Fifth Third Bank 2014 Annual Report Download - page 51

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
49 Fifth Third Bancorp
Noninterest income increased $10 million compared to 2012
due to an increase in investment advisory revenue, partially offset a
decrease in other noninterest income. The increase in investment
advisory revenue was primarily driven by increases in securities and
brokerage fees and private client service fees due to strong
production and an increase in equity and bond market values. The
decrease in other noninterest income was due to a decrease in gains
on sales of held for sale loans and the impact of the gain on the sale
of certain FTAM funds in the third quarter of 2012.
Noninterest expense increased $16 million compared to 2012
due to an increase in other noninterest expense primarily driven by
increases in corporate allocations and fraud losses.
Average loans and leases increased $137 million compared to
2012 primarily driven by increases in average residential mortgage,
average other consumer and average commercial and industrial
loans, partially offset by a decrease in average commercial mortgage
loans. Average core deposits increased $1.1 billion compared to
2012 due to growth in interest checking as customers have opted to
maintain excess funds in liquid transaction accounts as a result of
the low interest rate environment.
General Corporate and Other
General Corporate and Other includes the unallocated portion of
the investment securities portfolio, securities gains and losses,
certain non-core deposit funding, unassigned equity, provision
expense in excess of net charge-offs or a benefit from the reduction
of the ALLL, representation and warranty expense in excess of
actual losses or a benefit from the reduction of representation and
warranty reserves, the payment of preferred stock dividends and
certain support activities and other items not attributed to the
business segments.
Comparison of 2014 with 2013
Results for 2014 and 2013 were impacted by a benefit of $260
million and $269 million, respectively, due to reductions in the
ALLL. Net interest income decreased from $147 million in 2013 to
$3 million for 2014 primarily due to increases in FTP credits and
interest expense on long-term debt and a decrease in the benefit
related to the FTP charges on loans and leases, partially offset by an
increase in interest income on taxable securities. Noninterest
income was $256 million for 2014 compared to $659 million in
2013. Noninterest income 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 also 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. 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. Additionally, the equity method earnings from the
Bancorp’s interest in Vantiv Holding, LLC decreased $29 million
from 2013. Noninterest income also included $38 million in
negative valuation adjustments related to the Visa total return swap
for the year ended December 31, 2014 compared to $31 million for
the year ended December 31, 2013.
Noninterest expense for the year ended December 31, 2014
was a benefit of $12 million compared to an expense of $159
million for the year ended December 31, 2013. The decrease was
driven by decreases in compensation expense, FDIC insurance and
other taxes and litigation and regulatory activity, partially offset by a
decrease in the benefit from other noninterest expense driven by
decreased corporate overhead allocations from General Corporate
and Other to the other business segments.
Comparison of 2013 with 2012
Results for 2013 and 2012 were impacted by a benefit of $269
million and $400 million, respectively, due to reductions in the
ALLL. The decrease in provision expense was primarily due to a
decrease in nonperforming loans and leases and improvements in
delinquency metrics and underlying loss trends. Net interest income
decreased from $370 million in 2012 to $147 million for 2013
primarily due to a decrease in FTP charges partially offset by a
decrease in interest expense on long-term debt. Noninterest income
increased $278 million compared to 2012 primarily due to positive
valuation adjustments on the stock warrant associated with Vantiv
Holding, LLC which increased $139 million in 2013 compared to
2012. In addition, gains of $242 million and $85 million were
recognized on the sales of Vantiv, Inc. shares in the second and
third quarters of 2013, respectively, compared to gains of $115
million related to the Vantiv, Inc. IPO and $157 million on the sale
of Vantiv, Inc. shares in 2012. The Bancorp also recognized a gain
of $9 million associated with a tax receivable agreement with Vantiv,
Inc. in the fourth quarter of 2013. The equity method earnings from
the Bancorp’s interest in Vantiv Holding, LLC increased $16 million
from 2012.
Noninterest expense decreased $286 million compared to 2012
due to decreases in other noninterest expense and total personnel
costs. Other noninterest expense decreased due to a decrease in
debt extinguishment costs, an increase in corporate overhead
allocations assigned to the segments, a decrease in loan and lease
expense and a decrease in losses and adjustments. Debt
extinguishment costs decreased $161 million during 2013 compared
to 2012. During the fourth quarter of 2013, the Bancorp incurred $8
million of debt extinguishment costs associated with the redemption
of outstanding TruPS issued by Fifth Third Capital Trust IV.
During 2012, the Bancorp incurred $160 million of debt
extinguishment costs associated with the redemption of certain
TruPS and the termination of certain FHLB debt. Loan and lease
expense decreased $72 million during 2013 compared to 2012
primarily due to a decrease in loan closing fees due to a decline in
mortgage originations. Losses and adjustments decreased $17
million compared to 2012 primarily driven by a decline in the
provision for representation and warranty claims partially offset by
an increase in litigation expense. The provision for representation
and warranty claims changed from a $49 million expense for the
year ended December 31, 2012 to a benefit of $39 million for the
year ended December 31, 2013 due to the Bancorp recording
significant additions to the reserve in 2012 as the result of additional
information obtained from FHLMC regarding their file selection
criteria which enabled the Bancorp to better estimate the losses that
were probable on loans sold to FHLMC with representation and
warranty provisions. In addition, 2013 included a decrease in the
representation and warranty reserve due to improving underlying
repurchase metrics and the settlement with FHLMC. The decrease
in representation and warranty expense was partially offset by a $54
million increase in litigation expense. Total personnel costs
decreased $38 million from 2012 due primarily to decreases in
incentive compensation and employee benefits.