US Bank 2009 Annual Report Download - page 112

Download and view the complete annual report

Please find page 112 of the 2009 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.

Page out of 143

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143

The table below shows the effective portion of the gains (losses) recognized in other comprehensive income and the gains
(losses) reclassified from other comprehensive income (loss) into earnings:
Year Ended December 31, 2009 (Dollars in Millions)
Gains (Losses) Recognized in
Other Comprehensive Income
(Loss)
Gains (Losses) Reclassified from
Other Comprehensive Income (Loss)
into Earnings
Asset and Liability Management Positions
Cash flow hedges
Interest rate contracts
Pay fixed/receive floating swaps (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,066 $(2)
Net investment hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (44) –
Note: Ineffectiveness on cash flow and net investment hedges was not material for the year ended December 31, 2009.
(a) Gains (Losses) reclassified from other comprehensive income (loss) into interest income on loans.
The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and customer-
related positions:
Year Ended December 31, 2009 (Dollars in Millions)
Location of Gains (Losses)
Recognized in Earnings
Gains (Losses)
Recognized in Earnings
Asset and Liability Management Positions
Fair value hedges (a)
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income $ (27)
Foreign exchange cross-currency swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income 115
Other economic hedges
Interest rate contracts
Futures and forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage banking revenue 184
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage banking revenue 300
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue (46)
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation expense (22)
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income/expense 29
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income (658)
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income 696
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income (1)
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue 49
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue 1
(a) Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were $25 million and
$(114) million for the year ended December 31, 2009, respectively. Ineffective portion was not material for the year ended December 31, 2009.
Derivatives are subject to credit risk associated with
counterparties to the derivative contracts. The Company
measures that credit risk based on its assessment of the
probability of counterparty default and includes that within
the fair value of the derivative. The Company manages
counterparty credit risk through diversification of its
derivative positions among various counterparties, by
entering into master netting agreements and by requiring
collateral agreements which allow the Company to call for
immediate, full collateral coverage when credit-rating
thresholds are triggered by counterparties. The balances in
the table on page 109 do not reflect the impact of these risk
mitigation techniques.
The Company’s collateral agreements are bilateral, and
therefore contain provisions that require collateralization of
the Company’s net liability derivative positions. Required
collateral coverage is based on certain net liability thresholds
and contingent upon the Company’s credit rating from two
of the nationally recognized statistical rating organizations.
If the Company’s credit rating were to fall below credit
ratings thresholds established in the collateral agreements,
the counterparties to the derivatives could request immediate
full collateral coverage for derivatives in net liability
positions. The aggregate fair value of all derivatives under
collateral agreements that were in a net liability position at
December 31, 2009, was $1.2 billion. At December 31,
110 U.S. BANCORP