US Bank 2014 Annual Report Download - page 31

TABLE 5 NONINTEREST EXPENSE
Year Ended December 31 (Dollars in Millions) 2014 2013 2012
2014
v 2013
2013
v 2012
Compensation................................................. $ 4,523 $ 4,371 $ 4,320 3.5% 1.2%
Employee benefits ............................................ 1,041 1,140 945 (8.7) 20.6
Net occupancy and equipment ................................ 987 949 917 4.0 3.5
Professional services ......................................... 414 381 530 8.7 (28.1)
Marketing and business development ......................... 382 357 388 7.0 (8.0)
Technology and communications .............................. 863 848 821 1.8 3.3
Postage, printing and supplies ................................ 328 310 304 5.8 2.0
Other intangibles .............................................. 199 223 274 (10.8) (18.6)
Other .......................................................... 1,978 1,695 1,957 16.7 (13.4)
Total noninterest expense .................................. $10,715 $10,274 $10,456 4.3% (1.7)%
Efficiency ratio(a) ............................................... 53.2% 52.4% 51.5%
(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding net securities gains (losses).
The $182 million (1.7 percent) decrease in noninterest
expense in 2013 from 2012 was primarily due to reductions in
professional services and other expenses. Professional
services expense decreased 28.1 percent due to a reduction
in mortgage servicing review-related costs. Other expense
decreased 13.4 percent, reflecting the impact of a 2012
expense accrual for a mortgage foreclosure-related
regulatory settlement, the impact of a 2012 accrual for the
Company’s portion of an indemnification obligation
associated with Visa Inc., and lower insurance-related costs
and costs related to other real estate owned and FDIC
insurance expense, partially offset by higher tax-advantaged
project costs, including changes in the accounting
presentation of certain investments in tax-advantaged
projects during 2013. In addition, other intangibles expense
decreased 18.6 percent due to the reduction or completion of
the amortization of certain intangibles. These decreases
were partially offset by increases in other expense
categories. Compensation expense increased 1.2 percent in
2013 over 2012, primarily as a result of growth in staffing for
business initiatives and business expansion, and merit
increases, partially offset by lower incentive and commission
expense, reflecting a decrease in mortgage banking activity
during 2013. Employee benefits expense increased 20.6
percent principally due to higher pension costs and staffing
levels. In addition, net occupancy and equipment expense
was 3.5 percent higher due to business initiatives and higher
rent and maintenance costs, while technology and
communications expense was 3.3 percent higher due to
business expansion and technology projects
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 increase
approximately $100 million in 2015, primarily driven by a
lower discount rate and assumption changes related to plan
participant life expectancy. 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, the actual pension expense increase
may differ from the expected amount.
Refer to Note 17 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 discount rate and long-term rate of return
(“LTROR”):
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) ........ $ (126) $ 102
Percent of 2014 net income .......... (1.32)% 1.07%
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) ........ $ (31) $ 31
Percent of 2014 net income .......... (.33)% .33%
U.S. BANCORP The power of potential
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