US Bank 2006 Annual Report Download - page 54

of a 401(k) defined contribution recordkeeping business and higher customer transaction volumes. The corporate
a $60 million favorable change in net securities gains payment products revenue growth reflected organic growth
(losses) as compared with the fourth quarter of 2005. in sales volumes and card usage and acquired business
Total net revenue, on a taxable-equivalent basis for the expansion. Merchant processing services revenue was higher
fourth quarter of 2006, was $93 million (2.8 percent) in the fourth quarter of 2006 than the same quarter a year
higher than the fourth quarter of 2005, primarily reflecting ago by $50 million (25.8 percent), reflecting an increase in
an 11.8 percent increase in noninterest income partially sales volume driven by acquisitions, higher same store sales,
offset by a 5.0 percent decline in net interest income. new merchant signings and associated equipment fees. Trust
Noninterest income growth was driven by organic business and investment management fees increased by $61 million
growth and expansion in trust and payment processing (23.6 percent) year-over-year, due to recent acquisitions of
businesses, partially offset by lower mortgage banking corporate and institutional trust businesses, customer
revenue principally due to the impact of adopting SFAS 156 account growth and favorable equity market conditions.
in the first quarter of 2006 and the net valuation loss on Deposit service charges grew year-over-year by $21 million
economic hedges in relation to the value of MSRs due to (8.8 percent) due to increased transaction-related fees and
relative changes in interest rates at the end of 2006. the impact of net new checking accounts. These favorable
Fourth quarter net interest income, on a taxable- changes in fee-based revenue were partially offset by the
equivalent basis was $1,695 million, compared with decline in mortgage banking revenue of $84 million
$1,785 million in the fourth quarter of 2005. Average (77.1 percent), principally driven by the adoption of the fair
earning assets increased $6.6 billion (3.6 percent), primarily value method of accounting for MSRs and economic
driven by a $7.0 billion (5.1 percent) increase in total hedging results in the fourth quarter of 2006 due to
average loans, partially offset by a $1.2 billion (3.0 percent) changes in relative interest rates at year end. Other income
decrease in investment securities. The positive impact to net was higher by $43 million (25.3 percent) as compared with
interest income from the growth in earning assets was more the fourth quarter of 2005, primarily due to a $52 million
than offset by a lower net interest margin. The net interest gain on the sale of a 401(k) defined contribution
margin in the fourth quarter of 2006 was 3.56 percent, recordkeeping business and $6 million in trading gains
compared with 3.88 percent in the fourth quarter of 2005. related to certain interest rate swaps that the Company
The decline in net interest margin reflected the competitive determined did not qualify for hedge accounting, partially
lending environment and the impact of changes in the yield offset by a decline in equity investment revenue from a
curve from a year ago. Since the fourth quarter of 2005, year ago.
credit spreads have tightened by approximately 15 basis Noninterest expense was $1,612 million in the fourth
points across most lending products due to competitive quarter of 2006, an increase of $148 million (10.1 percent)
pricing and a change in mix reflecting growth in lower- from the fourth quarter of 2005. Compensation expense
spread fixed-rate credit products and noninterest-bearing was higher year-over-year by $20 million (3.3 percent),
corporate and purchasing card balances. The net interest primarily due to the corporate and institutional trust and
margin also declined due to funding incremental asset payments processing acquisitions and other growth
growth with higher cost wholesale funding, share initiatives undertaken by the Company. Employee benefits
repurchases and asset/liability decisions designed to reduce expense remained flat from the fourth quarter of 2005 as
the Company’s interest rate sensitivity position. An increase higher pension costs from a year ago were offset by lower
in the margin benefit of net free funds partially offset these medical benefits costs due to favorable claims experience.
factors. Professional services expense increased $22 million
Noninterest income in the fourth quarter of 2006 was (46.8 percent) due primarily to revenue enhancement-related
$1,729 million, compared with $1,546 million in the same business initiatives, including establishing a bank charter in
period of 2005. The $183 million (11.8 percent) increase Ireland to support pan-European payment processing. Other
was driven by favorable variances in the majority of fee intangibles expense increased $11 million (13.6 percent)
income categories and a favorable variance of $60 million from the prior year due to acquisitions in Consumer
on net securities gains (losses). Strong growth in fee-based Banking, Wealth Management and Payment Services. Other
revenue was partially offset by the accounting impact of expense increased in the fourth quarter of 2006 from the
SFAS 156 on mortgage banking revenue. Credit and debit same quarter of 2005 by $69 million (32.9 percent),
card revenue and corporate payment products revenue were primarily due to increased investments in tax-advantaged
both higher in the fourth quarter of 2006 than the fourth projects and business integration costs relative to a year
quarter of 2005 by $13 million (6.6 percent) and ago. In addition, noninterest expense in the fourth quarter
$15 million (11.9 percent), respectively. The strong growth of 2006 was impacted by $22 million in charges related to
in credit and debit card revenue was primarily driven by the prepayment of certain trust preferred debt securities.
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