US Bank 2005 Annual Report Download - page 71

flow hedge). If the hedged item is disposed of, or the recoverability of a recorded valuation allowance is
forecasted transaction is no longer probable, the derivative determined to be remote. In determining whether other-
is recorded at fair value with any resulting gain or loss than-temporary impairment has taken place, the Company
included in the gain or loss from the disposition of the considers historical trends in pay off activity and the
hedged item or, in the case of a forecasted transaction that potential for impairment recovery. Unlike a valuation
is no longer probable, included in earnings immediately. allowance, a direct write-down permanently reduces the
carrying value of the mortgage servicing rights, precluding
OTHER SIGNIFICANT POLICIES subsequent reversals.
Intangible Assets The price paid over the net fair value of Pensions For purposes of its retirement plans, the Company
acquired businesses (‘‘goodwill’’) is not amortized. Other utilizes a measurement date of September 30. At the
intangible assets are amortized over their estimated useful measurement date, plan assets are determined based on fair
lives, using straight-line and accelerated methods. The value, generally representing observable market prices. The
recoverability of goodwill and other intangible assets is actuarial cost method used to compute the pension
evaluated annually, at a minimum, or on an interim basis if liabilities and related expense is the projected unit credit
events or circumstances indicate a possible inability to method. The projected benefit obligation is principally
realize the carrying amount. The evaluation includes determined based on the present value of projected benefit
assessing the estimated fair value of the intangible asset distributions at an assumed discount rate. The discount rate
based on market prices for similar assets, where available, utilized is based on match-funding maturities and interest
and the present value of the estimated future cash flows payments of high quality corporate bonds available in the
associated with the intangible asset. market place to projected cash flows as of the measurement
date for future benefit payments. Periodic pension expense
Income Taxes Deferred taxes are recorded to reflect the tax (or credits) includes service costs, interest costs based on the
consequences on future years of differences between the tax assumed discount rate, the expected return on plan assets
basis of assets and liabilities and the financial reporting based on an actuarially derived market-related value and
amounts at each year-end. amortization of actuarial gains and losses. Pension
Mortgage Servicing Rights Mortgage servicing rights accounting reflects the long-term nature of benefit
(‘‘MSRs’’) are capitalized as separate assets when loans are obligations and the investment horizon of plan assets and
sold and servicing is retained. The total cost of loans sold is can have the effect of reducing earnings volatility related to
allocated between the loans sold and the servicing assets short-term changes in interest rates and market valuations.
retained based on their relative fair values. MSRs that are Actuarial gains and losses include the impact of plan
purchased from others are initially recorded at cost. The amendments and various unrecognized gains and losses
carrying value of the MSRs is amortized in proportion to, which are deferred and amortized over the future service
and over the period of, estimated net servicing revenue and periods of active employees. The market-related value
recorded in noninterest expense as amortization of utilized to determine the expected return on plan assets is
intangible assets. The carrying value of these assets is based on fair value adjusted for the difference between
periodically reviewed for impairment using a lower of expected returns and actual performance of plan assets. The
carrying value or fair value methodology. For purposes of unrealized difference between actual experience and
measuring impairment, the servicing rights are stratified expected returns is included in the market-related value
based on the underlying loan type and note rate and the ratably over a five-year period.
carrying value of each stratum is compared to fair value
Premises and Equipment Premises and equipment are
based on a discounted cash flow analysis, utilizing current stated at cost less accumulated depreciation and depreciated
prepayment speeds and discount rates. Events that may primarily on a straight-line basis over the estimated life of
significantly affect the estimates used are changes in interest the assets. Estimated useful lives range up to 40 years for
rates and the related impact on mortgage loan prepayment newly constructed buildings and from 3 to 20 years for
speeds and the payment performance of the underlying furniture and equipment.
loans. If the carrying value is greater than fair value, Capitalized leases, less accumulated amortization, are
impairment is recognized through a valuation allowance for included in premises and equipment. The lease obligations
each impaired stratum and recorded as amortization of are included in long-term debt. Capitalized leases are
intangible assets. The valuation allowance is adjusted each amortized on a straight-line basis over the lease term and
subsequent period to reflect any increase or decrease in the the amortization is included in depreciation expense.
indicated impairment. The Company reviews mortgage
servicing rights for other-than-temporary impairment each Statement of Cash Flows For purposes of reporting cash
quarter and recognizes a direct write-down when the flows, cash and cash equivalents include cash and money
U.S. BANCORP 69