US Bank 2014 Annual Report Download - page 96

cash flows utilizing market-based prepayment rates,
discount rates, and other assumptions validated through
comparison to trade information, industry surveys and
independent third party valuations. Changes in the fair value
of MSRs are recorded in earnings as mortgage banking
revenue during the period in which they occur.
Pensions For purposes of its pension plans, the Company
utilizes its fiscal year-end as the measurement date. At the
measurement date, plan assets are determined based on fair
value, generally representing observable market prices or
the net asset value provided by the plans’ administrator. The
actuarial cost method used to compute the pension liabilities
and related expense is the projected unit credit method. The
projected benefit obligation is principally determined based
on the present value of projected benefit distributions at an
assumed discount rate. The discount rate utilized is based on
the investment yield of high quality corporate bonds available
in the marketplace with maturities equal to projected cash
flows of future benefit payments as of the measurement
date. Periodic pension expense (or income) includes service
costs, interest costs based on the assumed discount rate, the
expected return on plan assets based on an actuarially
derived market-related value and amortization of actuarial
gains and losses. Pension accounting reflects the long-term
nature of benefit obligations and the investment horizon of
plan assets, and can have the effect of reducing earnings
volatility related to short-term changes in interest rates and
market valuations. Actuarial gains and losses include the
impact of plan amendments and various unrecognized gains
and losses which are deferred and amortized over the future
service periods of active employees. The market-related
value utilized to determine the expected return on plan
assets is based on fair value adjusted for the difference
between expected returns and actual performance of plan
assets. The unrealized difference between actual experience
and expected returns is included in expense over a period of
approximately twelve years. The overfunded or underfunded
status of the plans is recorded as an asset or liability on the
Consolidated Balance Sheet, with changes in that status
recognized through other comprehensive income (loss).
Premises and Equipment Premises and equipment are
stated at cost less accumulated depreciation and depreciated
primarily on a straight-line basis over the estimated life of
the assets. Estimated useful lives range up to 40 years for
newly constructed buildings and from 3 to 20 years for
furniture and equipment.
Capitalized leases, less accumulated amortization, are
included in premises and equipment. Capitalized lease
obligations are included in long-term debt. Capitalized leases
are amortized on a straight-line basis over the lease term
and the amortization is included in depreciation expense.
Stock-Based Compensation The Company grants stock-
based awards, including restricted stock, restricted stock
units and options to purchase common stock of the
Company.Stockoptiongrantsareforafixednumberof
shares to employees and directors with an exercise price
equal to the fair value of the shares at the date of grant.
Restricted stock and restricted stock unit grants are
awarded at no cost to the recipient. Stock-based
compensation for awards is recognized in the Company’s
results of operations on a straight-line basis over the vesting
period. The Company immediately recognizes compensation
cost of awards to employees that meet retirement status,
despite their continued active employment. The amortization
of stock-based compensation reflects estimated forfeitures
adjusted for actual forfeiture experience. As compensation
expense is recognized, a deferred tax asset is recorded that
represents an estimate of the future tax deduction from
exercise or release of restrictions. At the time stock-based
awards are exercised, cancelled, expire, or restrictions are
released, the Company may be required to recognize an
adjustment to tax expense, depending on the market price of
the Company’s common stock at that time.
Per Share Calculations Earnings per common share is
calculated by dividing net income applicable to U.S. Bancorp
common shareholders by the weighted average number of
common shares outstanding. Diluted earnings per common
share is calculated by adjusting income and outstanding
shares, assuming conversion of all potentially dilutive
securities.
NOTE 2 ACCOUNTING CHANGES
Revenue Recognition In May 2014, the Financial Accounting
Standards Board (“FASB”) issued accounting guidance,
effective for the Company on January 1, 2017, related to
revenue recognition from contracts with customers, which
amends certain currently existing revenue recognition
accounting guidance. The guidance allows for either
retrospective application to all periods presented or a
modified retrospective approach where the guidance would
only be applied to existing contracts in effect at the adoption
date and new contracts going forward. The Company is
currently evaluating the impact of this guidance under the
modified retrospective approach and expects the adoption
will not be material to its financial statements.
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