US Bank 2006 Annual Report Download - page 73

If a derivative designated as a hedge is terminated or equipment recorded as sales when the equipment is shipped
ceases to be highly effective, the gain or loss is amortized to or as earned for equipment rentals.
earnings over the remaining life of the hedged asset or Trust and Investment Management Fees Trust and
liability (fair value hedge) or over the same period(s) that investment management fees are recognized over the period
the forecasted hedged transactions impact earnings (cash in which services are performed and are based on a
flow hedge). If the hedged item is disposed of, or the percentage of the fair value of the assets under management
forecasted transaction is no longer probable, the derivative or administration, fixed based on account type, or
is recorded at fair value with any resulting gain or loss transaction-based fees.
included in the gain or loss from the disposition of the
Deposit Service Charges Service charges on deposit
hedged item or, in the case of a forecasted transaction that
accounts primarily represent monthly fees based on
is no longer probable, included in earnings immediately.
minimum balances or transaction-based fees. These fees are
REVENUE RECOGNITION recognized as earned or as transactions occur and services
are provided.
The Company recognizes revenue as it is earned based on
contractual terms, as transactions occur, or as services are OTHER SIGNIFICANT POLICIES
provided and collectibility is reasonably assured. In certain
Intangible Assets The price paid over the net fair value of
circumstances, noninterest income is reported net of
the acquired businesses (‘‘goodwill’’) is not amortized.
associated expenses that are directly related to variable
Other intangible assets are amortized over their estimated
volume-based sales or revenue sharing arrangements or
useful lives, using straight-line and accelerated methods. The
when the Company acts on an agency basis for others.
recoverability of goodwill and other intangible assets is
Certain specific policies include the following:
evaluated annually, at a minimum, or on an interim basis if
Credit and Debit Card Revenue Credit and debit card events or circumstances indicate a possible inability to
revenue includes interchange income from credit and debit realize the carrying amount. The evaluation includes
cards, annual fees, and other transaction and account assessing the estimated fair value of the intangible asset
management fees. Interchange income is a fee paid by a based on market prices for similar assets, where available,
merchant bank to the card-issuing bank through the and the present value of the estimated future cash flows
interchange network. Interchange fees are set by the credit associated with the intangible asset.
card associations and are based on cardholder purchase
Income Taxes Deferred taxes are recorded to reflect the tax
volumes. The Company records interchange income as
consequences on future years of differences between the tax
transactions occur. Transaction and account management
basis of assets and liabilities and the financial reporting
fees are recognized as transactions occur or services are
amounts at each year-end.
provided, except for annual fees, which are recognized over
the applicable period. Volume-related payments to partners Mortgage Servicing Rights Mortgage servicing rights
and credit card associations and expenses for rewards (‘‘MSRs’’) are capitalized as separate assets when loans are
programs are also recorded within credit and debit card sold and servicing is retained or may be purchased from
revenue. Payments to partners and expenses related to others. MSRs are initially recorded at fair value, if
rewards programs are recorded when earned by the partner practicable, and at each subsequent reporting date. The
or customer. Company determines the fair value by estimating the
present value of the asset’s future cash flows utilizing
Merchant Processing Services Merchant processing services
market-based prepayment rates, discount rates, and other
revenue consists principally of transaction and account
assumptions validated through comparison to trade
management fees charged to merchants for the electronic
information, industry surveys and independent third party
processing of transactions, net of interchange fees paid to
appraisals. Changes in the fair value of MSRs are recorded
the credit card issuing bank, card association assessments,
in earnings during the period in which they occur. Risks
and revenue sharing amounts, and are all recognized at the
inherent in the MSRs valuation include higher than
time the merchant’s transactions are processed or other
expected prepayment rates and/or delayed receipt of cash
services are performed. The Company may enter into
flows. The Company utilizes futures and options contracts
revenue sharing agreements with referral partners or in
to mitigate the valuation risk. Fair value changes related to
connection with purchases of merchant contracts from
the MSRs and the futures and options contracts, as well as
sellers. The revenue sharing amounts are determined
servicing and other related fees, are recorded in mortgage
primarily on sales volume processed or revenue generated
banking revenue.
for a particular group of merchants. Merchant processing
revenue also includes revenues related to point-of-sale
U.S. BANCORP 71