Fifth Third Bank 2012 Annual Report Download - page 42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
40 Fifth Third Bancorp
TABLE 9: NONINTEREST EXPENSE
For the years ended December 31 ($ in millions) 2012 2011 2010 2009 2008
Salaries, wages and incentives $1,607 1,478 1,430 1,339 1,337
Employee benefits 371 330 314 311 278
Net occupancy expense 302 305 298 308 300
Technology and communications 196 188 189 181 191
Card and processing expense 121 120 108 193 274
Equipment expense 110 113 122 123 130
Goodwill impairment -- - - 965
Other noninterest expense 1,374 1,224 1,394 1,371 1,089
Total noninterest expense $4,081 3,758 3,855 3,826 4,564
Efficiency ratio 61.7 % 62.3 60.7 46.9 70.4
Noninterest Expense
Total noninterest expense increased $323 million, or nine percent, in
2012 compared to 2011 primarily due to an increase in total
personnel costs (salaries, wages and incentives plus employee
benefits) and other noninterest expense. Total personnel costs
increased $170 million, or nine percent, in 2012 compared to 2011
due to an increase in base and incentive compensation primarily
driven by higher compensation costs as a result of improved
financial performance and production levels, as well as higher
employee benefits expense due to increases in medical costs under
the Bancorp’s self-insured medical plan and an increase in other
employee benefits. Full time equivalent employees totalled 20,798 at
December 31, 2012 compared to 21,334 at December 31, 2011.
The major components of other noninterest expense are as follows:
TABLE 10: COMPONENTS OF OTHER NONINTEREST EXPENSE
For the years ended December 31 ($ in millions) 2012 2011 2010
Losses and adjustments $187 129 187
Loan and lease 183 195 211
Loss (gain) on debt extinguishment 169 (8) 17
Marketing 128 115 98
FDIC insurance and other taxes 114 201 242
Impairment of affordable housing investments 90 85 100
Professional service fees 56 58 77
Travel 52 52 51
Postal and courier 48 49 48
Operating lease 43 41 41
Data processing 40 29 24
Recruitment and education 28 31 31
OREO expense 21 34 33
Insurance 18 25 42
Supplies 17 18 24
Intangible asset amortization 13 22 43
Provision (benefit) for unfunded commitments and letters of credit (2) (46) (24)
Other, net 169 194 149
Total other noninterest expense $ 1,374 1,224 1,394
Total other noninterest expense increased $150 million, or 12%, in
2012 compared to 2011 primarily due to increases in the provision
for representation and warranty claims, recorded in losses and
adjustments, a decrease in the benefit from the reserve for unfunded
commitments and letters of credit and an increase in debt
extinguishment losses, partially offset by a decrease in FDIC
insurance and other taxes.
The provision for representation and warranty claims increased
$53 million in 2012 compared to 2011 primarily due to an increase
in the reserve as a result of additional information obtained from
FHLMC regarding future mortgage repurchase and file requests. As
such, the Bancorp was able to better estimate the losses that are
probable on loans sold to FHLMC with representation and warranty
provisions. Debt extinguishment costs increased by $177 million in
2012 compared to 2011. During the third quarter of 2012, the
Bancorp incurred $26 million of debt extinguishment costs
associated with the redemption of the outstanding TruPS issued by
Fifth Third Capital Trust V and Fifth Third Capital Trust VI. In
addition, during the fourth quarter of 2012 the Bancorp incurred
$134 million of debt extinguishment costs associated with the
termination of $1 billion of FHLB debt. FDIC insurance and other
taxes decreased $87 million in 2012 compared to 2011. The decrease
in FDIC insurance and other taxes is primarily attributable to a
decrease in the assessment rate due to changes in the level and
measurement of higher risk assets and improved credit quality
metrics. In addition, the provision for unfunded commitments and
letters of credit was a benefit of $2 million in 2012 compared to a
benefit of $46 million in 2011. The decrease in the benefit recorded
in each period reflects an increase in unfunded commitments for
which the Bancorp holds a reserve partially offset by a decline in
estimated loss rates due to improved credit trends. For additional
information on the TruPS redemptions and FHLB debt
termination, see Note 15 of the Notes to Consolidated Financial
Statements.
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