Fifth Third Bank 2014 Annual Report Download - page 46

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
44 Fifth Third Bancorp
Commercial Banking
Commercial Banking offers credit intermediation, cash management
and financial services to large and middle-market businesses and
government and professional customers. In addition to the
traditional lending and depository offerings, Commercial Banking
products and services include global cash management, foreign
exchange and international trade finance, derivatives and capital
markets services, asset-based lending, real estate finance, public
finance, commercial leasing and syndicated finance.
The following table contains selected financial data for the Commercial Banking segment:
TABLE 17: COMMERCIAL BANKING
For the years ended December 31 ($ in millions) 2014 2013 2012
Income Statement Data
Net interest income (FTE)(a) $ 1,673 1,612 1,550
Provision for loan and lease losses 235 194 249
Noninterest income:
Corporate banking revenue 429 392 402
Service charges on deposits 286 267 251
Other noninterest income 172 159 121
Noninterest expense:
Salaries, incentives and employee benefits 306 310 304
Other noninterest expense 1,013 925 883
Income before taxes 1,006 1,001 888
A
pplicable income tax expense(a)(b) 187 187 174
Net income $ 819 814 714
A
verage Balance Sheet Data
Commercial loans, including held for sale $ 51,310 47,762 44,028
Demand deposits 18,935 17,116 16,742
Interest checking deposits 8,068 7,095 7,795
Savings and money market deposits 5,946 4,987 3,368
Other time deposits and certificates - $100,000 and over 1,399 1,330 1,795
Foreign office deposits and other deposits 1,824 1,486 1,298
(a) The FTE adjustments included in the above table were $21 , $20 and $17 million for the years ended December 31, 2014 , 2013 and 2012, respectively.
(b) Applicable income tax expense for all periods includes the tax benefit from tax-exempt income and business tax credits, partially offset by the effect of certain nondeductible expenses. Refer to the
Applicable Income Taxes section of the MD&A for additional information.
Comparison of 2014 with 2013
Net income was $819 million for the year ended December 31,
2014, compared to net income of $814 million for the year ended
December 31, 2013. The increase in net income was the result of
increases in net interest income and noninterest income, partially
offset by increases in noninterest expense and the provision for loan
and lease losses.
Net interest income increased $61 million from the prior year
primarily due to growth in average commercial construction loans,
an increase in FTP credits due to an increase in demand deposits
and a decrease in FTP charges, partially offset by a decline in yields
of 29 bps on average commercial loans.
Provision for loan and lease losses increased $41 million from
the prior year due to an increase in net charge-offs related to certain
impaired commercial and industrial loans in the first and third
quarters of 2014. Net charge-offs as a percent of average portfolio
loans and leases increased to 46 bps for 2014 compared to 41 bps
for 2013.
Noninterest income increased $69 million from the prior year
due to increases in corporate banking revenue, service charges on
deposits and other noninterest income. Corporate banking revenue
increased $37 million from 2013 primarily driven by increases in
syndication fees and lease remarketing fees. Service charges on
deposits increased $19 million from 2013 primarily driven by higher
commercial deposit revenue which increased due to the acquisition
of new customers and product expansion. Other noninterest
income increased $13 million from 2013 primarily due to increases
in operating lease income and card and processing revenue.
Noninterest expense increased $84 million from the prior year
as a result of an increase in other noninterest expense, partially
offset by a decrease in salaries, incentives and benefits. Other
noninterest expense increased $88 million from 2013 driven by
increases in corporate overhead allocations, impairment on
affordable housing investments and operating lease expense. The
decrease in salaries, incentives and employee benefits of $4 million
was due to a decrease in incentive compensation resulting from a
change to the structure of the incentive compensation plans in the
first quarter of 2014.
Average commercial loans increased $3.5 billion from the prior
year primarily due to increases in average commercial and industrial
loans and average commercial construction loans, partially offset by
a decrease in average commercial mortgage loans. Average
commercial and industrial portfolio loans and average commercial
construction portfolio loans increased $3.5 billion and $689 million,
respectively, from the prior year as a result of an increase in new
loan origination activity and utilization resulting from a
strengthening economy and targeted marketing efforts. Average
commercial mortgage portfolio loans decreased $651 million from
the prior year due to continued run-off as the level of new
originations was less than the repayments on the current portfolio.
Average core deposits increased $4.1 billion from the prior
year. The increase was the result of strong growth in average
demand deposits, average interest checking deposits, average savings
and money market deposits and average foreign deposits and other
deposits which increased $1.8 billion, $973 million, $959 million and
$338 million, respectively, from to the prior year.
Comparison of 2013 with 2012
Net income was $814 million for the year ended December 31,
2013, compared to net income of $714 million for the year ended
December 31, 2012. The increase in net income was primarily
driven by increases in net interest income and noninterest income