US Bank 2014 Annual Report Download - page 94

LOANS HELD FOR SALE
Loans held for sale (“LHFS”) represent mortgage loans
intended to be sold in the secondary market and other loans
that management has an active plan to sell. LHFS are carried
at the lower-of-cost-or-fair value as determined on an
aggregate basis by type of loan with the exception of loans for
which the Company has elected fair value accounting, which
are carried at fair value. The credit component of any
writedowns upon the transfer of loans to LHFS is reflected in
loan charge-offs.
WhereanelectionismadetocarrytheLHFSatfair
value, any change in fair value is recognized in noninterest
income. Where an election is made to carry LHFS at lower-
of-cost-or-fair value, any further decreases are recognized in
noninterest income and increases in fair value are not
recognized until the loans are sold. Fair value elections are
made at the time of origination or purchase based on the
Company’s fair value election policy. The Company has
elected fair value accounting for substantially all its
mortgage loans held for sale.
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
anddesignatedasacashflowhedgearerecordedinother
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
changesinthevalueorcashflowsofthehedgeditem(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.
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