US Bank 2011 Annual Report Download - page 141

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, unauthorized access to its computer
systems, 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. Third parties with which the Company
does business could also be sources of operational risk to the
Company, including risks relating to breakdowns or failures
of those parties’ systems or employees. 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.
If personal, confidential or proprietary information of
customers or clients in the Company’s possession were to be
mishandled or misused, the Company could suffer significant
regulatory consequences, reputational damage and financial
loss. This mishandling or misuse could include, for example, if
the information were erroneously provided to parties who are
not permitted to have the information, either by fault of the
Company’s systems, employees, or counterparties, or where
the information is intercepted or otherwise inappropriately
taken by third parties.
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 business, earnings and capital from negative
publicity, is inherent in the Company’s business and increased
substantially because of the financial crisis beginning in 2008.
The reputation of the financial services industry in general has
been damaged as a result of the financial crisis and other
matters affecting the financial services industry, including
mortgage foreclosure issues. Negative public opinion about
the financial services industry generally or the Company
specifically could adversely affect the Company’s ability to
keep and attract customers, and expose the Company to
litigation and regulatory action. Negative publicity can result
from the Company’s actual or alleged conduct in any number
of activities, including lending practices, mortgage servicing
and foreclosure practices, corporate governance, regulatory
compliance, mergers and acquisitions, and related disclosure,
sharing or inadequate protection of customer information,
and actions taken by government regulators and community
organizations in response to that conduct. 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 materially different results than would
have been reported under a different alternative.
Certain accounting policies are critical to presenting the
Company’s financial condition and results. They require
management to make difficult, subjective or complex
judgments about matters that are uncertain. Materially
different amounts could be reported under different
conditions or using different assumptions or estimates. These
critical accounting policies include: the allowance for credit
losses; estimations of fair value; the valuation of purchased
loans and related indemnification assets; the valuation of
MSRs; the valuation of goodwill and other intangible assets;
and income taxes. Because of the uncertainty of estimates
involved in these matters, the Company may be required to do
one or more of the following: significantly increase the
allowance for credit losses and/or sustain credit losses that are
significantly higher than the reserve provided; recognize
significant impairment on its goodwill and other intangible
U.S. BANCORP 139