US Bank 2008 Annual Report Download - page 125

or questions about, one or more financial services
institutions, or the financial services industry generally, have
led to market-wide liquidity problems and could lead to
losses or defaults by the Company or by other institutions.
Many of these transactions expose the Company to credit
risk in the event of default of the Company’s counterparty or
client. In addition, the Company’s credit risk may be
exacerbated when the collateral held by the Company
cannot be realized upon or is liquidated at prices not
sufficient to recover the full amount of the financial
instrument exposure due the Company. There is no
assurance that any such losses would not materially and
adversely affect the Company’s results of operations.
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 stress on the United States economy and the
local economies which the Company does business may be
greater or last longer than expected, resulting in, among
other things, greater than expected deterioration in credit
quality of our loan portfolio, or in the value of collateral
securing those loans. The recent increases in the Company’s
allowance for loan losses may not be adequate to cover
actual loan losses, and future provisions for loan losses
could continue to materially and adversely affect its financial
results.
The Company may continue to suffer increased 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, and historically have been, appropriate for the various
kinds of loans it makes, the Company has already incurred
high levels of losses on loans that have met these criteria,
and may continue to experience higher than expected losses
depending on economic factors and consumer behavior.
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
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