US Bank 2004 Annual Report Download - page 36
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Please find page 36 of the 2004 US Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.was primarily driven by the issuance of $12.2 billion of and consumer credit policies, risk ratings, and other critical
bank notes and $1.0 billion of subordinated notes, partially credit information. The Company strives to identify
offset by maturities of $8.0 billion and prepayments of potential problem loans early, take any necessary charge-
$4.7 billion of Federal Home Loan Bank (‘‘FHLB’’) offs promptly and maintain adequate reserve levels for
advances. The prepayments of FHLB advances during the probable loan losses inherent in the portfolio. Commercial
first and fourth quarters of 2004 and the issuance of banking operations rely on a strong credit culture that
predominantly fixed-rate funding were principally done in combines prudent credit policies and individual lender
connection with asset/liability management activities. Refer accountability. Lenders are assigned lending grades based
to Note 15 of the Notes to Consolidated Financial on their level of experience and customer service
Statements for additional information regarding long-term requirements. Lending grades represent the level of approval
debt and the ‘‘Liquidity Risk Management’’ section for authority for the amount of credit exposure and level of
discussion of liquidity management of the Company. risk. Credit officers reporting to an independent credit
administration function have higher levels of lending grades
CORPORATE RISK PROFILE and support the business units in their credit decision
process. Loan decisions are documented as to the
Overview Managing risks is an essential part of successfully borrower’s business, purpose of the loan, evaluation of the
operating a financial services company. The most prominent repayment source and the associated risks, evaluation of
risk exposures are credit, residual, operational, interest rate, collateral, covenants and monitoring requirements, and risk
market and liquidity risk. Credit risk is the risk of not rating rationale. The Company utilizes a credit risk rating
collecting the interest and/or the principal balance of a loan system to measure the credit quality of individual
or investment when it is due. Residual risk is the potential commercial loan transactions. The Company uses the risk
reduction in the end-of-term value of leased assets or the rating system for regulatory reporting, determining the
residual cash flows related to asset securitization and other frequency of review of the credit exposures, and evaluation
off-balance sheet structures. Operational risk includes risks and determination of specific allowance for commercial
related to fraud, legal and compliance risk, processing credit losses. The Company regularly forecasts potential
errors, technology, breaches of internal controls and changes in risk ratings, nonperforming status and potential
business continuation and disaster recovery risk. Interest for loss and the estimated impact on the allowance for
rate risk is the potential reduction of net interest income as credit losses. In the Company’s retail banking operations,
a result of changes in interest rates. Rate movements can standard credit scoring systems are used to assess credit
affect the repricing of assets and liabilities differently, as risks of consumer, small business and small-ticket leasing
well as their market value. Market risk arises from customers and to price consumer products accordingly. The
fluctuations in interest rates, foreign exchange rates, and Company conducts the underwriting and collections of its
equity prices that may result in changes in the values of retail products in loan underwriting and servicing centers
financial instruments, such as trading and available-for-sale specializing in certain retail products. Forecasts of
securities that are accounted for on a mark-to-market basis. delinquency levels, bankruptcies and losses in conjunction
Liquidity risk is the possible inability to fund obligations to with projection of estimated losses by delinquency
depositors, investors or borrowers. In addition, corporate categories and vintage information are regularly prepared
strategic decisions, as well as the risks described above, and are used to evaluate underwriting and collection and
could give rise to reputation risk. Reputation risk is the risk determine the specific allowance for credit losses for these
that negative publicity or press, whether true or not, could products. Because business processes and credit risks
result in costly litigation or cause a decline in the associated with unfunded credit commitments are essentially
Company’s stock value, customer base or revenue. the same as for loans, the Company utilizes similar
Credit Risk Management The Company’s strategy for credit processes to estimate its liability for unfunded credit
risk management includes well-defined, centralized credit commitments. The Company also engages in non-lending
policies, uniform underwriting criteria, and ongoing risk activities that may give rise to credit risk, including interest
monitoring and review processes for all commercial and rate swap and option contracts for balance sheet hedging
consumer credit exposures. The strategy also emphasizes purposes, foreign exchange transactions, deposit overdrafts
diversification on a geographic, industry and customer level, and interest rate swap contracts for customers, and
regular credit examinations and management reviews of settlement risk, including Automated Clearing House
loans experiencing deterioration of credit quality. The credit transactions, and the processing of credit card transactions
risk management strategy also includes a credit risk for merchants. These activities are also subject to credit
assessment process, independent of business line managers, review, analysis and approval processes.
that performs assessments of compliance with commercial
34 U.S. BANCORP