Fifth Third Bank 2011 Annual Report Download - page 39

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 37
Noninterest Expense
Total noninterest expense decreased $97 million, or three percent,
in 2011 compared to 2010 primarily due to a decrease in other
noninterest expense, as discussed below, partially offset by an
increase in total personnel costs (salaries, wages and incentives plus
employee benefits) and card and processing expense. Total
personnel costs increased $64 million, or four percent, in 2011
compared to 2010 due to an increase in base and incentive
compensation driven by investments in the sales force beginning in
mid-2010 and an overall increase in the number of employees. Full
time equivalent employees totalled 21,334 at December 31, 2011
compared to 20,838 at December 31, 2010.
Card and processing expense increased $12 million, or 11%, in
2011 compared to 2010 primarily as the result of growth in debit
and credit card transactions. The major components of other
noninterest expense are as follows:
TABLE 11: COMPONENTS OF OTHER NONINTEREST EXPENSE
For the years ended December 31 ($ in millions) 2011 2010 2009
FDIC insurance and other taxes $201 242 269
Loan and lease 195 211 234
Losses and adjustments 129 187 110
Marketing 115 98 79
A
ffordable housing investments impairment 85 100 83
Professional service fees 58 77 63
Travel 52 51 41
Postal and courier 49 48 53
Operating lease 41 41 39
OREO expense 34 33 24
Recruitment and education 31 31 30
Data processing 29 24 21
Insurance 25 42 50
Intangible asset amortization 22 43 57
Supplies 18 24 25
V
isa litigation reserve - - (73)
Provision for unfunded commitments and letters of credit (46) (24) 99
Other, net 186 166 167
Total other noninterest expense $ 1,224 1,394 1,371
Total other noninterest expense decreased $170 million, or 12%, in
2011 compared to 2010 primarily due to decreases in the provision
for representation and warranty claims, recorded in losses and
adjustments; FDIC insurance and other taxes, intangible asset
amortization, professional service fees and an increase in the benefit
from a decrease in the reserve for unfunded commitments and
letters of credit partially offset by losses in 2011 related to the
termination of two cash flow hedges and an increase in litigation
reserves associated with bankcard association membership, both of
which were recorded in the “other” caption.
The provision for representation and warranty claims
decreased $59 million in 2011 compared to 2010 primarily due to a
decrease in demand requests during 2011 and a decrease in losses on
repurchased loans compared to 2010. FDIC insurance and other
taxes decreased $41 million in 2011 compared to 2010 due primarily
to the FDIC’s implementation of amended regulations that revised
the Federal Deposit Insurance Act effective April 1, 2011. The
amended regulations modified the definition of an institution’s
deposit insurance assessment base from domestic deposits to
quarterly average total assets less quarterly average tangible equity as
well as the assessment rate calculation; additionally 2010 included
expenses due to the Bancorp’s participation in the FDIC’s TLGP
transaction account guarantee program, which was exited during the
second quarter of 2010. The $21 million decrease in intangible asset
amortization was primarily the result of the full amortization of
certain intangible assets in 2010 and 2011. The decrease in
professional service fees of $19 million in 2011 compared to 2010
was primarily the result of legal expenses incurred from the litigation
settlement related to one of the Bancorp’s BOLI policies during the
third quarter of 2010. The provision for unfunded commitments
and letters of credit was a benefit of $46 million in 2011 compared
to a benefit of $24 million during 2010. The benefit recorded in
each period reflects lower estimates of inherent losses resulting
from a decrease in delinquent loans as credit trends improved
during 2011. The $20 million increase in the “other” caption was
primarily the result of $27 million in expenses on two cash flow
hedge transactions that were terminated during the third quarter of
2011 and $14 million of expenses related to an increase in litigation
reserves associated with bankcard association membership during
the fourth quarter of 2011 partially offset by an $8 million gain on
the extinguishment of long term debt during 2011 compared to $17
million of losses on the extinguishment of long term debt during
2010.
TSA related expenses decreased to approximately $21 million
in 2011 from $49 million in 2010 due to Vantiv Holding’s transition
to their own supporting systems.
The Bancorp continues to focus on efficiency initiatives as part
of its core emphasis on operating leverage and expense control. The
efficiency ratio (noninterest expense divided by the sum of net
interest income (FTE) and noninterest income) was 62.3% for 2011
compared to 60.7% in 2010.