US Bank 2008 Annual Report Download - page 77

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 and options to
purchase common stock of the Company. Stock option
grants are for a fixed number of shares to employees and
directors with an exercise price equal to the fair value of the
shares at the date of grant. 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 stock at that time.
Per Share Calculations Earnings per common share is
calculated by dividing net income applicable to common
equity 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
Fair Value Option In February 2007, the Financial
Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 159 (“SFAS 159”),
“The Fair Value Option for Financial Assets and Financial
Liabilities”, effective for the Company beginning on
January 1, 2008. SFAS 159 provides entities with an
irrevocable option to measure and report selected financial
assets and liabilities at fair value. The Company elected the
fair value option for certain mortgage loans held for sale
(“MLHFS”) originated on or after January 1, 2008. There
was no impact of adopting SFAS 159 on the Company’s
financial statements at the date of adoption. The Company
elected the fair value option for MLHFS for which an active
secondary market and readily available market prices exist
to reliably support fair value pricing models used for these
loans. These MLHFS loans are initially measured at fair
value, with subsequent changes in fair value recognized as a
component of mortgage banking revenue. Electing to
measure these MLHFS at fair value reduces certain timing
differences and better matches changes in fair value of these
assets with changes in the value of the derivative instruments
used to economically hedge them without the burden of
complying with the requirements for hedge accounting.
Fair Value Measurements In September 2006, the FASB
issued Statement of Financial Accounting Standards No. 157
(“SFAS 157”), “Fair Value Measurements”, effective for the
Company beginning on January 1, 2008. SFAS 157 defines
fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements.
SFAS 157 provides a consistent definition of fair value
focused on exit price, and prioritizes market-based inputs for
determining fair value. SFAS 157 also requires consideration
of nonperformance risk when determining fair value
measurements. The adoption of SFAS 157 reduced the
Company’s net income by approximately $62 million
($38 million after-tax) for the year ended December 31,
2008 as a result of the consideration of nonperformance risk
for certain financial instruments.
Written Loan Commitments In November 2007, the
Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 109 (“SAB 109”), “Written Loan
Commitments Recorded at Fair Value Through Earnings”,
effective for the Company beginning on January 1, 2008.
SAB 109 expresses the SEC’s view that the expected net
future cash flows related to the associated servicing of a loan
should be included in the measurement of all written loan
commitments that are accounted for at fair value through
earnings.
Business Combinations In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141
(revised 2007) (“SFAS 141R”), “Business Combinations”,
effective for the Company beginning on January 1, 2009.
SFAS 141R establishes principles and requirements for the
acquiror in a business combination, including the
recognition and measurement of the identifiable assets
acquired, the liabilities assumed and any noncontrolling
interest in the acquired entity as of the acquisition date; the
recognition and measurement of the goodwill acquired in the
business combination or gain from a bargain purchase as of
the acquisition date; and the determination of additional
disclosures needed to enable users of the financial statements
to evaluate the nature and financial effects of the business
combination. Under SFAS 141R, nearly all acquired assets
and liabilities assumed are required to be recorded at fair
value at the acquisition date, including loans. This will
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