Fifth Third Bank 2013 Annual Report Download - page 51

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
49 Fifth Third Bancorp
Average loans and leases decreased $160 million compared to
2011. The decrease was primarily driven by declines in home equity
loans of $55 million, commercial mortgage loans of $45 million and
commercial and industrial loans of $30 million. Average core
deposits increased $911 million compared to 2011 due to growth in
interest checking as customers have opted to maintain excess funds
in liquid transaction accounts as a result of interest rates remaining
near historic lows, partially offset by account migration from foreign
office deposits.
General Corporate and Other
General Corporate and Other includes the unallocated portion of
the investment securities portfolio, securities gains and losses,
certain non-core deposit funding, unassigned equity, provision
expense in excess of net charge-offs or a benefit from the reduction
of the ALLL, representation and warranty expense in excess of
actual losses or a benefit from the reduction of representation and
warranty reserves, the payment of preferred stock dividends and
certain support activities and other items not attributed to the
business segments.
Comparison of 2013 with 2012
Results for 2013 and 2012 were impacted by a benefit of $269
million and $400 million, respectively, due to reductions in the
ALLL. The decrease in provision expense was primarily due to a
decrease in nonperforming loans and leases and improvements in
delinquency metrics and underlying loss trends. Net interest income
decreased from $370 million in 2012 to $147 million for 2013
primarily due to a decrease in FTP charges partially offset by a
decrease in interest expense on long-term debt. Noninterest income
increased $278 million compared to the prior year primarily due to
positive valuation adjustments on the stock warrant associated with
Vantiv Holding, LLC which increased $139 million in 2013
compared to 2012. In addition, gains of $242 million and $85
million were recognized on the sales 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 and $157 million on
the sales of Vantiv, Inc. shares in 2012. The Bancorp also
recognized a gain of $9 million associated with a tax receivable
agreement with Vantiv, Inc. in the fourth quarter of 2013. The
equity method earnings from the Bancorp’s interest in Vantiv
Holding, LLC increased $16 million from 2012.
Noninterest expense decreased $284 million compared to 2012
due to decreases in other noninterest expense and total personnel
costs. Other noninterest expense decreased due to a decrease in
debt extinguishment costs, an increase in corporate overhead
allocations assigned to the segments, a decrease in loan and lease
expense and a decrease in losses and adjustments. Debt
extinguishment costs decreased $161 million during 2013 compared
to the prior year. 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 2012, the Bancorp incurred $160 million of debt
extinguishment costs associated with the redemption of certain
TruPS and the termination of certain FHLB debt. Loan and lease
expense decreased $72 million during 2013 compared to 2012
primarily due to a decrease in loan closing fees due to a decline in
mortgage originations. Losses and adjustments decreased $17
million compared to 2012 primarily driven by a decline in the
provision for representation and warranty claims partially offset by
an increase in litigation expense. The provision for representation
and warranty claims changed from a $49 million expense for the
year ended December 31, 2012 to a benefit of $39 million for the
year ended December 31, 2013 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. The decrease
in representation and warranty expense was partially offset by a $54
million increase in litigation expense. Total personnel costs
decreased $38 million from 2012 due primarily to decreases in
incentive compensation and employee benefits.
Comparison of 2012 with 2011
Results for 2012 and 2011 were impacted by a benefit of $400
million and $748 million, respectively, due to reductions in the
ALLL. The decrease in provision expense was driven by general
improvements in credit quality and declines in net charge-offs. Net
interest income increased from $321 million in 2011 to $370 million
in 2012 due to a benefit in the FTP rate. The change in net income
for 2012 compared to 2011 was impacted by a $157 million gain on
the sale of Vantiv, Inc. shares and $115 million in gains on the initial
public offering of Vantiv, Inc. In addition, the results for 2012 were
impacted by dividends on preferred stock of $35 million compared
to $203 million in 2011.