US Bank 2003 Annual Report Download - page 28

expense of $39.9 million and expenses related to recent Compensation Committee in evaluating plan objectives,
acquisitions. Noninterest expense related to merger and funding policies and investment policies considering its
restructuring-related charges declined by $275.0 million long-term investment time horizon and asset allocation
(85.6 percent) in 2003, compared with 2002. The decline in strategies. Note 18 of the Notes to Consolidated Financial
merger and restructuring-related charges was primarily due Statements provides further information on funding
to the completion of integration activities associated with practices, investment policies and asset allocation strategies.
the merger of Firstar and USBM. During 2003, noninterest Periodic pension expense (or credits) includes service
expense included an MSR impairment of $208.7 million, a costs, interest costs based on the assumed discount rate, the
net increase of $22.6 million, compared with 2002. The expected return on plan assets based on an actuarially
year-over-year changes in the valuation of MSRs were derived market-related value and amortization of actuarial
caused by fluctuations in mortgage interest rates and related gains and losses. The Company’s pension accounting policy
prepayment speeds due to refinancing activities. Refer to follows guidance outlined in Statement of Financial
Note 11 of the Notes to Consolidated Financial Statements Accounting Standards No. 87, ‘‘Employer’s Accounting for
for the sensitivity of the fair value of mortgage servicing Pension Plans’’ (‘‘SFAS 87’’), and reflects the long-term
rights to future changes in interest rates. Recent nature of benefit obligations and the investment horizon of
acquisitions, including Leader, Bay View and State Street plan assets. This accounting guidance has the effect of
Corporate Trust, accounted for a year-over-year increase of reducing earnings volatility related to short-term changes in
$124.9 million in noninterest expense. interest rates and market valuations. Actuarial gains and
The decline in noninterest expense of $408.5 million losses include the impact of plan amendments and various
(6.6 percent) in 2002, compared with 2001, was primarily unrecognized gains and losses which are deferred and
the result of a reduction in merger and restructuring-related amortized over the future service periods of active
costs of $723.6 million, the elimination of $236.7 million of employees. The market-related value utilized to determine
goodwill amortization in connection with new accounting the expected return on plan assets is based on fair value
principles adopted in 2002 and a reduction in asset write- adjusted for the difference between expected returns and
downs of $52.6 million related to commercial leasing actual performance of plan assets. The unrealized difference
partnerships and tractor/trailer property repossessed in between actual experience and expected returns is included
2001. Offsetting these favorable trends were higher costs in the market-related value ratably over a five-year period.
associated with acquisitions, an increase in MSR At September 30, 2003, the accumulated unrecognized loss
impairments and post-integration realignment costs. approximated $369 million and will ratably impact the
Acquisitions, including NOVA, Pacific Century, Leader and actuarially derived market-related value of plan assets
Bay View, accounted for an increase of approximately through 2008. The impact to pension expense of the
$317.4 million in noninterest expense during 2002, unrecognized asset gains or losses will incrementally
comprised primarily of increased intangible amortization increase (decrease) pension costs in each year from 2004 to
and personnel expenses. Included in noninterest expense in 2008, by approximately $26.5 million, $33.0 million,
2002 was $186.1 million in MSR impairments, compared $43.3 million, $10.3 million and $(7.2) million,
with $60.8 million in 2001, an increase of $125.3 million. respectively, during that timeframe. This assumes that the
The increase in MSR impairments was related to increasing performance of plan assets equals the assumed LTROR.
mortgage prepayments driven by declining interest rates. Actual results will vary depending on the performance of
Another significant item impacting noninterest expense in plan assets and changes to assumptions required in the
2002 was $46.4 million of personnel and related costs for future. Refer to Note 1 of the Notes to Consolidated
post-integration rationalization of technology, operations Financial Statements for further discussion of the
and certain support functions. Company’s accounting policies for pension plans.
In 2003, the Company recognized a pension credit of
Pension Plans Because of the long-term nature of pension $23.9 million compared with pension credits of
plans, the administration and accounting for pensions is $63.8 million in 2002 and $75.3 million in 2001. The
complex and can be impacted by several factors, including $39.9 million increase in pension costs in 2003 was driven
investment and funding policies, accounting methods and by a $46.4 million reduction in the expected return on
the plan’s actuarial assumptions. The Company and its assets and a lower discount rate utilized to determine the
Compensation Committee have an established process for projected benefit obligation given the declining rate
evaluating the plans, their performance and significant plan environment. Also, contributing to the increase in pension
assumptions, including the assumed discount rate and the costs was a one-time curtailment gain in 2002 of
long-term rate of return (‘‘LTROR’’). At least annually, an $9.0 million related to a nonqualified pension plan
independent consultant is engaged to assist U.S. Bancorp’s compared with a settlement loss of $3.5 million related to
26 U.S. Bancorp