US Bank 2014 Annual Report Download - page 165

The Company’s ability to mitigate the adverse
consequences of these occurrences is in part dependent on
the quality of the Company’s resiliency planning, and the
Company’s ability, if any, to anticipate the nature of any such
event that occurs. The adverse impact of disasters, terrorist
activities or international hostilities also could be increased
to the extent that there is a lack of preparedness on the part
of national or regional emergency responders or on the part
of other organizations and businesses that the Company
transacts with, particularly those that it depends upon, but
has no control over. Additionally, the nature and level of
natural disasters may be exacerbated by global climate
change.
LIQUIDITY RISK
If the Company does not effectively manage its liquidity,
its business could suffer The Company’s liquidity is
essential for the operation of its business. Market conditions,
unforeseen outflows of funds or other events could
negatively affect the Company’s level or cost of funding,
affecting its ongoing ability to accommodate liability
maturities and deposit withdrawals, meet contractual
obligations, and fund asset growth and new business
transactions at a reasonable cost and in a timely manner. If
the Company’s access to stable and low-cost sources of
funding, such as customer deposits, are reduced, the
Company might need to use alternative funding, which could
be more expensive or of limited availability. Any substantial,
unexpected or prolonged changes in the level or cost of
liquidity could adversely affect the Company’s business.
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. 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.
A downgrade in the Company’s credit ratings could have a
material adverse effect on its liquidity, funding costs and
access to capital markets The Company’s credit ratings are
important to its liquidity. A reduction in one or more of the
Company’s credit ratings could adversely affect its liquidity,
increase its funding costs or limit its access to the capital
markets. Further, a downgrade could decrease the number
of investors and counterparties willing or able, contractually
or otherwise, to do business or lend to the Company, thereby
adversely affecting the Company’s competitive position. The
Company’s credit ratings and credit rating agencies’ outlooks
are subject to ongoing review by the rating agencies which
consider a number of factors, including the Company’s own
financial strength, performance, prospects and operations,
as well as factors not within the control of the Company,
including conditions affecting the financial services industry
generally. There can be no assurance that the Company will
maintain its current ratings and outlooks.
The Company relies on dividends from its subsidiaries for
its liquidity needs and the payment of those dividends
could be limited by laws and regulations The Company is a
separate and distinct legal entity from its bank and non-bank
subsidiaries. The Company receives a significant portion of
its cash from dividends paid by its subsidiaries. These
dividends are the principal source of funds to pay dividends
on the Company’s stock and interest and principal on its
debt. Various federal and state laws and regulations limit the
amount of dividends that its bank and certain of its non-bank
subsidiaries may pay to the Company without regulatory
approval. Also, the Company’s right to participate in a
distribution of assets upon a subsidiary’s liquidation or
reorganization is subject to prior claims of the subsidiary’s
creditors, except to the extent that any of the Company’s
claims as a creditor of that subsidiary may be recognized.
COMPETITIVE AND STRATEGIC RISK
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
U.S. BANCORP The power of potential
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