Fifth Third Bank 2014 Annual Report Download - page 48

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
46 Fifth Third Bancorp
Comparison of 2014 with 2013
Net income was $346 million for the year ended December 31,
2014, compared to net income of $204 million for the year ended
December 31, 2013. The increase was driven by an increase in net
interest income and declines in the provision for loan and lease
losses and noninterest expense, partially offset by a decrease in
noninterest income.
Net interest income increased $190 million from the prior year
primarily driven by increases in the FTP credit rates for savings and
money market deposits, demand deposits and interest checking
deposits and a decrease in the FTP charges on loans and leases.
These increases were partially offset by declines in yields on average
commercial loans and a decrease in interest income relating to the
Bancorp’s decision to no longer enroll new customers in the deposit
advance product.
Provision for loan and lease losses for 2014 decreased $29
million from the prior year as a result of improved credit trends.
Net charge-offs as a percent of average portfolio loans and leases
decreased to 110 bps for 2014 compared to 123 bps for 2013.
Noninterest income decreased $20 million from the prior year.
The decrease was primarily driven by decreases in other noninterest
income and service charges on deposits, partially offset by an
increase in card and processing revenue. Other noninterest income
decreased $36 million from 2013 primarily due to $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. The remaining
decrease in other noninterest income was primarily due to decreases
in gains on loan sales and mortgage origination fees and retail
service fees. Service charges on deposits decreased $7 million from
2013 primarily due to a decrease in consumer checking and savings
fees from a decline in the percentage of consumer customers being
charged service fees. Card and processing revenue increased $19
million from the prior year primarily as a result of an increase in the
number of actively used cards as well as higher processing fees
related to additional ATM locations.
Noninterest expense decreased $22 million from the prior year,
primarily driven by decreases in other noninterest expense and
salaries, incentives and employee benefits, partially offset by
increases in card and processing expense and net occupancy and
equipment expense. Other noninterest expense decreased $25
million from the prior year due to lower marketing expense and loan
and lease expense. Salaries, incentives and employee benefits
decreased $10 million from the prior year primarily driven by lower
compensation costs due to a decline in the number of full-time
equivalent employees. Card and processing expense increased $8
million from 2013 primarily due to higher rewards expense relating
to credit cards and increased fraud-related charges. Net occupancy
and equipment expense increased $5 million from 2013 primarily
due to an increase in rent expense driven by additional ATM
locations.
Average consumer loans decreased $245 million in 2014
primarily due to a decrease in average home equity loans of $382
million as payoffs exceeded new advances and new loan production.
This decrease was partially offset by an increase in average credit
card loans of $147 million from the prior year primarily due to an
increase in open and active accounts driven by the volume of new
accounts.
Average core deposits increased $2.4 billion from the prior
year primarily driven by net growth in average savings and money
market deposits of $1.8 billion and growth in average demand
deposits of $478 million.
Comparison of 2013 with 2012
Net income was $204 million for the year ended December 31,
2013, compared to net income of $144 million for the year ended
December 31, 2012. The increase was driven by an increase in net
interest income and noninterest income and a decline in the
provision for loan and lease losses, partially offset by an increase in
noninterest expense.
Net interest income increased $95 million from 2012 primarily
driven by an increase in the FTP credit rates for savings and money
market deposits, demand deposits and interest checking deposits, a
decrease in the FTP charges on loans and leases and a decline in
interest expense on core deposits due to favorable shifts from
certificates of deposit to lower cost transaction deposits.
Provision for loan and lease losses for 2013 decreased $58
million from 2012 as a result of improved credit trends. Net charge-
offs as a percent of average portfolio loans and leases decreased to
123 bps for 2013 compared to 159 bps for 2012.
Noninterest income increased $41 million from 2012. The
increase was primarily driven by increases in investment advisory
revenue, card and processing revenue and service charges on
deposits. Investment advisory revenue increased $19 million from
2013 primarily due to increased securities and brokerage fees due to
an increase in equity and bond market values. Card and processing
revenue increased $12 million from the prior year due to higher
transaction volumes, higher levels of consumer spending and the
benefit of new products. Service charges on deposits increased $11
million from 2012 primarily due to an increase in account
maintenance fees due to the full year impact of new deposit product
offerings.
Noninterest expense increased $104 million from 2012,
primarily driven by increases in salaries, incentives and employee
benefits, card and processing expense and other noninterest
expense. Salaries, incentives and employee benefits increased from
2012 primarily due to an increase in bonus and incentive
compensation associated with improved securities and brokerage
revenue. Card and processing expense increased from 2012 due
primarily to increases in debit and credit card transaction volumes,
consumer spending, fraud insurance costs and credit card rewards
expense. The increase in other noninterest expense was primarily
due to an increase in corporate overhead allocations during 2013
compared to 2012.
Average consumer loans increased $297 million in 2013
primarily due to increases in average residential mortgage portfolio
loans of $942 million from the prior year as a result of continued
retention of certain shorter term residential mortgage loans. In
addition, average credit card loans increased from 2012 due to
increases in average balances per account and the volume of new
customers. These increases were partially offset by decreases in
average home equity portfolio loans of $743 million from 2012 as
payoffs exceeded new loan production.
Average core deposits increased $1.7 billion from the prior
year as growth in demand deposits due to excess customer liquidity
and a continued low interest rate environment was partially offset by
the run-off of higher priced other time deposits.
Consumer Lending
Consumer Lending includes the Bancorp’s mortgage, home equity,
automobile and other indirect lending activities. Lending activities
include the origination, retention and servicing of mortgage and
home equity loans or lines of credit, sales and securitizations of
those loans, pools of loans or lines of credit, and all associated
hedging activities. Indirect lending activities include loans to
consumers through correspondent lenders and automobile dealers.