uploads///US Bank Non Interest Expense

Why U.S. Bank’s non-interest expenses rose in 4Q14


Nov. 20 2019, Updated 12:17 p.m. ET

Non-interest expenses are important for net profitability

For banks, non-interest expenses are similar to operating costs for other companies. Interest expenses, also called interest paid on deposits, are costs that a bank must incur to carry out its prime job of lending. However, non-interest expenses can be controlled. Controlling non-interest expenses helps a bank have higher net profitability.

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U.S. Bank recorded an increase in non-interest expenses 

U.S. Bank’s (USB) non-interest expenses were $2,804 million in 4Q14. This was an increase of 4.5%—compared to 4Q13. The increase was driven three main factors.

  • First, higher compensation expenses—due to the impact of merit increases, acquisitions, and higher staffing for risk and compliance services—led to an increase in non-interest expenses. Compensation expenses rose by 4.4%—compared to 4Q13.
  • Second, higher marketing and business development expenses, due to charitable contributions, led to an increase in non-interest expenses. Marketing and business development expenses included charitable contributions of $35 million to improve the bank’s branding. The expenses rose by a substantial 25.2%—compared to 4Q13.
  • Third, higher professional services expenses, also due to higher costs across a majority of business lines, led to an increase in non-interest expenses. These expenses rose by 11.9%—compared to 4Q13.
  • Accruals for legal expenses also stood at a significant $53 million.

In contrast, the rise in non-interest expenses was partially offset by a reduction in employee benefits. A reduction in employee benefits was driven by lower pension costs.

U.S. Bank is a major part of the Financial Select Sector SPDR (XLF). It is the sixth largest holding of XLF. It accounts for 2.63% of the portfolio. Wells Fargo (WFC), JPMorgan Chase (JPM), and Bank of America (BAC) are bigger parts of XLF.


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