US Bank 2006 Annual Report Download - page 114

consumers can pay bills and transfer funds directly without addition, the widespread adoption of new technologies,
going through a bank. This ‘‘disintermediation’’ could result including internet services, could require the Company to
in the loss of fee income, as well as the loss of customer make substantial expenditures to modify or adapt the
deposits and income generated from those deposits. In Company’s existing products and services. Also, these and
addition, changes in consumer spending and saving habits other capital investments in the Company’s businesses may
could adversely affect the Company’s operations, and the not produce expected growth in earnings anticipated at the
Company may be unable to timely develop competitive new time of the expenditure. The Company might not be
products and services in response to these changes that are successful in introducing new products and services,
accepted by new and existing customers. achieving market acceptance of its products and services, or
developing and maintaining loyal customers.
Acts or threats of terrorism and political or military
actions taken by the United States or other governments Because the nature of the financial services business
could adversely affect general economic or industry involves a high volume of transactions, the Company faces
conditions. Geopolitical conditions may also affect the significant operational risks. The Company operates in
Company’s earnings. Acts or threats or terrorism and many different businesses in diverse markets and relies on
political or military actions taken by the United States or the ability of its employees and systems to process a high
other governments in response to terrorism, or similar number of transactions. Operational risk is the risk of loss
activity, could adversely affect general economic or industry resulting from the Company’s operations, including, but not
conditions. limited to, the risk of fraud by employees or persons
outside of the Company, the execution of unauthorized
Company Risk Factors transactions by employees, errors relating to transaction
The Company’s allowance for loan losses may not be processing and technology, breaches of the internal control
adequate to cover actual losses. Like all financial system and compliance requirements and business
institutions, the Company maintains an allowance for loan continuation and disaster recovery. This risk of loss also
losses to provide for loan defaults and non-performance. includes the potential legal actions that could arise as a
The Company’s allowance for loan losses is based on its result of an operational deficiency or as a result of
historical loss experience as well as an evaluation of the noncompliance with applicable regulatory standards,
risks associated with its loan portfolio, including the size adverse business decisions or their implementation, and
and composition of the loan portfolio, current economic customer attrition due to potential negative publicity. In the
conditions and geographic concentrations within the event of a breakdown in the internal control system,
portfolio. The Company’s allowance for loan losses may improper operation of systems or improper employee
not be adequate to cover actual loan losses, and future actions, the Company could suffer financial loss, face
provisions for loan losses could materially and adversely regulatory action and suffer damage to its reputation.
affect its financial results. The change in residual value of leased assets may have an
The Company may suffer losses in its loan portfolio adverse impact on the Company’s financial results. The
despite its underwriting practices. The Company seeks to Company engages in leasing activities and is subject to the
mitigate the risks inherent in its loan portfolio by adhering risk that the residual value of the property under lease will
to specific underwriting practices. These practices often be less than the Company’s recorded asset value. Adverse
include: analysis of a borrower’s credit history, financial changes in the residual value of leased assets can have a
statements, tax returns and cash flow projections; valuation negative impact on the Company’s financial results. The risk
of collateral based on reports of independent appraisers; of changes in the realized value of the leased assets
and verification of liquid assets. Although the Company compared to recorded residual values depends on many
believes that its underwriting criteria are appropriate for the factors outside of the Company’s control, including supply
various kinds of loans it makes, the Company may incur and demand for the assets, collecting insurance claims,
losses on loans that meet these criteria. condition of the assets at the end of the lease term, and
other economic factors.
Maintaining or increasing the Company’s market share
may depend on lowering prices and market acceptance of Negative publicity could damage the Company’s reputation
new products and services. The Company’s success and adversely impact its business and financial results.
depends, in part, on its ability to adapt its products and Reputation risk, or the risk to the Company’s earnings and
services to evolving industry standards. There is increasing capital from negative publicity, is inherent in the
pressure to provide products and services at lower prices. Company’s business. Negative publicity can result from the
Lower prices can reduce the Company’s net interest margin Company’s actual or alleged conduct in any number of
and revenues from its fee-based products and services. In activities, including lending practices, corporate governance
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