US Bank 2014 Annual Report Download - page 95

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.
Deposit Service Charges Service charges on deposit
accounts are primarily monthly fees based on minimum
balances or transaction-based fees. These fees are
recognized as earned or as transactions occur and services
are provided.
Commercial Products Revenue Commercial products
revenue primarily includes revenue related to ancillary
services provided to Wholesale Banking and Commercial
Real Estate customers including standby letter of credit fees,
non-yield related loan fees, capital markets related revenue
and non-yield related leasing revenue. These fees are
recognized as earned or as transactions occur and services
are provided.
Mortgage Banking Revenue Mortgage banking revenue
includes revenue derived from mortgages originated and
subsequently sold, generally with servicing retained. The
primary components include: gains and losses on mortgage
sales; servicing revenue; changes in fair value for mortgage
loans originated with the intent to sell and measured at fair
value under the fair value option; changes in fair value for
derivative commitments to purchase and originate mortgage
loans; changes in the fair value of mortgage servicing rights
(“MSRs”); and the impact of risk management activities
associated with the mortgage origination pipeline, funded
loans and MSRs. Net interest income from mortgage loans is
recorded in interest income. Refer to Other Significant
Policies in Note 1, as well as Note 10 and Note 22 for a
further discussion of MSRs.
OTHER SIGNIFICANT POLICIES
Goodwill and Other Intangible Assets Goodwill is recorded
on acquired businesses if the purchase price exceeds the fair
value of the net assets acquired. Other intangible assets are
recorded at their fair value upon completion of a business
acquisition or certain other transactions, and generally
represent the value of customer contracts or relationships.
Goodwill is not amortized but is subject, at a minimum, to
annual tests for impairment at a reporting unit level. In
certain situations, an interim impairment test may be
required if events occur or circumstances change that would
more likely than not reduce the fair value of a reporting unit
below its carrying amount. Other intangible assets are
amortized over their estimated useful lives, using straight-
line and accelerated methods and are subject to impairment
if events or circumstances indicate a possible inability to
realize the carrying amount. Determining the amount of
goodwill impairment, if any, includes assessing the current
implied fair value of the reporting unit as if it were being
acquired in a business combination and comparing it to the
carrying amount of the reporting unit’s goodwill. Determining
the amount of other intangible asset impairment, if any,
includes assessing the present value of the estimated future
cash flows associated with the intangible asset and
comparing it to the carrying amount of the asset.
Income Taxes Deferred taxes are recorded to reflect the tax
consequences on future years of differences between the tax
basis of assets and liabilities and their financial reporting
carrying amounts. The Company uses the deferral method of
accounting on investments that generate investment tax
credits. Under this method, the investment tax credits are
recognized as a reduction to the related asset. In January
2014, the Financial Accounting Standards Board issued
accounting guidance for qualified affordable housing
projects. This new guidance permits the Company to present
the expense on certain qualified affordable housing
investments in tax expense rather than noninterest expense.
The Company adopted this guidance January 1, 2014, on a
prospective basis, because the impact on prior financial
statements was not material.
Mortgage Servicing Rights MSRs are capitalized as
separate assets when loans are sold and servicing is
retained or if they are purchased from others. MSRs are
recorded at fair value. The Company determines the fair
value by estimating the present value of the asset’s future
U.S. BANCORP The power of potential
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