US Bank 2001 Annual Report Download - page 57

Changes in the fair value of a derivative that is highly discounted cash Öow methodology, utilizing current
eÅective and designated as a fair value hedge and the prepayment speeds and discount rates. Impairment is
oÅsetting changes in the fair value of the hedged item are recognized through a valuation allowance for each impaired
recorded in income. Changes in the fair value of a stratum and recorded as amortization of intangible assets.
derivative that is highly eÅective and designated as a cash Intangible Assets For all purchase acquisitions completed
Öow hedge are recognized in other comprehensive income prior to July 1, 2001, the price paid over the net fair value
until income from the cash Öows of the hedged item are of the acquired businesses (""goodwill'') is amortized over
recognized. The Company performs an assessment, both at periods ranging up to 25 years. For purchase acquisitions
the inception of the hedge and on a quarterly basis completed subsequent to June 30, 2001, goodwill is not
thereafter, to determine whether these derivatives are highly amortized. Other intangible assets are amortized over their
eÅective in oÅsetting changes in the value of the hedged estimated useful lives, which range from seven to Ñfteen
items. Any change in fair value resulting from hedge years, using straight-line and accelerated methods. The
ineÅectiveness is immediately recorded in noninterest recoverability of goodwill and other intangible assets is
income. evaluated if events or circumstances indicate a possible
If a derivative designated as a hedge is terminated or inability to realize the carrying amount. The evaluation
ceases to be highly eÅective, the gain or loss is amortized to includes assessing the estimated fair value of the intangible
earnings over the remaining life of the hedged asset or asset based on market prices for similar assets, where
liability (fair value hedge) or over the same period(s) that available, and the present value of the estimated future cash
the forecasted hedged transactions impact earnings (cash Öows associated with the intangible asset.
Öow hedge). If the hedged item is disposed of, or the
forecasted transaction is no longer probable, the derivative Income Taxes Deferred taxes are recorded to reÖect the
is recorded at fair value with any resulting gain or loss tax consequences on future years of diÅerences between the
included in the gain or loss from the disposition of the tax bases of assets and liabilities and the Ñnancial reporting
hedged item or, in the case of a forecasted transaction that amounts at each year-end.
is no longer probable, included in earnings immediately.
Statement of Cash Flows For purposes of reporting cash
OTHER SIGNIFICANT POLICIES Öows, cash and cash equivalents include cash and money
market investments, deÑned as interest-bearing amounts due
Premises and Equipment Premises and equipment are from banks, federal funds sold and securities purchased
stated at cost less accumulated depreciation and depreciated under agreements to resell.
primarily on a straight-line basis over the estimated life of
the assets. Stock-based Compensation The Company grants stock
Capital leases, less accumulated amortization, are options for a Ñxed number of shares to employees and
included in premises and equipment. The lease obligations directors with an exercise price equal to the fair value of
are included in long-term debt. Capitalized leases are the shares at the date of grant. The Company accounts for
amortized on a straight-line basis over the lease term and stock option grants in accordance with Accounting
the amortization is included in depreciation expense. Principles Board Opinion No. 25, ""Accounting for Stock
Issued to Employees,'' (""APB 25'') and accordingly
Mortgage Servicing Rights Mortgage servicing rights recognizes no compensation expense for the stock option
associated with loans originated and sold, where servicing is grants.
retained, are capitalized and included in other intangible
assets in the consolidated balance sheet. The value of these Per Share Calculations Earnings per share is calculated by
capitalized servicing rights is amortized in proportion to, dividing net income (less preferred stock dividends) by the
and over the period of, estimated net servicing revenue and weighted average number of common shares outstanding
recorded in noninterest expense as amortization of during the year. Diluted earnings per share is calculated by
intangible assets. The carrying value of these rights is adjusting income and outstanding shares, assuming
periodically reviewed for impairment based on fair value. conversion of all potentially dilutive securities, using the
For purposes of measuring impairment, the servicing rights treasury stock method. All per share amounts have been
are stratiÑed based on the underlying loan type and note restated for stock splits.
rate and compared to a valuation prepared based on a
U.S. Bancorp 55