US Bank 2015 Annual Report Download - page 97

Deposit Service Charges Service charges on deposit
accounts are primarily monthly fees based on minimum
balances or transaction-based fees. These fees are recognized
as earned or as transactions occur and services are provided.
Commercial Products Revenue Commercial products
revenue primarily includes revenue related to ancillary services
provided to Wholesale Banking and Commercial Real Estate
customers including standby letter of credit fees, non-yield
related loan fees, capital markets related revenue and non-
yield related leasing revenue. These fees are recognized as
earned or as transactions occur and services are provided.
Mortgage Banking Revenue Mortgage banking revenue
includes revenue derived from mortgages originated and
subsequently sold, generally with servicing retained. The
primary components include: gains and losses on mortgage
sales; servicing revenue; changes in fair value for mortgage
loans originated with the intent to sell and measured at fair
value under the fair value option; changes in fair value for
derivative commitments to purchase and originate mortgage
loans; changes in the fair value of mortgage servicing rights
(“MSRs”); and the impact of risk management activities
associated with the mortgage origination pipeline, funded
loans and MSRs. Net interest income from mortgage loans is
recorded in interest income. Refer to Other Significant Policies
in Note 1, as well as Note 10 and Note 22 for a further
discussion of MSRs.
OTHER SIGNIFICANT POLICIES
Goodwill and Other Intangible Assets Goodwill is
recorded on acquired businesses if the purchase price
exceeds the fair value of the net assets acquired. Other
intangible assets are recorded at their fair value upon
completion of a business acquisition or certain other
transactions, and generally represent the value of customer
contracts or relationships. Goodwill is not amortized but is
subject, at a minimum, to annual tests for impairment at a
reporting unit level. In certain situations, an interim impairment
test may be required if events occur or circumstances change
that would more likely than not reduce the fair value of a
reporting unit below its carrying amount. Other intangible
assets are amortized over their estimated useful lives, using
straight-line and accelerated methods and are subject to
impairment if events or circumstances indicate a possible
inability to realize the carrying amount. Determining the
amount of goodwill impairment, if any, includes assessing the
current implied fair value of the reporting unit as if it were
being acquired in a business combination and comparing it to
the carrying amount of the reporting unit’s goodwill.
Determining the amount of other intangible asset impairment,
if any, includes assessing the present value of the estimated
future cash flows associated with the intangible asset and
comparing it to the carrying amount of the asset.
Income Taxes Deferred taxes are recorded to reflect the tax
consequences on future years of differences between the tax
basis of assets and liabilities and their financial reporting
carrying amounts. The Company uses the deferral method of
accounting on investments that generate investment tax
credits. Under this method, the investment tax credits are
recognized as a reduction to the related asset. Beginning
January 1, 2014, the Company presents the expense on
certain qualified affordable housing investments in tax
expense rather than noninterest expense.
Mortgage Servicing Rights MSRs are capitalized as
separate assets when loans are sold and servicing is retained
or if they are purchased from others. MSRs are recorded at
fair value. The Company determines the fair value by
estimating the present value of the asset’s future 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
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