US Bank 2013 Annual Report Download - page 28

The $559 million (6.4 percent) increase in 2012
noninterest income over 2011 was due to strong mortgage
banking revenue growth of 96.5 percent in 2012 over 2011,
principally due to strong origination and sales revenue, as
well as an increase in loan servicing revenue. In addition,
merchant processing services revenue and investment
products fees and commissions increased 3.0 percent and
16.3 percent, respectively, primarily due to higher
transaction volumes. Trust and investment management fees
increased 5.5 percent in 2012, compared with 2011, due to
improved market conditions and business expansion.
Commercial products revenue was 4.4 percent higher,
principally driven by increases in high-grade bond
underwriting fees and commercial loan fees. Net securities
losses were 51.6 percent lower in 2012, compared with
2011, primarily due to higher realized gains on securities
sold in 2012. Offsetting these positive variances was a 16.9
percent decrease in credit and debit card revenue due to
lower debit card interchange fees as a result of 2011
legislation, net of mitigation efforts, and the impact of the
inclusion of credit card balance transfer fees in interest
income beginning in the first quarter of 2012. ATM
processing services revenue was 23.5 percent lower,
primarily due to excluding surcharge fees the Company
passes through to others from revenue, beginning in the first
quarter of 2012, rather than reporting those amounts in
occupancy expense as in previous periods. Other income
also decreased 26.5 percent in 2012, compared with 2011,
primarily due to gains recorded in 2011 from the settlement
of litigation related to the termination of a merchant
processing referral agreement, and the acquisition of the
operations of a bank from the FDIC of $263 million and $46
million, respectively, and a 2012 equity-method investment
charge, partially offset by a 2012 gain on the sale of a credit
card portfolio.
Noninterest Expense Noninterest expense in 2013 was
$10.3 billion, compared with $10.5 billion in 2012 and
$9.9 billion in 2011. The Company’s efficiency ratio was
52.4 percent in 2013, compared with 51.5 percent in 2012 and
51.8 percent in 2011. 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 the
2012 $80 million 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. Those changes in presentation increased 2013
other expense $79 million, but had no impact on net income
attributable to U.S. Bancorp, as the increase in noninterest
expense was offset by the net impact of a $132 million
reduction in income tax expense and a $53 million reduction in
net income (loss) attributed to noncontrolling interests. 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. 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.
TABLE 5 Noninterest Expense
Year Ended December 31 (Dollars in Millions) 2013 2012 2011
2013
v 2012
2012
v 2011
Compensation .............................................................. $ 4,371 $ 4,320 $4,041 1.2% 6.9%
Employee benefits .......................................................... 1,140 945 845 20.6 11.8
Net occupancy and equipment ............................................. 949 917 999 3.5 (8.2)
Professional services ....................................................... 381 530 383 (28.1) 38.4
Marketing and business development ...................................... 357 388 369 (8.0) 5.1
Technology and communications .......................................... 848 821 758 3.3 8.3
Postage, printing and supplies ............................................. 310 304 303 2.0 .3
Other intangibles ........................................................... 223 274 299 (18.6) (8.4)
Other........................................................................ 1,695 1,957 1,914 (13.4) 2.2
Total noninterest expense ................................................ $10,274 $10,456 $9,911 (1.7)% 5.5%
Efficiency ratio (a) .......................................................... 52.4% 51.5% 51.8%
(a) Computed as noninterest expense divided by the sum of net interest income on a taxable-equivalent basis and noninterest income excluding securities gains (losses), net.
26 U.S. BANCORP