US Bank 2006 Annual Report Download - page 59

Total net revenue increased $456 million (16.4 percent) income reflected the impact of a flatter yield curve and
in 2006, compared with 2005. The 2006 increase in net asset/liability management decisions, including reducing the
interest income of $61 million, compared with the prior investment securities portfolio, changes in interest rate
year, was attributed to growth in higher yielding retail and derivative positions and the repayment and issuance of
commercial credit card loan balances, partially offset by an longer-term fixed rate wholesale funding. The increase in
increase in noninterest-bearing corporate payments loan noninterest income was driven by gains recognized in 2006
products and non-earning intangible assets that resulted in from the initial public offering and subsequent sale of
higher funding expense. Noninterest income increased equity interests in a card association, trading income
$395 million in 2006, or 18.1 percent compared with 2005. recognized from certain derivatives that did not qualify as
The increase in fee-based revenue was driven by strong accounting hedges, a gain on sale of a 401(k) defined
growth in credit and debit card revenue, corporate payment contribution recordkeeping business in 2006, and net
products revenue and merchant processing services revenue. securities losses incurred in 2005.
Credit and debit card revenue increased primarily due to Noninterest expense increased $150 million in 2006,
higher customer transaction volumes. Corporate payment compared with 2005. The year-over-year increase reflected
products revenue reflected organic growth in sales volumes higher integration costs related to recent acquisitions,
and card usage and acquired business expansion. Merchant operating costs associated with tax-advantaged investments,
processing services revenue grew due to an increase in sales and reparations related to MSR valuations during 2005.
volume driven by acquisitions, higher same store sales, new The provision for credit losses for this business unit
merchant signings and associated equipment fees. Also, represents the residual aggregate of the net credit losses
included in noninterest income for 2006 was a $10 million allocated to the reportable business units and the
favorable settlement award related to the Company’s Company’s recorded provision determined in accordance
merchant processing business. with accounting principles generally accepted in the United
Noninterest expense increased $185 million States. Refer to the ‘‘Corporate Risk Profile’’ section for
(14.8 percent) in 2006, compared with 2005, primarily further information on the provision for credit losses,
attributed to the acquisition of merchant acquiring and nonperforming assets and factors considered by the
corporate payments businesses, higher compensation and Company in assessing the credit quality of the loan
employee benefit costs for processing activities associated portfolio and establishing the allowance for credit losses.
with increased transaction processing volumes and higher Income taxes are assessed to each line of business at a
ATM processing services volumes. managerial tax rate of 36.4 percent with the residual tax
The provision for credit losses decreased $102 million expense or benefit to arrive at the consolidated effective tax
in 2006, compared with 2005, due to lower net charge-offs. rate included in Treasury and Corporate Support. The
As a percentage of average loans outstanding, net charge- consolidated effective tax rate of the Company was
offs were 2.26 percent in 2006, compared with 3.38 percent 30.8 percent in 2006, compared with 31.7 percent in 2005.
in 2005. The decrease in the effective tax rate from 2005 primarily
reflected higher tax exempt income from investment
Treasury and Corporate Support includes the Company’s securities and insurance products and incremental tax
investment portfolios, funding, capital management and credits generated from investments in affordable housing
asset securitization activities, interest rate risk management, and similar tax-advantaged projects.
the net effect of transfer pricing related to average balances
and the residual aggregate of those expenses associated with ACCOUNTING CHANGES
corporate activities that are managed on a consolidated
Note 2 of the Notes to Consolidated Financial Statements
basis. In addition, prior to the adoption of SFAS 156,
discusses accounting standards adopted in the current year,
changes in MSR valuations due to interest rate changes
as well as, accounting standards recently issued but not yet
were managed at a corporate level and, as such, reported
required to be adopted and the expected impact of these
within this business unit in noninterest expenses. During
changes in accounting standards. To the extent the adoption
2006, Treasury and Corporate Support recorded net income
of new accounting standards affects the Company’s
of $208 million, a decrease of $205 million compared with
financial condition, results of operations or liquidity, the
2005.
impacts are discussed in the applicable section(s) of the
Total net revenue decreased $257 million (80.6 percent)
Management’s Discussion and Analysis and the Notes to
in 2006, compared with 2005, primarily due to a
Consolidated Financial Statements.
$543 million decrease in net interest income, partially offset
by higher noninterest income. The decline of net interest
U.S. BANCORP 57