US Bank 2015 Annual Report Download - page 35

The $441 million (4.3 percent) increase in noninterest
expense in 2014 over 2013 was the result of increases in
most noninterest expense categories. Compensation expense
increased 3.5 percent, reflecting the impact of merit
increases, acquisitions and higher staffing for risk, compliance
and internal audit activities (partially offset by lower employee
benefits expense of 8.7 percent, driven by lower pension
costs). Net occupancy and equipment expense was 4.0
percent higher due to business initiatives and higher
maintenance costs, and professional services expense
increased 8.7 percent due mainly to mortgage servicing-
related and other project costs. Marketing and business
development expense increased 7.0 percent primarily due to
higher charitable contributions, technology and
communications expense increased 1.8 percent as result of
business initiatives across most business lines, and postage
printing and supplies expense increased 5.8 percent due to
higher postage expense and demand for credit and prepaid
cards. In addition, other expense increased 16.7 percent in
2014 over 2013, reflecting the 2014 FHA DOJ settlement,
accruals related to certain legal matters, Charter One merger
integration costs and mortgage servicing-related expenses,
partially offset by lower tax-advantaged project costs.
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
approximately $100 million in 2016, primarily driven by a
higher expected return on plan assets due to 2015 actual and
2016 expected contributions, a higher discount rate and
lower expected amortization due to recognition of prior
losses. 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 decrease 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) ........ $(118) $ 95
Percent of 2015 net income ......... (1.23)% .99%
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) ........ $ (35) $ 35
Percent of 2015 net income ......... (.37)% .37%
Income Tax Expense The provision for income taxes was
$2.1 billion (an effective rate of 26.1 percent) in 2015 and
2014, and $2.0 billion (an effective rate of 26.2 percent) in
2013.
For further information on income taxes, refer to Note 19
of the Notes to Consolidated Financial Statements.
BALANCE SHEET ANALYSIS
Average earning assets were $367.4 billion in 2015,
compared with $341.0 billion in 2014. The increase in average
earning assets of $26.4 billion (7.8 percent) was primarily due
to increases in investment securities of $12.8 billion
(14.2 percent), loans of $8.8 billion (3.6 percent) and loans
held for sale of $2.6 billion (83.7 percent).
For average balance information, refer to Consolidated
Daily Average Balance Sheet and Related Yields and Rates on
pages 154 and 155.
Loans The Company’s loan portfolio was $260.8 billion at
December 31, 2015, compared with $247.9 billion at
December 31, 2014, an increase of $13.0 billion (5.2 percent).
The increase was driven by increases in commercial loans of
$8.0 billion (10.0 percent), credit card loans of $2.5 billion
(13.5 percent), other retail loans of $1.9 billion (3.9 percent)
and residential mortgages of $1.9 billion (3.6 percent), partially
offset by decreases in commercial real estate loans of $658
million (1.5 percent) and covered loans of $685 million
(13.0 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 $8.8 billion
(3.6 percent) in 2015, compared with 2014. The increase was
due to growth in most loan portfolio classes in 2015.
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