US Bank 2008 Annual Report Download - page 63

income was primarily due to deposit growth, partially offset
by the reduction in the margin benefit of deposits.
Noninterest income increased $29 million (2.1 percent) in
2008, compared with 2007, primarily driven by the
favorable impact of a $107 million market valuation loss
recorded in 2007 and core account growth, partially offset
by the impact of unfavorable equity market conditions
compared with a year ago.
Total noninterest expense increased $26 million
(2.6 percent) in 2008, compared with 2007. The increase in
noninterest expense was primarily due to higher
compensation and employee benefits expenses and legal-
related costs, partially offset by lower other intangibles
expense.
Payment Services Payment Services includes consumer and
business credit cards, stored-value cards, debit cards,
corporate and purchasing card services, consumer lines of
credit and merchant processing. Payment Services’ offerings
are highly inter-related with banking products and services
of the other lines of business and rely on access to the bank
subsidiary’s settlement network, lower cost funding available
to the Company, cross-selling opportunities and operating
efficiencies. Payment Services contributed $1,068 million of
the Company’s net income in 2008, unchanged from 2007.
Growth in total net revenue, driven by loan growth and
higher transaction volumes, was partially offset by an
increase in total noninterest expense and a higher provision
for credit losses.
Total net revenue increased $427 million (12.1 percent)
in 2008, compared with 2007. Net interest income, on a
taxable-equivalent basis, increased $270 million
(35.3 percent) in 2008, compared with 2007, primarily due
to strong growth in credit card balances and the timing of
asset re-pricing in a declining rate environment. Noninterest
income increased $157 million (5.7 percent) in 2008,
compared with 2007, as increases in fee-based revenue were
driven by account growth, higher transaction volumes and
business expansion initiatives.
Total noninterest expense increased $137 million
(9.4 percent) in 2008, compared with 2007, due primarily to
new business initiatives, including costs associated with
transaction processing and acquisitions.
The provision for credit losses increased $292 million
(72.3 percent) in 2008, compared with 2007, due to higher
net charge-offs, which reflected average retail credit card
portfolio growth, higher delinquency rates and changing
economic conditions from a year ago. As a percentage of
average loans outstanding, net charge-offs were 3.96 percent
in 2008, compared with 2.73 percent in 2007.
Treasury and Corporate Support Treasury and Corporate
Support includes the Company’s investment portfolios,
funding, capital management, asset securitization, interest
rate risk management, the net effect of transfer pricing
related to average balances and the residual aggregate of
those expenses associated with corporate activities that are
managed on a consolidated basis. Treasury and Corporate
Support recorded a net loss of $883 million in 2008,
compared with a net loss of $205 million the prior year.
Total net revenue increased $86 million in 2008,
compared with 2007. Net interest income, on a taxable-
equivalent basis, increased $546 million in 2008, compared
with 2007, reflecting the impact of the declining rate
environment, wholesale funding decisions and the
Company’s asset/liability position. Noninterest income
decreased $460 million in 2008, compared with 2007,
primarily due to the impairment charges for structured
investment securities, perpetual preferred stock (including
the stock of GSEs), and certain non-agency mortgage backed
securities, as well as the transition impact of adopting
SFAS 157 during the first quarter of 2008, partially offset by
the impact of the $551 million of Visa Gains recognized in
2008.
Total noninterest expense decreased $177 million
(26.7 percent) in 2008, compared with 2007, primarily due
to the $330 million Visa Charge recognized in 2007, offset
by higher compensation and employee benefits expense,
higher litigation costs, incremental costs associated with
investments in tax-advantaged projects and a charitable
contribution made to the U.S. Bancorp Foundation.
The provision for credit losses for this business unit
represents the residual aggregate of the net credit losses
allocated to the reportable business units and the Company’s
recorded provision determined in accordance with
accounting principles generally accepted in the United States.
The provision for credit losses increased $1,278 million in
2008, compared with the prior year, driven by incremental
provision expense recorded in 2008, reflecting deterioration
in the credit quality within the loan portfolios related to
stress in the residential real estate markets, including
homebuilding and related supplier industries, and the impact
of economic conditions on the loan portfolios. Refer to the
“Corporate Risk Profile” section for further information on
the provision for credit losses, nonperforming assets and
factors considered by the Company in assessing the credit
quality of the loan portfolio and establishing the allowance
for credit losses.
Income taxes are assessed to each line of business at a
managerial tax rate of 36.4 percent with the residual tax
expense or benefit to arrive at the consolidated effective tax
rate included in Treasury and Corporate Support. The
consolidated effective tax rate of the Company was
27.0 percent in 2008, compared with 30.3 percent in 2007.
The decrease in the effective tax rate from 2007 reflected the
U.S. BANCORP 61