US Bank 2011 Annual Report Download - page 27

improved financial results in 2010 from 2009, merit increases,
and increased pension costs associated with previous declines
in the value of pension assets. Net occupancy and equipment
expense and professional services expense increased
9.9 percent and 20.0 percent, respectively, principally due to
acquisitions and other business initiatives. Technology and
communications expense increased 10.5 percent as a result of
business initiatives and volume increases across various
business lines. Postage, printing and supplies expense
increased 4.5 percent, principally due to payments-related
business initiatives. Other expense increased 9.0 percent,
reflecting higher costs related to investments in affordable
housing and other tax-advantaged projects and higher other
real estate owned (“OREO”) costs, partially offset by a
$123 million FDIC special assessment in 2009. Marketing and
business development expense decreased 4.8 percent, largely
due to payments-related initiatives during 2009. Other
intangibles expense decreased 5.2 percent 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 increase $66
million in 2012, primarily driven by a $43 million increase
related to a decrease in the discount rate, a $14 million
increase related to the difference between the 2011 return on
plan assets compared with expectations and a $6 million
increase related to lower future expected returns on plan
assets. If performance of plan assets equals the actuarially-
assumed long-term expected return, the cumulative asset
return difference of $343 million at December 31, 2011 will
incrementally increase pension expense $60 million in 2013,
incrementally decrease pension expense $4 million in 2014,
and incrementally increase pension expense $9 million in
2015 and $14 million in 2016. 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 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 long-term rate of return (“LTROR”) and discount rate:
LTROR (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) ......... $ (24) $ 24
Percent of 2011 net income ........... (.30)% .30%
Discount Rate (Dollars in Millions)
Down 100
Basis Points
Up 100
Basis Points
Incremental benefit (expense) ......... $ (87) $ 70
Percent of 2011 net income ........... (1.10)% .89%
Income Tax Expense The provision for income taxes was
$1.8 billion (an effective rate of 27.8 percent) in 2011,
compared with $935 million (an effective rate of 22.3 percent)
in 2010 and $395 million (an effective rate of 15.0 percent) in
2009. The increase in the effective tax rate over 2010
principally reflected the marginal impact of higher pretax
earnings year-over-year.
For further information on income taxes, refer to
Note 19 of the Notes to Consolidated Financial Statements.
Balance Sheet Analysis
Average earning assets were $283.3 billion in 2011, compared
with $252.0 billion in 2010. The increase in average earning
assets of $31.2 billion (12.4 percent) was due to planned
growth in average investment securities of $15.9 billion
(33.3 percent), higher loans of $8.4 billion (4.4 percent) and
higher other earning assets of $7.7 billion, which included
cash balances held at the Federal Reserve.
For average balance information, refer to Consolidated
Daily Average Balance Sheet and Related Yields and Rates on
pages 132 and 133.
Loans The Company’s loan portfolio was $209.8 billion at
December 31, 2011, an increase of $12.8 billion (6.5 percent)
from December 31, 2010. The increase was driven by growth
in commercial loans of $8.3 billion (17.0 percent), residential
mortgages of $6.4 billion (20.7 percent), commercial real
estate loans of $1.2 billion (3.3 percent) and credit card loan
balances of $557 million (3.3 percent), partially offset by
decreases in acquisition-related covered loans of $3.3 billion
(18.0 percent) and other retail loans of $284 million (.6
percent). Table 6 provides a summary of the loan distribution
U.S. BANCORP 25