Fifth Third Bank 2014 Annual Report Download - page 42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
40 Fifth Third Bancorp
associated with changes in the valuation on the MSR portfolio.
Refer to Note 12 of the Notes to Consolidated Financial Statements
for more information on the free-standing derivatives used to
economically hedge the MSR portfolio.
The Bancorp’s total residential loans serviced as of December
31, 2014 and 2013 was $79.0 billion and $82.7 billion, respectively,
with $65.4 billion and $69.2 billion, respectively, of residential
mortgage loans serviced for others.
In addition to the derivative positions used to economically
hedge the MSR portfolio, the Bancorp acquires various securities as
a component of its non-qualifying hedging strategy. The Bancorp
did not sell securities related to the non-qualifying hedging strategy
during the year ended December 31, 2014. Net gains on the sale of
these securities were $13 million during the year ended 2013,
recorded in securities gains, net, non-qualifying hedges on mortgage
servicing rights in the Bancorp’s Consolidated Statements of
Income.
Card and processing revenue
Card and processing revenue increased $23 million in 2014
compared to 2013. The increase was primarily the result of an
increase in the number of actively used cards as well as higher
processing fees related to additional ATM locations. Debit card
interchange revenue, included in card and processing revenue, was
$128 million and $122 million for the years ended December 31,
2014 and 2013, respectively.
Other noninterest income
The major components of other noninterest income are as follows:
TABLE 12: COMPONENTS OF OTHER NONINTEREST INCOME
For the years ended December 31 ($ in millions) 2014 2013 2012
Gain on Vantiv, Inc. IPO and sale of Vantiv, Inc. shares $148 336 272
Operating lease income 84 75 60
Equity method income from interest in Vantiv Holding, LLC 48 77 61
Cardholder fees 45 47 46
BOLI income 44 52 35
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ustments on the warrant and put options associated with Vantiv Holding, LLC 31 206 67
Banking center income 30 34 32
Consumer loan and lease fees 25 27 27
Insurance income 13 25 28
Gain on loan sales - 3 20
Loss on OREO (14) (26) (57)
Loss on swap associated with the sale of Visa, Inc. Class B shares (38) (31) (45)
Other, net 34 54 28
Total other noninterest income $450 879 574
Other noninterest income decreased $429 million in 2014 compared
to 2013. 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. In
addition, the positive valuation adjustments on the stock warrant
associated with Vantiv Holding, LLC were $31 million and $206
million for the years ended December 31, 2014 and 2013,
respectively. The fair value of the stock warrant is calculated using
the Black-Scholes valuation model, which utilizes several key inputs
(Vantiv, Inc. stock price, strike price of the warrant and several
unobservable inputs). The positive valuation adjustments for the
years ended December 31, 2014 and 2013 were primarily due to
increases of four percent and 60%, respectively, in Vantiv, Inc.’s
share price from December 31, 2013 to December 31, 2014 and
from December 31, 2012 to December 31, 2013, respectively.
Equity method earnings from the Bancorp’s interest in Vantiv
Holding, LLC decreased $29 million from 2013 primarily due to
charges taken by Vantiv Holding, LLC related to an acquisition in
2014 and a decrease in the Bancorp’s ownership percentage of
Vantiv Holding, LLC from approximately 25% at December 31,
2013 to approximately 23% at December 31, 2014.
Insurance income decreased $12 million in 2014 compared to
2013 due to a decrease in premiums and fees collected in 2014.
Additionally, the Bancorp recognized $38 million and $31 million in
negative valuation adjustments related to the Visa total return swap
for the years ended December 31, 2014 and 2013, respectively. For
additional information on the valuation of the swap associated with
the sale of Visa, Inc. Class B shares and the valuation of the warrant
and put options associated with the sale of Vantiv Holding, LLC,
refer to Note 27 of the Notes to Consolidated Financial Statements.
The “other” caption decreased $20 million for the year ended
2014 compared to 2013. The decrease was primarily the result of
$20 million in impairment charges in 2014 for branches and land.
For more information on these impairment charges, refer to Note 7
of the Notes to Consolidated Financial Statements.