US Bank 2008 Annual Report Download - page 28

equipment expense increased 5.8 percent primarily due to
acquisitions and branch-based and other business expansion
initiatives. Marketing and business development expense
increased 19.2 percent over the prior year due to costs
incurred in 2008 for a national advertising campaign, as
well as a $25 million charitable contribution made to the
Company’s foundation. Technology and communications
expense increased 6.6 percent due to higher processing
volumes and business expansion. Other intangibles expense
decreased 5.6 percent from the prior year reflecting the
timing and relative size of recent acquisitions. Other expense
decreased 8.5 percent from the prior year, primarily due to
the $330 million Visa Charge recognized in 2007, partially
offset by increases in 2008 in credit-related costs for other
real estate owned and loan collection activities and
investments in tax-advantaged projects.
The $700 million (11.1 percent) increase in noninterest
expense in 2007, compared with 2006, was principally due
to the $330 million Visa Charge recognized in 2007, as well
as higher credit costs, incremental growth in tax-advantaged
projects and specific investment in revenue-enhancing
business initiatives. Compensation expense was higher
primarily due to investment in personnel within the branch
distribution network, enhancing relationship management
processes and supporting organic business growth and
acquired businesses. Employee benefits expense increased as
higher medical costs were partially offset by lower pension
costs. Net occupancy and equipment expense increased
primarily due to bank acquisitions and investments in
branches. Professional services expense was 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 due to higher customer
promotion, solicitation and advertising activities. Postage,
printing and supplies increased due to increasing customer
promotional mailings and changes in postal rates. Other
intangibles expense increased due to acquisitions. Other
expense increased primarily due to the $330 million Visa
Charge. These increases were partially offset by $33 million
of debt prepayment charges recorded during 2006.
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 over the future service
period of the employees. Differences related to the expected
return on plan assets are included in expense over a twelve-
year period.
At December 31, 2008, the Company had an
$888 million cumulative difference between actuarially-
assumed returns on plan assets and actual experience. If the
performance of plan assets equals the actuarially-assumed
long-term rate of return (“LTROR”), this difference will
increase pension expense incrementally $35 million in 2009,
$37 million in 2010, $46 million in 2011, $49 million in
2012, and $61 million in 2013. In addition to the asset
return differences, the Company expects pension expense
will increase an additional $7 million in 2009 related to
other actuarial gains and losses. 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
26 U.S. BANCORP
Table 5 NONINTEREST EXPENSE
(Dollars in Millions) 2008 2007 2006
2008
v 2007
2007
v 2006
Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,039 $2,640 $2,513 15.1% 5.1%
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 515 494 481 4.3 2.7
Net occupancy and equipment . . . . . . . . . . . . . . . . . . . . . . . 781 738 709 5.8 4.1
Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240 233 199 3.0 17.1
Marketing and business development . . . . . . . . . . . . . . . . . . 310 260 233 19.2 11.6
Technology and communications . . . . . . . . . . . . . . . . . . . . . 598 561 545 6.6 2.9
Postage, printing and supplies . . . . . . . . . . . . . . . . . . . . . . . 294 283 265 3.9 6.8
Other intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 376 355 (5.6) 5.9
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,282 1,401 986 (8.5) 42.1
Total noninterest expense . . . . . . . . . . . . . . . . . . . . . . . . $7,414 $6,986 $6,286 6.1% 11.1%
Efficiency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47.4% 49.7% 45.8%