US Bank 2005 Annual Report Download - page 54

acquisition of a small aviation card business. ATM (10.5 percent), primarily due to the $35 million incremental
processing services revenue was higher by $18 million impact from amortization of investments in tax-advantaged
(41.9 percent) in the fourth quarter of 2005 than the same projects.
quarter of the prior year, primarily due to the expansion of The provision for credit losses for the fourth quarter of
the ATM business in May of 2005. Merchant processing 2005 was $205 million, an increase of $141 million from the
services revenue was higher in the fourth quarter of 2005 fourth quarter of 2004. The increase in the provision for
than the same quarter of 2004 by $13 million (7.2 percent), credit losses year-over-year reflected a $56 million provision
reflecting an increase in sales volume and new business. in the fourth quarter of 2005 related to charge-offs related to
Trust and investment management fees increased new bankruptcy legislation and a reduction in the allowance
$17 million (7.1 percent) year-over-year, primarily due to for credit losses of $99 million in the fourth quarter of 2004.
improved equity market conditions and account growth. Net charge-offs in the fourth quarter of 2005 were
Deposit service charges increased year-over-year by $213 million, compared with net charge-offs of
$26 million (12.3 percent) due to account growth and $163 million during the fourth quarter of 2004.
transaction-related activities. Mortgage banking revenue was The provision for income taxes for the fourth quarter
higher in the fourth quarter of 2005 than the same quarter of 2005 declined to an effective tax rate of 30.8 percent
of 2004 by $13 million (13.5 percent), due to higher from an effective tax rate of 33.3 percent in the fourth
production volumes and increased servicing income. Other quarter of 2004. The decline primarily reflected the
income was higher by $27 million (18.9 percent), primarily Company’s decision to increase tax-advantaged investments
due to higher income from equity and other investments and the timing of making these investments. The Company
relative to the same quarter of 2004. Partially offsetting expects its effective tax rate to approximate 33 percent in
these positive variances, year-over-year, were reductions in future periods.
commercial products revenue and treasury management
LINE OF BUSINESS FINANCIAL REVIEW
fees, which declined by $7 million (6.5 percent) and
$6 million (5.5 percent), respectively. The decrease in Within the Company, financial performance is measured by
commercial products revenue was due to reductions in loan- major lines of business, which include Wholesale Banking,
related fees and international product revenue. Treasury Consumer Banking, Private Client, Trust and Asset
management fees declined due to higher earnings credits on Management, Payment Services, and Treasury and
customers’ compensating balances relative to a year ago, Corporate Support. These operating segments are
reflecting rising interest rates, partially offset by growth in components of the Company about which financial
treasury management-related activities. information is available and is evaluated regularly in
Noninterest expense was $1,464 million in the fourth deciding how to allocate resources and assess performance.
quarter of 2005, a decrease of $115 million (7.3 percent)
Basis of Presentation Business line results are derived from
from the fourth quarter of 2004. The decrease in expense
the Company’s business unit profitability reporting systems
year-over-year included the $113 million charge related to
by specifically attributing managed balance sheet assets,
the prepayment of the Company’s long-term debt in the
deposits and other liabilities and their related income or
prior year and the $81 million favorable change in the MSR
expense. Goodwill and other intangible assets are assigned
valuation. Compensation expense was higher year-over-year
to the lines of business based on the mix of business of the
by $22 million (3.8 percent), principally due to business
acquired entity. Within the Company, capital levels are
expansion, including in-store branches, the Company’s
evaluated and managed centrally; however, capital is
payment processing businesses and other growth initiatives.
allocated to the operating segments to support evaluation of
Employee benefits increased year-over-year by $3 million
business performance. Capital allocations to the business
(3.1 percent), primarily as a result of higher payroll taxes,
lines are based on the amount of goodwill and other
401(k) costs and other benefits. Marketing and business
intangibles, the extent of off-balance sheet managed assets
development expense increased $15 million (30.6 percent)
and lending commitments and the ratio of on-balance sheet
due to the timing of payment processing business program
assets relative to the total Company. Certain lines of
initiatives in 2005. Technology and communications
business, such as Private Client, Trust and Asset
expense rose by $13 million (11.2 percent), reflecting
Management, have no significant balance sheet components.
depreciation of technology investments, network costs
For these business units, capital is allocated taking into
associated with expansion of the payment processing
consideration fiduciary and operational risk, capital levels of
businesses and higher outside data processing expense
independent organizations operating similar businesses, and
principally associated with expanding a prepaid gift
regulatory requirements. Interest income and expense is
program. Other expense increased in the fourth quarter of
determined based on the assets and liabilities managed by
2005 from the same quarter of 2004 by $20 million
52 U.S. BANCORP