Fifth Third Bank 2013 Annual Report Download - page 49

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
47 Fifth Third Bancorp
The following table contains selected financial data for the Consumer Lending segment:
TABLE 16: CONSUMER LENDING
For the years ended December 31 ($ in millions) 2013 2012 2011
Income Statement Data
Net interest income $ 312 314 343
Provision for loan and lease losses 92 176 261
Noninterest income:
Mortgage banking net revenue 687 830 585
Other noninterest income 61 46 45
Noninterest expense:
Salaries, incentives and benefits 215 231 183
Other noninterest expense 470 439 443
Income before taxes 283 344 86
A
pplicable income tax expense 100 121 30
Net income $ 183 223 56
A
verage Balance Sheet Data
Residential mortgage loans, including held for sale $ 10,222 10,143 9,348
Home equity 560 643 730
A
utomobile loans, including held for sale 11,409 11,191 10,665
Other consumer loans and leases 16 30 156
Comparison of 2013 with 2012
Net income was $183 million in 2013 compared to net income of
$223 million in 2012. The decrease was driven by a decrease in
noninterest income and an increase in noninterest expense, partially
offset by a decline in the provision for loan and lease losses.
Net interest income decreased $2 million from 2012 due
primarily to lower yields on average residential mortgage and
automobile loans, partially offset by a decrease in FTP charges on
loans and leases and increases in average residential mortgage and
average automobile loans.
The provision for loan and lease losses decreased $84 million
compared to the prior year as delinquency metrics and underlying
loss trends improved across all consumer loan types. Net charge-
offs as a percent of average loans and leases decreased to 46 bps for
2013 compared to 88 bps for 2012.
Noninterest income decreased $128 million from 2012
primarily due to a decrease in mortgage banking net revenue of $143
million, partially offset by an increase in other noninterest income of
$15 million. The decrease in mortgage banking net revenue was
primarily due to a decrease in gains on loan sales of $368 million as
a result of a decrease in profit margins on sold residential mortgage
loans coupled with a decrease in residential mortgage loan
originations, partially offset by a $223 million increase in net
residential mortgage servicing revenue. The increase in net
residential mortgage servicing revenue was driven by an increase of
$202 million in net valuation adjustments on MSRs and free-
standing derivatives entered into to economically hedge the MSRs
and a decrease of $20 million in servicing rights amortization. The
increase in other noninterest income was primarily due to a $12
million increase in securities gains and a $7 million decline in losses
on the sale of OREO.
Noninterest expense increased $15 million driven by an
increase of $31 million in other noninterest expense, partially offset
by a decrease of $16 million in salaries, incentives and benefits
compared to the prior year. The increase in other noninterest
expense was primarily due to higher litigation expense and an
increase in corporate overhead allocations, partially offset by a
decrease in loan and lease expense due to lower appraisal costs. The
decrease in salaries, incentives and benefits was due to a decline in
incentive compensation driven primarily by a decline in originations
during 2013 compared to 2012, partially offset by an increase in
deferred compensation for 2013 compared to 2012.
Average consumer loans and leases increased $200 million
from the prior year. Average residential mortgage loans, including
held for sale, increased $79 million for 2013 compared to 2012 due
to strong refinancing activity that occurred in the first half of 2013.
Average automobile loans increased $218 million for the current
year compared to the prior year due to an increase in originations
primarily driven by modest improvement in general economic
conditions and a continued low interest rate environment. Average
home equity portfolio loans decreased $83 million for 2013
compared to 2012 as payoffs exceeded new loan production.
Average other consumer loans and leases decreased $14 million in
the current year resulting from a decrease in average consumer
leases due to run-off as the Bancorp discontinued automobile
leasing in 2008, partially offset by an increase in average other
consumer loans.
Comparison of 2012 with 2011
Net income was $223 million in 2012 compared to net income of
$56 million in 2011. The increase was driven by an increase in
noninterest income and a decline in the provision for loan and lease
losses, partially offset by an increase in noninterest expense and a
decrease in net interest income. Net interest income decreased $29
million due to lower yields on average residential mortgage and
automobile loans, partially offset by increases in average residential
mortgage and average automobile loans and favorable decreases in
the FTP charge applied to the segment.
Provision for loan and lease losses decreased $85 million
compared to 2011 as delinquency metrics and underlying loss trends
improved across all consumer loan types. Net charge-offs as a
percent of average loans and leases decreased to 88 bps for 2012
compared to 134 bps for 2011.
Noninterest income increased $246 million primarily due to
increases in mortgage banking net revenue of $245 million driven by
an increase in gains on residential mortgage loan sales of $424
million due to an increase in profit margins on sold loans coupled
with higher origination volumes. This increase was partially offset
by a decrease in net residential mortgage servicing revenue of $178
million, primarily driven by a decrease of $142 million in net
valuation adjustments on MSRs and free-standing derivatives
entered into to economically hedge the MSRs.