US Bank 2009 Annual Report Download - page 135

timing. The Company typically uses derivatives and other
instruments to hedge its mortgage banking interest rate risk,
but this hedging activity may not always be successful. The
Company could incur significant losses from its hedging
activities, and there may be periods where it elects not to
hedge its mortgage banking interest rate risk. As a result of
these factors, mortgage banking revenue can experience
significant volatility.
Maintaining or increasing the Company’s market share may
depend on lowering prices and market acceptance of new
products and services The Company’s success depends, in
part, on its ability to adapt its products and services to
evolving industry standards. There is increasing pressure to
provide products and services at lower prices. Lower prices
can reduce the Company’s net interest margin and revenues
from its fee-based products and services. In addition, the
widespread adoption of new technologies, including internet
services, could require the Company to make substantial
expenditures to modify or adapt the Company’s existing
products and services. Also, these and other capital
investments in the Company’s businesses may not produce
expected growth in earnings anticipated at the time of the
expenditure. The Company might not be successful in
introducing new products and services, achieving market
acceptance of its products and services, or developing and
maintaining loyal customers.
Because the nature of the financial services business
involves a high volume of transactions, the Company faces
significant operational risks The Company operates in many
different businesses in diverse markets and relies on the
ability of its employees and systems to process a high
number of transactions. Operational risk is the risk of loss
resulting from the Company’s operations, including, but not
limited to, the risk of fraud by employees or persons outside
of the Company, the execution of unauthorized transactions
by employees, errors relating to transaction processing and
technology, breaches of the internal control system and
compliance requirements and business continuation and
disaster recovery. This risk of loss also includes the potential
legal actions that could arise as a result of an operational
deficiency or as a result of noncompliance with applicable
regulatory standards, adverse business decisions or their
implementation, and customer attrition due to potential
negative publicity. In the event of a breakdown in the
internal control system, improper operation of systems or
improper employee actions, the Company could suffer
financial loss, face regulatory action and suffer damage to its
reputation.
The change in residual value of leased assets may have an
adverse impact on the Company’s financial results The
Company engages in leasing activities and is subject to the
risk that the residual value of the property under lease will
be less than the Company’s recorded asset value. Adverse
changes in the residual value of leased assets can have a
negative impact on the Company’s financial results. The risk
of changes in the realized value of the leased assets
compared to recorded residual values depends on many
factors outside of the Company’s control, including supply
and demand for the assets, condition of the assets at the end
of the lease term, and other economic factors.
Negative publicity could damage the Company’s reputation
and adversely impact its business and financial results
Reputation risk, or the risk to the Company’s earnings and
capital from negative publicity, is inherent in the Company’s
business. Negative publicity can result from the Company’s
actual or alleged conduct in any number of activities,
including lending practices, corporate governance and
acquisitions, and actions taken by government regulators
and community organizations in response to those activities.
Negative publicity can adversely affect the Company’s ability
to keep and attract customers, and can expose the Company
to litigation and regulatory action. Because most of the
Company’s businesses operate under the “U.S. Bank” brand,
actual or alleged conduct by one business can result in
negative publicity about other businesses the Company
operates. Although the Company takes steps to minimize
reputation risk in dealing with customers and other
constituencies, the Company, as a large diversified financial
services company with a high industry profile, is inherently
exposed to this risk.
The Company’s reported financial results depend on
management’s selection of accounting methods and
certain assumptions and estimates The Company’s
accounting policies and methods are fundamental to how the
Company records and reports its financial condition and
results of operations. The Company’s management must
exercise judgment in selecting and applying many of these
accounting policies and methods so they comply with
generally accepted accounting principles and reflect
management’s judgment regarding the most appropriate
manner to report the Company’s financial condition and
results. In some cases, management must select the
accounting policy or method to apply from two or more
alternatives, any of which might be reasonable under the
circumstances, yet might result in the Company’s reporting
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