Fifth Third Bank 2008 Annual Report Download - page 28

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
26 Fifth Third Bancorp
Provision for Loan and Lease Losses
The Bancorp provides as an expense an amount for probable loan
and lease losses within the loan and lease portfolio that is based
on factors previously discussed in the Critical Accounting Policies
section. The provision is recorded to bring the allowance for loan
and lease losses to a level deemed appropriate by the Bancorp to
cover losses inherent in the portfolio. Actual credit losses on
loans and leases are charged against the allowance for loan and
lease losses. The amount of loans actually removed from the
Consolidated Balance Sheets is referred to as charge-offs. Net
charge-offs include current period charge-offs less recoveries on
previously charged-off loans and leases.
The provision for loan and lease losses increased to $4.6
billion in 2008 compared to $628 million in 2007. The primary
factors in the increase were the increase in impaired commercial
loans which are individually reviewed and reserved for, higher
losses, increased estimated loss factors due to negative trends in
overall delinquencies, increased loss estimates once a loan
becomes delinquent related to the deterioration in real estate
collateral values in certain of the Bancorp’s key lending markets
and declines in general economic conditions that are used to
determine an economic factor adjustment. As of December 31,
2008, the allowance for loan and lease losses as a percent of loans
and leases increased to 3.31% from 1.17% at December 31, 2007.
Refer to the Credit Risk Management section for more
detailed information on the provision for loan and lease losses
including an analysis of the loan portfolio composition, non-
performing assets, net charge-offs, and other factors considered
by the Bancorp in assessing the credit quality of the loan portfolio
and the allowance for loan and lease losses.
Noninterest Income
For the year ended December 31, 2008, noninterest income
increased by $479 million, or 19%, on a year-over-year basis. The
components of noninterest income are shown in Table 6.
Electronic payment processing revenue increased $86
million, or 11%, in 2008 compared to the 2007 as the Bancorp
continued to realize growth in each of its three main product lines.
The components of electronic payment processing revenue are
shown in Table 7.
TABLE 5: CHANGES IN NET INTEREST INCOME (FTE) ATTRIBUTED TO VOLUME AND YIELD/RATE (a)
For the years ended December 31 2008 Compared to 2007 2007 Compared to 2006
($ in millions) Volume Yield/Rate Total Volume Yield/Rate Total
Assets
Increase (decrease) in interest income:
Loans and leases:
Commercial loans $385 (504) (119) $135 25 160
Commercial mortgage 117 (52) 65 93 8 101
Commercial construction 13 (92) (79) (27) (12) (39)
Commercial leases - (140) (140) (2) (25) (27)
Subtotal - commercial 515 (788) (273) 199 (4) 195
Residential mortgage 32 31 63 56 18 74
Home equity 28 (224) (196) (14) 11 (3)
Automobile loans (113) 5 (108) 68 54 122
Credit card 42 (8) 34 47 (13) 34
Other consumer loans and leases -(1)(1) (9) 6 (3)
Subtotal - consumer (11) (197) (208) 148 76 224
Total loans and leases 504 (985) (481) 347 72 419
Securities:
Taxable 96 (19) 77 (452) 114 (338)
Exempt from income taxes (11) - (11) (8) (1) (9)
Other short-term investments 8(14)(6) (1) (1) (2)
Total interest-earning assets 597 (1,018) (421) (114) 184 70
Cash and due from banks
Other assets
Allowance for loan and lease losses
Total change in interest income $597 (1,018) (421) ($114) 184 70
Liabilities and Shareholders’ Equity
Increase (decrease) in interest expense:
Interest-bearing core deposits:
Interest checking ($15) (177) (192) ($41) (39) (80)
Savings 39 (271) (232) 81 12 93
Money market (7) (144) (151) (2) 10 8
Foreign office deposits 13 (52) (39) 43 1 44
Other time deposits 16 (100) (84) 12 50 62
Total interest-bearing core deposits 46 (744) (698) 93 34 127
Certificates - $100,000 and over 125 (129) (4) 34 16 50
Other foreign office deposits 28 (44) (16) (78) (2) (80)
Federal funds purchased (29) (85) (114) (25) 1 (24)
Other short-term borrowings 127 (89) 38 (55) 1 (54)
Long-term debt 71 (201) (130) (97) 14 (83)
Total interest-bearing liabilities 368 (1,292) (924) (128) 64 (64)
Demand deposits
Other liabilities
Total change in interest expense 368 (1,292) (924) (128) 64 (64)
Shareholders’ equity
Total liabilities and shareholders’ equity
Total change in net interest income $229 274 503 $14 120 134
(a) Changes in interest not solely due to volume or yield/rate are allocated in proportion to the absolute amount of change in volume or yield/rate.