US Bank 2005 Annual Report Download - page 26

Partially offsetting the increase in fee-based revenue growth Noninterest Expense Noninterest expense in 2005 was
in 2004 was a year-over-year reduction in net securities $5.9 billion, compared with $5.8 billion and $5.6 billion in
gains (losses) of $350 million. The growth in credit and 2004 and 2003, respectively. The $78 million (1.3 percent)
debit card revenue was driven by higher transaction increase in noninterest expenses in 2005, compared with
volumes and rate changes. This growth in sales volumes 2004, was primarily driven by production-based incentives
was somewhat muted due to the impact of the settlement of and expenses related to business initiatives, including
the antitrust litigation brought against VISA USA and acquisitions investments, acquired businesses, and
MasterCard by Wal-Mart Stores, Inc., Sears Roebuck & Co. production-based, offset by a $110 million favorable change
and other retailers, which lowered interchange rates on in the MSR valuation and a $101 million decrease in debt
signature debit transactions beginning in August 2003. The prepayment charges. Compensation expense was higher by
year-over-year impact of VISA’s settlement on debit card 5.8 percent year-over-year principally due to business
revenue for 2004 was approximately $33 million. The expansion, including in-store branches, expanding the
corporate payment products revenue growth reflected Company’s payment processing businesses and other
growth in sales, card usage and rate changes. The favorable product sales initiatives. Employee benefits increased
variance in ATM processing services revenue was also due 10.8 percent, year-over-year, primarily as a result of higher
to increases in transaction volumes and sales. Merchant pension expense, medical costs, payroll taxes and other
processing services revenue was higher in 2004, compared benefits. Professional services expense was higher by
with 2003, reflecting an increase in same store sales volume, 11.4 percent due to increases in legal and other professional
new business and expansion of the Company’s merchant services related to business initiatives, technology
acquiring business in Europe. Deposit service charges development and integration costs of specific payment
increased in 2004 primarily due to account growth, revenue processing businesses. Marketing and business development
enhancement initiatives and transaction-related fees. Trust expense increased 21.1 percent principally related to brand
and investment management fees increased as gains from awareness, credit card and prepaid gift card programs.
equity market valuations were partially offset by lower fees, Technology and communications expense was higher in
partially due to a change in mix of fund balances and 2005 by 8.4 percent, reflecting depreciation of technology
customers’ migration from money market mutual funds to investments, network costs associated with the expansion of
interest-bearing deposits with marginally better pricing. the payment processing businesses, and higher outside data
During 2004, commercial products revenue increased processing expense associated with expanding a prepaid gift
primarily due to syndication fees and commercial leasing card program. Other expense declined 1.7 percent primarily
revenue. The growth in mortgage banking revenue was due due to lower operating and fraud losses and insurance costs,
to an increase in loan servicing revenues, offset somewhat partially offset by increased investments in affordable
by lower gains from the sale of mortgage loan production. housing and other tax-advantaged projects and higher
Other noninterest income increased principally due to merchant processing costs due to the expansion of the
improving retail lease residual values resulting in lower end- payment processing businesses relative to 2004.
of-term residual losses, a residual value insurance recovery The noninterest expense increase of $188 million
of $17 million during 2004 and improving equity (3.4 percent) in 2004, compared with 2003, principally
investment valuations. reflected a $155 million charge related to the prepayment of
NONINTEREST EXPENSE
2005 2004
(Dollars in Millions) 2005 2004 2003 v 2004 v 2003
Compensation ************************************************ $2,383 $2,252 $2,177 5.8% 3.4%
Employee benefits********************************************* 431 389 328 10.8 18.6
Net occupancy and equipment********************************** 641 631 644 1.6 (2.0)
Professional services******************************************* 166 149 143 11.4 4.2
Marketing and business development **************************** 235 194 180 21.1 7.8
Technology and communications ******************************** 466 430 418 8.4 2.9
Postage, printing and supplies ********************************** 255 248 246 2.8 .8
Other intangibles ********************************************** 458 550 682 (16.7) (19.4)
Debt prepayment ********************************************* 54 155 — (65.2) *
Other ******************************************************** 774 787 779 (1.7) 1.0
Total noninterest expense *********************************** $5,863 $5,785 $5,597 1.3% 3.4%
Efficiency ratio (a) ********************************************* 44.3% 45.3% 45.6%
(a) 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
24 U.S. BANCORP
Table 5