US Bank 2009 Annual Report Download - page 81

period in which they occur. Risks inherent in the MSRs
valuation include higher than expected prepayment rates
and/or delayed receipt of cash flows. The Company utilizes
futures, forwards and options to mitigate MSR valuation
risk. Fair value changes related to the MSRs and the futures,
forwards and options, as well as servicing and other related
fees, are recorded in mortgage banking revenue.
Pensions For purposes of its retirement 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. 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 twelve-year period. The overfunded or
underfunded status of the plans is recorded as an asset or
liability on the 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. 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 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
Fair Value Measurements On April 9, 2009, the Financial
Accounting Standards Board (“FASB”) issued new
accounting guidance, which the Company adopted effective
January 1, 2009, for determining fair value for an asset or
liability if there has been a significant decrease in the volume
and level of activity in relation to normal market activity. In
that circumstance, transactions or quoted prices may not be
determinative of fair value. Significant adjustments may be
necessary to quoted prices or alternative valuation
techniques may be required in order to determine the fair
value of the asset or liability under current market
conditions. The adoption of this guidance resulted in the use
of valuation techniques other than quoted prices for the
valuation of the Company’s non-agency mortgage-backed
U.S. BANCORP 79