US Bank 2011 Annual Report Download - page 138

would result in higher levels of nonperforming loans, net charge-
offs, provision for credit losses and valuation adjustments on
loans held for sale. The value to the Company of other assets
such as investment securities, most of which are debt securities
or other financial instruments supported by loans, similarly
would be negatively impacted by widespread decreases in credit
quality resulting from a weakening of the economy.
The Company could experience an unexpected inability to
obtain needed liquidity The Company’s liquidity could be
constrained by an unexpected inability to access the capital
markets due to a variety of market dislocations or
interruptions. If the Company is unable to meet its funding
needs on a timely basis, its business would be adversely
affected. The Company’s credit rating is important to its
liquidity. A reduction in the Company’s credit rating could
adversely affect its liquidity and competitive position, increase
its funding costs or limit its access to the capital markets.
Loss of customer deposits could increase the Company’s
funding costs The Company relies on bank deposits to be a
low cost and stable source of funding. The Company
competes with banks and other financial services companies
for deposits. If the Company’s competitors raise the rates they
pay on deposits, the Company’s funding costs may increase,
either because the Company raises its rates to avoid losing
deposits or because the Company loses deposits and must rely
on more expensive sources of funding. Higher funding costs
reduce the Company’s net interest margin and net interest
income. In addition, the Company’s bank customers could
take their money out of the bank and put it in alternative
investments. Checking and savings account balances and other
forms of customer deposits may decrease when customers
perceive alternative investments, such as the stock market, as
providing a better risk/return tradeoff. When customers move
money out of bank deposits and into other investments, the
Company may lose a relatively low cost source of funds,
increasing the Company’s funding costs and reducing the
Company’s net interest income.
The soundness of other financial institutions could
adversely affect the Company The Company’s ability to
engage in routine funding or settlement transactions could be
adversely affected by the actions and commercial soundness of
other domestic or foreign financial institutions. Financial
services institutions are interrelated as a result of trading,
clearing, counterparty or other relationships. The Company
has exposure to many different counterparties, and the
Company routinely executes and settles transactions with
counterparties in the financial industry, including brokers and
dealers, commercial banks, investment banks, mutual and
hedge funds, and other institutional clients. As a result,
defaults by, or even rumors or questions about, one or more
financial services institutions, or the financial services industry
generally, could lead to losses or defaults by the Company or
by other institutions and impact the Company’s
predominately United States-based businesses or the less
significant merchant processing and trust businesses it
operates in foreign countries. 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 further increased 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, as well as continued industry
consolidation which may increase in connection with current
economic and market conditions. This consolidation may
produce larger, better-capitalized and more geographically
diverse companies that are capable of offering a wider array of
financial products and services at more competitive prices. The
Company competes with other commercial banks, savings and
loan associations, mutual savings banks, finance companies,
mortgage banking companies, credit unions, investment
companies, credit card companies, and a variety of other
financial services and advisory 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.
The Company continually encounters technological
change The financial services industry is continually
undergoing rapid technological change with frequent
introductions of new technology-driven products and services.
The effective use of technology increases efficiency and enables
financial institutions to better serve customers and to reduce
costs. The Company’s future success depends, in part, upon its
ability to address customer needs by using technology to
provide products and services that will satisfy customer
demands, as well as to create additional efficiencies in the
Company’s operations. The Company may not be able to
effectively implement new technology-driven products and
services or be successful in marketing these products and
services to its customers. Failure to successfully keep pace with
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