Fifth Third Bank 2013 Annual Report Download - page 46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
44 Fifth Third Bancorp
Commercial Banking
Commercial Banking offers credit intermediation, cash management
and financial services to large and middle-market businesses and
government and professional customers. In addition to the
traditional lending and depository offerings, Commercial Banking
products and services include global cash management, foreign
exchange and international trade finance, derivatives and capital
markets services, asset-based lending, real estate finance, public
finance, commercial leasing and syndicated finance.
The following table contains selected financial data for the Commercial Banking segment:
TABLE 14: COMMERCIAL BANKING
For the years ended December 31 ($ in millions) 2013 2012 2011
Income Statement Data
Net interest income (FTE)(a) $ 1,507 1,449 1,374
Provision for loan and lease losses 187 223 490
Noninterest income:
Corporate banking revenue 386 395 332
Service charges on deposits 242 225 207
Other noninterest income 152 117 102
Noninterest expense:
Salaries, incentives and benefits 273 268 240
Other noninterest expense 870 838 833
Income before taxes 957 857 452
A
pplicable income tax expense(a)(b) 191 163 11
Net income $ 766 694 441
A
verage Balance Sheet Data
Commercial loans, including held for sale $ 45,035 41,364 38,384
Demand deposits 15,255 15,046 13,130
Interest checking 6,908 7,613 7,901
Savings and money market 4,284 2,669 2,776
Other time and certificates - $100,000 and over 1,299 1,793 1,778
Foreign office deposits and other deposits 1,467 1,282 1,581
(a) Includes FTE adjustments of $20 for the year ended December 31, 2013 and $17 for the years ended December 31, 2012 and 2011.
(b) Applicable income tax expense for all periods includes the tax benefit from tax-exempt income and business tax credits, partially offset by the effect of certain nondeductible expenses. Refer to the
Applicable Income Taxes section of the MD&A for additional information.
Comparison of 2013 with 2012
Net income was $766 million for the year ended December 31,
2013, compared to net income of $694 million for the year ended
December 31, 2012. The increase in net income was primarily
driven by increases in net interest income and noninterest income
and a decrease in the provision for loan and lease losses, partially
offset by higher noninterest expense.
Net interest income increased $58 million primarily due to an
increase in interest income related to an increase in average
commercial and industrial portfolio loans, a decrease in the FTP
charges on loans and an increase in FTP credits due to an increase
in savings and money market deposits, partially offset by a decrease
in yields of 29 bps on average commercial loans and a decrease in
average commercial mortgage portfolio loans.
Provision for loan and lease losses decreased $36 million from
2012 as a result of improved credit trends. Net charge-offs as a
percent of average portfolio loans and leases decreased to 42 bps for
2013 compared to 54 bps for 2012.
Noninterest income increased $43 million from 2012 to 2013,
due to increases in service charges on deposits and other noninterest
income, partially offset by a decrease in corporate banking revenue.
Service charges on deposits increased $17 million from 2012
primarily driven by commercial deposit revenue which increased
due to fee repricing and the acquisition of new customers. The
increase in other noninterest income was primarily due to decreases
in negative valuation adjustments on OREO, increases in operating
lease income, and decreases in negative valuation adjustments on
loans held for sale, partially offset by decreases in gains on loan
sales. The decrease in corporate banking revenue was primarily
driven by a decrease in lease remarketing and letter of credit fees,
partially offset by increases in syndication, business lending and
foreign exchange fees.
Noninterest expense increased $37 million from the prior year
as a result of increases in salaries, incentives and benefits and other
noninterest expense. The increase in salaries, incentives and benefits
of $5 million was primarily the result of an increase in base
compensation primarily driven by improved production levels. The
increase from 2012 to 2013 in other noninterest expense was driven
by increases in both impairment on affordable housing investments
and operating lease expense. These increases were partially offset by
a decrease in loan and lease expense, primarily due to a decrease in
legal costs related to OREO, and a decrease in corporate overhead
allocations.
Average commercial loans increased $3.7 billion compared to
the prior year primarily due to an increase in average commercial
and industrial loans, partially offset by a decrease in average
commercial mortgage loans. Average commercial and industrial
portfolio loans increased $4.8 billion as a result of an increase in
new origination activity from an increase in demand due to a
strengthening economy and targeted marketing efforts. Average
commercial mortgage portfolio loans decreased $1.1 billion due to
continued run-off as the level of new originations was less than the
repayments of the existing portfolio.
Average core deposits increased $1.3 billion compared to 2012.
The increase was primarily driven by strong growth in savings and
money market deposits, which increased $1.6 billion, and demand
deposits, which increased $209 million, compared to the prior year,
partially offset by a decrease in interest checking deposits of $705
million.