Fifth Third Bank 2011 Annual Report Download - page 42

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
40 Fifth Third Bancorp
Commercial Banking
Commercial Banking offers credit intermediation, cash management
and financial services to large and middle-market businesses and
government and professional customers. In addition to the
traditional lending and depository offerings, Commercial Banking
products and services include global cash management, foreign
exchange and international trade finance, derivatives and capital
markets services, asset-based lending, real estate finance, public
finance, commercial leasing and syndicated finance. The following
table contains selected financial data for the Commercial Banking
segment.
TABLE 14: COMMERCIAL BANKING
For the years ended December 31 ($ in millions) 2011 2010 2009
Income Statement Data
Net interest income (FTE)(a) $ 1,374 1,545 1,383
Provision for loan and lease losses 490 1,159 1,360
Noninterest income:
Corporate banking revenue 332 346 353
Service charges on deposits 207 199 196
Other noninterest income 102 90 60
Noninterest expense:
Salaries, incentives and benefits 240 214 192
Other noninterest expense 833 757 768
Income (loss) before taxes 452 50 (328)
A
pplicable income tax expense (benefit)(b) 11 (128) (227)
Net income (loss) $ 441 178 (101)
A
verage Balance Sheet Data
Commercial loans $ 38,384 38,304 41,341
Demand deposits 13,130 10,872 8,581
Interest checking 7,901 8,432 6,018
Savings and money market 2,776 2,823 2,457
Certificates over $100,000 1,778 3,014 4,376
Foreign office deposits 1,581 2,017 1,275
(a) Includes FTE adjustments of $17 , $14, and $13 for the years ended December 31, 2011, 2010, and 2009, respectively.
(b) Applicable income tax benefit for all periods includes the tax benefit from tax-exempt income and business tax credits, partially offset by the effect of certain nondeductible expenses. Refer to the
Applicable Income Taxes section of MD&A for additional information.
Comparison of 2011 with 2010
Net income was $441 million for the year ended December 31,
2011, compared to net income of $178 million for the year ended
December 31, 2010. The increase in net income was primarily
driven by a decrease in the provision for loan and lease losses
partially offset by lower net interest income and higher noninterest
expense.
Net interest income decreased $171 million primarily due to
declines in the FTP credits for DDAs and decreases in interest
income. The decrease in interest income was driven primarily by a
decline in yields of 17 bps on average loans. Provision for loan and
lease losses decreased $669 million. Net charge-offs as a percent of
average loans and leases decreased to 128 bps for 2011 compared to
302 bps for 2010 largely due net charge-offs on commercial loans
moved to held for sale during the third quarter of 2010 and as a
result of improved credit trends across all commercial loan types.
Noninterest income was relatively flat from 2010 to 2011, as
increases in other noninterest income and service charges on
deposits were offset by a decrease in corporate banking revenue.
The increase in other noninterest income is primarily due to a $15
million increase in income on private equity investments. Service
charges on deposits increased from 2010 primarily due to a decrease
in earnings credits paid on customer balances. The decrease in
corporate banking revenue was primarily driven by decreases in
international income, institutional sales, and syndication fees
partially offset by an increase in business lending fees.
Noninterest expense increased $102 million from the prior year
as a result of increases in salaries, incentives and benefits and other
noninterest expense. The increase in salaries, incentives and benefits
of $26 million was primarily the result of increased incentive
compensation due to improved production levels. FDIC insurance
expense, which is recorded in other noninterest expense, increased
$14 million due to a change in the methodology in determining
FDIC insurance premiums to one based on total assets less tangible
equity as opposed to the previous method that was based on
domestic deposits. The remaining increase in other noninterest
expense was the result of higher corporate overhead allocations in
2011 compared to 2010.
Average commercial loans were flat compared to the prior year.
Average commercial mortgage loans decreased $1.0 billion as a
result of tighter underwriting standards implemented in prior
quarters in an effort to limit exposure to commercial real estate.
Average commercial construction loans decreased $1.2 billion due
to runoff as management suspended new lending on non-owner
occupied real estate in 2008. The decreases in average commercial
mortgage and construction loans were offset by growth in average
commercial and industrial loans, which increased $2.5 billion as a
result of an increase in new loan origination activity.
Average core deposits increased $1.2 billion compared to 2010.
The increase was primarily driven by strong growth in DDAs, which
increased $2.3 billion compared to the prior year. The increase in
DDAs was partially offset by decreases in interest bearing deposits
of $1.0 billion as customers opted to maintain their balances in
more liquid accounts due to interest rates remaining near historical
lows.
Comparison of 2010 with 2009
Commercial Banking realized net income of $178 million in 2010
compared to a net loss of $101 million in 2009. This improvement
was primarily due to an increase in net interest income and a
decrease in provision for loan and lease losses. Net interest income
increased $162 million primarily due to a mix shift from higher cost
term deposits to lower cost deposit products. This improvement
was partially offset by the negative impact to net interest income of
a decrease in average commercial loans during 2010 and a decrease