US Bank 2014 Annual Report Download - page 160

site, it may be subject to common law claims by third parties
based on damages and costs resulting from environmental
contamination emanating from the property. If the Company
becomes subject to significant environmental liabilities, its
financial condition and results of operations could be
adversely affected.
ECONOMIC AND MARKET CONDITIONS RISK
Deterioration in business and economic conditions could
adversely affect the financial services industry, and a
reversal or slowing of the current economic recovery
could adversely affect the Company’s lending business
and the value of loans and debt securities it holds The
Company’s business activities and earnings are affected by
general business conditions in the United States and abroad,
including factors such as the level and volatility of short-term
and long-term interest rates, inflation, home prices,
unemployment and under-employment levels, bankruptcies,
household income, consumer spending, fluctuations in both
debt and equity capital markets, liquidity of the global
financial markets, the availability and cost of capital and
credit, investor sentiment and confidence in the financial
markets, and the strength of the domestic and global
economies in which the Company operates. The deterioration
of any of these conditions can adversely affect the Company’s
consumer and commercial businesses and securities
portfolios, its level of charge-offs and provision for credit
losses, its capital levels and liquidity, and its results of
operations.
Given the high percentage of the Company’s assets
represented directly or indirectly by loans, and the
importance of lending to its overall business, weak economic
conditions are likely to have a negative impact on the
Company’s business and results of operations. A reversal or
slowing of the current economic recovery or another severe
contraction could adversely impact loan utilization rates as
well as delinquencies, defaults and customer ability to meet
obligations under the loans. 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. Downward valuation of debt
securities could also negatively impact the Company’s capital
position.
Stress in the commercial real estate markets, or a
downturn in the residential real estate markets, could cause
credit losses and deterioration in asset values for the
Company and other financial institutions. Additionally, the
current environment of heightened scrutiny of financial
institutions, as well as a continued focus on the pace and
sustainability of the economic recovery, has resulted in
increased public awareness of and sensitivity to banking fees
and practices.
Deterioration in economic conditions in Europe could
slow the recovery of the domestic economy or negatively
impact the Company’s borrowers or other counterparties
that have direct or indirect exposure to Europe, which could
have significant adverse effects on the Company’s
businesses, results of operations, financial condition and
liquidity. Negative market developments may erode
consumer confidence levels and may cause adverse changes
in payment patterns, causing increases in delinquencies and
default rates. Such developments could increase the
Company’s loan charge-offs and provision for credit losses.
Any future economic deterioration that affects household or
corporate incomes and the continuing concern regarding the
possibility of a return to recessionary conditions could also
result in reduced demand for credit or fee-based products
and services.
Improvements in economic indicators disproportionately
affecting the financial services industry may lag
improvements in the general economy Should the
moderate recovery of the United States economy continue,
the improvement of certain economic indicators, such as real
estate asset values, may nevertheless continue to lag behind
the overall economy, which can affect certain industries,
such as real estate and financial services, more significantly.
Should 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 financial position 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.
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