US Bank 2002 Annual Report Download - page 27

restructuring-related charges, noninterest expense, on an 2000. The banking efficiency ratio, before merger and
operating basis, was $5.9 billion in 2002, compared with restructuring-related charges, was 44.0 percent for 2002,
$5.7 billion in 2001 and $5.4 billion in 2000. The increase compared with 45.2 percent in 2001 and 43.5 percent in
in noninterest expense in 2002, on an operating basis, of 2000. The improvement in both the efficiency ratio and the
$273.7 million (4.8 percent) was primarily the result of banking efficiency ratio for 2002, compared with 2001, was
costs associated with recent acquisitions, an increase in primarily due to revenue growth, the impact in 2002 of
MSR impairments, litigation costs, post-integration adopting the new accounting standards related to
realignment costs, and core expense growth. Recent amortization of intangibles and cost savings from ongoing
acquisitions, including NOVA, Pacific Century, Leader and integration efforts, partially offset by an increase in MSR
Bay View, accounted for approximately $317.4 million of impairments and the impact of acquisitions of fee-based
the increase in 2002, which was comprised primarily of businesses that have higher efficiency ratios than the core
increased intangible and personnel expenses. Included in banking business. Both the efficiency ratio and the banking
noninterest expense in 2002 was $186.0 million in MSR efficiency ratio increased in 2001, compared with 2000,
impairments, compared with $60.8 million in 2001, an primarily due to the NOVA acquisition.
increase of $125.2 million. The increase in MSR Pension Plans Because of the long-term nature of pension
impairments was related to increasing mortgage plans, the accounting for pensions is complex and can be
prepayments driven by declining interest rates. Other impacted by several factors, including accounting methods,
significant items impacting noninterest expense included investment and funding policies and the plan’s actuarial
recognizing a $50.0 million litigation charge in 2002, assumptions. The Company’s pension accounting policy
including $25.0 million for investment banking regulatory complies with the Statement of Financial Accounting
matters at Piper and a $7.5 million liability for funding Standards No. 87, ‘‘Employer’s Accounting for Pension
independent analyst research for Piper’s customers, and Plans’’ (‘‘SFAS 87’’), and reflects the long-term nature of
$46.4 million of personnel and related costs for post- benefit obligations and the investment horizon of plan
integration rationalization of technology, operations and assets. The Company has an established process for
certain support functions. Offsetting these higher costs was evaluating the plans, their performance and significant plan
a reduction in capital markets-related expenses, the assumptions, including the assumed discount rate and the
elimination of $251.1 million of goodwill amortization in long-term rate of return (‘‘LTROR’’). At least annually, an
connection with new accounting principles adopted in 2002 independent consultant is engaged to assist U.S. Bancorp’s
and a reduction in asset write-downs of $52.6 million Compensation Committee in evaluating plan objectives,
related to commercial leasing partnerships and repossessed investment policies considering its long-term investment
tractor/trailer property taken in 2001. Refer to the time horizon and asset allocation strategies, funding policies
‘‘Acquisition and Divestiture Activity’’ section for further and significant plan assumptions. Although plan
information on the timing of acquisitions. assumptions are established annually, the Company may
The increase in noninterest expense in 2001, compared update its analysis on an interim basis in order to be
with 2000, on an operating basis, of $290.5 million responsive to significant events that occur during the year,
(5.4 percent) was primarily the result of acquisitions, such as plan mergers and amendments.
including NOVA, Scripps Financial Corporation, Pacific The Company’s pension plan measurement date for
Century, Lyon Financial Services, Inc. and 41 branches in purposes of its financial statements is September 30. At the
Tennessee, and represented an aggregate increase of measurement date, plan assets are determined based on fair
approximately $241.7 million. In addition to the impact of value, generally representing observable market prices. The
acquisitions, noninterest expense in 2001 increased over projected benefit obligation is determined based on the
2000 due to the recognition of MSR impairments of present value of projected benefit distributions at an assumed
$60.8 million related to increasing mortgage prepayments discount rate. The discount rate utilized is based on match-
during the declining rate environment, and asset write- funding maturities and interest payments of high quality
downs of $52.6 million related to commercial leasing corporate bonds available in the market place to the
partnerships and repossessed tractor/trailer property. These projected cash flows of the plan as of the measurement date.
increases were partially offset by a reduction in expenses At September 30, 2002 and 2001, the discount rate
related to capital markets activity of $108.0 million and approximated the Moody’s Aa corporate bond rating for
cost savings related to merger and restructuring-related projected benefit distributions with duration of 11.6 years.
activities. Periodic pension expense includes service costs, interest costs
The efficiency ratio, before merger and restructuring- based on an assumed discount rate, an expected return on
related charges, improved to 47.7 percent in 2002, plan assets based on an actuarially derived market-related
compared with 49.5 percent in 2001 and 48.8 percent in
U.S. Bancorp 25