Fifth Third Bank 2014 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
41 Fifth Third Bancorp
Noninterest Expense
Noninterest expense decreased $252 million, or six percent, for the year ended December 31, 2014 compared to the year ended December 31,
2013, primarily due to decreases in total personnel costs (salaries, wages and incentives plus employee benefits) and other noninterest expense.
The components of noninterest expense are as follows:
TABLE 13: NONINTEREST EXPENSE
For the years ended December 31 ($ in millions) 2014 2013 2012 2011 2010
Salaries, wages and incentives $1,449 1,581 1,607 1,478 1,430
Employee benefits 334 357 371 330 314
Net occupancy expense 313 307 302 305 298
Technology and communications 212 204 196 188 189
Card and processing expense 141 134 121 120 108
Equipment expense 121 114 110 113 122
Other noninterest expense 1,139 1,264 1,374 1,224 1,394
Total noninterest expense $3,709 3,961 4,081 3,758 3,855
Efficiency ratio 61.1 % 58.2 61.7 62.3 60.7
Total personnel costs decreased $155 million, or eight percent, in
2014 compared to 2013 driven by a decrease in incentive
compensation primarily in the mortgage business due to lower
production levels and a decrease in base compensation and
employee benefits as a result of a decline in the number of full time
equivalent employees in 2014. Full time equivalent employees
totaled 18,351 at December 31, 2014 compared to 19,446 at
December 31, 2013.
The major components of other noninterest expense are as follows:
TABLE 14: COMPONENTS OF OTHER NONINTEREST EXPENSE
For the years ended December 31 ($ in millions) 2014 2013 2012
Losses and adjustments $188 221 187
Impairment on affordable housing investments 135 108 90
Loan and lease 119 158 183
Marketing 98 114 128
FDIC insurance and other taxes 89 127 114
Professional service fees 72 76 56
Operating lease 67 57 43
Travel 52 54 52
Postal and courier 47 48 48
Data processing 41 42 40
Recruitment and education 28 26 28
OREO expense 17 16 21
Insurance 16 17 18
Supplies 15 16 17
Intangible asset amortization 4 8 13
Loss on debt extinguishment - 8 169
Benefit from the reserve for unfunded commitments (27) (17) (2)
Other, net 178 185 169
Total other noninterest expense $ 1,139 1,264 1,374
Total other noninterest expense decreased $125 million, or 10%, in
2014 compared to 2013 primarily due to decreases in loan and lease
expense, FDIC insurance and other taxes, losses and adjustments,
marketing expense, debt extinguishment costs and an increase in the
benefit from the reserve for unfunded commitments, partially offset
by increases in impairment on affordable housing investments.
Loan and lease expense decreased $39 million in 2014
compared to 2013 due to lower loan closing and appraisal costs
driven by a decline in mortgage originations. FDIC insurance and
other taxes decreased $38 million in 2014 compared to 2013
primarily due to the change in the mix of the Bancorp’s funding
base and higher capital levels, a change in tax laws during 2014 and
the implementation of the large bank assessment fee, which
included billings for prior periods during 2013. Losses and
adjustments decreased $33 million in 2014 compared to 2013
primarily due to a decrease in legal settlements and reserve expense.
Marketing expense decreased $16 million in 2014 compared to 2013
due to management’s expense control efforts. Debt extinguishment
costs decreased $8 million in 2014 compared to 2013. 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. The benefit from the
reserve for unfunded commitments was $27 million and $17 million
in 2014 and 2013, respectively. The increase in the benefit
recognized reflects a decrease in estimated loss rates related to
unfunded commitments due to improved credit trends partially
offset by an increase in unfunded commitments for which the
Bancorp holds reserves.
Impairment on affordable housing investments increased $27
million in 2014 compared to 2013, primarily driven by a $12 million
benefit from the sale of affordable housing investments in 2013 and
incremental losses on previous investments.
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