US Bank 2005 Annual Report Download - page 55

the business line. Because funding and asset liability Wholesale Banking offers lending, depository, treasury
management is a central function, funds transfer-pricing management and other financial services to middle market,
methodologies are utilized to allocate a cost of funds used large corporate and public sector clients. Wholesale Banking
or credit for funds provided to all business line assets and contributed $1,063 million of the Company’s net income in
liabilities, respectively, using a matched funding concept. 2005, an increase of $79 million (8.0 percent), compared
Also, the business unit is allocated the taxable-equivalent with 2004. The increase was primarily driven by growth in
benefit of tax-exempt products. Noninterest income and total net revenue and reductions in total noninterest expense
expenses directly managed by each business line, including and the provision for credit losses.
fees, service charges, salaries and benefits, and other direct Total net revenue increased $71 million (3.0 percent) in
costs are accounted for within each segment’s financial 2005, compared with 2004. Net interest income, on a
results in a manner similar to the consolidated financial taxable-equivalent basis, increased $63 million (4.0 percent)
statements. Occupancy costs are allocated based on in 2005, compared with 2004, driven by growth in average
utilization of facilities by the lines of business. Operating loan balances of approximately $2.6 billion and wider
losses are charged to the line of business when the loss spreads on deposits due to the funding benefit associated
event is realized in a manner similar to a loan charge-off. with the impact of rising interest rates, partially offset by
Noninterest expenses incurred by centrally managed reduced loan spreads due to competitive pricing. The
operations or business lines that directly support another increase in average loans was driven by stronger commercial
business line’s operations are charged to the applicable loan demand beginning in late 2004 and continuing
business line based on its utilization of those services throughout 2005. Total deposits increased year-over-year,
primarily measured by the volume of customer activities, driven by growth in time deposits, partially offset by
number of employees or other relevant factors. These decreases in noninterest-bearing and interest checking
allocated expenses are reported as net shared services deposits. Average savings products balances in 2005 were
expense within noninterest expense. Certain activities that also lower than 2004. The shift in mix of deposits is
do not directly support the operations of the lines of partially due to the result of deposit pricing by the
business or for which the line of business is not considered Company for money market products in relation to other
accountable are not charged to the lines of business. The fixed-rate deposits offered. The $8 million (1.0 percent)
income or expenses associated with these corporate increase in noninterest income in 2005, compared with
activities is reported within the Treasury and Corporate 2004, was due to higher revenue from equity investments,
Support line of business. The provision for credit losses partially offset by reductions in treasury management fees
within the Wholesale Banking, Consumer Banking, Private and other commercial loan fees. Treasury management fees
Client, Trust and Asset Management and Payment Services declined due to higher earnings credits on customers’
lines of business is based on net charge-offs, while Treasury compensating balances, partially offset by growth in
and Corporate Support reflects the residual component of treasury management-related activities.
the Company’s total consolidated provision for credit losses Noninterest expense decreased $7 million (.8 percent)
determined in accordance with accounting principles in 2005 compared to 2004, due to reductions in net shared
generally accepted in the United States. Income taxes are services, fraud losses and other loan expenses, partially
assessed to each line of business at a standard tax rate with offset by an increase in personnel expenses.
the residual tax expense or benefit to arrive at the The provision for credit losses decreased $46 million in
consolidated effective tax rate included in Treasury and 2005, compared with 2004. The favorable change in the
Corporate Support. provision for credit losses during 2005, was due to
Designations, assignments and allocations change from improving credit quality in the commercial loan portfolio
time to time as management systems are enhanced, methods resulting in net recoveries of $24 million in 2005, compared
of evaluating performance or product lines change or with net charge-offs of $22 million in 2004. Nonperforming
business segments are realigned to better respond to our assets within Wholesale Banking were $242 million at
diverse customer base. During 2005, certain organization December 31, 2005, compared with $387 million at
and methodology changes were made and, accordingly, December 31, 2004. Nonperforming assets as a percentage
2004 results were restated and presented on a comparable of end-of-period loans were .54 percent at December 31,
basis. Due to organizational and methodology changes, the 2005, compared with .91 percent at December 31, 2004.
Company’s basis of financial presentation differed in 2003. Refer to the ‘‘Corporate Risk Profile’’ section for further
The presentation of comparative business line results for information on factors impacting the credit quality of the
2003 is not practical and has not been provided. loan portfolios.
U.S. BANCORP 53