US Bank 2007 Annual Report Download - page 27

to an ATM business acquisition in May 2005. Merchant
processing services revenue reflected an increase in sales
volume driven by acquisitions, higher same store sales, new
merchant signings and associated equipment fees. The
increase in trust and investment management fees was
primarily due to organic customer account growth,
improving asset management fees given favorable equity
market conditions, and incremental revenue generated by
acquisitions of corporate and institutional trust businesses.
Deposit service charges grew due to increased transaction-
related fees and the impact of net new checking accounts.
Mortgage banking revenue declined primarily due to the
adoption of fair value accounting for MSRs. Other income
increased primarily due to the notable asset gains previously
discussed.
Noninterest Expense Noninterest expense in 2007 was
$6.9 billion, compared with $6.2 billion and $5.9 billion in
2006 and 2005, respectively. The Company’s efficiency ratio
increased to 49.3 percent in 2007 from 45.4 percent in 2006.
The change in the efficiency ratio and the $682 million
(11.0 percent) increase in noninterest expenses in 2007,
compared with 2006, was principally due to a $330 million
Visa Charge recognized in 2007 for the contingent obligation
for certain Visa U.S.A. Inc. litigation matters. The remaining
expense increase was principally related to higher credit costs,
incremental growth in tax-advantaged projects or specific
management investment in revenue-enhancing business
initiatives designed to expand the Company’s geographical
presence, strengthen corporate and commercial banking
relationship management, capitalize on current product
offerings, further improve technology and support innovation
of products and services for customers. The impact of these
factors was reflected in various expense categories.
Compensation expense was 5.1 percent higher year-
over-year primarily due to investment in personnel within
the branch distribution network, Wholesale Banking and
Payment Services in connection with various business
initiatives, including the Company’s PowerBank initiative
with Consumer Banking, expanding its corporate banking
team, enhancing relationship management processes and
supporting organic business growth and acquired businesses.
Employee benefits expense increased 2.7 percent year-over-
year as higher medical costs were partially offset by lower
pension costs. Net occupancy and equipment expense
increased 3.9 percent primarily due to bank acquisitions and
investments in branches. Professional services expense was
17.1 percent higher due to revenue enhancing business
initiatives, higher litigation-related costs, and higher legal
fees associated with the establishment of a bank charter in
Ireland to support pan-European payment processing.
Marketing and business development expense increased
11.5 percent over the prior year due to higher customer
promotion, solicitation and advertising activities. Postage,
printing and supplies increased 6.8 percent due to increasing
customer promotional mailings and changes in postal rates
from a year ago. Other intangibles expense increased
5.9 percent year-over-year due to recent acquisitions in
Consumer Banking, Wealth Management & Securities
Services and Payment Services. Other expense increased
$444 million (46.6 percent) over the prior year primarily
due to the $330 million Visa Charge, higher costs related to
affordable housing and other tax-advantaged investments, an
increase in merchant processing expenses to support organic
growth in Payment Services, integration expenses related to
recent acquisitions and higher credit-related costs for other
real estate owned and loan collection activities. These
increases were partially offset by $33 million of debt
prepayment charges recorded during 2006.
The $317 million (5.4 percent) increase in noninterest
expenses in 2006, compared with 2005, was primarily
driven by incremental operating and business integration
costs associated with acquisitions, increased pension costs
and higher expense related to certain tax-advantaged
U.S. BANCORP 25
Table 5 NONINTEREST EXPENSE
(Dollars in Millions) 2007 2006 2005
2007
v 2006
2006
v 2005
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,640 $2,513 $2,383 5.1% 5.5%
Employee benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 494 481 431 2.7 11.6
Net occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . 686 660 641 3.9 3.0
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . .... 233 199 166 17.1 19.9
Marketing and business development . . . . . . . . . . . . . . . . . . . 242 217 235 11.5 (7.7)
Technology and communications . . . . . . . . . . . . . . . . . . .... 512 505 466 1.4 8.4
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . .... 283 265 255 6.8 3.9
Other intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 376 355 458 5.9 (22.5)
Debt prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 33 54 * (38.9)
Other (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,396 952 774 46.6 23.0
Total noninterest expense . . . . . . . . . . . . . . . . . . . . .... $6,862 $6,180 $5,863 11.0% 5.4%
Efficiency ratio (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49.3% 45.4% 44.3%
(a) Included in other expense in 2007 was a $330 million charge related to the Company’s contingent obligation to Visa U.S.A. Inc for indemnification of certain litigation matters.
(b) 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.
* Not meaningful