US Bank 2010 Annual Report Download - page 114

Download and view the complete annual report

Please find page 114 of the 2010 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 145

  • 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
  • 144
  • 145

The table below shows the gains (losses) recognized in earnings for fair value hedges, other economic hedges and the customer-
related positions:
Year Ended December 31 (Dollars in Millions)
Location of Gains (Losses)
Recognized in Earnings 2010 2009
Gains (Losses)
Recognized in Earnings
Asset and Liability Management Positions
Fair value hedges (a)
Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income $ (31) $ (27)
Foreign exchange cross-currency swaps. . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income (193) 115
Other economic hedges
Interest rate contracts
Futures and forwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage banking revenue 831 184
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage banking revenue 425 300
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue (16) (46)
Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation expense 1 (22)
Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income/expense (6) 29
Customer-Related Positions
Interest rate contracts
Receive fixed/pay floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income 201 (658)
Pay fixed/receive floating swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income (196) 696
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noninterest income 1 (1)
Foreign exchange rate contracts
Forwards, spots and swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue 49 49
Purchased and written options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commercial products revenue 1 1
(a) Gains (Losses) on items hedged by interest rate contracts and foreign exchange forward contracts, included in noninterest income (expense), were
$35 million and $193 million for the year ended December 31, 2010, respectively, and $25 million and $(114) million for the year ended December 31, 2009,
respectively. The ineffective portion was immaterial for the years ended December 31, 2010 and 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 where possible 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 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, 2010, was $1.4 billion. At December 31,
2010, the Company had $936 million of cash posted as
collateral against this net liability position.
112 U.S. BANCORP