US Bank 2013 Annual Report Download - page 152

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 that
traditionally were banking products, and for financial
institutions to compete with technology companies in
providing electronic and internet-based financial solutions.
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’s ability to compete successfully depends on a
number of factors, including, among others, its ability to
develop and execute strategic plans and initiatives;
developing, maintaining and building long-term customer
relationships based on quality service, competitive prices,
high ethical standards and safe, sound assets; and industry
and general economic trends.
The Company continually encounters challenges
brought by 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
continued success depends, in part, upon its ability to
address customer needs by using technology to provide
products and services that customers demand, and 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 technological change
affecting the financial services industry could negatively
affect the Company’s revenue and profit.
Improvements in economic indicators
disproportionately affecting the financial services
industry may lag improvements in the general
economy Should the stabilization of the United States
economy continue, the improvement of certain economic
indicators, such as unemployment and real estate asset
values and rents, may nevertheless continue to lag behind
the overall economy. These economic indicators typically
affect certain industries, such as real estate and financial
services, more significantly. Furthermore, financial services
companies with a substantial lending business, like the
Company’s, are dependent upon the ability of their
borrowers to make debt service payments on loans. Should
unemployment or real estate asset values fail to recover for
an extended period of time, the Company could be
adversely affected.
Changes in interest rates could reduce the
Company’s net interest income The Company’s
earnings are dependent to a large degree on net interest
income, which is the difference between interest income
from loans and investments and interest expense on
deposits and borrowings. Net interest income is significantly
affected by market rates of interest, which in turn are
affected by prevailing economic conditions, by the fiscal and
monetary policies of the federal government and by the
policies of various regulatory agencies. Like all financial
institutions, the Company’s balance sheet is affected by
fluctuations in interest rates. Volatility in interest rates can
also result in the flow of funds away from financial institutions
into direct investments. Direct investments, such as United
States government and corporate securities and other
investment vehicles (including mutual funds) generally pay
higher rates of return than financial institutions, because of
the absence of federal insurance premiums and reserve
requirements.
Further downgrades in the U.S. government’s
sovereign credit rating could result in risks to the
Company and general economic conditions that the
Company is not able to predict In 2011, certain ratings
agencies downgraded their sovereign credit rating, or
negatively revised their outlook, of the U.S. government, and
have indicated that they will continue to assess fiscal
projections, as well as the medium-term economic outlook
for the United States. Because of these developments, there
continues to be the perceived risk of a sovereign credit
ratings downgrade of the U.S. government, including the
ratings of U.S. Treasury securities. If such a downgrade were
to occur, the ratings and perceived creditworthiness of
instruments issued, insured or guaranteed by institutions,
agencies or instrumentalities directly linked to the U.S.
government could also be correspondingly affected. A
downgrade might adversely affect the market value of such
150 U.S. BANCORP