US Bank 2007 Annual Report Download - page 118

The financial services industry is highly competitive, and
competitive pressures could intensify and adversely affect
the Company’s financial results The Company operates in a
highly competitive industry that could become even more
competitive as a result of legislative, regulatory and
technological changes and continued consolidation. The
Company competes with other commercial banks, savings
and loan associations, mutual savings banks, finance
companies, mortgage banking companies, credit unions and
investment companies. In addition, technology has lowered
barriers to entry and made it possible for non-banks to offer
products and services traditionally provided by banks. Many
of the Company’s competitors have fewer regulatory
constraints and some have lower cost structures. Also, the
potential need to adapt to industry changes in information
technology systems, on which the Company and financial
services industry are highly dependent, could present
operational issues and require capital spending.
Changes in consumer use of banks and changes in
consumer spending and saving habits could adversely
affect the Company’s financial results Technology and other
changes now allow many consumers to complete financial
transactions without using banks. For example, consumers
can pay bills and transfer funds directly without going
through a bank. This “disintermediation” could result in the
loss of fee income, as well as the loss of customer deposits
and income generated from those deposits. In addition,
changes in consumer spending and saving habits could
adversely affect the Company’s operations, and the
Company may be unable to timely develop competitive new
products and services in response to these changes that are
accepted by new and existing customers.
Acts or threats of terrorism and political or military actions
taken by the United States or other governments could
adversely affect general economic or industry conditions
Geopolitical conditions may also affect the Company’s
earnings. Acts or threats of terrorism and political or
military actions taken by the United States or other
governments in response to terrorism, or similar activity,
could adversely affect general economic or industry
conditions.
Company Risk Factors
The Company’s allowance for loan losses may not be
adequate to cover actual losses Like all financial
institutions, the Company maintains an allowance for loan
losses to provide for loan defaults and non-performance.
The Company’s allowance for loan losses is based on its
historical loss experience as well as an evaluation of the
risks associated with its loan portfolio, including the size
and composition of the loan portfolio, current economic
conditions and geographic concentrations within the
portfolio. The strength of the United States economy and the
local economies which the Company does business may be
different than expected, resulting in, among other things, an
increased deterioration in credit quality of our loan
portfolio, or in the value of collateral securing those loans.
The Company’s allowance for loan losses may not be
adequate to cover actual loan losses, and future provisions
for loan losses could materially and adversely affect its
financial results.
The Company may suffer losses in its loan portfolio despite
its underwriting practices The Company seeks to mitigate
the risks inherent in its loan portfolio by adhering to specific
underwriting practices. These practices often include:
analysis of a borrower’s credit history, financial statements,
tax returns and cash flow projections; valuation of collateral
based on reports of independent appraisers; and verification
of liquid assets. Although the Company believes that its
underwriting criteria are appropriate for the various kinds of
loans it makes, the Company may incur losses on loans that
meet these criteria.
The Company’s investment portfolio values may be
adversely impacted by changing interest rates and
deterioration in the credit quality of underlying collateral
within a structured investment The Company generally
invests in government securities, securities issued by
government-backed agencies or privately issued securities
highly rated by credit rating agencies that may have limited
credit risk, but, are subject to changes in market value due
to changing interest rates and implied credit spreads.
However, certain securities represent beneficial interests in
structured investments which are collateralized by residential
mortgages, collateralized debt obligations and other similar
asset-backed assets. While these structured investments are
highly rated by credit rating agencies at the time of initial
investment, these credit ratings are subject to change due to
deterioration in the credit quality of the underlying
collateral. During recent months, these structured securities
have been subject to significant market volatility due to the
uncertainty of the credit ratings, deterioration in credit losses
occurring within certain types of residential mortgages,
changes in prepayments and the lack of transparency related
to the structures and the collateral underlying the structured
investment vehicles. Given recent market conditions and
changing economic factors, the Company may have
valuation losses or recognize impairment related to
structured investments.
Maintaining or increasing the Company’s market share may
depend on lowering prices and market acceptance of new
products and services The Company’s success depends, in
part, on its ability to adapt its products and services to
evolving industry standards. There is increasing pressure to
provide products and services at lower prices. Lower prices
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