US Bank 2014 Annual Report Download - page 167

Company, and it may issue additional shares of stock to pay
for those acquisitions, which would dilute current
shareholders’ ownership interests.
ACCOUNTING AND TAX RISK
The Company’s reported financial results depend on
management’s selection of accounting methods and
certain assumptions and estimates, which, if incorrect,
could cause unexpected losses in the future 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 of operations. 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 of operations. 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 asset balances, or significantly
increase its accrued taxes liability. For more information,
refer to “Critical Accounting Policies” in this Annual Report.
Changes in accounting standards could materially impact
the Company’s financial statements From time to time, the
Financial Accounting Standards Board and the United States
Securities and Exchange Commission change the financial
accounting and reporting standards that govern the
preparation of the Company’s financial statements. These
changes can be hard to predict and can materially impact
how the Company records and reports its financial condition
and results of operations. The Company could be required to
apply a new or revised standard retroactively or apply an
existing standard differently, also retroactively, in each case
potentially resulting in the Company restating prior period
financial statements.
The Company’s investments in certain tax-advantaged
projects may not generate returns as anticipated and may
have an adverse impact on the Company’s financial
results The Company invests in certain tax-advantaged
projects promoting affordable housing, community
development and renewable energy resources. The
Company’s investments in these projects are designed to
generate a return primarily through the realization of federal
and state income tax credits, and other tax benefits, over
specified time periods. The Company is subject to the risk
that previously recorded tax credits, which remain subject to
recapture by taxing authorities based on compliance features
required to be met at the project level, will fail to meet
certain government compliance requirements and will not be
able to be realized. The possible inability to realize these tax
credit and other tax benefits can have a negative impact on
the Company’s financial results. The risk of not being able to
realize the tax credits and other tax benefits depends on
many factors outside of the Company’s control, including
changes in the applicable tax code and the ability of the
projects to be completed.
RISK MANAGEMENT
The Company’s framework for managing risks may not be
effective in mitigating risk and loss to the Company The
Company’s risk management framework seeks to mitigate
risk and loss to it. The Company has established processes
and procedures intended to identify, measure, monitor,
report, and analyze the types of risk to which it is subject,
including liquidity risk, credit risk, residual value risk, market
risk, interest rate risk, operational risk, compliance risk,
strategic risk and reputational risk, among others. However,
as with any risk management framework, there are inherent
limitations to the Company’s risk management strategies as
there may exist, or develop in the future, risks that it has not
appropriately anticipated or identified. The recent financial
and credit crises and resulting regulatory reform highlighted
both the importance and some of the limitations of managing
unanticipated risks, and the Company’s regulators remain
focused on ensuring that financial institutions build and
maintain robust risk management policies. If the Company’s
risk management framework proves ineffective, the
Company could suffer unexpected losses which could affect
its financial condition or results of operations.
U.S. BANCORP The power of potential
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