Fifth Third Bank 2011 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fifth Third Bancorp 41
of $35 million in the accretion of discounts on loans associated with
a previous acquisition.
Provision for loan and lease losses decreased $201 million from
2009. Net charge-offs as a percent of average loans and leases
decreased from 329 bps in 2009 to 302 bps in 2010 due to actions
taken by the Bancorp to address problem loans which resulted in
significant net charge-offs recorded in 2009.
Noninterest income increased $26 million from 2009 primarily
as a result of $24 million increase in gains on private equity
investments, included in other noninterest income, and a $5 million
increase in card and processing revenue partially offset by a $7
million decrease in corporate banking revenue.
Noninterest expense increased $11 million compared to 2009
as the increase in salaries, incentives and benefits was partially offset
by the decrease in other noninterest expense. The decrease in other
noninterest expense is due to a decrease in loan and lease expense as
a result of lower loan demand during 2010, a decrease in collection
related expenses and a decrease in FDIC expenses due to a special
assessment in the second quarter of 2009.
Average commercial loans and leases decreased $3.0 billion
compared to the prior year due to lower customer demand for new
originations, lower utilization rates on corporate lines and tighter
underwriting standards. These impacts were partially offset by the
consolidation of $724 million of commercial and industrial loans on
January 1, 2010, which had a remaining balance of $372 million at
December 31, 2010.
Average core deposits increased $5.8 billion, or 32%, compared
to 2009 due to the migration of higher priced certificates of deposit
into transaction accounts, as well as the impact of historically low
interest rates and excess customer liquidity.
Branch Banking
Branch Banking provides a full range of deposit and loan and lease
products to individuals and small businesses through 1,316 full-
service Banking Centers. Branch Banking offers depository and loan
products, such as checking and savings accounts, home equity loans
and lines of credit, credit cards and loans for automobiles and other
personal financing needs, as well as products designed to meet the
specific needs of small businesses, including cash management
services. The following table contains selected financial data for the
Branch Banking segment.
TABLE 15: BRANCH BANKING
For the years ended December 31 ($ in millions) 2011 2010 2009
Income Statement Data
Net interest income $ 1,423 1,514 1,577
Provision for loan and lease losses 393 555 601
Noninterest income:
Service charges on deposits 309 369 428
Card and processing revenue 305 298 268
Investment advisory revenue 117 106 84
Other noninterest income 106 112 122
Noninterest expense:
Salaries, incentives and benefits 583 560 507
Net occupancy and equipment expense 235 223 217
Card and processing expense 114 105 70
Other noninterest expense 647 668 579
Income before taxes 288 288 505
A
pplicable income tax expense 102 103 178
Net income $ 186 185 327
A
verage Balance Sheet Data
Consumer loans $ 14,151 13,125 13,278
Commercial loans 4,621 4,815 5,337
Demand deposits 8,408 7,006 6,363
Interest checking 8,086 7,462 7,469
Savings and money market 22,241 19,963 17,010
Other time and certificates - $100,000 and over 7,778 12,712 16,995
Comparison of 2011 with 2010
Net income increased $1 million compared to 2010, driven by a
decline in the provision for loan and lease losses offset by a decrease
in net interest income and noninterest income and an increase in
noninterest expense. Net interest income decreased $91 million
compared to the prior year. The primary drivers of the decline
include decreases in the FTP credits for DDAs, lower yields on
average commercial and consumer loans, and a decline in average
commercial loans. These decreases were partially offset by a
favorable shift in the segment’s deposit mix towards lower cost
transaction deposits resulting in declines in interest expense of $193
million compared to 2010, and an increase in average consumer
loans.
Provision for loan and lease losses for 2011 decreased $162
million compared to the prior year. The decline in the provision was
the result of improved credit trends across all consumer and
commercial loan types. Net charge-offs as a percent of average
loans and leases decreased to 210 bps for 2011 compared to 313 bps
for 2010. The decrease is the result of improved credit trends and
tighter underwriting standards. In addition, the decrease is due to
$24 million in charge-offs taken on $60 million of commercial loans
which were sold or moved to held for sale during the third quarter
of 2010.
Noninterest income decreased $48 million compared to the
prior year. The decrease was primarily driven by lower service
charges on deposits, which declined $60 million, primarily due to
the implementation of Regulation E in the third quarter of 2010.
The decrease was partially offset by increased card and processing
revenue caused by higher debit and credit card transaction volumes.
Growth in processing revenue was partially offset by the impact of
the implementation of the Dodd-Frank Act’s debit card interchange
fee cap in the fourth quarter of 2011. Investment advisory revenue
also increased due to improved market performance and sales force
expansion.