Fifth Third Bank 2014 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) 2014 2013 2012 2011 2010
Interest income (FTE) $ 4,051 3,993 4,125 4,236 4,507
Interest expense 451 412 512 661 885
Net interest income (FTE) 3,600 3,581 3,613 3,575 3,622
Provision for loan and lease losses 315 229 303 423 1,538
Net interest income after provision for loan and lease losses (FTE) 3,285 3,352 3,310 3,152 2,084
Noninterest income 2,473 3,227 2,999 2,455 2,729
Noninterest expense 3,709 3,961 4,081 3,758 3,855
Income before income taxes (FTE) 2,049 2,618 2,228 1,849 958
Fully taxable equivalent adjustment 21 20 18 18 18
A
pplicable income tax expense 545 772 636 533 187
Net income 1,483 1,826 1,574 1,298 753
Less: Net income attributable to noncontrolling interests 2 (10) (2) 1 -
Net income attributable to Bancorp 1,481 1,836 1,576 1,297 753
Dividends on preferred stock 67 37 35 203 250
Net income available to common shareholders $1,414 1,799 1,541 1,094 503
Earnings per share - basic $ 1.68 2.05 1.69 1.20 0.63
Earnings per share - diluted 1.66 2.02 1.66 1.18 0.63
Cash dividends declared per common share $ 0.51 0.47 0.36 0.28 0.04
Earnings Summary
The Bancorp’s net income available to common shareholders for
the year ended December 31, 2014 was $1.4 billion, or $1.66 per
diluted share, which was net of $67 million in preferred stock
dividends. 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. Pre-provision net revenue was $2.3 billion and $2.8
billion for the years ended December 31, 2014 and 2013,
respectively. Pre-provision net revenue is a non-GAAP measure.
For further information, refer to the Non-GAAP Financial
Measures section in the MD&A.
Net interest income was $3.6 billion for both the years ended
December 31, 2014 and 2013. Net interest income was positively
impacted by an increase in average taxable securities of $5.4 billion
for the year ended December 31, 2014 coupled with an increase in
yields on these securities of 16 bps compared to the prior year. In
addition, net interest income also included the benefit of an increase
in average loans and leases and a decrease in the rates paid on long-
term debt compared to the prior year, partially offset by lower yields
on loans and leases and an increase in average long-term debt. The
net interest rate spread decreased to 2.94% in 2014 from 3.15% in
2013 primarily due to a 21 bps decrease in yields on average interest-
earning assets for the year ended December 31, 2014. Net interest
margin was 3.10% and 3.32% for the years ended December 31,
2014 and 2013, respectively.
Noninterest income decreased $754 million, or 23%, in 2014
compared to 2013. The decrease from the prior year was primarily
due to decreases in mortgage banking net revenue and other
noninterest income. Mortgage banking net revenue decreased $390
million for the year ended December 31, 2014 compared to the
prior year primarily due to decreases in origination fees and gains on
loan sales and net mortgage servicing revenue. Other noninterest
income decreased $429 million compared to the prior year. The
decrease included the impact of a gain of $125 million on the sale of
Vantiv, Inc. shares in the second quarter of 2014, compared to gains
totaling $327 million during the second and third quarters of 2013.
The Bancorp recognized gains of $23 million and $9 million
associated with a tax receivable agreement with Vantiv, Inc. in the
fourth quarter of 2014 and 2013, respectively. Additionally, other
noninterest income decreased for the year ended December 31,
2014 compared to 2013 primarily due to decreases in the positive
valuation adjustments on the stock warrant associated with Vantiv
Holding, LLC and a decrease in equity method earnings from
Vantiv Holding, LLC.
Noninterest expense decreased $252 million, or six percent, in
2014 compared to 2013 primarily due to decreases in total personnel
costs and other noninterest expense. Total personnel costs
decreased $155 million 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. Other noninterest
expense decreased $125 million 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 an increase in
impairment on affordable housing investments.
Credit Summary
The provision for loan and lease losses was $315 million and $229
million for the years ended December 31, 2014 and 2013,
respectively. Net charge-offs as a percent of average portfolio loans
and leases increased to 0.64% during 2014 compared to 0.58%
during 2013. At December 31, 2014, nonperforming assets as a
percent of loans, leases and other assets, including OREO
(excluding nonaccrual loans held for sale) decreased to 0.82%,
compared to 1.10% at December 31, 2013. For further discussion
on credit quality, refer to 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, 2014, the Tier I risk-based capital ratio
was 10.83%, the Tier I leverage ratio was 9.66% and the Total risk-
based capital ratio was 14.33%.