Fifth Third Bank 2014 Annual Report Download - page 50

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
48 Fifth Third Bancorp
Noninterest expense increased $15 million driven by an
increase of $31 million in other noninterest expense, partially offset
by a decrease of $16 million in salaries, incentives and employee
benefits compared to 2012. The increase in other noninterest
expense was primarily due to higher litigation expense and an
increase in corporate overhead allocations, partially offset by a
decrease in loan and lease expense due to lower appraisal costs. The
decrease in salaries, incentives and employee benefits was due to a
decline in incentive compensation driven primarily by a decline in
originations during 2013 compared to 2012, partially offset by an
increase in deferred compensation for 2013 compared to 2012.
Average consumer loans and leases increased $200 million
from 2012. Average residential mortgage loans, including held for
sale, increased $79 million for 2013 compared to 2012 due to strong
refinancing activity that occurred in the first half of 2013. Average
automobile loans increased $218 million in 2013 compared to 2012
due to an increase in originations primarily driven by modest
improvement in general economic conditions and a continued low
interest rate environment. Average home equity portfolio loans
decreased $83 million for 2013 compared to 2012 as payoffs
exceeded new loan production. Average other consumer loans and
leases decreased $14 million in 2013 resulting from a decrease in
average consumer leases due to run-off as the Bancorp discontinued
automobile leasing in 2008, partially offset by an increase in average
other consumer loans.
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Investment Advisors
Investment Advisors provides a full range of investment alternatives
for individuals, companies and not-for-profit organizations.
Investment Advisors is made up of four main businesses: FTS, an
indirect wholly-owned subsidiary of the Bancorp; ClearArc Capital,
Inc. (formerly FTAM), an indirect wholly-owned subsidiary of the
Bancorp; Fifth Third Private Bank; and Fifth Third Institutional
Services. FTS offers full service retail brokerage services to
individual clients and broker dealer services to the institutional
marketplace. ClearArc Capital, Inc. provides asset management
services. Fifth Third Private Bank offers holistic strategies to
affluent clients in wealth planning, investing, insurance and wealth
protection. Fifth Third Institutional Services provides advisory
services for institutional clients including states and municipalities.
The following table contains selected financial data for the Investment Advisors segment:
TABLE 20: INVESTMENT ADVISORS
For the years ended December 31 ($ in millions) 2014 2013 2012
Income Statement Data
Net interest income $ 121 154 117
Provision for loan and lease losses 3 2 10
Noninterest income:
Investment advisory revenue 397 384 366
Other noninterest income 13 22 30
Noninterest expense:
Salaries, incentives and employee benefits 162 159 161
Other noninterest expense 283 294 276
Income before taxes 83 105 66
A
pplicable income tax expense 29 37 23
Net income $ 54 68 43
A
verage Balance Sheet Data
Loans and leases $ 2,270 2,014 1,877
Core deposits 9,535 8,815 7,709
Comparison of 2014 with 2013
Net income was $54 million in 2014 compared to net income of $68
million for 2013. The decrease in net income was primarily due to a
decrease in net interest income, partially offset by a decrease in
noninterest expense and an increase in noninterest income.
Net interest income decreased $33 million from 2013 primarily
due to a decrease in the FTP credit rate on certain interest checking
deposits.
Noninterest income increased $4 million from the prior year
due to a $13 million increase in investment advisory revenue
primarily driven by an increase of $12 million in private client
services revenue due to growth in personal asset management fees,
partially offset by a decrease in securities broker fees due to a
decline in transactional brokerage revenue. This increase was
partially offset by a $9 million decrease in other noninterest income
as other noninterest income in the prior year included gains on the
sale of certain advisory contracts.
Noninterest expense decreased $8 million from the prior year
primarily due to a decrease in other noninterest expense driven by
decreases in operational losses, marketing expense and corporate
overhead allocations.
Average loans and leases increased $256 million from the prior
year primarily driven by increases in average residential mortgage
loans and average commercial mortgage loans, partially offset by a
decrease in average home equity loans. Average core deposits
increased $720 million from the prior year due to growth in average
interest checking balances as customers have opted to maintain
excess funds in liquid transaction accounts as a result of interest
rates remaining near historic lows.
Comparison of 2013 with 2012
Net income was $68 million in 2013 compared to net income of $43
million for 2012. The increase in net income was primarily due to
increases in net interest income and noninterest income and a
decrease in the provision for loan and lease losses, partially offset by
an increase in noninterest expense.
Net interest income increased $37 million from 2012 due to an
increase in FTP credits resulting from an increase in interest
checking deposits.
Provision for loan and lease losses decreased $8 million from
the prior year. Net charge-offs as a percent of average loans and
leases decreased to 9 bps compared to 53 bps for the prior year
reflecting improved credit trends during 2013.