US Bank 2015 Annual Report Download - page 96

DERIVATIVE FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company enters into
derivative transactions to manage various risks and to
accommodate the business requirements of its customers.
Derivative instruments are reported in other assets or other
liabilities at fair value. Changes in a derivative’s fair value are
recognized currently in earnings unless specific hedge
accounting criteria are met.
All derivative instruments that qualify and are designated
for hedge accounting are recorded at fair value and classified
as either a hedge of the fair value of a recognized asset or
liability (“fair value hedge”); a hedge of a forecasted
transaction or the variability of cash flows to be received or
paid related to a recognized asset or liability (“cash flow
hedge”); or a hedge of the volatility of an investment in foreign
operations driven by changes in foreign currency exchange
rates (“net investment hedge”). Changes in the fair value of a
derivative that is highly effective and designated as a fair value
hedge, and the offsetting changes in the fair value of the
hedged item, are recorded in earnings. Changes in the fair
value of a derivative that is highly effective and designated as
a cash flow hedge are recorded in other comprehensive
income (loss) until cash flows of the hedged item are realized.
Any change in fair value resulting from hedge ineffectiveness
is immediately recorded in noninterest income. Changes in
the fair value of net investment hedges that are highly effective
are recorded in other comprehensive income (loss). The
Company performs an assessment, at inception and, at a
minimum, quarterly thereafter, to determine the effectiveness
of the derivative in offsetting changes in the value or cash
flows of the hedged item(s).
If a derivative designated as a cash flow hedge is
terminated or ceases to be highly effective, the gain or loss in
other comprehensive income (loss) is amortized to earnings
over the period the forecasted hedged transactions impact
earnings. If a hedged forecasted transaction is no longer
probable, hedge accounting is ceased and any gain or loss
included in other comprehensive income (loss) is reported in
earnings immediately, unless the forecasted transaction is at
least reasonably possible of occurring, whereby the amounts
remain within other comprehensive income (loss).
REVENUE RECOGNITION
The Company recognizes revenue as it is earned based on
contractual terms, as transactions occur, or as services are
provided and collectability is reasonably assured. In certain
circumstances, noninterest income is reported net of
associated expenses that are directly related to variable
volume-based sales or revenue sharing arrangements or
when the Company acts on an agency basis for others.
Certain specific policies include the following:
Credit and Debit Card Revenue Credit and debit card
revenue includes interchange from consumer credit and debit
cards processed through card association networks, annual
fees, and other transaction and account management fees.
Interchange rates are generally set by the credit card
associations and based on purchase volumes and other
factors. The Company records interchange as transactions
occur. Transaction and account management fees are
recognized as transactions occur or services are provided,
except for annual fees which are recognized over the
applicable period. Volume-related payments to partners and
credit card associations and costs for rewards programs are
also recorded within credit and debit card revenue when
earned by the partner or customer.
Corporate Payment Products Revenue Corporate
payment products revenue primarily includes interchange
from corporate and purchasing cards processed through card
association networks and revenue from proprietary network
transactions. The Company records corporate payment
products revenue as transactions occur. Volume-related
payments to customers and credit card associations are also
recorded within corporate payment products revenue when
earned by the customer or card association.
Merchant Processing Services Merchant processing
services revenue consists principally of merchant discount
and other transaction and account management fees charged
to merchants for the electronic processing of card association
network transactions, net of interchange paid to the card-
issuing bank, card association assessments, and revenue
sharing amounts. All of these are recognized at the time the
merchant’s transactions are processed or other services are
performed. The Company may enter into revenue sharing
agreements with referral partners or in connection with
purchases of merchant contracts from sellers. The revenue
sharing amounts are determined primarily on sales volume
processed or revenue generated for a particular group of
merchants. Merchant processing revenue also includes
revenues related to point-of-sale equipment recorded as sales
when the equipment is shipped or as earned for equipment
rentals.
Trust and Investment Management Fees Trust and
investment management fees are recognized over the period
in which services are performed and are based on a
percentage of the fair value of the assets under management
or administration, fixed based on account type, or
transaction-based fees.
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