Fifth Third Bank 2013 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
41 Fifth Third Bancorp
TABLE 10: NONINTEREST EXPENSE
For the years ended December 31 ($ in millions) 2013 2012 2011 2010 2009
Salaries, wages and incentives $1,581 1,607 1,478 1,430 1,339
Employee benefits 357 371 330 314 311
Net occupancy expense 307 302 305 298 308
Technology and communications 204 196 188 189 181
Card and processing expense 134 121 120 108 193
Equipment expense 114 110 113 122 123
Other noninterest expense 1,264 1,374 1,224 1,394 1,371
Total noninterest expense $3,961 4,081 3,758 3,855 3,826
Efficiency ratio 58.2 % 61.7 62.3 60.7 46.9
Noninterest Expense
Total noninterest expense decreased $120 million, or three percent,
in 2013 compared to 2012 primarily due to a decrease in total
personnel costs (salaries, wages and incentives plus employee
benefits) and other noninterest expense. Total personnel costs
decreased $40 million, or two percent, in 2013 compared to 2012
primarily due to a decrease in incentive compensation driven by the
mortgage business due to lower production levels in 2013, a
decrease in base compensation, and a decrease in the number of full
time equivalent employees from 2012. Full time equivalent
employees totaled 19,446 at December 31, 2013 compared to 20,798
at December 31, 2012.
The major components of other noninterest expense are as follows:
TABLE 11: COMPONENTS OF OTHER NONINTEREST EXPENSE
For the years ended December 31 ($ in millions) 2013 2012 2011
Losses and adjustments $221 187 129
Loan and lease 158 183 195
FDIC insurance and other taxes 127 114 201
Marketing 114 128 115
Impairment of affordable housing investments 108 90 85
Professional service fees 76 56 58
Operating lease 57 43 41
Travel 54 52 52
Postal and courier 48 48 49
Data processing 42 40 29
Recruitment and education 26 28 31
Insurance 17 18 25
OREO expense 16 21 34
Supplies 16 17 18
Intangible asset amortization 8 13 22
Loss (gain) on debt extinguishment 8 169 (8)
Benefit from the reserve for unfunded commitments and letters of credit (17) (2) (46)
Other, net 185 169 194
Total other noninterest expense $ 1,264 1,374 1,224
Total other noninterest expense decreased $110 million, or eight
percent, in 2013 compared to 2012 primarily due to a decline in debt
extinguishment costs, decreases in loan and lease expenses and an
increase in the benefit from the reserve for unfunded commitments
and letters of credit, partially offset by increases in losses and
adjustments and FDIC insurance and other taxes.
Debt extinguishment costs decreased $161 million in 2013
compared to 2012. During the fourth quarter of 2013, the Bancorp
incurred $8 million of debt extinguishment costs associated with the
redemption of outstanding TruPS issued by Fifth Third Capital
Trust IV. 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. Loan and lease expenses decreased $25 million in 2013
compared to 2012 primarily due to a decrease in legal costs related
to OREO and a decrease in loan closing fees due to a decline in
mortgage originations. The benefit from the reserve for unfunded
commitments and letters of credit was $17 million and $2 million in
2013 and 2012, respectively. The increase in the benefit recognized
reflects a decrease in estimated loss rates related to unfunded
commitments and letters of credit due to improved credit trends
partially offset by an increase in unfunded commitments for which
the Bancorp holds reserves.
Losses and adjustments increased $34 million in 2013
compared to 2012 primarily due to an increase in litigation expense
partially offset by a decrease in representation and warranty expense.
Litigation expense increased $127 million in 2013 compared to 2012
due to increased litigation and regulatory activity. The provision for
representation and warranty claims decreased $92 million in 2013
compared to 2012 due to the Bancorp recording significant
additions to the reserve in 2012 as the result of additional
information obtained from FHLMC regarding their file selection
criteria which enabled the Bancorp to better estimate the losses that
were probable on loans sold to FHLMC with representation and
warranty provisions. In addition, 2013 included a decrease in the
representation and warranty reserve due to improving underlying
repurchase metrics and the settlement with FHLMC.
Additionally, FDIC insurance and other taxes increased $13
million in 2013 compared to 2012 primarily due to a $23 million