US Bank 2013 Annual Report Download - page 29

The $545 million (5.5 percent) increase in noninterest
expense in 2012 over 2011 was principally due to higher
compensation expense, employee benefits expense and
professional services expense. Compensation expense
increased 6.9 percent, primarily as a result of growth in
staffing for business initiatives and mortgage servicing-
related activities, in addition to higher commissions and merit
increases. Employee benefits expense increased 11.8
percent, principally due to higher pension and medical
insurance costs and staffing levels. Professional services
expense increased 38.4 percent, principally due to
mortgage servicing review-related projects. In addition,
technology and communications expense was 8.3 percent
higher due to business expansion and technology projects.
Other expense increased 2.2 percent in 2012 over 2011,
reflecting the 2012 $80 million expense accrual for the
mortgage foreclosure-related settlement, higher regulatory
and insurance-related costs and the 2012 accrual related to
Visa Inc., partially offset by a $130 million expense accrual
related to mortgage servicing matters recorded in 2011,
lower FDIC assessments and lower costs related to other
real estate owned. These increases were partially offset by a
decrease of 8.2 percent in net occupancy and equipment
expense, principally reflecting the change in presentation of
ATM surcharge revenue passed through to others, and a
8.4 percent decrease in other intangibles expense due to the
reduction or completion of amortization of certain intangibles.
Pension Plans Because of the long-term nature of pension
plans, the related accounting is complex and can be
impacted by several factors, including investment funding
policies, accounting methods and actuarial assumptions.
The Company’s pension accounting reflects the long-
term nature of the benefit obligations and the investment
horizon of plan assets. Amounts recorded in the financial
statements reflect actuarial assumptions about participant
benefits and plan asset returns. Changes in actuarial
assumptions and differences in actual plan experience,
compared with actuarial assumptions, are deferred and
recognized in expense in future periods. Differences related
to participant benefits are recognized in expense over the
future service period of the employees. Differences related to
the expected return on plan assets are included in expense
over a period of approximately twelve years.
The Company expects pension expense to decrease
$127 million in 2014, driven by an increase in the discount
rate and favorable asset returns, partially offset by an
increase related to plan participant life expectancy
assumption changes. Because of the complexity of
forecasting pension plan activities, the accounting methods
utilized for pension plans, the Company’s ability to respond
to factors affecting the plans and the hypothetical nature of
actuarial assumptions, actual pension expense will differ
from these amounts.
Refer to Note 16 of the Notes to the Consolidated
Financial Statements for further information on the
Company’s pension plan funding practices, investment
policies and asset allocation strategies, and accounting
policies for pension plans.
The following table shows an analysis of hypothetical
changes in the long-term rate of return (“LTROR”) and
discount rate:
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) ........ $ (28) $ 28
Percent of 2013 net income ........... (.30)% .30%
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) ........ $ (100) $ 81
Percent of 2013 net income ........... (1.05)% .85%
Income Tax Expense The provision for income taxes was
$2.0 billion (an effective rate of 26.2 percent) in 2013,
compared with $2.2 billion (an effective rate of 28.9 percent)
in 2012 and $1.8 billion (an effective rate of 27.8 percent) in
2011.
For further information on income taxes, refer to Note 18
of the Notes to Consolidated Financial Statements.
Balance Sheet Analysis
Average earning assets were $315.1 billion in 2013,
compared with $306.3 billion in 2012. The increase in
average earning assets of $8.8 billion (2.9 percent) was
primarily due to increases in loan balances of $12.1 billion
(5.6 percent) and investment securities of $2.5 billion
(3.5 percent), partially offset by decreases in loans held for
sale of $2.1 billion (27.1 percent) and other earning assets of
$3.7 billion (34.6 percent), primarily due to the
deconsolidation of certain consolidated VIEs during 2013.
For average balance information, refer to Consolidated
Daily Average Balance Sheet and Related Yields and Rates
on pages 144 and 145.
Loans The Company’s loan portfolio was $235.2 billion at
December 31, 2013, an increase of $11.9 billion
(5.3 percent) from December 31, 2012. The increase was
driven by growth in residential mortgages of $7.1 billion
(16.2 percent), commercial loans of $3.8 billion (5.8 percent),
commercial real estate loans of $2.9 billion (7.9 percent) and
credit card loans of $906 million (5.3 percent), partially offset
by a decrease in covered loans of $2.8 billion (25.2 percent).
Table 6 provides a summary of the loan distribution by
product type, while Table 12 provides a summary of the
selected loan maturity distribution by loan category. Average
total loans increased $12.1 billion (5.6 percent) in 2013,
compared with 2012. The increase was due to growth in
most loan portfolio classes in 2013.
U.S. BANCORP 27