Fifth Third Bank 2014 Annual Report Download - page 23

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
21 Fifth Third Bancorp
NON-GAAP FINANCIAL MEASURES
The following are Non-GAAP measures which are important to the
reader of the Bancorp’s Consolidated Financial Statements but
should be supplemental to primary GAAP measures. The Bancorp
considers many factors when determining the adequacy of its
liquidity profile, including its LCR as defined by the U.S. Banking
Agencies Basel III LCR final rule. Generally, the LCR is designed to
ensure banks maintain an adequate level of unencumbered HQLA
to satisfy the estimated net cash outflows under a 30-day stress
scenario. The Bancorp will be subject to the Modified LCR whereby
the net cash outflow under the 30-day stress scenario is multiplied
by a factor of 0.7. The final rule is not effective for the Bancorp
until January 1, 2016. The Bancorp believes there is no comparable
U.S. GAAP financial measure to LCR. The Bancorp believes
providing an estimated LCR is important for comparability to other
financial institutions. For a further discussion on liquidity
management and the LCR, refer to the Liquidity Risk Management
section of MD&A.
TABLE 4: Non-GAAP Financial Measures - Liquidity Coverage Ratio
December 31,
A
s of ($ in millions) 2014
High Quality Liquid Assets $ 22,162
Estimated net cash outflow 19,831
Estimated Modified LCR 112 %
Pre-provision net revenue is net interest income plus noninterest
income minus noninterest expense. The Bancorp believes this
measure is important because it provides a ready view of the
Bancorp’s pre-tax earnings before the impact of provision expense.
The following table reconciles the non-GAAP financial measure of pre-provision net revenue to U.S. GAAP for the years ended December 31:
TABLE 5: Non-GAAP Financial Measures - Pre-Provision Net Revenue
($ in millions) 2014 2013
Net interest income (U.S. GAAP) $ 3,579 3,561
A
dd: Noninterest income 2,473 3,227
Less: Noninterest expense 3,709 3,961
Pre-provision net revenue $ 2,343 2,827
The Bancorp believes return on average tangible common equity is
an important measure for comparative purposes with other financial
institutions, but is not defined under U.S. GAAP, and therefore is
considered a non-GAAP financial measure.
The following table reconciles the non-GAAP financial measure of return on average tangible common equity to U.S. GAAP for the years ended
December 31:
TABLE 6: Non-GAAP Financial Measures - Return on Average Tangible Common Equity
($ in millions) 2014 2013
Net income available to common shareholders (U.S. GAAP) $ 1,414 1,799
A
dd: Intangible amortization, net of tax 3 5
Tangible net income available to common shareholders (1) $ 1,417 1,804
A
verage Bancorp's shareholders' equity (U.S. GAAP) $ 15,290 14,302
Less: Average preferred stock (1,205) (604)
Average goodwill (2,416) (2,416)
Average intangible assets and other servicing rights (20) (29)
A
verage Tangible common equity (2) $ 11,649 11,253
Return on average tangible common equity (1) / (2) 12.2 % 16.0
The Bancorp considers various measures when evaluating capital
utilization and adequacy, including the tangible equity ratio, tangible
common equity ratio and Tier I common equity ratio, in addition to
capital ratios defined by banking regulators. These calculations are
intended to complement the capital ratios defined by banking
regulators for both absolute and comparative purposes. Because
U.S. GAAP does not include capital ratio measures, the Bancorp
believes there are no comparable U.S. GAAP financial measures to
these ratios. These ratios are not formally defined by U.S. GAAP or
codified in the federal banking regulations and, therefore, are
considered to be non-GAAP financial measures. Since analysts and
banking regulators may assess the Bancorp’s capital adequacy using
these ratios, the Bancorp believes they are useful to provide
investors the ability to assess its capital adequacy on the same basis.
The Bancorp believes these non-GAAP measures are
important because they reflect the level of capital available to
withstand unexpected market conditions. Additionally, presentation
of these measures allows readers to compare certain aspects of the
Bancorp’s capitalization to other organizations. However, because
there are no standardized definitions for these ratios, the Bancorp’s
calculations may not be comparable with other organizations, and
the usefulness of these measures to investors may be limited. As a
result, the Bancorp encourages readers to consider its Consolidated
Financial Statements in their entirety and not to rely on any single
financial measure.