’s financial results. The Company operates in
fluctuations could adversely affect the availability and terms of a highly competitive industry that could become even more
funding necessary to meet the Company’s liquidity needs. competitive as a result of legislative, regulatory and
Changes in the domestic interest rate environment could technological changes and continued consolidation. The
reduce the Company’s net interest income. The operations Company competes with other commercial banks, savings
of financial institutions such as the Company are dependent and loan associations, mutual savings banks, finance
to a large degree on net interest income, which is the companies, mortgage banking companies, credit unions and
difference between interest income from loans and investment companies. In addition, technology has lowered
investments and interest expense on deposits and barriers to entry and made it possible for non-banks to
borrowings. An institution’s net interest income is offer products and services traditionally provided by banks.
significantly affected by market rates of interest, which in Many of the Company’s competitors have fewer regulatory
turn are affected by prevailing economic conditions, by the constraints and some have lower cost structures. Also, the
fiscal and monetary policies of the federal government and potential need to adapt to industry changes in information
by the policies of various regulatory agencies. Like all technology systems, on which the Company and financial
financial institutions, the Company’s balance sheet is services industry are highly dependent, could present
affected by fluctuations in interest rates. Volatility in interest operational issues and require capital spending.
rates can also result in the flow of funds away from
Changes in consumer use of banks and changes in
financial institutions into direct investments. Direct
consumer spending and saving habits could adversely
investments, such as U.S. Government and corporate
affect the Company’s financial results. Technology and
securities and other investment vehicles (including mutual other changes now allow many consumers to complete
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