Fifth Third Bank 2014 Annual Report Download - page 49

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
47 Fifth Third Bancorp
The following table contains selected financial data for the Consumer Lending segment:
TABLE 19: CONSUMER LENDING
For the years ended December 31 ($ in millions) 2014 2013 2012
Income Statement Data
Net interest income $ 257 312 314
Provision for loan and lease losses 156 92 176
Noninterest income:
Mortgage banking net revenue 304 687 830
Other noninterest income 42 61 46
Noninterest expense:
Salaries, incentives and employee benefits 122 215 231
Other noninterest expense 430 470 439
(Loss) income before taxes (105) 283 344
A
pplicable income tax (benefit) expense (37) 100 121
Net (loss) income $ (68) 183 223
A
verage Balance Sheet Data
Residential mortgage loans, including held for sale $ 8,866 10,222 10,143
Home equity 483 560 643
A
utomobile loans, including held for sale 11,517 11,409 11,191
Other consumer loans and leases 19 16 30
Comparison of 2014 with 2013
Consumer Lending incurred a net loss of $68 million in 2014
compared to net income of $183 million in 2013. The decrease was
driven by decreases in net interest income and noninterest income
and an increase in the provision for loan and lease losses, partially
offset by a decrease in noninterest expense.
Net interest income decreased $55 million from the prior year
primarily due to decreases in average residential mortgage loans and
average home equity loans as well as lower yields on average
automobile loans, partially offset by a decrease in FTP charges on
loans and leases.
The provision for loan and lease losses increased $64 million
from the prior year primarily due to an $87 million charge-off
related to the transfer of certain residential mortgage loans from the
portfolio to held for sale in the fourth quarter of 2014, partially
offset by improved delinquency metrics on home equity loans. Net
charge-offs as a percent of average loans and leases increased to 77
bps for 2014 compared to 46 bps for 2013.
Noninterest income decreased $402 million from 2013 as a
result of decreases in mortgage banking net revenue of $383 million
and other noninterest income of $19 million. The decrease in
mortgage banking net revenue was due to a $293 million decline in
mortgage origination fees and gains on loan sales due to a decline in
mortgage originations and a $90 million decrease in net mortgage
servicing revenue. Refer to the Noninterest Income section of
MD&A for additional information on the fluctuations in mortgage
banking net revenue. The decrease in other noninterest income was
primarily due to a $16 million decrease in securities gains.
Noninterest expense decreased $133 million due to decreases
of $93 million in salaries, incentives and benefits and $40 million in
other noninterest expense from the prior year. The decrease in
salaries, incentives and employee benefits was primarily the result of
lower mortgage loan originations. The decrease in other noninterest
expense was primarily due to decreases in loan and lease expense
and corporate overhead allocations.
Average consumer loans and leases decreased $1.3 billion from
the prior year. Average residential mortgage loans, including held for
sale, decreased $1.4 billion from the prior year due primarily to a
decline of $1.5 billion in average residential mortgage loans held for
sale from reduced origination volumes driven by a reduction in
refinance activity and the exit of the broker origination channel
during 2014. This decrease was partially offset by the continued
retention of certain shorter term residential mortgage loans
originated through the Bancorp’s retail branches and the decision to
retain certain conforming ARMs and certain other fixed-rate loans
originated during the year ended December 31, 2014. Average home
equity loans decreased $77 million from the prior year as payoffs
exceeded new loan production. Average automobile loans, including
held for sale, increased $108 million for the current year from the
prior year due to new originations exceeding run-off.
Comparison of 2013 with 2012
Net income was $183 million in 2013 compared to net income of
$223 million in 2012. The decrease was driven by a decrease in
noninterest income and an increase in noninterest expense, partially
offset by a decline in the provision for loan and lease losses.
Net interest income decreased $2 million from 2012 due
primarily to lower yields on average residential mortgage and
automobile loans, partially offset by a decrease in FTP charges on
loans and leases and increases in average residential mortgage and
average automobile loans.
The provision for loan and lease losses decreased $84 million
from 2012 as delinquency metrics and underlying loss trends
improved across all consumer loan types. Net charge-offs as a
percent of average loans and leases decreased to 46 bps for 2013
compared to 88 bps for 2012.
Noninterest income decreased $128 million from 2012
primarily due to a decrease in mortgage banking net revenue of $143
million, partially offset by an increase in other noninterest income of
$15 million. The decrease in mortgage banking net revenue was
primarily due to a decrease in gains on loan sales of $368 million as
a result of a decrease in profit margins on sold residential mortgage
loans coupled with a decrease in residential mortgage loan
originations, partially offset by a $223 million increase in net
residential mortgage servicing revenue. The increase in net
residential mortgage servicing revenue was driven by an increase of
$202 million in net valuation adjustments on MSRs and free-
standing derivatives entered into to economically hedge the MSRs
and a decrease of $20 million in servicing rights amortization. The
increase in other noninterest income was primarily due to a $12
million increase in securities gains and a $7 million decline in losses
on the sale of OREO.