Fifth Third Bank 2013 Annual Report Download - page 22

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
20 Fifth Third Bancorp
TABLE 3: CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 ($ in millions, except per share data) 2013 2012 2011 2010 2009
Interest income (FTE) $3,993 4,125 4,236 4,507 4,687
Interest expense 412 512 661 885 1,314
Net interest income (FTE) 3,581 3,613 3,575 3,622 3,373
Provision for loan and lease losses 229 303 423 1,538 3,543
Net interest income (loss) after provision for loan and lease losses (FTE) 3,352 3,310 3,152 2,084 (170)
Noninterest income 3,227 2,999 2,455 2,729 4,782
Noninterest expense 3,961 4,081 3,758 3,855 3,826
Income before income taxes (FTE) 2,618 2,228 1,849 958 786
Fully taxable equivalent adjustment 20 18 18 18 19
A
pplicable income tax expense 772 636 533 187 30
Net income 1,826 1,574 1,298 753 737
Less: Net income attributable to noncontrolling interests (10) (2) 1 - -
Net income attributable to Bancorp 1,836 1,576 1,297 753 737
Dividends on preferred stock 37 35 203 250 226
Net income available to common shareholders $1,799 1,541 1,094 503 511
Earnings per share $ 2.05 1.69 1.20 0.63 0.73
Earnings per diluted share 2.02 1.66 1.18 0.63 0.67
Cash dividends declared per common share $ 0.47 0.36 0.28 0.04 0.04
Earnings Summary
The Bancorp’s net income available to common shareholders for
the year ended December 31, 2013 was $1.8 billion, or $2.02 per
diluted share, which was net of $37 million in preferred stock
dividends. The Bancorp’s net income available to common
shareholders for the year ended December 31, 2012 was $1.5 billion,
or $1.66 per diluted share, which was net of $35 million in preferred
stock dividends. Pre-provision net revenue was $2.8 billion and $2.5
billion for the years ended 2013 and 2012, respectively. Pre-
provision net revenue is a non-GAAP measure. For further
information, see the Non-GAAP Financial Measures section in the
MD&A.
Net interest income was $3.6 billion for the years ended
December 31, 2013 and 2012. Net interest income was negatively
impacted by a decline of 36 bps in yields on the Bancorp’s interest-
earning assets, partially offset by a $4.3 billion increase in average
loans and leases due primarily to increases in average commercial
and industrial loans and average residential mortgage loans. In
addition, interest expense decreased primarily due to a decrease in
rates paid on average long-term debt and a reduction in higher cost
average long-term debt. Net interest margin was 3.32% and 3.55%
for the years ended December 31, 2013 and 2012, respectively.
Noninterest income increased $228 million, or eight percent, in
2013 compared to 2012. The increase from the prior year was
primarily due to increases in other noninterest income partially
offset by decreases in mortgage banking net revenue. Other
noninterest income increased $305 million compared to the prior
year, primarily due to positive valuation adjustments on the stock
warrant associated with Vantiv Holding, LLC. In addition, the
Bancorp recognized gains of $242 million and $85 million, on the
sale of Vantiv, Inc. shares in the second and third quarters of 2013,
respectively, compared to gains of $115 million related to the
Vantiv, Inc. IPO recorded in the first quarter of 2012 and a $157
million gain on the sale of Vantiv shares during the fourth quarter
of 2012. Mortgage banking net revenue decreased $145 million for
the year ended December 31, 2013 compared to the prior year
primarily due to a decrease in origination fees and gains on loan
sales partially offset by an increase in positive net valuation
adjustments on mortgage servicing rights and free-standing
derivatives entered into to economically hedge the MSR portfolio.
Noninterest expense decreased $120 million, or three percent,
in 2013 compared to 2012 primarily due to a decrease in other
noninterest expense driven by a decrease in debt extinguishment
costs and a decrease in the provision for representation and
warranty claims partially offset by an increase in litigation expense.
Credit Summary
The Bancorp does not originate subprime mortgage loans and does
not hold asset-backed securities backed by subprime mortgage loans
in its securities portfolio. However, the Bancorp has exposure to
disruptions in the capital markets and weakened economic
conditions. During 2013, credit trends have improved, and as a
result, the provision for loan and lease losses decreased to $229
million in 2013 compared to $303 million in 2012. In addition, net
charge-offs as a percent of average portfolio loans and leases
decreased to 0.58% during 2013 compared to 0.85% during 2012.
At December 31, 2013, nonperforming assets as a percent of loans,
leases and other assets, including OREO (excluding nonaccrual
loans held for sale) decreased to 1.10%, compared to 1.49% at
December 31, 2012. For further discussion on credit quality, see the
Credit Risk Management section in MD&A.
Capital Summary
The Bancorp’s capital ratios exceed the “well-capitalized” guidelines
as defined by the Board of Governors of the Federal Reserve
System. As of December 31, 2013, the Tier I risk-based capital ratio
was 10.36%, the Tier I leverage ratio was 9.64% and the total risk-
based capital ratio was 14.08%.